ON Semiconductor Reports Third Quarter 2020 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, 2020. Forward-looking statements are often characterized by the use of words such as “believes,” “estimates,” “expects,” “projects,” “may,” “will,” “intends,” “plans” or “anticipates” 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. Among these factors are our revenue and operating performance; economic conditions and markets (including current financial conditions); risks related to changes in tariffs or other government trade policies, including between the U.S. and China; risks related to our ability to meet our assumptions regarding outlook for revenue and gross margin as a percentage of revenue; effects of exchange rate fluctuations; the cyclical nature of the semiconductor industry; changes in demand for our products; changes in inventories at our customers and distributors; risks associated with restructuring actions and workforce reductions; technological and product development risks; risks that our products may be accused of infringing the intellectual property rights of others; enforcement and protection of our intellectual property rights and related risks; risks related to the security of our information systems and secured network; availability of raw materials, electricity, gas, water and other supply chain uncertainties; our ability to effectively shift production to other facilities when required in order to maintain supply continuity for our customers; variable demand and the aggressive pricing environment for semiconductor products; our ability to successfully manufacture in increasing volumes on a cost-effective basis and with acceptable quality for our current products; risks associated with our acquisitions and dispositions generally, including our ability to realize the anticipated benefits of our acquisitions and dispositions, including our acquisition of Quantenna; risks that acquisitions or dispositions may disrupt our current plans and operations; risks of unexpected costs, charges or expenses resulting from acquisitions or dispositions and difficulties arising from integrating and consolidating acquired businesses, our timely filing of financial information with the Securities and Exchange Commission (“SEC”) for acquired businesses and our ability to accurately predict the future financial performance of acquired businesses; competitor actions, including the adverse impact of competitor product announcements; pricing and gross profit pressures; risks associated with the addition of Huawei Technologies Co., Ltd. and its non-U.S. affiliates and subsidiaries, and other customers, to the U.S. Department of Commerce, Bureau of Industry Security Entity List; loss of key customers; order cancellations or reduced bookings; changes in manufacturing yields; control of costs and expenses and realization of cost savings and synergies from restructurings; the costs to defend against or pursue litigation and the potential significant costs associated with adverse litigation outcomes; risks associated with decisions to expend cash reserves for various uses in accordance with our capital allocation policy such as debt prepayment, stock repurchases or acquisitions rather than to retain such cash for future needs; risks associated with our substantial leverage and restrictive covenants in our debt agreements that may be in place from time to time; risks associated with our worldwide operations, including changes in trade policies, foreign employment and labor matters associated with unions and collective bargaining arrangements, continuing political unrest in markets in which we do significant business, including Hong Kong, as well as man-made and/or natural disasters and public health and safety outbreaks affecting our operations or financial results, including as a result of the outbreak of the novel coronavirus disease 2019 (COVID-19) pandemic; the threat or occurrence of international armed conflict and terrorist activities both in the United States and internationally; risks of changes in U.S. or international tax rates or legislation; risks and costs associated with increased and new regulation of corporate governance and disclosure standards; risks related to new legal requirements; risks related to the effect of uncertainties related to the outcome of the U.S. presidential election on U.S. and global economies; risks related to the potential impact of climate change and regulations related thereto on our operations; and risks and expenses involving environmental or other governmental regulation. 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 SEC on February 19, 2020 (our "2019 Form 10-K") 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 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)

 

Quarters Ended

 

Nine Months Ended

 

October 2,
2020

 

July 3,
2020

 

September 27,
2019

 

October 2,
2020

 

September 27,
2019

Revenue

$

1,317.3

 

 

$

1,213.5

 

 

$

1,381.8

 

 

$

3,808.7

 

 

$

4,116.1

 

Cost of revenue (exclusive of amortization shown below)

876.1

 

 

839.2

 

 

906.6

 

 

2,590.5

 

 

2,628.2

 

Gross profit

441.2

 

 

374.3

 

 

475.2

 

 

1,218.2

 

 

1,487.9

 

Gross margin

33.5

%

 

30.8

%

 

34.4

%

 

32.0

%

 

36.1

%

Operating expenses:

 

 

 

 

 

 

 

 

 

Research and development

156.1

 

 

156.1

 

 

172.8

 

 

483.2

 

 

471.6

 

Selling and marketing

65.3

 

 

65.6

 

 

74.7

 

 

207.7

 

 

225.4

 

General and administrative

62.2

 

 

62.9

 

 

67.8

 

 

196.3

 

 

214.8

 

Litigation settlement

 

 

 

 

169.5

 

 

 

 

169.5

 

Amortization of acquisition-related intangible assets

29.6

 

 

29.1

 

 

29.9

 

 

91.0

 

 

83.1

 

Restructuring, asset impairments and other charges, net

9.0

 

 

16.2

 

 

4.4

 

 

58.0

 

 

28.1

 

Intangible asset impairment

 

 

1.3

 

 

 

 

1.3

 

 

1.6

 

Total operating expenses

322.2

 

 

331.2

 

 

519.1

 

 

1,037.5

 

 

1,194.1

 

Operating income (loss)

119.0

 

 

43.1

 

 

(43.9

)

 

180.7

 

 

293.8

 

Other income (expense), net:

 

 

 

 

 

 

 

 

 

Interest expense

(42.2

)

 

(41.9

)

 

(40.7

)

 

(126.6

)

 

(106.1

)

Interest income

0.9

 

 

1.5

 

 

2.3

 

 

4.3

 

 

7.8

 

Loss on debt refinancing and prepayment

 

 

 

 

(5.8

)

 

 

 

(6.2

)

Other income (expense)

0.4

 

 

(2.8

)

 

3.5

 

 

(2.3

)

 

4.6

 

Other income (expense), net

(40.9

)

 

(43.2

)

 

(40.7

)

 

(124.6

)

 

(99.9

)

Income (loss) before income taxes

78.1

 

 

(0.1

)

 

(84.6

)

 

56.1

 

 

193.9

 

Income tax (provision) benefit

83.1

 

 

(0.8

)

 

24.6

 

 

90.5

 

 

(36.9

)

Net income (loss)

161.2

 

 

(0.9

)

 

(60.0

)

 

146.6

 

 

157.0

 

Less: Net income attributable to non-controlling interest

(0.6

)

 

(0.5

)

 

(0.7

)

 

(1.4

)

 

(1.8

)

Net income (loss) attributable to ON Semiconductor Corporation

$

160.6

 

 

$

(1.4

)

 

$

(60.7

)

 

$

145.2

 

 

$

155.2

 

Net income (loss) per common share attributable to ON Semiconductor Corporation:

 

 

 

 

 

 

 

 

 

Basic

$

0.39

 

 

$

 

 

$

(0.15

)

 

$

0.35

 

 

$

0.38

 

Diluted

$

0.38

 

 

$

 

 

$

(0.15

)

 

$

0.35

 

 

$

0.37

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

410.8

 

 

410.1

 

 

410.4

 

 

410.5

 

 

411.0

 

Diluted

418.3

 

 

410.1

 

 

410.4

 

 

414.4

 

 

415.3

 

ON SEMICONDUCTOR CORPORATION

UNAUDITED CONSOLIDATED BALANCE SHEETS

(in millions)

 

October 2,
2020

 

July 3,
2020

 

December 31,
2019

Assets

 

 

 

 

 

Cash and cash equivalents

$

1,654.0

 

 

$

2,060.4

 

 

$

894.2

 

Receivables, net

728.1

 

 

667.4

 

 

705.0

 

Inventories

1,281.2

 

 

1,285.4

 

 

1,232.4

 

Other current assets

149.3

 

 

131.2

 

 

188.4

 

Total current assets

3,812.6

 

 

4,144.4

 

 

3,020.0

 

Property, plant and equipment, net

2,511.8

 

 

2,566.5

 

 

2,591.6

 

Goodwill

1,663.4

 

 

1,663.4

 

 

1,659.2

 

Intangible assets, net

498.2

 

 

527.8

 

 

590.5

 

Deferred tax assets

461.6

 

 

325.2

 

 

307.8

 

Other assets

306.4

 

 

300.5

 

 

256.4

 

Total assets

$

9,254.0

 

 

$

9,527.8

 

 

$

8,425.5

 

Liabilities, Non-Controlling Interest and Stockholders’ Equity

 

 

 

 

 

Accounts payable

$

534.2

 

 

522.9

 

 

$

543.6

 

Accrued expenses and other current liabilities

567.3

 

 

546.1

 

 

538.8

 

Current portion of long-term debt

701.6

 

 

695.6

 

 

736.0

 

Total current liabilities

1,803.1

 

 

1,764.6

 

 

1,818.4

 

Long-term debt

3,537.6

 

 

4,044.8

 

 

2,876.5

 

Deferred tax liabilities

62.6

 

 

61.5

 

 

60.2

 

Other long-term liabilities

403.5

 

 

397.6

 

 

346.3

 

Total liabilities

5,806.8

 

 

6,268.5

 

 

5,101.4

 

ON Semiconductor Corporation stockholders’ equity:

 

 

 

 

 

Common stock

5.7

 

 

5.7

 

 

5.7

 

Additional paid-in capital

3,877.6

 

 

3,854.6

 

 

3,809.5

 

Accumulated other comprehensive loss

(63.4

)

 

(67.6

)

 

(54.3

)

Accumulated earnings

1,336.5

 

 

1,175.9

 

 

1,191.3

 

Less: Treasury stock, at cost

(1,733.0

)

 

(1,732.5

)

 

(1,650.5

)

Total ON Semiconductor Corporation stockholders’ equity

3,423.4

 

 

3,236.1

 

 

3,301.7

 

Non-controlling interest

23.8

 

 

23.2

 

 

22.4

 

Total stockholders' equity

3,447.2

 

 

3,259.3

 

 

3,324.1

 

Total liabilities and stockholders' equity

$

9,254.0

 

 

$

9,527.8

 

 

$

8,425.5

 

ON SEMICONDUCTOR CORPORATION

UNAUDITED RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA AND

NET CASH PROVIDED BY OPERATING ACTIVITIES

(in millions)

 

Quarters Ended

 

Nine Months Ended

 

October 2,
2020

 

July 3,
2020

 

September 27,
2019

 

October 2,
2020

 

September 27,
2019

Net income (loss)

$

161.2

 

 

$

(0.9

)

 

$

(60.0

)

 

$

146.6

 

 

$

157.0

 

Adjusted for:

 

 

 

 

 

 

 

 

 

Restructuring, asset impairments and other, net

9.0

 

 

16.2

 

 

4.4

 

 

58.0

 

 

28.1

 

Intangible asset impairment

 

 

1.3

 

 

 

 

1.3

 

 

1.6

 

Interest expense

42.2

 

 

41.9

 

 

40.7

 

 

126.6

 

 

106.1

 

Interest income

(0.9

)

 

(1.5

)

 

(2.3

)

 

(4.3

)

 

(7.8

)

Loss on debt refinancing and prepayment

 

 

 

 

5.8

 

 

 

 

6.2

 

Litigation settlement

 

 

 

 

169.5

 

 

 

 

169.5

 

Income tax provision (benefit)

(83.1

)

 

0.8

 

 

(24.6

)

 

(90.5

)

 

36.9

 

Net income attributable to non-controlling interest

(0.6

)

 

(0.5

)

 

(0.7

)

 

(1.4

)

 

(1.8

)

Depreciation and amortization

156.2

 

 

153.9

 

 

151.3

 

 

471.3

 

 

431.1

 

Amortization of fair market value step-up of inventory

 

 

 

 

19.0

 

 

 

 

19.6

 

Third party acquisition and divestiture related costs

 

 

 

 

1.0

 

 

0.3

 

 

10.8

 

Indemnification gain

 

 

 

 

(2.9

)

 

 

 

(7.8

)

Adjusted EBITDA

284.0

 

 

211.2

 

 

301.2

 

 

707.9

 

 

949.5

 

Increase (decrease):

 

 

 

 

 

 

 

 

 

Restructuring, asset impairments and other, net

(9.0

)

 

(16.2

)

 

(4.4

)

 

(58.0

)

 

(28.1

)

Interest expense

(42.2

)

 

(41.9

)

 

(40.7

)

 

(126.6

)

 

(106.1

)

Interest income

0.9

 

 

1.5

 

 

2.3

 

 

4.3

 

 

7.8

 

Litigation settlement

 

 

 

 

(169.5

)

 

 

 

(169.5

)

Income tax (provision) benefit

83.1

 

 

(0.8

)

 

24.6

 

 

90.5

 

 

(36.9

)

Net income attributable to non-controlling interest

0.6

 

 

0.5

 

 

0.7

 

 

1.4

 

 

1.8

 

Amortization of fair market value step-up of inventory

 

 

 

 

(19.0

)

 

 

 

(19.6

)

Third party acquisition and divestiture related costs

 

 

 

 

(1.0

)

 

(0.3

)

 

(10.8

)

Indemnification gain

 

 

 

 

2.9

 

 

 

 

7.8

 

(Gain) loss on sale or disposal of fixed assets

1.1

 

 

(3.1

)

 

0.1

 

 

(1.8

)

 

0.5

 

Amortization of debt discount and issuance costs

3.1

 

 

3.0

 

 

3.3

 

 

9.1

 

 

9.9

 

Share-based compensation

17.5

 

 

18.0

 

 

14.7

 

 

51.2

 

 

61.7

 

Non-cash interest on convertible notes

10.1

 

 

9.8

 

 

9.5

 

 

29.4

 

 

27.9

 

Non-cash asset impairment charges

7.0

 

 

5.8

 

 

 

 

14.2

 

 

2.9

 

Change in deferred tax balances

(136.8

)

 

6.7

 

 

(21.5

)

 

(149.1

)

 

10.8

 

Other

3.5

 

 

1.8

 

 

(0.1

)

 

5.3

 

 

(1.5

)

Changes in assets and liabilities

(59.5

)

 

(41.8

)

 

139.1

 

 

(93.6

)

 

(105.1

)

Net cash provided by operating activities

$

163.4

 

 

$

154.5

 

 

$

242.2

 

 

$

483.9

 

 

$

603.0

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

$

(61.6

)

 

$

(73.3

)

 

$

(111.7

)

 

$

(267.2

)

 

$

(422.2

)

Proceeds from sale of property, plant and equipment

0.6

 

 

0.9

 

 

0.1

 

 

1.5

 

 

1.5

 

Deposits utilized (made) for purchase of property, plant and equipment

1.8

 

 

(1.7

)

 

0.1

 

 

2.3

 

 

(0.2

)

Purchase of business, net of cash acquired

 

 

 

 

(21.0

)

 

(4.5

)

 

(888.0

)

Settlement of purchase price from previous acquisition

 

 

 

 

 

26.0

 

 

 

Purchase of license and deposit made for manufacturing facility

 

 

 

 

 

 

 

 

(100.0

)

Release of escrow related to divestiture

 

 

 

 

 

 

 

 

5.0

 

Net cash used in investing activities

$

(59.2

)

 

$

(74.1

)

 

$

(132.5

)

 

$

(241.9

)

 

$

(1,403.9

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

Proceeds for the issuance of common stock under the employee stock purchase plan

$

6.4

 

 

$

3.9

 

 

$

5.8

 

 

$

17.8

 

 

$

19.6

 

Proceeds from exercise of stock options

 

 

 

 

0.4

 

 

 

 

1.3

 

Payment of tax withholding for restricted stock units

(0.5

)

 

(0.6

)

 

(4.4

)

 

(17.1

)

 

(31.6

)

Repurchase of common stock

 

 

 

 

(13.2

)

 

(65.4

)

 

(139.0

)

Issuance and borrowings under debt agreements

693.0

 

 

 

 

500.5

 

 

1,858.0

 

 

1,404.8

 

Payment of debt issuance and other financing costs

(2.2

)

 

 

 

(17.2

)

 

(2.2

)

 

(21.9

)

Repayment of borrowings under debt agreements

(1,204.3

)

 

(4.3

)

 

(541.5

)

 

(1,264.6

)

 

(580.1

)

Payments related to previous acquisition

(2.8

)

 

(0.6

)

 

 

 

(8.3

)

 

 

Release of escrow related to prior acquisition

 

 

 

 

(10.4

)

 

 

 

(10.4

)

Payment of finance lease obligations

 

 

 

 

(0.2

)

 

 

 

(0.6

)

Net cash provided by (used in) financing activities

$

(510.4

)

 

$

(1.6

)

 

$

(80.2

)

 

$

518.2

 

 

$

642.1

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

0.3

 

 

(0.1

)

 

0.1

 

 

0.4

 

 

0.4

 

Net increase (decrease) in cash, cash equivalents and restricted cash

$

(405.9

)

 

$

78.7

 

 

$

29.6

 

 

$

760.6

 

 

$

(158.4

)

Cash, cash equivalents and restricted cash, beginning of period

2,060.7

 

 

1,982.0

 

 

899.1

 

 

894.2

 

 

1,087.1

 

Cash, cash equivalents and restricted cash, end of period

$

1,654.8

 

 

$

2,060.7

 

 

$

928.7

 

 

$

1,654.8

 

 

$

928.7

 

ON SEMICONDUCTOR CORPORATION

RECONCILIATION OF GAAP VERSUS NON-GAAP DISCLOSURES

(in millions, except per share and percentage data)

 

 

 

Quarters Ended

 

Nine Months Ended

 

 

 

October 2,
2020

 

July 3,
2020

 

September 27,
2019

 

October 2,
2020

 

September 27,
2019

Reconciliation of GAAP gross profit to non-GAAP gross profit:

 

 

 

 

 

 

 

 

 

GAAP gross profit

$

441.2

 

 

$

374.3

 

 

$

475.2

 

 

$

1,218.2

 

 

$

1,487.9

 

 

Special items:

 

 

 

 

 

 

 

 

 

 

a)

Amortization of fair market value step-up of inventory

 

 

 

 

19.0

 

 

 

 

19.6

 

 

 

Total special items

 

 

 

 

19.0

 

 

 

 

19.6

 

Non-GAAP gross profit

$

441.2

 

 

$

374.3

 

 

$

494.2

 

 

$

1,218.2

 

 

$

1,507.5

 

Reconciliation of GAAP gross margin to non-GAAP gross margin:

 

 

 

 

 

 

 

 

 

GAAP gross margin

33.5

%

 

30.8

%

 

34.4

%

 

32.0

%

 

36.1

%

 

Special items:

 

 

 

 

 

 

 

 

 

 

a)

Amortization of fair market value step-up of inventory

%

 

%

 

1.4

%

 

%

 

0.5

%

 

 

Total special items

%

 

%

 

1.4

%

 

%

 

0.5

%

Non-GAAP gross margin

33.5

%

 

30.8

%

 

35.8

%

 

32.0

%

 

36.6

%

Reconciliation of GAAP operating expenses to non-GAAP operating expenses:

 

 

 

 

 

 

 

 

 

GAAP operating expenses

$

322.2

 

 

$

331.2

 

 

$

519.1

 

 

$

1,037.5

 

 

$

1,194.1

 

 

Special items:

 

 

 

 

 

 

 

 

 

 

a)

Amortization of acquisition-related intangible assets

(29.6

)

 

(29.1

)

 

(29.9

)

 

(91.0

)

 

(83.1

)

 

b)

Restructuring, asset impairments and other, net

(9.0

)

 

(16.2

)

 

(4.4

)

 

(58.0

)

 

(28.1

)

 

c)

Intangible asset impairment

 

 

(1.3

)

 

 

 

(1.3

)

 

(1.6

)

 

d)

Third party acquisition and divestiture related costs

 

 

 

 

(1.0

)

 

(0.3

)

 

(10.8

)

 

e)

Litigation settlement

 

 

 

 

(169.5

)

 

 

 

(169.5

)

 

 

Total special items

(38.6

)

 

(46.6

)

 

(204.8

)

 

(150.6

)

 

(293.1

)

Non-GAAP operating expenses

$

283.6

 

 

$

284.6

 

 

$

314.3

 

 

$

886.9

 

 

$

901.0

 

Reconciliation of GAAP operating income (loss) to non-GAAP operating income:

 

 

 

 

 

 

 

 

 

GAAP operating income (loss)

$

119.0

 

 

$

43.1

 

 

$

(43.9

)

 

$

180.7

 

 

$

293.8

 

 

Special items:

 

 

 

 

 

 

 

 

 

 

a)

Amortization of fair market value step-up of inventory

 

 

 

 

19.0

 

 

 

 

19.6

 

 

b)

Amortization of acquisition-related intangible assets

29.6

 

 

29.1

 

 

29.9

 

 

91.0

 

 

83.1

 

 

c)

Restructuring, asset impairments and other, net

9.0

 

 

16.2

 

 

4.4

 

 

58.0

 

 

28.1

 

 

d)

Intangible asset impairment

 

 

1.3

 

 

 

 

1.3

 

 

1.6

 

 

e)

Third party acquisition and divestiture related costs

 

 

 

 

1.0

 

 

0.3

 

 

10.8

 

 

f)

Litigation settlement

 

 

 

 

169.5

 

 

 

 

169.5

 

 

 

Total special items

38.6

 

 

46.6

 

 

223.8

 

 

150.6

 

 

312.7

 

Non-GAAP operating income

$

157.6

 

 

$

89.7

 

 

$

179.9

 

 

$

331.3

 

 

$

606.5

 

Reconciliation of GAAP operating margin to non-GAAP operating margin (operating income / revenue) :

 

 

 

 

 

 

 

 

 

GAAP operating margin

9.0

%

 

3.6

%

 

(3.2

)%

 

4.7

%

 

7.1

%

 

Special items:

 

 

 

 

 

 

 

 

 

 

a)

Amortization of fair market value step-up of inventory

%

 

%

 

1.4

%

 

%

 

0.5

%

 

b)

Amortization of acquisition-related intangible assets

2.2

%

 

2.4

%

 

2.2

%

 

2.4

%

 

2.0

%

 

c)

Restructuring, asset impairments and other, net

0.7

%

 

1.3

%

 

0.3

%

 

1.5

%

 

0.7

%

 

d)

Intangible asset impairment

%

 

0.1

%

 

%

 

%

 

%

 

e)

Third party acquisition and divestiture related costs

%

 

%

 

0.1

%

 

%

 

0.3

%

 

f)

Litigation settlement

%

 

%

 

12.3

%

 

%

 

4.1

%

 

 

Total special items

3.0

%

 

3.8

%

 

16.2

%

 

4.0

%

 

7.6

%

Non-GAAP operating margin

12.0

%

 

7.4

%

 

13.0

%

 

8.7

%

 

14.7

%

Reconciliation of GAAP income (loss) before income taxes to non-GAAP income before income taxes:

 

 

 

 

 

 

 

 

 

GAAP income (loss) before income taxes

$

78.1

 

 

$

(0.1

)

 

$

(84.6

)

 

$

56.1

 

 

$

193.9

 

 

Special items:

 

 

 

 

 

 

 

 

 

 

a)

Amortization of fair market value step-up of inventory

 

 

 

 

19.0

 

 

 

 

19.6

 

 

b)

Amortization of acquisition-related intangible assets

29.6

 

 

29.1

 

 

29.9

 

 

91.0

 

 

83.1

 

 

c)

Restructuring, asset impairments and other, net

9.0

 

 

16.2

 

 

4.4

 

 

58.0

 

 

28.1

 

 

d)

Intangible asset impairment

 

 

1.3

 

 

 

 

1.3

 

 

1.6

 

 

e)

Third party acquisition and divestiture related costs

 

 

 

 

1.0

 

 

0.3

 

 

10.8

 

 

f)

Litigation settlement

 

 

 

 

169.5

 

 

 

 

169.5

 

 

g)

Loss on debt refinancing and prepayment

 

 

 

 

5.8

 

 

 

 

6.2

 

 

h)

Non-cash interest on convertible notes

10.1

 

 

9.8

 

 

9.5

 

 

29.4

 

 

27.9

 

 

i)

Indemnification gain

 

 

 

 

(2.9

)

 

 

 

(7.8

)

 

 

Total special items

48.7

 

 

56.4

 

 

236.2

 

 

180.0

 

 

339.0

 

Non-GAAP income before income taxes

$

126.8

 

 

$

56.3

 

 

$

151.6

 

 

$

236.1

 

 

$

532.9

 

Reconciliation of GAAP net income (loss) attributable to ON Semiconductor Corporation to non-GAAP net income attributable to ON Semiconductor Corporation:

 

 

 

 

 

 

 

 

 

GAAP net income (loss) attributable to ON Semiconductor Corporation

$

160.6

 

 

$

(1.4

)

 

$

(60.7

)

 

$

145.2

 

 

$

155.2

 

 

Special items:

 

 

 

 

 

 

 

 

 

 

a)

Amortization of fair market value step-up of inventory

 

 

 

 

19.0

 

 

 

 

19.6

 

 

b)

Amortization of acquisition-related intangible assets

29.6

 

 

29.1

 

 

29.9

 

 

91.0

 

 

83.1

 

 

c)

Restructuring, asset impairments and other, net

9.0

 

 

16.2

 

 

4.4

 

 

58.0

 

 

28.1

 

 

d)

Intangible asset impairment

 

 

1.3

 

 

 

 

1.3

 

 

1.6

 

 

e)

Third party acquisition and divestiture related costs

 

 

 

 

1.0

 

 

0.3

 

 

10.8

 

 

f)

Litigation settlement

 

 

 

 

169.5

 

 

 

 

169.5

 

 

g)

Loss on debt refinancing and prepayment

 

 

 

 

5.8

 

 

 

 

6.2

 

 

h)

Non-cash interest on convertible notes

10.1

 

 

9.8

 

 

9.5

 

 

29.4

 

 

27.9

 

 

i)

Indemnification gain

 

 

 

 

(2.9

)

 

 

 

(7.8

)

 

j)

Adjustment of income taxes

(97.5

)

 

(4.8

)

 

(38.7

)

 

(120.4

)

 

(5.4

)

 

 

Total special items

(48.8

)

 

51.6

 

 

197.5

 

 

59.6

 

 

333.6

 

Non-GAAP net income attributable to ON Semiconductor Corporation

$

111.8

 

 

$

50.2

 

 

$

136.8

 

 

$

204.8

 

 

$

488.8

 

Adjustment of income taxes:

 

 

 

 

 

 

 

 

 

Tax adjustment for special items (1)

$

(10.2

)

 

$

(11.8

)

 

$

(49.6

)

 

$

(37.8

)

 

$

(71.2

)

Impact of the Domestication of non-U.S. IP and related effects (2)

(110.3

)

 

 

 

 

 

(110.3

)

 

 

Other non-GAAP tax adjustment (3)

23.0

 

 

7.0

 

 

10.9

 

 

27.7

 

 

61.8

 

Tax indemnified by third parties

 

 

 

 

 

 

 

 

4.0

 

 

 

Total adjustment of income taxes

$

(97.5

)

 

$

(4.8

)

 

$

(38.7

)

 

$

(120.4

)

 

$

(5.4

)

Reconciliation of GAAP diluted shares outstanding to non-GAAP diluted shares outstanding:

 

 

 

 

 

 

 

 

 

GAAP diluted shares outstanding

418.3

 

 

410.1

 

 

410.4

 

 

414.4

 

 

415.3

 

 

Special items:

 

 

 

 

 

 

 

 

 

 

a)

Less: dilutive shares attributable to convertible notes

(5.7

)

 

 

 

 

 

(2.3

)

 

(2.6

)

 

b)

Add: dilutive shares attributable to share-based awards

 

 

0.9

 

 

1.9

 

 

 

 

0.6

 

 

 

Total special items

(5.7

)

 

0.9

 

 

1.9

 

 

(2.3

)

 

(2.0

)

Non-GAAP diluted shares outstanding

412.6

 

 

411.0

 

 

412.3

 

 

412.1

 

 

413.3

 

Non-GAAP diluted earnings per share:

 

 

 

 

 

 

 

 

 

Non-GAAP net income attributable to ON Semiconductor Corporation

$

111.8

 

 

$

50.2

 

 

$

136.8

 

 

$

204.8

 

 

$

488.8

 

Non-GAAP diluted shares outstanding

412.6

 

 

411.0

 

 

412.3

 

 

412.1

 

 

413.3

 

Non-GAAP diluted earnings per share

$

0.27

 

 

$

0.12

 

 

$

0.33

 

 

$

0.50

 

 

$

1.18

 

Reconciliation of net cash provided by operating activities to free cash flow:

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

$

163.4

 

 

$

154.5

 

 

$

242.2

 

 

$

483.9

 

 

$

603.0

 

 

Special items:

 

 

 

 

 

 

 

 

 

 

a)

Purchase of property, plant and equipment

(61.6

)

 

(73.3

)

 

(111.7

)

 

(267.2

)

 

(422.2

)

 

 

Total special items

(61.6

)

 

(73.3

)

 

(111.7

)

 

(267.2

)

 

(422.2

)

Free cash flow

$

101.8

 

 

$

81.2

 

 

$

130.5

 

 

$

216.7

 

 

$

180.8

 

(1)

 

Tax impact of non-GAAP special items (a-i) is 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 $60.4 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 $49.9 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.


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