ON Semiconductor Reports Fourth Quarter and 2019 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 contains “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); risk 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 IP 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 Communications, Inc.; risks that acquisitions or dispositions may disrupt our current plans and operations, the risk 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 affecting our operations or financial results; 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 related to the potential impact of climate change and regulations related thereto on our operations; risks and costs associated with increased and new regulation of corporate governance and disclosure standards; risks related to new legal requirements; 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 2018 Annual Report on Form 10-K filed with the SEC on February 20, 2019 (our "2018 Form 10-K"), Part II, Item IA "Risk Factors" in our Form 10-Q for the quarter ended March 29, 2019 (our "First Quarter 10-Q"), our Form 10-Q for the quarter ended June 28, 2019 (our "Second Quarter 10-Q"), and our Form 10-Q for the quarter ended September 27, 2019 (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 2018 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 AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)

 

 

Quarter Ended

 

Year Ended

 

December 31,
2019

 

September 27,
2019

 

December 31,
2018

 

December 31,
2019

 

December 31,
2018

Revenue

$

1,401.8

 

 

$

1,381.8

 

 

$

1,503.1

 

 

$

5,517.9

 

 

$

5,878.3

 

Cost of revenue (exclusive of amortization shown below)

916.1

 

 

906.6

 

 

933.4

 

 

3,544.3

 

 

3,639.6

 

Gross profit

485.7

 

 

475.2

 

 

569.7

 

 

1,973.6

 

 

2,238.7

 

Gross margin

34.6

%

 

34.4

%

 

37.9

%

 

35.8

%

 

38.1

%

Operating expenses:

 

 

 

 

 

 

 

 

 

Research and development

169.3

 

 

172.8

 

 

162.2

 

 

640.9

 

 

650.7

 

Selling and marketing

75.6

 

 

74.7

 

 

82.1

 

 

301.0

 

 

324.7

 

General and administrative

69.2

 

 

67.8

 

 

74.5

 

 

284.0

 

 

293.3

 

Litigation settlement

 

 

169.5

 

 

 

 

169.5

 

 

 

Amortization of acquisition-related intangible assets

32.1

 

 

29.9

 

 

28.4

 

 

115.2

 

 

111.7

 

Restructuring, asset impairments and other charges, net

0.6

 

 

4.4

 

 

(3.7)

 

 

28.7

 

 

4.3

 

Goodwill and intangible asset impairment

 

 

 

 

3.5

 

 

1.6

 

 

6.8

 

Total operating expenses

346.8

 

 

519.1

 

 

347.0

 

 

1,540.9

 

 

1,391.5

 

Operating income (loss)

138.9

 

 

(43.9)

 

 

222.7

 

 

432.7

 

 

847.2

 

Other income (expense), net:

 

 

 

 

 

 

 

 

 

Interest expense

(42.2)

 

 

(40.7)

 

 

(32.9)

 

 

(148.3)

 

 

(128.2)

 

Interest income

2.4

 

 

2.3

 

 

2.8

 

 

10.2

 

 

6.1

 

Loss on debt refinancing and prepayment

 

 

(5.8)

 

 

 

 

(6.2)

 

 

(4.6)

 

Gain on divestiture of business

 

 

 

 

 

 

 

 

5.0

 

Licensing income

 

 

 

 

3.7

 

 

 

 

36.6

 

Other income (expense)

(16.4)

 

 

3.5

 

 

(7.6)

 

 

(11.8)

 

 

(7.1)

 

Other income (expense), net

(56.2)

 

 

(40.7)

 

 

(34.0)

 

 

(156.1)

 

 

(92.2)

 

Income (loss) before income taxes

82.7

 

 

(84.6)

 

 

188.7

 

 

276.6

 

 

755.0

 

Income tax (provision) benefit

(25.8)

 

 

24.6

 

 

(22.7)

 

 

(62.7)

 

 

(125.1)

 

Net income (loss)

56.9

 

 

(60.0)

 

 

166.0

 

 

213.9

 

 

629.9

 

Less: Net income attributable to non-controlling interest

(0.4)

 

 

(0.7)

 

 

(0.4)

 

 

(2.2)

 

 

(2.5)

 

Net income (loss) attributable to ON Semiconductor Corporation

$

56.5

 

 

$

(60.7)

 

 

$

165.6

 

 

$

211.7

 

 

$

627.4

 

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

 

 

 

 

 

 

 

 

 

Basic

$

0.14

 

 

$

(0.15)

 

 

$

0.40

 

 

$

0.52

 

 

$

1.48

 

Diluted

$

0.14

 

 

$

(0.15)

 

 

$

0.39

 

 

$

0.51

 

 

$

1.44

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

410.8

 

 

410.4

 

 

416.9

 

 

410.9

 

 

423.8

 

Diluted

418.2

 

 

410.4

 

 

420.0

 

 

416.0

 

 

435.9

 

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

(in millions)

 

 

December 31, 2019

 

September 27,
2019

 

December 31, 2018

Assets

 

 

 

 

 

Cash and cash equivalents

$

894.2

 

 

$

928.7

 

 

$

1,069.6

 

Receivables, net

705.0

 

 

716.6

 

 

686.0

 

Inventories

1,232.4

 

 

1,240.7

 

 

1,225.2

 

Other current assets

188.4

 

 

187.0

 

 

187.0

 

Total current assets

3,020.0

 

 

3,073.0

 

 

3,167.8

 

Property, plant and equipment, net

2,591.6

 

 

2,602.1

 

 

2,549.6

 

Goodwill

1,659.2

 

 

1,659.2

 

 

932.5

 

Intangible assets, net

590.5

 

 

622.6

 

 

566.4

 

Deferred tax assets

307.8

 

 

291.5

 

 

266.2

 

Other assets

256.4

 

 

273.9

 

 

105.1

 

Total assets

$

8,425.5

 

 

$

8,522.3

 

 

$

7,587.6

 

Liabilities, Non-Controlling Interest and Stockholders’ Equity

 

 

 

 

 

Accounts payable

$

543.6

 

 

$

534.1

 

 

$

671.7

 

Accrued expenses and other current liabilities

538.8

 

 

730.9

 

 

659.1

 

Current portion of long-term debt

736.0

 

 

736.6

 

 

138.5

 

Total current liabilities

1,818.4

 

 

2,001.6

 

 

1,469.3

 

Long-term debt

2,876.5

 

 

2,878.8

 

 

2,627.6

 

Deferred tax liabilities

60.2

 

 

59.8

 

 

54.8

 

Other long-term liabilities

346.3

 

 

342.5

 

 

241.8

 

Total liabilities

5,101.4

 

 

5,282.7

 

 

4,393.5

 

ON Semiconductor Corporation stockholders’ equity:

 

 

 

 

 

Common stock

5.7

 

 

5.6

 

 

5.6

 

Additional paid-in capital

3,809.5

 

 

3,779.1

 

 

3,702.3

 

Accumulated other comprehensive loss

(54.3)

 

 

(55.6)

 

 

(37.9)

 

Accumulated earnings

1,191.3

 

 

1,134.8

 

 

979.6

 

Less: Treasury stock, at cost

(1,650.5)

 

 

(1,648.6)

 

 

(1,478.0)

 

Total ON Semiconductor Corporation stockholders’ equity

3,301.7

 

 

3,215.3

 

 

3,171.6

 

Non-controlling interest

22.4

 

 

24.3

 

 

22.5

 

Total stockholders' equity

3,324.1

 

 

3,239.6

 

 

3,194.1

 

Total liabilities and stockholders' equity

$

8,425.5

 

 

$

8,522.3

 

 

$

7,587.6

 

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

UNAUDITED RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA AND

NET CASH PROVIDED BY OPERATING ACTIVITIES

(in millions)

 

 

Quarter Ended

 

Year Ended

 

 

December 31,
2019

 

September 27,
2019

 

December 31,
2018

 

December 31,
2019

 

December 31,
2018

 

Net income (loss)

$

56.9

 

 

$

(60.0)

 

 

$

166.0

 

 

$

213.9

 

 

$

629.9

 

 

Adjusted for:

 

 

 

 

 

 

 

 

 

 

Licensing income

 

 

 

 

(3.7)

 

 

 

 

(36.6)

 

 

R&D costs related to licensing income

 

 

 

 

 

 

 

 

7.0

 

 

Restructuring, asset impairments and other charges, net

0.6

 

 

4.4

 

 

(3.7)

 

 

28.7

 

 

4.3

 

 

Goodwill and intangible asset impairment

 

 

 

 

3.5

 

 

1.6

 

 

6.8

 

 

Interest expense

42.2

 

 

40.7

 

 

32.9

 

 

148.3

 

 

128.2

 

 

Interest income

(2.4)

 

 

(2.3)

 

 

(2.8)

 

 

(10.2)

 

 

(6.1)

 

 

Loss on debt refinancing and prepayment

 

 

5.8

 

 

 

 

6.2

 

 

4.6

 

 

Litigation settlement

 

 

169.5

 

 

 

 

169.5

 

 

 

 

Income tax provision (benefit)

25.8

 

 

(24.6)

 

 

22.7

 

 

62.7

 

 

125.1

 

 

Net income attributable to non-controlling interest

(0.4)

 

 

(0.7)

 

 

(0.4)

 

 

(2.2)

 

 

(2.5)

 

 

Depreciation and amortization

162.0

 

 

151.3

 

 

136.2

 

 

593.1

 

 

508.7

 

 

Amortization of fair market value step-up of inventory

 

 

19.0

 

 

0.6

 

 

19.6

 

 

1.0

 

 

Gain on divestiture of business

 

 

 

 

 

 

 

 

(5.0)

 

 

Adjustment to contingent consideration

 

 

 

 

 

 

 

 

(2.1)

 

 

Actuarial losses on pension plans and other pension benefits

15.6

 

 

 

 

5.8

 

 

15.6

 

 

5.8

 

 

Third party acquisition and divestiture related costs

0.5

 

 

1.0

 

 

1.5

 

 

11.3

 

 

4.4

 

 

Indemnification gain

 

 

(2.9)

 

 

 

 

(7.8)

 

 

 

 

Adjusted EBITDA

300.8

 

 

301.2

 

 

358.6

 

 

1,250.3

 

 

1,373.5

 

 

Increase (decrease):

 

 

 

 

 

 

 

 

 

 

Licensing income

 

 

 

 

3.7

 

 

 

 

36.6

 

 

R&D costs related to licensing income

 

 

 

 

 

 

 

 

(7.0)

 

 

Restructuring, asset impairments and other charges, net

(0.6)

 

 

(4.4)

 

 

3.7

 

 

(28.7)

 

 

(4.3)

 

 

Interest expense

(42.2)

 

 

(40.7)

 

 

(32.9)

 

 

(148.3)

 

 

(128.2)

 

 

Interest income

2.4

 

 

2.3

 

 

2.8

 

 

10.2

 

 

6.1

 

 

Litigation settlement

 

 

(169.5)

 

 

 

 

(169.5)

 

 

 

 

Income tax (provision) benefit

(25.8)

 

 

24.6

 

 

(22.7)

 

 

(62.7)

 

 

(125.1)

 

 

Net income attributable to non-controlling interest

0.4

 

 

0.7

 

 

0.4

 

 

2.2

 

 

2.5

 

 

Amortization of fair market value step-up of inventory

 

 

(19.0)

 

 

(0.6)

 

 

(19.6)

 

 

(1.0)

 

 

Adjustment to contingent consideration

 

 

 

 

 

 

 

 

2.1

 

 

Actuarial losses on pension plans and other pension benefits

(15.6)

 

 

 

 

(5.8)

 

 

(15.6)

 

 

(5.8)

 

 

Third party acquisition and divestiture related costs

(0.5)

 

 

(1.0)

 

 

(1.5)

 

 

(11.3)

 

 

(4.4)

 

 

Indemnification gain

 

 

2.9

 

 

 

 

7.8

 

 

 

 

Loss (gain) on sale or disposal of fixed assets

1.4

 

 

0.1

 

 

(1.2)

 

 

1.9

 

 

2.4

 

 

Amortization of debt discount and issuance costs

3.1

 

 

3.3

 

 

3.4

 

 

13.0

 

 

13.2

 

 

Payments for term debt modification

 

 

 

 

 

 

 

 

(1.1)

 

 

Share-based compensation expense

17.7

 

 

14.7

 

 

18.9

 

 

79.4

 

 

78.3

 

 

Non-cash interest on convertible notes

9.9

 

 

9.5

 

 

9.5

 

 

37.8

 

 

36.1

 

 

Non-cash asset impairment charges

0.5

 

 

 

 

 

 

3.4

 

 

2.4

 

 

Change in deferred taxes

0.4

 

 

(21.5)

 

 

(10.7)

 

 

11.2

 

 

69.2

 

 

Other

1.4

 

 

(0.1)

 

 

2.0

 

 

(0.1)

 

 

(1.6)

 

 

Changes in assets and liabilities

(161.6)

 

 

139.1

 

 

93.4

 

 

(266.7)

 

 

(69.7)

 

 

Net cash provided by operating activities

$

91.7

 

 

$

242.2

 

 

$

421.0

 

 

$

694.7

 

 

$

1,274.2

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

$

(112.4)

 

 

$

(111.7)

 

 

$

(132.0)

 

 

$

(534.6)

 

 

$

(514.8)

 

 

Proceeds from sales of property, plant and equipment

0.4

 

 

0.1

 

 

30.2

 

 

1.9

 

 

36.5

 

 

Deposits utilized for purchases of property, plant and equipment

4.8

 

 

0.1

 

 

9.7

 

 

4.6

 

 

4.1

 

 

Purchase of business, net of cash acquired

 

 

(21.0)

 

 

 

 

(888.0)

 

 

(70.9)

 

 

Purchase of license and deposit made for manufacturing facility

 

 

 

 

 

 

(100.0)

 

 

 

 

Purchase of equity interest and assets, net of cash acquired

 

 

 

 

(4.8)

 

 

 

 

(24.6)

 

 

Proceeds from divestiture of business and release of escrow

0.2

 

 

 

 

1.1

 

 

5.2

 

 

8.4

 

 

Proceeds from repayment of note receivable

 

 

 

 

 

 

 

 

10.2

 

 

Other

 

 

 

 

2.2

 

 

 

 

2.2

 

 

Net cash used in investing activities

$

(107.0)

 

 

$

(132.5)

 

 

$

(93.6)

 

 

$

(1,510.9)

 

 

$

(548.9)

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

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

$

6.6

 

 

$

5.8

 

 

$

6.3

 

 

$

26.2

 

 

$

25.0

 

 

Proceeds from exercise of stock options

0.4

 

 

0.4

 

 

1.3

 

 

1.7

 

 

5.7

 

 

Payment of tax withholding for restricted shares

(1.9)

 

 

(4.4)

 

 

(2.4)

 

 

(33.5)

 

 

(31.6)

 

 

Repurchase of common stock

 

 

(13.2)

 

 

(200.3)

 

 

(139.0)

 

 

(315.3)

 

 

Borrowings under debt agreements

 

 

500.5

 

 

7.1

 

 

1,404.8

 

 

15.3

 

 

Payments of debt issuance and other financing costs

(2.1)

 

 

(17.2)

 

 

 

 

(24.0)

 

 

 

 

Repayment of long-term debt

(14.3)

 

 

(541.5)

 

 

(18.5)

 

 

(594.4)

 

 

(298.4)

 

 

Acquisition related payments

(5.2)

 

 

 

 

 

 

(5.2)

 

 

 

 

Release of escrow related to prior acquisition

 

 

(10.4)

 

 

 

 

(10.4)

 

 

 

 

Payment of finance lease obligations

(0.2)

 

 

(0.2)

 

 

(0.3)

 

 

(0.8)

 

 

(3.6)

 

 

Dividend to non-controlling shareholder

(2.3)

 

 

 

 

(2.2)

 

 

(2.3)

 

 

(2.2)

 

 

Net cash provided by (used in) financing activities

$

(19.0)

 

 

$

(80.2)

 

 

$

(209.0)

 

 

$

623.1

 

 

$

(605.1)

 

 

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

$

(0.2)

 

 

$

0.1

 

 

$

0.2

 

 

$

0.2

 

 

$

0.3

 

 

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

$

(34.5)

 

 

$

29.6

 

 

$

118.6

 

 

$

(192.9)

 

 

$

120.5

 

 

Cash, cash equivalents and restricted cash, beginning of period

$

928.7

 

 

$

899.1

 

 

$

968.5

 

 

$

1,087.1

 

 

$

966.6

 

 

Cash, cash equivalents and restricted cash, end of period

$

894.2

 

 

$

928.7

 

 

$

1,087.1

 

 

$

894.2

 

 

$

1,087.1

 

 

 

 

 

 

 

 

 

 

 

 

 

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

RECONCILIATION OF GAAP VERSUS NON-GAAP DISCLOSURES

(in millions, except per share and percentage data)

 

 

 

 

Quarter Ended

 

Year Ended

 

 

 

December 31,
2019

 

September 27,
2019

 

December 31,
2018

 

December 31,
2019

 

December 31,
2018

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

 

 

 

 

 

 

 

 

 

GAAP gross profit

$

485.7

 

 

$

475.2

 

 

$

569.7

 

 

$

1,973.6

 

 

$

2,238.7

 

 

Special items:

 

 

 

 

 

 

 

 

 

 

a)

Expensing of appraised inventory at fair
market value step up

 

 

19.0

 

 

0.6

 

 

19.6

 

 

1.0

 

 

 

Total special items

 

 

19.0

 

 

0.6

 

 

19.6

 

 

1.0

 

Non-GAAP gross profit

$

485.7

 

 

$

494.2

 

 

$

570.3

 

 

$

1,993.2

 

 

$

2,239.7

 

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

 

 

 

 

 

 

 

 

 

GAAP gross margin

34.6

%

 

34.4

%

 

37.9

%

 

35.8

%

 

38.1

%

 

Special items:

 

 

 

 

 

 

 

 

 

 

a)

Expensing of appraised inventory at fair
market value step up

%

 

1.4

%

 

%

 

0.4

%

 

%

 

 

Total special items

%

 

1.4

%

 

%

 

0.4

%

 

%

Non-GAAP gross margin

34.6

%

 

35.8

%

 

37.9

%

 

36.1

%

 

38.1

%

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

 

 

 

 

 

 

 

 

 

GAAP operating expenses

$

346.8

 

 

$

519.1

 

 

$

347.0

 

 

$

1,540.9

 

 

$

1,391.5

 

 

Special items:

 

 

 

 

 

 

 

 

 

a)

Amortization of acquisition-related
intangible assets

(32.1)

 

 

(29.9)

 

 

(28.4)

 

 

(115.2)

 

 

(111.7)

 

 

b)

Restructuring, asset impairments and
other charges, net

(0.6)

 

 

(4.4)

 

 

3.7

 

 

(28.7)

 

 

(4.3)

 

 

c)

Goodwill and intangible asset impairment

 

 

 

 

(3.5)

 

 

(1.6)

 

 

(6.8)

 

 

d)

Third party acquisition and divestiture
related costs

(0.5)

 

 

(1.0)

 

 

(1.5)

 

 

(11.3)

 

 

(4.4)

 

 

e)

R&D costs related to licensing income

 

 

 

 

 

 

 

 

(7.0)

 

 

f)

Litigation settlement

 

 

(169.5)

 

 

 

 

(169.5)

 

 

 

 

 

Total special items

(33.2)

 

 

(204.8)

 

 

(29.7)

 

 

(326.3)

 

 

(134.2)

 

Non-GAAP operating expenses

$

313.6

 

 

$

314.3

 

 

$

317.3

 

 

$

1,214.6

 

 

$

1,257.3

 

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

 

 

 

 

 

 

 

 

 

GAAP operating income (loss)

$

138.9

 

 

$

(43.9)

 

 

$

222.7

 

 

$

432.7

 

 

$

847.2

 

 

Special items:

 

 

 

 

 

 

 

 

 

 

a)

Expensing of appraised inventory at fair
market value step up

 

 

19.0

 

 

0.6

 

 

19.6

 

 

1.0

 

 

b)

Amortization of acquisition-related
intangible assets

32.1

 

 

29.9

 

 

28.4

 

 

115.2

 

 

111.7

 

 

c)

Restructuring, asset impairments and
other charges, net

0.6

 

 

4.4

 

 

(3.7)

 

 

28.7

 

 

4.3

 

 

d)

Goodwill and intangible asset impairment

 

 

 

 

3.5

 

 

1.6

 

 

6.8

 

 

e)

Third party acquisition and divestiture
related costs

0.5

 

 

1.0

 

 

1.5

 

 

11.3

 

 

4.4

 

 

f)

R&D costs related to licensing income

 

 

 

 

 

 

 

 

7.0

 

 

g)

Litigation settlement

 

 

169.5

 

 

 

 

169.5

 

 

 

 

 

Total special items

33.2

 

 

223.8

 

 

30.3

 

 

345.9

 

 

135.2

 

Non-GAAP operating income

$

172.1

 

 

$

179.9

 

 

$

253.0

 

 

$

778.6

 

 

$

982.4

 

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

 

 

 

 

 

 

 

 

 

GAAP operating margin

9.9

%

 

(3.2)

%

 

14.8

%

 

7.8

%

 

14.4

%

 

Special items:

 

 

 

 

 

 

 

 

 

 

a)

Expensing of appraised inventory at fair
market value step up

%

 

1.4

%

 

%

 

0.4

%

 

%

 

b)

Amortization of acquisition-related
intangible assets

2.3

%

 

2.2

%

 

1.9

%

 

2.1

%

 

1.9

%

 

c)

Restructuring, asset impairments and
other charges, net

%

 

0.3

%

 

(0.2)

%

 

0.5

%

 

0.1

%

 

d)

Goodwill and intangible asset impairment

%

 

%

 

0.2

%

 

%

 

0.1

%

 

e)

Third party acquisition and divestiture
related costs

%

 

0.1

%

 

0.1

%

 

0.2

%

 

0.1

%

 

f)

R&D costs related to licensing income

%

 

%

 

%

 

%

 

0.1

%

 

g)

Litigation settlement

%

 

12.3

%

 

%

 

3.1

%

 

%

 

 

Total special items

2.4

%

 

16.2

%

 

2.0

%

 

6.3

%

 

2.3

%

Non-GAAP operating margin

12.3

%

 

13.0

%

 

16.8

%

 

14.1

%

 

16.7

%

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

 

 

 

 

 

 

 

 

 

GAAP income before income taxes

$

82.7

 

 

$

(84.6)

 

 

$

188.7

 

 

$

276.6

 

 

$

755.0

 

 

Special items:

 

 

 

 

 

 

 

 

 

 

a)

Expensing of appraised inventory at fair
market value step-up

 

 

19.0

 

 

0.6

 

 

19.6

 

 

1.0

 

 

b)

Amortization of acquisition-related
intangible assets

32.1

 

 

29.9

 

 

28.4

 

 

115.2

 

 

111.7

 

 

c)

Restructuring, asset impairments and
other charges, net

0.6

 

 

4.4

 

 

(3.7)

 

 

28.7

 

 

4.3

 

 

d)

Goodwill and intangible asset impairment

 

 

 

 

3.5

 

 

1.6

 

 

6.8

 

 

e)

Third party acquisition and divestiture
related costs

0.5

 

 

1.0

 

 

1.5

 

 

11.3

 

 

4.4

 

 

f)

R&D costs related to licensing income

 

 

 

 

 

 

 

 

7.0

 

 

g)

Litigation settlement

 

 

169.5

 

 

 

 

169.5

 

 

 

 

h)

Actuarial losses on pension plans and
other pension benefits

15.6

 

 

 

 

5.8

 

 

15.6

 

 

5.8

 

 

i)

Loss on debt refinancing and prepayment

 

 

5.8

 

 

 

 

6.2

 

 

4.6

 

 

j)

Non-cash interest on convertible notes

9.9

 

 

9.5

 

 

9.5

 

 

37.8

 

 

36.1

 

 

k)

Indemnification gain

 

 

(2.9)

 

 

 

 

(7.8)

 

 

 

 

l)

Adjustment to contingent consideration

 

 

 

 

 

 

 

 

(2.1)

 

 

m)

Licensing income

 

 

 

 

(3.7)

 

 

 

 

(36.6)

 

 

n)

Gain on divestiture of business

 

 

 

 

 

 

 

 

(5.0)

 

 

 

Total special items

58.7

 

 

236.2

 

 

41.9

 

 

397.7

 

 

138.0

 

Non-GAAP income before income taxes

$

141.4

 

 

$

151.6

 

 

$

230.6

 

 

$

674.3

 

 

$

893.0

 

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

$

56.5

 

 

$

(60.7)

 

 

$

165.6

 

 

$

211.7

 

 

$

627.4

 

 

Special items:

 

 

 

 

 

 

 

 

 

 

a)

Expensing of appraised inventory at fair
market value step-up

 

 

19.0

 

 

0.6

 

 

19.6

 

 

1.0

 

 

b)

Amortization of acquisition-related
intangible assets

32.1

 

 

29.9

 

 

28.4

 

 

115.2

 

 

111.7

 

 

c)

Restructuring, asset impairments and
other charges, net

0.6

 

 

4.4

 

 

(3.7)

 

 

28.7

 

 

4.3

 

 

d)

Goodwill and intangible asset impairment

 

 

 

 

3.5

 

 

1.6

 

 

6.8

 

 

e)

Third party acquisition and divestiture
related costs

0.5

 

 

1.0

 

 

1.5

 

 

11.3

 

 

4.4

 

 

f)

R&D costs related to licensing income

 

 

 

 

 

 

 

 

7.0

 

 

g)

Litigation settlement

 

 

169.5

 

 

 

 

169.5

 

 

 

 

h)

Actuarial losses on pension plans and
other pension benefits

15.6

 

 

 

 

5.8

 

 

15.6

 

 

5.8

 

 

i)

Loss on debt refinancing and prepayment

 

 

5.8

 

 

 

 

6.2

 

 

4.6

 

 

j)

Non-cash interest on convertible notes

9.9

 

 

9.5

 

 

9.5

 

 

37.8

 

 

36.1

 

 

k)

Indemnification gain

 

 

(2.9)

 

 

 

 

(7.8)

 

 

 

 

l)

Adjustment to contingent consideration

 

 

 

 

 

 

 

 

(2.1)

 

 

m)

Licensing income

 

 

 

 

(3.7)

 

 

 

 

(36.6)

 

 

n)

Gain on divestiture of business

 

 

 

 

 

 

 

 

(5.0)

 

 

o)

Adjustment of income taxes

9.1

 

 

(38.7)

 

 

14.5

 

 

3.7

 

 

71.9

 

 

 

Total special items

67.8

 

 

197.5

 

 

56.4

 

 

401.4

 

 

209.9

 

Non-GAAP net income attributable to ON
Semiconductor Corporation

$

124.3

 

 

$

136.8

 

 

$

222.0

 

 

$

613.1

 

 

$

837.3

 

Adjustment of income taxes:

 

 

 

 

 

 

 

 

 

Tax adjustment for Special items (1)

$

(12.3)

 

 

$

(49.6)

 

 

$

(8.8)

 

 

$

(83.5)

 

 

$

(29.0)

 

Other non-GAAP tax adjustment (2)

21.4

 

 

10.9

 

 

36.4

 

 

83.2

 

 

114.0

 

Impact of U.S. tax reform (3)

 

 

 

 

35.1

 

 

 

 

35.1

 

Impact of U.S. tax method changes

 

 

 

 

(48.2)

 

 

 

 

(48.2)

 

Tax indemnified by third parties

 

 

 

 

 

 

4.0

 

 

 

 

Total adjustment of income taxes

$

9.1

 

 

$

(38.7)

 

 

$

14.5

 

 

$

3.7

 

 

$

71.9

 

 

 

(1)

Tax impact of non-GAAP Special items (a-n), calculated using the federal statutory rate of 21% for all periods presented.

 

(2)

 

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.

 

(3)

 

Tax impacts of U.S. tax reform legislation, H.R.1, commonly referred to as the Tax Cuts and Jobs Act, and related provisional impacts recorded pursuant to Staff Accounting Bulletin (SAB) No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act.

Reconciliation of GAAP diluted share count
to non-GAAP diluted share count:

 

 

GAAP diluted share count

418.2

 

410.4

 

420.0

 

416.0

 

435.9

 

Special items:

 

 

 

 

 

 

 

 

 

 

a)

Less: dilutive share count attributable to
convertible notes

(5.1)

 

 

 

 

 

 

(3.2)

 

 

(7.8)

 

 

b)

Add: dilutive share count attributable to
share based awards

 

 

1.9

 

 

 

 

 

 

 

 

 

Total special items

(5.1)

 

 

1.9

 

 

 

 

(3.2)

 

 

(7.8)

 

Non-GAAP diluted share count

413.1

 

 

412.3

 

 

420.0

 

 

412.8

 

 

428.1

 

Non-GAAP diluted earnings per share:

 

 

 

 

 

 

 

 

 

Non-GAAP net income attributable to ON
Semiconductor Corporation

$

124.3

 

 

$

136.8

 

 

$

222.0

 

 

$

613.1

 

 

$

837.3

 

Non-GAAP diluted share count

413.1

 

 

412.3

 

 

420.0

 

 

412.8

 

 

428.1

 

Non-GAAP diluted earnings per share

$

0.30

 

 

$

0.33

 

 

$

0.53

 

 

$

1.49

 

 

$

1.96

 

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

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

$

91.7

 

 

$

242.2

 

 

$

421.0

 

 

$

694.7

 

 

$

1,274.2

 

 

Special items:

 

 

 

 

 

 

 

 

 

 

a)

Purchase of property, plant and
equipment

(112.4)

 

 

(111.7)

 

 

(132.0)

 

 

(534.6)

 

 

(514.8)

 

 

 

Total special items

(112.4)

 

 

(111.7)

 

 

(132.0)

 

 

(534.6)

 

 

(514.8)

 

Free cash flow

$

(20.7)

 

 

$

130.5

 

 

$

289.0

 

 

$

160.1

 

 

$

759.4

 


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