ON Semiconductor Reports Fourth Quarter and 2020 Annual Results

About ON Semiconductor

ON Semiconductor (Nasdaq: ON) is driving energy efficient innovations, empowering customers to reduce global energy use. The Company is a leading supplier of semiconductor-based solutions, offering a comprehensive portfolio of energy efficient power management, analog, sensors, logic, timing, connectivity, discrete, SoC and custom devices. The Company’s products help engineers solve their unique design challenges in automotive, communications, computing, consumer, industrial, medical, aerospace and defense applications. ON Semiconductor operates a responsive, reliable, world-class supply chain and quality program, a robust compliance and ethics program and a network of manufacturing facilities, sales offices and design centers in key markets throughout North America, Europe and the Asia Pacific regions. For more information, visit http://www.onsemi.com.

ON Semiconductor and the ON Semiconductor logo are registered trademarks of Semiconductor Components Industries, LLC. All other brand and product names appearing in this document are registered trademarks or trademarks of their respective holders. Although the Company references its website in this news release, information on the website is not to be incorporated herein.

This document includes “forward-looking statements,” as that term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, included or incorporated in this document could be deemed forward-looking statements, particularly statements about the future financial performance of ON Semiconductor, including financial guidance for the year ending December 31, 2021. Forward-looking statements are often characterized by the use of words such as “believes,” “estimates,” “expects,” “projects,” “may,” “will,” “intends,” “plans,” “should,” “anticipates,” or similar expressions or by discussions of strategy, plans, or intentions. All forward-looking statements in this document are made based on our current expectations, forecasts, estimates, and assumptions and involve risks, uncertainties, and other factors that could cause results or events to differ materially from those expressed in the forward-looking statements. Additional factors that could affect our future results or events are described under Part I, Item 1A “Risk Factors” in our 2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 19, 2020 (our “2019 Form 10-K”), Part II, Item IA “Risk Factors” in our Form 10-Q for the quarter ended April 3, 2020 (our “First Quarter 10-Q”), our Form 10-Q for the quarter ended July 3, 2020 (our “Second Quarter 10-Q”), and our Form 10-Q for the quarter ended October 2, 2020 (our “Third Quarter 10-Q”), and from time-to-time in our other SEC reports. Readers are cautioned not to place undue reliance on forward-looking statements. We assume no obligation to update such information, except as may be required by law.

You should carefully consider the trends, risks, and uncertainties described in this document, our 2019 Form 10-K, our First Quarter 10-Q, our Second Quarter 10-Q, our Third Quarter 10-Q, and other reports filed with or furnished to the SEC before making any investment decision with respect to our securities. If any of these trends, risks, or uncertainties actually occurs or continues, our business, financial condition, or operating results could be materially adversely affected, the trading prices of our securities could decline, and you could lose all or part of your investment. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement.

ON SEMICONDUCTOR CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)

	Quarter Ended									Year Ended
	December 31, 2020			October 2, 2020			December 31, 2019			December 31, 2020			December 31, 2019
Revenue	$	1,446.3		$	1,317.3		$	1,401.8		$	5,255.0		$	5,517.9
Cost of revenue (exclusive of amortization shown below)	948.7			876.1			916.1			3,539.2			3,544.3
Gross profit	497.6			441.2			485.7			1,715.8			1,973.6
Gross margin	34.4		%	33.5		%	34.6		%	32.7		%	35.8		%
Operating expenses:
Research and development	159.7			156.1			169.3			642.9			640.9
Selling and marketing	71.0			65.3			75.6			278.7			301.0
General and administrative	62.4			62.2			69.2			258.7			284.0
Litigation settlement	—			—			—			—			169.5
Amortization of acquisition-related intangible assets	29.3			29.6			32.1			120.3			115.2
Restructuring, asset impairments and other charges, net	7.2			9.0			0.6			65.2			28.7
Intangible asset impairment	—			—			—			1.3			1.6
Total operating expenses	329.6			322.2			346.8			1,367.1			1,540.9
Operating income	168.0			119.0			138.9			348.7			432.7
Other income (expense), net:
Interest expense	(41.8		)	(42.2		)	(42.2		)	(168.4		)	(148.3		)
Interest income	0.6			0.9			2.4			4.9			10.2
Loss on debt refinancing and prepayment	—			—			—			—			(6.2		)
Other income (expense)	(6.3		)	0.4			(16.4		)	(8.6		)	(11.8		)
Other income (expense), net	(47.5		)	(40.9		)	(56.2		)	(172.1		)	(156.1		)
Income before income taxes	120.5			78.1			82.7			176.6			276.6
Income tax (provision) benefit	(30.7		)	83.1			(25.8		)	59.8			(62.7		)
Net income	89.8			161.2			56.9			236.4			213.9
Less: Net income attributable to non-controlling interest	(0.8		)	(0.6		)	(0.4		)	(2.2		)	(2.2		)
Net income attributable to ON Semiconductor Corporation	$	89.0		$	160.6		$	56.5		$	234.2		$	211.7
Net income per share of common stock attributable to ON Semiconductor Corporation:
Basic	$	0.22		$	0.39		$	0.14		$	0.57		$	0.52
Diluted	$	0.21		$	0.38		$	0.14		$	0.56		$	0.51
Weighted average common shares outstanding:
Basic	411.3			410.8			410.8			410.7			410.9
Diluted	431.6			418.3			418.2			418.8			416.0

ON SEMICONDUCTOR CORPORATION
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in millions)

	December 31, 2020			October 2, 2020			December 31, 2019
Assets
Cash and cash equivalents	$	1,080.7		$	1,654.0		$	894.2
Receivables, net	676.0			728.1			705.0
Inventories	1,251.4			1,281.2			1,232.4
Other current assets	182.9			149.3			188.4
Total current assets	3,191.0			3,812.6			3,020.0
Property, plant and equipment, net	2,512.3			2,511.8			2,591.6
Goodwill	1,663.4			1,663.4			1,659.2
Intangible assets, net	469.0			498.2			590.5
Deferred tax assets	419.1			461.6			307.8
Other assets	410.2			306.4			256.4
Total assets	$	8,665.0		$	9,254.0		$	8,425.5
Liabilities, Non-Controlling Interest and Stockholders’ Equity
Accounts payable	$	572.9		$	534.2		$	543.6
Accrued expenses and other current liabilities	576.8			567.3			538.8
Current portion of long-term debt	531.6			701.6			736.0
Total current liabilities	1,681.3			1,803.1			1,818.4
Long-term debt	2,959.7			3,537.6			2,876.5
Deferred tax liabilities	47.5			62.6			60.2
Other long-term liabilities	418.4			403.5			346.3
Total liabilities	5,106.9			5,806.8			5,101.4
ON Semiconductor Corporation stockholders’ equity:
Common stock	5.7			5.7			5.7
Additional paid-in capital	4,133.1			3,877.6			3,809.5
Accumulated other comprehensive loss	(57.6		)	(63.4		)	(54.3		)
Accumulated earnings	1,425.5			1,336.5			1,191.3
Less: Treasury stock, at cost	(1,968.2		)	(1,733.0		)	(1,650.5		)
Total ON Semiconductor Corporation stockholders’ equity	3,538.5			3,423.4			3,301.7
Non-controlling interest	19.6			23.8			22.4
Total stockholders' equity	3,558.1			3,447.2			3,324.1
Total liabilities and stockholders' equity	$	8,665.0		$	9,254.0		$	8,425.5

ON SEMICONDUCTOR CORPORATION
UNAUDITED RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA AND
NET CASH PROVIDED BY OPERATING ACTIVITIES
(in millions)

	Quarter Ended									Year Ended
	December 31, 2020			October 2, 2020			December 31, 2019			December 31, 2020			December 31, 2019
Net income	$	89.8		$	161.2		$	56.9		$	236.4		$	213.9
Adjusted for:
Restructuring, asset impairments and other charges, net	7.2			9.0			0.6			65.2			28.7
Intangible asset impairment	—			—			—			1.3			1.6
Interest expense	41.8			42.2			42.2			168.4			148.3
Interest income	(0.6		)	(0.9		)	(2.4		)	(4.9		)	(10.2		)
Loss on debt refinancing and prepayment	—			—			—			—			6.2
Litigation settlement	—			—			—			—			169.5
Income tax provision (benefit)	30.7			(83.1		)	25.8			(59.8		)	62.7
Net income attributable to non-controlling interest	(0.8		)	(0.6		)	(0.4		)	(2.2		)	(2.2		)
Depreciation and amortization	153.8			156.2			162.0			625.1			593.1
Amortization of fair market value step-up of inventory	—			—			—			—			19.6
Actuarial losses on pension plans and other pension benefits	4.0			—			15.6			4.0			15.6
Third party acquisition and divestiture related costs	0.7			—			0.5			1.0			11.3
Indemnification gain	—			—			—			—			(7.8		)
Adjusted EBITDA	326.6			284.0			300.8			1,034.5			1,250.3
Increase (decrease):
Restructuring, asset impairments and other charges, net	(7.2		)	(9.0		)	(0.6		)	(65.2		)	(28.7		)
Interest expense	(41.8		)	(42.2		)	(42.2		)	(168.4		)	(148.3		)
Interest income	0.6			0.9			2.4			4.9			10.2
Litigation settlement	—			—			—			—			(169.5		)
Income tax (provision) benefit	(30.7		)	83.1			(25.8		)	59.8			(62.7		)
Net income attributable to non-controlling interest	0.8			0.6			0.4			2.2			2.2
Amortization of fair market value step-up of inventory	—			—			—			—			(19.6		)
Actuarial losses on pension plans and other pension benefits	(4.0		)	—			(15.6		)	(4.0		)	(15.6		)
Third party acquisition and divestiture related costs	(0.7		)	—			(0.5		)	(1.0		)	(11.3		)
Indemnification gain	—			—			—			—			7.8
Loss (gain) on sale or disposal of fixed assets	(1.4		)	1.1			1.4			(3.2		)	1.9
Amortization of debt discount and issuance costs	3.0			3.1			3.1			12.1			13.0
Share-based compensation	16.5			17.5			17.7			67.7			79.4
Non-cash interest on convertible notes	8.8			10.1			9.9			38.2			37.8
Non-cash asset impairment charges	3.3			7.0			0.5			17.5			3.4
Change in deferred taxes	26.6			(136.8		)	0.4			(122.5		)	11.2
Other	5.2			3.5			1.4			10.5			(0.1		)
Changes in assets and liabilities	94.8			(59.5		)	(161.6		)	1.2			(266.7		)
Net cash provided by operating activities	$	400.4		$	163.4		$	91.7		$	884.3		$	694.7
Cash flows from investing activities:
Purchase of property, plant and equipment	$	(116.4	)	$	(61.6	)	$	(112.4	)	$	(383.6	)	$	(534.6	)
Proceeds from sale of property, plant and equipment	4.8			0.6			0.4			6.3			1.9
Deposits utilized (made) for purchases of property, plant and equipment	(0.1		)	1.8			4.8			2.2			4.6
Purchase of business, net of cash acquired	—			—			—			(4.5		)	(888.0		)
Purchase of license and deposit made for manufacturing facility	(100.0		)	—			—			(100.0		)	(100.0		)
Settlement of purchase price from prior acquisition	—			—			—			26.0			—
Proceeds from divestiture and escrow release	—			—			0.2			—			5.2
Net cash used in investing activities	$	(211.7	)	$	(59.2	)	$	(107.0	)	$	(453.6	)	$	(1,510.9	)
Cash flows from financing activities:
Proceeds for the issuance of common stock under the employee stock purchase plan	$	5.8		$	6.4		$	6.6		$	23.6		$	26.2
Proceeds from exercise of stock options	—			—			0.4			—			1.7
Payment of tax withholding for restricted stock units	(2.9		)	(0.5		)	(1.9		)	(20.0		)	(33.5		)
Repurchase of common stock	—			—			—			(65.4		)	(139.0		)
Issuance and borrowings under debt agreements	—			693.0			—			1,858.0			1,404.8
Payments of debt issuance and other financing costs	(0.2		)	(2.2		)	(2.1		)	(2.4		)	(24.0		)
Repayment of borrowings under debt agreements	(759.3		)	(1,204.3		)	(14.3		)	(2,023.9		)	(594.4		)
Payments related to prior acquisition	(0.6		)	(2.8		)	(5.2		)	(8.9		)	(5.2		)
Release of escrow related to prior acquisition	—			—			—			—			(10.4		)
Payment of finance lease obligations	—			—			(0.2		)	—			(0.8		)
Dividend to non-controlling shareholder	(5.0		)	—			(2.3		)	(5.0		)	(2.3		)
Net cash provided by (used in) financing activities	$	(762.2	)	$	(510.4	)	$	(19.0	)	$	(244.0	)	$	623.1
Effect of exchange rate changes on cash, cash equivalents and restricted cash	$	0.2		$	0.3		$	(0.2	)	$	0.6		$	0.2
Net increase (decrease) in cash, cash equivalents and restricted cash	$	(573.3	)	$	(405.9	)	$	(34.5	)	$	187.3		$	(192.9	)
Cash, cash equivalents and restricted cash, beginning of period	$	1,654.8		$	2,060.7		$	928.7		$	894.2		$	1,087.1
Cash, cash equivalents and restricted cash, end of period	$	1,081.5		$	1,654.8		$	894.2		$	1,081.5		$	894.2

ON SEMICONDUCTOR CORPORATION
RECONCILIATION OF GAAP VERSUS NON-GAAP DISCLOSURES
(in millions, except per share and percentage data)

			Quarter Ended									Year Ended
			December 31, 2020			October 2, 2020			December 31, 2019			December 31, 2020			December 31, 2019
Reconciliation of GAAP gross profit to non-GAAP gross profit:
GAAP gross profit			$	497.6		$	441.2		$	485.7		$	1,715.8		$	1,973.6
	Special items:
	a)	Amortization of fair market value step-up of inventory	—			—			—			—			19.6
		Total special items	—			—			—			—			19.6
Non-GAAP gross profit			$	497.6		$	441.2		$	485.7		$	1,715.8		$	1,993.2
Reconciliation of GAAP gross margin to non-GAAP gross margin:
GAAP gross margin			34.4		%	33.5		%	34.6		%	32.7		%	35.8		%
	Special items:
	a)	Amortization of fair market value step-up of inventory	—		%	—		%	—		%	—		%	0.4		%
		Total special items	—		%	—		%	—		%	—		%	0.4		%
Non-GAAP gross margin			34.4		%	33.5		%	34.6		%	32.7		%	36.1		%
Reconciliation of GAAP operating expenses to non-GAAP operating expenses:
GAAP operating expenses			$	329.6		$	322.2		$	346.8		$	1,367.1		$	1,540.9
	Special items:
	a)	Amortization of acquisition-related intangible assets	(29.3		)	(29.6		)	(32.1		)	(120.3		)	(115.2		)
	b)	Restructuring, asset impairments and other charges, net	(7.2		)	(9.0		)	(0.6		)	(65.2		)	(28.7		)
	c)	Intangible asset impairment	—			—			—			(1.3		)	(1.6		)
	d)	Third party acquisition and divestiture related costs	(0.7		)	—			(0.5		)	(1.0		)	(11.3		)
	e)	Litigation settlement	—			—			—			—			(169.5		)
		Total special items	(37.2		)	(38.6		)	(33.2		)	(187.8		)	(326.3		)
Non-GAAP operating expenses			$	292.4		$	283.6		$	313.6		$	1,179.3		$	1,214.6
Reconciliation of GAAP operating income to non-GAAP operating income:
GAAP operating income			$	168.0		$	119.0		$	138.9		$	348.7		$	432.7
	Special items:
	a)	Amortization of fair market value step-up of inventory	—			—			—			—			19.6
	b)	Amortization of acquisition-related intangible assets	29.3			29.6			32.1			120.3			115.2
	c)	Restructuring, asset impairments and other charges, net	7.2			9.0			0.6			65.2			28.7
	d)	Intangible asset impairment	—			—			—			1.3			1.6
	e)	Third party acquisition and divestiture related costs	0.7			—			0.5			1.0			11.3
	f)	Litigation settlement	—			—			—			—			169.5
		Total special items	37.2			38.6			33.2			187.8			345.9
Non-GAAP operating income			$	205.2		$	157.6		$	172.1		$	536.5		$	778.6
*Reconciliation of GAAP operating margin to non-GAAP operating margin (operating income / revenue)* :**
GAAP operating margin			11.6		%	9.0		%	9.9		%	6.6		%	7.8		%
	Special items:
	a)	Amortization of fair market value step-up of inventory	—		%	—		%	—		%	—		%	0.4		%
	b)	Amortization of acquisition-related intangible assets	2.0		%	2.2		%	2.3		%	2.3		%	2.1		%
	c)	Restructuring, asset impairments and other charges, net	0.5		%	0.7		%	—		%	1.2		%	0.5		%
	d)	Intangible asset impairment	—		%	—		%	—		%	—		%	—		%
	e)	Third party acquisition and divestiture related costs	—		%	—		%	—		%	—		%	0.2		%
	f)	Litigation settlement	—		%	—		%	—		%	—		%	3.1		%
		Total special items	2.6		%	3.0		%	2.4		%	3.6		%	6.3		%
Non-GAAP operating margin			14.2		%	12.0		%	12.3		%	10.2		%	14.1		%
Reconciliation of GAAP income before income taxes to non-GAAP income before income taxes:
GAAP income before income taxes			$	120.5		$	78.1		$	82.7		$	176.6		$	276.6
	Special items:
	a)	Amortization of fair market value step-up of inventory	—			—			—			—			19.6
	b)	Amortization of acquisition-related intangible assets	29.3			29.6			32.1			120.3			115.2
	c)	Restructuring, asset impairments and other charges, net	7.2			9.0			0.6			65.2			28.7
	d)	Intangible asset impairment	—			—			—			1.3			1.6
	e)	Third party acquisition and divestiture related costs	0.7			—			0.5			1.0			11.3
	f)	Litigation settlement	—			—			—			—			169.5
	g)	Actuarial losses on pension plans and other pension benefits	4.0			—			15.6			4.0			15.6
	h)	Loss on debt refinancing and prepayment	—			—			—			—			6.2
	i)	Non-cash interest on convertible notes	8.8			10.1			9.9			38.2			37.8
	j)	Indemnification gain	—			—			—			—			(7.8		)
		Total special items	50.0			48.7			58.7			230.0			397.7
Non-GAAP income before income taxes			$	170.5		$	126.8		$	141.4		$	406.6		$	674.3
Reconciliation of GAAP net income attributable to ON Semiconductor Corporation to non-GAAP net income attributable to ON Semiconductor Corporation:
GAAP net income attributable to ON Semiconductor Corporation			$	89.0		$	160.6		$	56.5		$	234.2		$	211.7
	Special items:
	a)	Amortization of fair market value step-up of inventory	—			—			—			—			19.6
	b)	Amortization of acquisition-related intangible assets	29.3			29.6			32.1			120.3			115.2
	c)	Restructuring, asset impairments and other charges, net	7.2			9.0			0.6			65.2			28.7
	d)	Intangible asset impairment	—			—			—			1.3			1.6
	e)	Third party acquisition and divestiture related costs	0.7			—			0.5			1.0			11.3
	f)	Litigation settlement	—			—			—			—			169.5
	g)	Actuarial losses on pension plans and other pension benefits	4.0			—			15.6			4.0			15.6
	h)	Loss on debt refinancing and prepayment	—			—			—			—			6.2
	i)	Non-cash interest on convertible notes	8.8			10.1			9.9			38.2			37.8
	j)	Indemnification gain	—			—			—			—			(7.8		)
	k)	Adjustment of income taxes	8.1			(97.5		)	9.1			(112.3		)	3.7
		Total special items	58.1			(48.8		)	67.8			117.7			401.4
Non-GAAP net income attributable to ON Semiconductor Corporation			$	147.1		$	111.8		$	124.3		$	351.9		$	613.1
Adjustment of income taxes:
Tax adjustment for Special items (1)			$	(10.5	)	$	(10.2	)	$	(12.3	)	$	(48.3	)	$	(83.5	)
Impact of Domestication of non-U.S. IP and related (2)			(2.1		)	(110.3		)	—			(112.4		)	—
Other non-GAAP tax adjustment (3)			20.7			23.0			21.4			48.4			83.2
Tax indemnified by third parties			—			—			—			—			4.0
		Total adjustment of income taxes	$	8.1		$	(97.5	)	$	9.1		$	(112.3	)	$	3.7

	(1)	Tax impact of non-GAAP Special items (a-l), calculated using the federal statutory rate of 21% for all periods presented.
	(2)	The Company simplified its corporate structure by repatriating the economic rights of its non-U.S. intellectual property to the United States via domestication of certain foreign subsidiaries (the “Domestication”). The Domestication resulted in a benefit from recognizing certain deferred tax assets, net of deferred tax liabilities, of $62.9 million. Additionally, the Domestication caused the Company to reassess the full valuation allowance recorded against its U.S. state deferred tax assets. As a result, the Company released approximately $49.5 million of its valuation allowance recorded against its U.S. state deferred tax assets.
	(3)	The income tax adjustment primarily represents the use of the net operating loss, non-cash impact of not asserting indefinite reinvestment on earnings of our foreign subsidiaries, deferred tax expense not affecting taxes payable, and non-cash expense (benefit) related to uncertain tax positions.

Reconciliation of GAAP diluted shares outstanding to non-GAAP diluted shares outstanding:
GAAP diluted shares outstanding			431.6			418.3			418.2			418.8			416.0
	Special items:
	a)	Less: dilutive shares attributable to convertible notes	(14.8		)	(5.7		)	(5.1		)	(5.5		)	(3.2		)
		Total special items	(14.8		)	(5.7		)	(5.1		)	(5.5		)	(3.2		)
Non-GAAP diluted shares outstanding			416.8			412.6			413.1			413.3			412.8
Non-GAAP diluted earnings per share:
Non-GAAP net income attributable to ON Semiconductor Corporation			$	147.1		$	111.8		$	124.3		$	351.9		$	613.1
Non-GAAP diluted shares outstanding			416.8			412.6			413.1			413.3			412.8
Non-GAAP diluted earnings per share			$	0.35		$	0.27		$	0.30		$	0.85		$	1.49
Reconciliation of net cash provided by operating activities to free cash flow:
Net cash provided by operating activities			$	400.4		$	163.4		$	91.7		$	884.3		$	694.7
	Special items:
	a)	Purchase of property, plant and equipment	(116.4		)	(61.6		)	(112.4		)	(383.6		)	(534.6		)
		Total special items	(116.4		)	(61.6		)	(112.4		)	(383.6		)	(534.6		)
Free cash flow			$	284.0		$	101.8		$	(20.7	)	$	500.7		$	160.1

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