On Semiconductor Corp 10-Q for FY2024 Q3
On Semiconductor Corp (ON)
10-Q
2024-10-28
For: 2024-09-27
View Original
Added on
April 07, 2026
About this 10-Q
On Semiconductor Corp filed this 10-Q on October 28, 2024, covering the quarter ended September 27, 2024 (FY2024 Q3).
Headline figures
Quarter ended September 27, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.76B
- down 19.2% from $2.18B a year earlier
- Net income
- $401.7M
- down 31.1% from net income of $582.7M a year earlier
- Diluted EPS
- $0.93
- down 27.9% from $1.29 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended September 27, 2024
Or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
(Commission File Number) 001-39317
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
(602 ) 244-6600
(Address, zip code and telephone number, including area code, of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
☒ | Accelerated filer | ☐ | |||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
The number of shares outstanding of the issuer's class of common stock as of the close of business on October 23, 2024:
| Title of Each Class | Number of Shares | |||||||
| Common Stock, par value $0.01 per share | ||||||||
ON SEMICONDUCTOR CORPORATION FORM 10-Q
TABLE OF CONTENTS
(See the glossary of selected terms immediately following this table of contents for definitions of certain abbreviated terms.)
ON SEMICONDUCTOR CORPORATION
FORM 10-Q
GLOSSARY OF SELECTED ABBREVIATED TERMS*
| Abbreviated Term | Defined Term | |||||||
| 0% Notes | 0% Convertible Senior Notes due 2027 | |||||||
| 0.50% Notes | 0.50% Convertible Senior Notes due 2029 | |||||||
| 1.625% Notes | 1.625% Convertible Senior Notes due 2023 | |||||||
| 3.875% Notes | 3.875% Senior Notes due 2028 | |||||||
| ADAS | Advanced driver-assistance systems | |||||||
| Amended and Restated SIP | ON Semiconductor Corporation Amended and Restated Stock Incentive Plan, as amended | |||||||
| ASU | Accounting Standards Update | |||||||
| Commission or SEC | Securities and Exchange Commission | |||||||
| New Credit Agreement | Credit agreement, dated as of June 22, 2023, by and among the Company, as borrower, the several lenders party thereto, JP Morgan Chase Bank, N.A., as administrative agent, and certain other parties, providing for the Revolving Credit Facility | |||||||
| EFK | East Fishkill, New York fabrication facility | |||||||
| ESPP | ON Semiconductor Corporation 2000 Employee Stock Purchase Plan, as amended | |||||||
| Exchange Act | Securities Exchange Act of 1934, as amended | |||||||
| IP | Intellectual property | |||||||
| IRS | United States Internal Revenue Service | |||||||
| IT | Information Technology | |||||||
| Revolving Credit Facility | A $1.5 billion senior revolving credit facility created pursuant to the New Credit Agreement | |||||||
| ROU | Right-of-use | |||||||
| RSU | Restricted stock unit | |||||||
| SiC | Silicon carbide | |||||||
| Securities Act | Securities Act of 1933, as amended | |||||||
| U.S. or United States | United States of America | |||||||
* Terms used, but not defined, within the body of the Form 10-Q are defined in this Glossary.
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
ON SEMICONDUCTOR CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share data)
(unaudited)
| September 27, 2024 | December 31, 2023 | ||||||||||
| Assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Short-term investments | |||||||||||
| Receivables, net | |||||||||||
| Inventories | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Deferred tax assets | |||||||||||
| ROU financing lease assets | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and Stockholders’ Equity | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses and other current liabilities | |||||||||||
| Current portion of financing lease liabilities | |||||||||||
| Current portion of long-term debt | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Deferred tax liabilities | |||||||||||
| Long-term financing lease liabilities | |||||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 9) | |||||||||||
| ON Semiconductor Corporation stockholders’ equity: | |||||||||||
Common stock ($ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Accumulated earnings | |||||||||||
Less: Treasury stock, at cost: | ( | ( | |||||||||
| Total ON Semiconductor Corporation stockholders’ equity | |||||||||||
| Non-controlling interest | |||||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
See accompanying notes to consolidated financial statements
4
ON SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in millions, except per share data)
(unaudited)
| Quarters Ended | Nine Months Ended | ||||||||||||||||||||||
| September 27, 2024 | September 29, 2023 | September 27, 2024 | September 29, 2023 | ||||||||||||||||||||
| Revenue | $ | $ | $ | $ | |||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| Selling and marketing | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Amortization of acquisition-related intangible assets | |||||||||||||||||||||||
| Restructuring, asset impairments and other charges, net | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Operating income | |||||||||||||||||||||||
| Other income (expense), net: | |||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Loss on debt prepayment | ( | ||||||||||||||||||||||
| Loss on divestiture of business | ( | ( | |||||||||||||||||||||
| Other income (expense) | ( | ( | |||||||||||||||||||||
| Other income (expense), net | ( | ||||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| Income tax provision | ( | ( | ( | ( | |||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Less: Net income attributable to non-controlling interest | ( | ( | ( | ( | |||||||||||||||||||
| Net income attributable to ON Semiconductor Corporation | $ | $ | $ | $ | |||||||||||||||||||
| Net income for diluted earnings per share of common stock (Note 7) | $ | $ | $ | $ | |||||||||||||||||||
| Net income per share of common stock attributable to ON Semiconductor Corporation: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Weighted-average shares of common stock outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
| Comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Foreign currency translation adjustments | ( | ( | ( | ||||||||||||||||||||
| Effects of cash flow hedges and other adjustments | ( | ( | ( | ||||||||||||||||||||
| Other comprehensive income (loss), net of tax | ( | ( | ( | ||||||||||||||||||||
| Comprehensive income | |||||||||||||||||||||||
| Comprehensive income attributable to non-controlling interest | ( | ( | ( | ( | |||||||||||||||||||
| Comprehensive income attributable to ON Semiconductor Corporation | $ | $ | $ | $ | |||||||||||||||||||
See accompanying notes to consolidated financial statements
5
ON SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in millions, except share data)
(unaudited)
| Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Treasury Stock | Non-Controlling Interest | |||||||||||||||||||||||||||||||||||||||||||||||||
| Number of shares | At Par Value | Accumulated Earnings | Number of shares | At Cost | Total Equity | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 28, 2024 | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Shares issued pursuant to the ESPP | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| RSUs released and stock grant awards issued | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Partial settlement - | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Partial settlement of bond hedges - | — | — | — | — | — | ( | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Partial settlement of Warrants - | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Payment of tax withholding for RSUs | — | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 27, 2024 | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Shares issued pursuant to the ESPP | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| RSUs released and stock grant awards issued | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Partial settlement - | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Partial settlement of bond hedges - | — | — | — | — | — | ( | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Settlement of Warrants - | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Settlement of Warrants - | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Payment of tax withholding for RSUs | — | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income (loss) | — | — | — | ( | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 27, 2024 | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to consolidated financial statements
6
ON SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in millions, except share data)
(unaudited)
| Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Treasury Stock | Non-Controlling Interest | |||||||||||||||||||||||||||||||||||||||||||||||||
| Number of shares | At Par Value | Accumulated Earnings | Number of shares | At Cost | Total Equity | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| RSUs released and stock grant awards issued | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
Partial settlement - | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Partial settlement of bond hedges - | — | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
Partial settlement of warrants - | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Partial settlement - | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Partial settlement of bond hedges - | — | — | — | — | ( | ( | — | ||||||||||||||||||||||||||||||||||||||||||||||
Partial settlement of warrants - | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Payment of tax withholding for RSUs | — | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income (loss) | — | — | — | ( | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 29, 2023 | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Shares issued pursuant to the ESPP | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| RSUs released and stock grant awards issued | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
Warrants and bond hedges, net - | — | — | ( | — | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Tax impact of warrants and bond hedges, net | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
Partial settlement - | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Partial settlement of bond hedges - | — | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
Partial settlement of warrants - | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Partial settlement - | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Partial settlement of bond hedges - | — | — | — | — | ( | ( | — | ||||||||||||||||||||||||||||||||||||||||||||||
Partial settlement of warrants - | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Payment of tax withholding for RSUs | — | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income (loss) | — | — | — | ( | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 29, 2023 | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to consolidated financial statements
7
ON SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
| Nine Months Ended | |||||||||||
| September 27, 2024 | September 29, 2023 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Loss on sale or disposal of fixed assets | |||||||||||
| Loss on divestiture of business | |||||||||||
| Loss on debt prepayment | |||||||||||
| Amortization of debt discount and issuance costs | |||||||||||
| Share-based compensation | |||||||||||
| Non-cash asset impairment charges | |||||||||||
| Change in deferred tax balances | ( | ( | |||||||||
| Other | |||||||||||
| Changes in assets and liabilities: | |||||||||||
| Receivables | ( | ( | |||||||||
| Inventories | ( | ( | |||||||||
| Other assets | ( | ||||||||||
| Accounts payable | ( | ( | |||||||||
| Accrued expenses and other current liabilities | ( | ||||||||||
| Other long-term liabilities | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Purchase of property, plant and equipment | ( | ( | |||||||||
| Proceeds from sale of property, plant and equipment | |||||||||||
| Deposits utilized for purchase of property, plant and equipment | |||||||||||
| Purchase of short-term investments | ( | ||||||||||
| Proceeds from sale or maturity of short-term investments and available-for-sale securities | |||||||||||
| Purchase of a business, net of cash acquired | ( | ||||||||||
| Payments related to acquisition of business | ( | ||||||||||
| Other | ( | ||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds for the issuance of common stock under the ESPP | |||||||||||
| Payment of tax withholding for RSUs | ( | ( | |||||||||
| Repurchase of common stock | ( | ( | |||||||||
| Issuance and borrowings under debt agreements | |||||||||||
| Reimbursement of debt issuance and other financing costs | |||||||||||
| Payment of debt issuance and other financing costs | ( | ||||||||||
| Repayment of borrowings under debt agreements | ( | ||||||||||
| Payment for purchase of bond hedges | ( | ||||||||||
| Proceeds from issuance of warrants | |||||||||||
| Payment of financing lease obligations | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | ( | ( | |||||||||
| Net decrease in cash, cash equivalents and restricted cash | ( | ( | |||||||||
| Cash, cash equivalents and restricted cash, beginning of period (Note 5) | |||||||||||
| Cash, cash equivalents and restricted cash, end of period (Note 5) | $ | $ | |||||||||
See accompanying notes to consolidated financial statements
8
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1: Background and Basis of Presentation
ON Semiconductor Corporation (“onsemi,” “we,” “us,” “our,” or the “Company”), with its wholly and majority-owned subsidiaries, operates under the onsemiTM brand. The Company is organized into three
The Company's fiscal calendar year begins on January 1 and ends on December 31, with each fiscal quarter containing a thirteen-week accounting period. The quarters ended September 27, 2024 and September 29, 2023 contained 91 271 days and 272 days, respectively.
The accompanying unaudited financial statements as of and for the quarter and nine months ended September 27, 2024 have been prepared following generally accepted accounting principles in the United States of America ("GAAP") for interim financial reporting and the rules and regulations of the SEC for interim reporting. Accordingly, the unaudited financial statements do not include all of the information and footnotes required by GAAP for audited financial statements. The balance sheet as of December 31, 2023 was derived from the Company's audited financial statements but does not include all disclosures required by GAAP for annual financial statements. In management's opinion, the interim information contains all adjustments, which include normal recurring adjustments necessary for a fair statement of the results for the interim periods. The footnote disclosures related to the interim financial information contained herein are also unaudited. Such financial information should be read in conjunction with the consolidated financial statements and related notes thereto for the year ended December 31, 2023, included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on February 5, 2024 (the "2023 Form 10-K").
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the reporting period. Management evaluates these estimates and judgments on an ongoing basis and bases its estimates on experience, current and expected future conditions, third-party evaluations, and various other assumptions that management believes are reasonable under the circumstances. Significant estimates have been used by management in conjunction with the following: (i) calculation of future payouts for customer incentives and amounts subject to allowances and returns; (ii) valuation and obsolescence relating to inventories; (iii) measurement of valuation allowances against deferred tax assets and evaluations of uncertain tax positions; (iv) testing for impairment of long-lived assets and goodwill; and (v) assumptions used in business combinations. Actual results may differ from the estimates and assumptions used in the consolidated financial statements.
9
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
Note 2: Segments and Revenue
Segments
The Company is organized into three
PSG formerly included the divisions of Advanced Power Division and Integrated Circuits, Protection and Signal Division ("IPS"). During the first quarter of 2024, management reorganized them to the divisions of Automotive Power Division, Industrial Power Division and Multi-Market Power Division (“MPD”). Further, IPS was split, with portions remaining in MPD and portions moving to the new Integrated Circuits Division within AMG. Management performed a goodwill impairment analysis on the divisions (which were the reporting units) prior to and after the reorganization and did not identify an impairment.
Revenue and gross profit for the operating and reportable segments were as follows (in millions):
PSG(1) | AMG(1) | ISG | Total | ||||||||||||||||||||
| For the quarter ended September 27, 2024: | |||||||||||||||||||||||
| Revenue from external customers | $ | $ | $ | $ | |||||||||||||||||||
| Gross profit | $ | $ | $ | $ | |||||||||||||||||||
| For the quarter ended September 29, 2023: | |||||||||||||||||||||||
| Revenue from external customers | $ | $ | $ | $ | |||||||||||||||||||
| Gross profit | $ | $ | $ | $ | |||||||||||||||||||
| For the nine months ended September 27, 2024: | |||||||||||||||||||||||
| Revenue from external customers | $ | $ | $ | $ | |||||||||||||||||||
| Gross profit | $ | $ | $ | $ | |||||||||||||||||||
| For the nine months ended September 29, 2023: | |||||||||||||||||||||||
| Revenue from external customers | $ | $ | $ | $ | |||||||||||||||||||
| Gross profit | $ | $ | $ | $ | |||||||||||||||||||
(1)During the first quarter of 2024, the Company reorganized certain reporting units and its segment reporting structure. As a result of the reorganization of divisions within PSG and AMG, the prior-period amounts have been reclassified to conform to current-period presentation.
The Company had one customer, a distributor, whose revenue accounted for approximately 12 % and 11 % of the total revenue for the quarters ended September 27, 2024 and September 29, 2023, respectively, and approximately 11 % and 10 % of the total revenue for the nine months ended September 27, 2024 and September 29, 2023, respectively. One customer, a distributor, accounted for approximately 10 % of the Company's accounts receivable balance as of September 27, 2024, and no single customer had an accounts receivable concentration of 10 % or greater as of December 31, 2023.
10
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
Revenue for the operating and reportable segments disaggregated into geographic locations based on sales billed from the respective country and sales channel was as follows (in millions):
| Quarter Ended September 27, 2024 | |||||||||||||||||||||||
| PSG | AMG | ISG | Total | ||||||||||||||||||||
| Geographic Location: | |||||||||||||||||||||||
| Hong Kong | $ | $ | $ | $ | |||||||||||||||||||
| Singapore | |||||||||||||||||||||||
| United Kingdom | |||||||||||||||||||||||
| United States | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Sales Channel: | |||||||||||||||||||||||
| Distributors | $ | $ | $ | $ | |||||||||||||||||||
| Direct customers | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Nine Months Ended September 27, 2024 | |||||||||||||||||||||||
| PSG | AMG | ISG | Total | ||||||||||||||||||||
| Geographic Location: | |||||||||||||||||||||||
| Hong Kong | $ | $ | $ | $ | |||||||||||||||||||
| Singapore | |||||||||||||||||||||||
| United Kingdom | |||||||||||||||||||||||
| United States | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Sales Channel: | |||||||||||||||||||||||
| Distributors | $ | $ | $ | $ | |||||||||||||||||||
| Direct customers | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
11
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
| Quarter Ended September 29, 2023 | |||||||||||||||||||||||
PSG(1) | AMG(1) | ISG | Total | ||||||||||||||||||||
| Geographic Location: | |||||||||||||||||||||||
| Hong Kong | $ | $ | $ | $ | |||||||||||||||||||
| Singapore | |||||||||||||||||||||||
| United Kingdom | |||||||||||||||||||||||
| United States | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Sales Channel: | |||||||||||||||||||||||
| Distributors | $ | $ | $ | $ | |||||||||||||||||||
| Direct customers | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Nine Months Ended September 29, 2023 | |||||||||||||||||||||||
PSG(1) | AMG(1) | ISG | Total | ||||||||||||||||||||
| Geographic Location: | |||||||||||||||||||||||
| Hong Kong | $ | $ | $ | $ | |||||||||||||||||||
| Singapore | |||||||||||||||||||||||
| United Kingdom | |||||||||||||||||||||||
| United States | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Sales Channel: | |||||||||||||||||||||||
| Distributors | $ | $ | $ | $ | |||||||||||||||||||
| Direct customers | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
(1)During the first quarter of 2024, the Company reorganized certain reporting units and its segment reporting structure. As a result of the reorganization of divisions within PSG and AMG, the prior-period amounts have been reclassified to conform to current-period presentation.
The Company operates in various geographic locations. Sales to external customers have little correlation to where products are manufactured or the location of the end-customers. It is, therefore, not meaningful to present operating profit by geographical location.
The Company does not discretely allocate assets to its operating segments, nor does management evaluate operating segments using discrete asset information. The consolidated assets used in manufacturing are generally shared and are not specifically ascribed to operating and reportable segments. In situations where the carrying amounts assigned to an asset group need to be evaluated for recoverability, judgment is used to determine the carrying amounts of the asset group based on the facts and circumstances.
12
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
Property, plant and equipment, net by geographic location, is summarized below (in millions):
| As of | |||||||||||
| September 27, 2024 | December 31, 2023 | ||||||||||
| South Korea | $ | $ | |||||||||
| United States | |||||||||||
| Czech Republic | |||||||||||
| China | |||||||||||
| Philippines | |||||||||||
| Malaysia | |||||||||||
| Vietnam | |||||||||||
| Other | |||||||||||
| Total | $ | $ | |||||||||
Revenue
The Company's revenue derives primarily from product sales and to a much lesser extent from manufacturing services and product development agreements. For the quarters ended September 27, 2024 and September 29, 2023, revenue recognized from product sales as a percentage of total revenue was approximately 99 1 98 2
Revenue disaggregated by end-markets and product technologies was as follows (in millions):
| Quarters Ended | Nine Months Ended | ||||||||||||||||||||||
| September 27, 2024 | September 29, 2023 | September 27, 2024 | September 29, 2023 | ||||||||||||||||||||
| End-Markets: | |||||||||||||||||||||||
| Automotive | $ | $ | $ | $ | |||||||||||||||||||
| Industrial | |||||||||||||||||||||||
| Other* | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| * Other primarily includes the end-markets of computing, consumer, networking and communications. | |||||||||||||||||||||||
| Product Technologies: | |||||||||||||||||||||||
| Intelligent Power | $ | $ | $ | $ | |||||||||||||||||||
| Intelligent Sensing | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
Remaining Performance Obligations
A portion of the Company's orders are firm commitments that are non-cancellable, including certain orders or contracts with a duration of less than one year. Certain of the Company's customer contracts are multi-year agreements that include committed amounts ("Long-term Supply Agreements" or "LTSAs") for which the remaining performance obligations as of September 27, 2024 are approximately $13.7 billion (excluding the remaining performance obligations for contracts having a duration of one year or less). The Company expects to recognize approximately 31 % of this amount as revenue during the next 12 months upon shipment of products under these contracts. Total revenue estimates are based on negotiated contract prices and demand quantities, and could be influenced by risks and uncertainties, including manufacturing or supply chain constraints, modifications to customer agreements and regulatory changes, among other factors. The timing, pricing or amount of products
13
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
delivered under LTSAs may be modified in circumstances upon mutual agreement, and the actual revenue recognized for the remaining performance obligations in future periods may significantly fluctuate from current estimates.
Certain LTSAs include non-cancellable capacity payments from the customer, which are generally due within 30 days of the agreement. These payments reserve production availability or are prepayments for the same purpose and are not recognized as revenue until the performance obligations are satisfied. Payments received in advance of the satisfaction of performance obligations are recorded as contract liabilities. The Company fulfilled certain performance obligations and recognized revenue of $42.0 million and $30.1 million for the quarters ended September 27, 2024 and September 29, 2023, respectively, and $77.4 million and $61.7 million for the nine months ended September 27, 2024 and September 29, 2023, respectively, related to contract liabilities outstanding as of the end of each respective prior period.
Contract Balances
Contract assets and contract liabilities were as follows (in millions):
| As of | |||||||||||
| September 27, 2024 | December 31, 2023 | ||||||||||
| Contract assets included in: | |||||||||||
| Other current assets | $ | $ | |||||||||
| Other assets | |||||||||||
| Total | $ | $ | |||||||||
| Contract liabilities included in: | |||||||||||
| Other current liabilities | $ | $ | |||||||||
| Other long-term liabilities | |||||||||||
| Total | $ | $ | |||||||||
Note 3: Recent Accounting Pronouncements and Other Developments
Pending Adoption
Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07")
In November 2023, the FASB issued ASU 2023-07 to enhance disclosures about significant segment expenses. The amendments in this ASU require a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment's profit or loss and assets that are currently required annually. The amendments in this ASU also clarify circumstances in which an entity can disclose multiple segment measures of profit or loss and provide new segment disclosure requirements for entities with a single reportable segment. The Company will adopt ASU 2023-07 for its financial statements starting with the fiscal year ended December 31, 2024 and interim periods within the fiscal year ended December 31, 2025, and it will be applied retrospectively to all periods presented. Management has substantially completed its evaluation of this standard, which only impacts the disclosures, and does not expect the adoption to have a material impact on the Company's results of operations or financial condition.
Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09")
In December 2023, the FASB issued ASU 2023-09 to enhance disclosures about income taxes. The amendments in this ASU require a public entity to disclose in tabular format, using both percentages and reporting currency amounts, specific categories in the rate reconciliation and to provide additional information for reconciling items that meet a quantitative threshold. The amendments in this ASU also require taxes paid (net of refunds received) to be disaggregated by federal, state and foreign taxes and further disaggregated for specific jurisdictions to the extent the related amounts exceed a quantitative threshold. For public business entities, the provisions of ASU 2023-09 are effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. Management is currently evaluating the requirements under this new standard.
14
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
SEC Climate Disclosure
In March 2024, the SEC issued final rules requiring registrants to include comprehensive climate-related disclosures in annual reports and registration statements. As adopted, the final rules require large accelerated filers to make their first climate-related disclosures for fiscal years beginning in 2025. However, in April 2024, the SEC issued an order voluntarily staying the effectiveness of the new rules pending the completion of judicial review of certain legal challenges to their validity. Management is currently evaluating these rules as adopted while monitoring the status of the related litigation and the SEC’s stay.
Note 4: Restructuring, Asset Impairments and Other Charges, Net
Details of restructuring, asset impairments and other charges, net are as follows (in millions):
| Restructuring | Asset Impairments | Other Charges (2) | Total | |||||||||||||||||||||||||||||||||||
| Quarter ended September 27, 2024 | ||||||||||||||||||||||||||||||||||||||
| 2024 Business Realignment | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Other | ( | |||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Restructuring | Asset Impairments(1) | Other Charges | Total | |||||||||||||||||||||||||||||||||||
| Nine months ended September 27, 2024 | ||||||||||||||||||||||||||||||||||||||
| 2024 Business Realignment | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
(1) Asset impairment charges primarily related to property, plant and equipment.
(2) Other charges primarily related to equipment movement costs and accelerated amortization of ROU assets for certain leases.
A summary of changes in the accrued restructuring balance was as follows (in millions):
| As of | As of | ||||||||||||||||||||||||||||
| December 31, 2023 | Charges | Usage | September 27, 2024 | ||||||||||||||||||||||||||
| Accrued restructuring | $ | $ | $ | ( | $ | ||||||||||||||||||||||||
2024 Business Realignment
During the second quarter of 2024, to further align with the "Fab Right" manufacturing strategy and consolidate its global footprint, the Company announced a restructuring plan that impacted approximately 1,300 employees. Approximately 1,100 employees were notified of their employment termination and around 200 additional employees were relocated to another onsemi site. The Company continues to evaluate employee positions and locations for potential operating improvements and efficiencies.
In connection with the actions announced during the second quarter, the Company expects to incur severance costs, related benefit expenses and other ancillary charges totaling approximately $72 million, of which approximately $70 million was recognized during the nine months ended September 27, 2024. Certain of the employees notified of their employment termination are required to render future service beyond a minimum retention period in order to receive severance benefits, and the related expense will be recognized ratably over the respective service periods, substantially all of which is expected to be recognized during the remainder of 2024.
15
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
Note 5: Balance Sheet Information and Other Supplemental Disclosures
Goodwill
Goodwill is tested for impairment annually on the first day of the fourth quarter, or more frequently, if events or changes in circumstances (each, a "triggering event") would more likely-than-not reduce the fair value of a reporting unit below its carrying value.
As a result of the segment reorganization during the first quarter of 2024 discussed in Note 2: ''Segments and Revenue,'' management performed a goodwill impairment analysis on the divisions (which were the reporting units) prior to and after the reorganization and did not identify an impairment. In connection with the reorganization, the Company changed its reporting units structure, which resulted in the reallocation of $25.9 million of goodwill, presented on a prospective basis, from PSG to AMG based on the relative fair values of the businesses transferred.
The following table summarizes goodwill by operating and reportable segments (in millions):
| As of | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| September 27, 2024 | December 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill | Accumulated Impairment Losses | Reallocation | Carrying Value | Goodwill | Accumulated Impairment Losses | Carrying Value | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating and Reportable Segments: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PSG | $ | $ | ( | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| AMG | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ISG | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||||||
The change in the goodwill balance from December 31, 2023 to September 27, 2024 is as follows (in millions):
| Net balance as of December 31, 2023 | $ | ||||
| Addition due to business acquisition | |||||
| Net balance as of September 27, 2024 | $ | ||||
There was an immaterial business acquisition within the ISG segment during the quarter ended September 27, 2024.
Inventories
Details of inventories included in the Consolidated Balance Sheets were as follows (in millions):
| As of | |||||||||||
| September 27, 2024 | December 31, 2023 | ||||||||||
| Inventories: | |||||||||||
| Raw materials | $ | $ | |||||||||
| Work in process | |||||||||||
| Finished goods | |||||||||||
| Total | $ | $ | |||||||||
16
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
Defined Benefit Plans
The Company recognizes the aggregate amount of all over-funded plans as assets and the aggregate amount of all underfunded plans as liabilities in its financial statements. As of September 27, 2024, the net assets for the over-funded plans totaled $17.1 million. The total accrued pension liability for underfunded plans was $69.0 million, of which the current portion of $1.4 million was classified as accrued expenses and other current liabilities. As of December 31, 2023, the net funded status for all the plans was a liability of $50.8 million, of which the current portion of $1.4 million was classified as accrued expenses and other current liabilities.
The components of the net periodic pension expense were as follows (in millions):
| Quarters Ended | Nine Months Ended | ||||||||||||||||||||||
| September 27, 2024 | September 29, 2023 | September 27, 2024 | September 29, 2023 | ||||||||||||||||||||
| Service cost | $ | $ | $ | $ | |||||||||||||||||||
| Interest cost | |||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | |||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
Leases
Operating lease arrangements are comprised primarily of real estate and equipment agreements. The components of lease expense were as follows (in millions):
| Quarters Ended | Nine Months Ended | ||||||||||||||||||||||
| September 27, 2024 | September 29, 2023 | September 27, 2024 | September 29, 2023 | ||||||||||||||||||||
| Operating lease | $ | $ | $ | $ | |||||||||||||||||||
| Variable lease | |||||||||||||||||||||||
| Short-term lease | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
The operating lease liabilities and operating ROU assets recognized in the Consolidated Balance Sheets were as follows (in millions):
| As of | |||||||||||
| September 27, 2024 | December 31, 2023 | ||||||||||
| Operating lease liabilities included in: | |||||||||||
| $ | $ | ||||||||||
| Total | $ | $ | |||||||||
| Operating ROU assets included in: | |||||||||||
| $ | $ | ||||||||||
As of September 27, 2024, the weighted-average remaining lease-terms were 10.4 years and 17.3 years, and the weighted-average discount rates were 5.2 % and 5.7 %, for operating leases and financing leases, respectively.
17
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
Supplemental Disclosure of Cash Flow Information
Certain of the cash and non-cash activities were as follows (in millions):
| Nine Months Ended | ||||||||||||||||||||
| September 27, 2024 | September 29, 2023 | |||||||||||||||||||
| Non-cash investing activities: | ||||||||||||||||||||
| Capital expenditures in accounts payable and other long-term liabilities | $ | $ | ||||||||||||||||||
| Operating ROU assets obtained in exchange for lease liabilities | ||||||||||||||||||||
| Cash paid for: | ||||||||||||||||||||
| Interest expense | $ | $ | ||||||||||||||||||
| Income taxes | ||||||||||||||||||||
| Operating lease payments in operating cash flows | ||||||||||||||||||||
The following table shows a reconciliation of the captions in the Consolidated Balance Sheets to the Consolidated Statements of Cash Flows (in millions):
| As of | |||||||||||||||||||||||
| September 27, 2024 | December 31, 2023 | September 29, 2023 | December 31, 2022 | ||||||||||||||||||||
| Consolidated Balance Sheets: | |||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | |||||||||||||||||||
| Restricted cash (included in other current assets) | |||||||||||||||||||||||
| Cash, cash equivalents and restricted cash in Consolidated Statements of Cash Flows | $ | $ | $ | $ | |||||||||||||||||||
Note 6: Long-Term Debt
Long-term debt consisted of the following (in millions, with annualized interest rates):
| As of | |||||||||||
| September 27, 2024 | December 31, 2023 | ||||||||||
Revolving Credit Facility due 2028, interest payable monthly at | $ | $ | |||||||||
| Gross long-term debt, including current maturities | |||||||||||
Less: Debt discount (3) | ( | ( | |||||||||
Less: Debt issuance costs (4) | ( | ( | |||||||||
| Net long-term debt, including current maturities | |||||||||||
| Less: Current maturities | ( | ( | |||||||||
| Net long-term debt | $ | $ | |||||||||
(1)Interest is payable on March 1 and September 1 of each year at 0.50
(2)Interest is payable on March 1 and September 1 of each year at 3.875
(3)Debt discount of $3.5 million and $4.2 million for the 3.875
(4)Debt issuance costs of $23.1 million and $26.8 million for the 0.50 8.5 million and $10.9 million for the 0 1.2 million and $1.4 million for the 3.875
18
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
Expected maturities of gross long-term debt (including current portion - see section below on 0 % Notes) as of September 27, 2024 were as follows (in millions):
| Period | Expected Maturities | |||||||
| Remainder of 2024 | $ | |||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| Thereafter | ||||||||
| Total | $ | |||||||
The Company was in compliance with its covenants under all debt agreements as of September 27, 2024, and expects to remain in compliance with all covenants over at least the next 12 months.
Pursuant to the indenture governing the 0 % Notes, as of September 27, 2024, the $796.4 million remaining outstanding principal amount of the 0 % Notes, net of unamortized issuance costs, was classified as a current portion of long-term debt since the last reported sale price of the Company’s common stock for at least 20 trading days during the period of 30 consecutive trading days ending on September 27, 2024 was greater than or equal to $68.86 (130 % of the conversion price) on each applicable trading day. This condition gives holders the right to surrender any portion of their 0 % Notes (in minimum denominations of $1,000 in principal amount or an integral multiple thereof) for conversion during the calendar quarter ending December 31, 2024, and only during such calendar quarter.
Note 7: Earnings Per Share and Equity
Earnings Per Share
Net income per share of common stock for calculating basic and diluted earnings per share was calculated as follows (in millions, except per share data):
| Quarters Ended | Nine Months Ended | ||||||||||||||||||||||
| September 27, 2024 | September 29, 2023 | September 27, 2024 | September 29, 2023 | ||||||||||||||||||||
| Net income for basic earnings per share of common stock | $ | $ | $ | $ | |||||||||||||||||||
Add: Interest on | |||||||||||||||||||||||
| Net income for diluted earnings per share of common stock | $ | $ | $ | $ | |||||||||||||||||||
| Basic weighted-average shares of common stock outstanding | |||||||||||||||||||||||
| Dilutive effect of share-based awards | |||||||||||||||||||||||
| Dilutive effect of convertible notes and warrants | |||||||||||||||||||||||
| Diluted weighted-average shares of common stock outstanding | |||||||||||||||||||||||
| Net income per share of common stock attributable to ON Semiconductor Corporation: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
19
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
Basic income per share of common stock is computed by dividing net income for basic earnings by the weighted-average number of shares of common stock outstanding during the period. To calculate the diluted weighted-average shares of common stock outstanding, the treasury stock method has been applied to calculate the number of incremental shares from the assumed issuance of shares relating to RSUs. The excluded number of anti-dilutive share-based awards was 0.2 million and zero for the quarters ended September 27, 2024 and September 29, 2023, respectively, and 0.6 million and 0.1 million for the nine months ended September 27, 2024 and September 29, 2023, respectively.
The dilutive impacts related to the 0.50 0 0.50 % Notes and the 0 % Notes are repayable in cash up to the par value and in cash or shares of common stock for the excess over par value. Prior to conversion, the convertible note hedges are not considered for purposes of the earnings per share calculations, as their effect would be anti-dilutive. Upon conversion, the convertible note hedges are expected to offset the dilutive effect of the 0.50 % Notes and 0 % Notes when the stock price is above $103.87 and $52.97 per share, respectively.
The dilutive impact of the warrants issued concurrently with the issuance of the 0.50 % Notes and 0 % Notes with exercise prices of $156.78 and $74.34 , respectively, has been included in the calculation of diluted weighted-average common shares outstanding, if applicable.
Warrants Settlement
At the time of issuance of the 1.625 % Notes, the Company sold warrants to bank counterparties whereby the holders of the warrants had the option to purchase the equivalent number of shares of the Company’s common stock at a price of $30.70 per share from the Company beginning on January 16, 2024. The bank counterparties exercised 6.7 million warrants during the first quarter of 2024, and the Company settled them by issuing 4.0 million shares of common stock on a net-share basis based on the average stock price on the day of exercise, for which no cash was exchanged. All outstanding warrants related to the 1.625 % Notes were settled entirely during the quarter ended March 29, 2024.
Equity
Share Repurchase Program
Under the share repurchase program announced on February 6, 2023 (the "Share Repurchase Program"), the Company may repurchase up to $3.0 billion (exclusive of fees, commissions and other expenses) of the Company's common stock through December 31, 2025. Activity under the Share Repurchase Program during the quarters and nine months ended September 27, 2024 and September 29, 2023, respectively, was as follows (in millions, except per share data):
| Quarters Ended | Nine Months Ended | ||||||||||||||||||||||
| September 27, 2024 | September 29, 2023 | September 27, 2024 | September 29, 2023 | ||||||||||||||||||||
Number of repurchased shares (1) | |||||||||||||||||||||||
| Aggregate purchase price | $ | $ | $ | $ | |||||||||||||||||||
| Fees, commissions and excise tax | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
Weighted-average purchase price per share (2) | $ | $ | $ | $ | |||||||||||||||||||
(1) None of these shares had been reissued or retired as of September 27, 2024, but may be reissued later.
(2) Exclusive of fees, commissions or other expenses.
As of September 27, 2024, the authorized amount remaining under the Share Repurchase Program was approximately $2.0 billion.
20
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
Shares for Restricted Stock Units Tax Withholding
The amounts remitted for employee withholding taxes during the quarter and nine months ended September 27, 2024 was $3.0 million and $48.1 million, respectively, for which the Company withheld an immaterial an immaterial number of shares and approximately 0.6 million shares of common stock, respectively, that were underlying the RSUs that vested. The amounts remitted for employee withholding taxes during the quarter and nine months ended September 29, 2023 were $5.2 million and $62.6 million, respectively, for which the Company withheld approximately 0.1 million and 0.8 million shares of common stock, respectively, that were underlying the RSUs that vested. This tax withholding activity is separate from the Share Repurchase Program.
Non-Controlling Interest in Leshan-Phoenix Semiconductor Company Limited (“Leshan”)
Note 8: Share-Based Compensation
Total share-based compensation expense related to the RSUs, stock grant awards and the ESPP was recorded within the Consolidated Statements of Operations and Comprehensive Income as follows (in millions):
| Quarters Ended | Nine Months Ended | ||||||||||||||||||||||
| September 27, 2024 | September 29, 2023 | September 27, 2024 | September 29, 2023 | ||||||||||||||||||||
| Cost of revenue | $ | $ | $ | $ | |||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| Selling and marketing | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Share-based compensation expense | |||||||||||||||||||||||
| Income tax benefit | ( | ( | ( | ( | |||||||||||||||||||
| Share-based compensation expense, net of tax | $ | $ | $ | $ | |||||||||||||||||||
As of September 27, 2024, the total unrecognized expected share-based compensation expense, net of estimated forfeitures, related to non-vested RSUs with service, performance and market conditions was $174.3 million, which is expected to be recognized over a weighted-average period of 1.8 years. Upon vesting of RSUs or stock grant awards or completion of a purchase under the ESPP, new shares of common stock are issued. The annualized pre-vesting forfeiture rate for RSUs was estimated to be 8
Shares Available
As of September 27, 2024 and December 31, 2023, there was an aggregate of 33.7 million and 37.1 million shares of common stock, respectively, available for grant under the Amended and Restated SIP.
21
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
Restricted Stock Units
RSUs generally vest ratably over three years for awards with service conditions and over or five years for awards with performance, service and market conditions, or a combination thereof, and are settled in shares of common stock upon vesting. A summary of the RSU transactions for the nine months ended September 27, 2024 was as follows (in millions, except per share data):
| Number of Shares | Weighted-Average Grant Date Fair Value Per Share | ||||||||||
| Non-vested RSUs at December 31, 2023 | $ | ||||||||||
| Granted | |||||||||||
| Achieved | |||||||||||
| Released | ( | ||||||||||
| Forfeited | ( | ||||||||||
| Non-vested RSUs at September 27, 2024 | |||||||||||
Note 9: Commitments and Contingencies
Environmental Contingencies
The Company has encountered and dealt with a number of environmental issues over time relating to the various locations where it conducts its operations and has incurred certain costs related to clean-up activities and environmental remediation efforts. In certain instances, the Company has been indemnified for such costs, often from third parties who were the prior owners of such facilities. Any costs to the Company in connection with such environmental matters have generally not been, and based on the information available, are not expected to be material.
Financing Contingencies
In the ordinary course of business, the Company provides standby letters of credit or other guarantee instruments to certain parties initiated by either the Company or its subsidiaries, as required for transactions, including, but not limited to, material purchase commitments, agreements to mitigate collection risk, leases, utilities arrangements and/or customs guarantees. The Revolving Credit Facility includes $25.0 million available for the issuance of letters of credit, of which $0.9 million was outstanding as of September 27, 2024, which reduced the borrowing capacity under such facility. As of September 27, 2024, the Company also had outstanding guarantees and letters of credit outside of its Revolving Credit Facility totaling $6.6 million.
As part of obtaining financing in the ordinary course of business, the Company issued guarantees related to certain of its subsidiaries, which totaled $0.9 million as of September 27, 2024. Based on historical experience and information currently available, the Company believes that it will not be required to make payments under the standby letters of credit or guarantee arrangements for the foreseeable future.
Indemnification Contingencies
The Company is a party to a variety of agreements entered into in the ordinary course of business, including acquisition agreements, pursuant to which it may be obligated to indemnify the other parties for certain liabilities that arise out of or relate to the subject matter of the agreements. Some of the agreements entered into by the Company require it to indemnify the other party against losses due to IP infringement, property damage (including environmental contamination), personal injury, failure to comply with applicable laws, the Company’s negligence or willful misconduct or breach of representations and warranties and covenants related to such matters as title to sold assets. In the case of certain acquisition agreements, these agreements may require us to maintain such indemnification provisions for the acquiree’s directors, officers and other employees and agents, in certain cases for a number of years following the acquisition.
While the Company’s future obligations under certain agreements may contain limitations on liability for indemnification, other agreements do not contain such limitations and under such agreements it is not possible to predict the maximum potential amount of future payments due to the conditional nature of the Company’s obligations and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under any of these indemnities have not had a material effect on the Company’s business, financial condition, results of operations or cash flows. Additionally, the
22
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
Company does not believe that any amounts that it may be required to pay under these indemnities in the future will be material to the Company’s business, financial position, results of operations, or cash flows.
Legal Matters
The Company is currently involved in a variety of legal matters that arise in the ordinary course of business. Based on information currently available, the Company is not involved in any pending or threatened legal proceedings that it believes could reasonably be expected to have a material adverse effect on its financial condition, results of operations or liquidity. However, the litigation process is inherently uncertain, and the Company cannot guarantee that the outcome of any litigation matter will be favorable to the Company.
Securities Class Action And Derivative Litigation Concerning the Company's SiC Business
On December 13, 2023, a putative class action captioned Hubacek v. On Semiconductor Corp., et al., Case No. 1:23-cv-01429 (D. Del.), was filed by an alleged stockholder of the Company in the U.S. District Court for the District of Delaware against the Company and certain of its officers. This action was transferred to the U.S. District Court for the District of Arizona in March of 2024. The initial complaint asserted claims for alleged violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The initial complaint alleged that the defendants made misleading statements regarding the Company's SiC business. An amended complaint was filed on May 31, 2024. The amended complaint again asserts claims for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The plaintiff seeks a ruling that this case may proceed as a class action, and seeks damages, attorneys’ fees and costs. The Company filed a motion to dismiss the amended complaint on July 30, 2024. Upon reviewing the Company’s motion to dismiss the amended complaint, plaintiff deemed it necessary to further amend their complaint. On September 6, 2024, plaintiff filed their second amended complaint. The Company filed a motion to dismiss this second amended complaint on October 10, 2024. Additional written briefing on the motion to dismiss the second amended complaint is expected to be completed by December 20, 2024. The Company believes that it has strong legal defenses to the claims asserted, and will vigorously defend it.
On January 3, 2024, a purported stockholder derivative action captioned Silva v. El-Khoury, et al., Case No. 1:24-cv-00007 (D. Del.), was filed by a purported stockholder of the Company in the U.S. District Court for the District of Delaware. On February 12, 2024, a purported stockholder derivative action captioned Smalley et al. v. El-Khoury et al. Case No. 1:24-cv-00183 (D. Del.), was filed by a purported stockholder of the Company in the U.S. District Court for the District of Delaware. Both aforementioned derivative actions, Silva and Smalley, were voluntarily dismissed without prejudice on April 15, 2024. On February 28, 2024, a purported stockholder derivative action captioned Mumme et al. v. El-Khoury et al. Case No. CV2024-003974 (D. AZ.), was filed by a purported stockholder of the Company in the Superior Court of the State of Arizona in and for the County of Maricopa and on March 15, 2024, a purported stockholder derivative action captioned Chan et al. v. Abe et al. Case No. 2:24-cv-00552 (D. AZ.), was filed by a purported stockholder of the Company in the U.S. District Court for the District of Arizona. The allegations in these derivative complaints are substantially similar to the allegations in the securities class action complaint discussed above. The derivative suits purport to assert claims (1) on behalf of the Company against certain of its officers for contribution under the federal securities laws and (2) against all of the defendants for breach of fiduciary duty, aiding and abetting, unjust enrichment, abuse of control, gross mismanagement, and waste. The plaintiffs seek an award of damages, pre-judgment interest, punitive damages, attorneys’ fees, and other costs and expenses related to the litigation. The Company believes that the plaintiffs lack standing to assert claims on the Company’s behalf. These two pending derivative actions, Mumme and Chan, were stayed by court order, pending the resolution of Hubacek v. On Semiconductor Corp.
Intellectual Property Matters
The Company faces risk of exposure from claims of infringement of the IP rights of others. In the ordinary course of business, the Company receives letters asserting that the Company’s products or components breach another party’s rights. Such letters may request royalty payments from the Company, that the Company cease and desist using certain IP, and/or request other remedies.
23
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
Note 10: Fair Value Measurements
Fair Value of Financial Instruments
The following tier level hierarchy is used to determine fair values of the financial instruments:
•Level 1: based on observable inputs that reflect quoted prices for identical assets or liabilities in active markets.
•Level 2: based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly.
•Level 3: based on the use of unobservable inputs for the assets and liabilities and other types of analyses.
The carrying values of cash and cash equivalents, which include money market funds and demand and time deposits, approximate fair value because of the short-term maturity of these instruments. The carrying amounts of other current assets and liabilities, such as accounts receivable and accounts payable, approximate fair value due to the short-term maturity of the amounts, and such amounts are considered Level 2 in the fair value hierarchy.
The Company held $300.0 million of short-term investments in time deposits and an insignificant amount of cash equivalents in the form of time deposits and money market funds as of September 27, 2024. The Company held an insignificant amount of investments in money market funds and no cash equivalents in the form of demand deposits or time deposits or investments in other assets as of December 31, 2023. Money market funds and demand deposits are classified as Level 1 while time deposits are classified as Level 2 within the fair value hierarchy.
Fair Value of Long-Term Debt, including Current Portion
The carrying amounts and fair values of the long-term borrowings were as follows (in millions):
| As of | |||||||||||||||||||||||
| September 27, 2024 | December 31, 2023 | ||||||||||||||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||||||||||
Long-term debt, including current portion (1) | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Revolving Credit Facility | |||||||||||||||||||||||
(1) Carrying amounts shown are net of debt discount, if applicable, and debt issuance costs.
Fair values of the 0 0.50 3.875
Note 11: Financial Instruments
Foreign Currencies
As a multinational business, the Company engages in transactions that are denominated in a variety of currencies. When appropriate, the Company uses forward foreign currency contracts to reduce its overall exposure to the effects of currency fluctuations on its results of operations and cash flows. The Company's policy prohibits trading in currencies for which there are no underlying exposures and entering into trades for any currency to intentionally increase the underlying exposure. The Company primarily hedges existing assets and liabilities associated with transactions currently on its balance sheet, which are undesignated hedges for accounting purposes. The Company is exposed to credit-related losses if counterparties to hedge contracts fail to perform their obligations.
24
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
As of September 27, 2024 and December 31, 2023, the Company had net outstanding foreign exchange contracts with notional amounts of $286.6 million and $262.2 million, respectively. Such contracts were obtained through financial institutions and were scheduled to mature within one month from the time of purchase. Management believes that these financial instruments should not subject the Company to increased risks from foreign exchange movements because gains and losses on these contracts should offset losses and gains on the underlying assets, liabilities and transactions to which they are related.
The following summarizes the Company’s net foreign exchange positions in U.S. Dollars (in millions):
| As of | ||||||||||||||||||||||||||
| September 27, 2024 | December 31, 2023 | |||||||||||||||||||||||||
| Buy (Sell) | Notional Amount | Buy (Sell) | Notional Amount | |||||||||||||||||||||||
| Japanese Yen | $ | $ | $ | $ | ||||||||||||||||||||||
| Philippine Peso | ||||||||||||||||||||||||||
| Czech Koruna | ||||||||||||||||||||||||||
| Euro | ||||||||||||||||||||||||||
| Korean Won | ( | ( | ||||||||||||||||||||||||
| Other Currencies - Buy | ||||||||||||||||||||||||||
| Other Currencies - Sell | ( | ( | ||||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
Amounts receivable or payable under the contracts were not material as of September 27, 2024 or December 31, 2023. During the quarters ended September 27, 2024 and September 29, 2023, net of the impact of the hedge positions, the realized and unrealized foreign currency transactions totaled a loss of $5.5 million and a gain of $1.5 million, respectively. During the nine months ended September 27, 2024 and September 29, 2023, net of the impact of the hedge positions, the realized and unrealized foreign currency transactions totaled a loss of $3.9 million and $1.2 million, respectively. The realized and unrealized foreign currency transactions are included in other income (expense) in the Consolidated Statements of Operations and Comprehensive Income.
Cash Flow Hedges
Foreign currency risk
The Company's foreign currency forward contracts generally mature within 12 months and are designated as cash flow hedges for accounting purposes. As of September 27, 2024, the notional value of outstanding foreign currency forward contracts designated as cash flow hedges was $158.6 million, with a fair value of $2.8 million recorded as other current assets. A loss of $1.4 million and $7.7 million was recognized as a component of cost of revenue for the quarter and nine months ended September 27, 2024, respectively. The Company did not identify any ineffectiveness with respect to the notional amounts of the foreign currency forward contracts effective as of September 27, 2024.
Other
As of September 27, 2024, the Company had no outstanding commodity derivatives, currency swaps, options or equity investments held at subsidiaries or affiliated companies. The Company does not hedge the value of its equity investments in its subsidiaries or affiliated companies. The Company is exposed to credit-related losses if its hedge counterparties fail to perform their obligations.
As of September 27, 2024, the counterparties to the Company's hedge contracts were held at financial institutions which the Company believes to be highly rated, and no credit-related losses are anticipated.
25
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
Note 12: Income Taxes
The Company recognizes interest and penalties accrued related to uncertain tax positions in tax expense in the Consolidated Statements of Operations and Comprehensive Income. The Company recognized approximately $3.0 million and $2.0 million of net interest and penalties accrued as of September 27, 2024 and December 31, 2023, respectively. It is reasonably possible that the Company's unrecognized tax benefits will be reduced by $3.8 million in the next 12 months due to expiration of the applicable statute of limitations.
The Company maintains a partial valuation allowance on its U.S. state deferred tax assets and a valuation allowance on foreign net operating losses and tax credits that primarily expire in 2025.
Tax years prior to 2021 are generally not subject to examination by the IRS. For state tax returns, the Company is generally not subject to income tax examinations for tax years prior to 2019. With respect to jurisdictions outside the United States, the Company is generally not subject to examination for tax years prior to 2014.
Note 13: Changes in Accumulated Other Comprehensive Loss
Amounts comprising accumulated other comprehensive loss and reclassifications were as follows (in millions):
| Currency Translation Adjustments | Effects of Cash Flow Hedges | Total | |||||||||||||||||||||
| Balance as of December 31, 2023 | $ | ( | $ | $ | ( | ||||||||||||||||||
| Other comprehensive income (loss) prior to reclassifications | ( | ||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | ( | ( | |||||||||||||||||||||
Net current period other comprehensive loss (1) | ( | ( | ( | ||||||||||||||||||||
| Balance as of September 27, 2024 | $ | ( | $ | $ | ( | ||||||||||||||||||
(1) Effects of cash flow hedges were net of tax impact of $0.4 million for the nine months ended September 27, 2024.
Amounts reclassified from accumulated other comprehensive loss to the specific caption within Consolidated Statements of Operations and Comprehensive Income were as follows (in millions):
| Quarters Ended | Nine Months Ended | ||||||||||||||||||||||||||||
| September 27, 2024 | September 29, 2023 | September 27, 2024 | September 29, 2023 | To caption | |||||||||||||||||||||||||
| Cash flow hedges | $ | ( | $ | $ | ( | $ | ( | Cost of revenue | |||||||||||||||||||||
| Interest rate swaps | ( | ( | Interest expense | ||||||||||||||||||||||||||
| Interest rate swaps terminations | ( | ( | ( | Other income | |||||||||||||||||||||||||
| Total reclassifications | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||
26
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion in conjunction with our audited historical consolidated financial statements, which are included in the 2023 Form 10-K, and our unaudited consolidated financial statements for the fiscal quarter ended September 27, 2024, which are included elsewhere in this Form 10-Q. This Management's Discussion and Analysis of Financial Condition and Results of Operations contains statements that are forward-looking. These statements are based on expectations and assumptions as of the date of this Form 10-Q and are subject to risks, uncertainties and other factors. Actual results could differ materially because of the factors discussed below or elsewhere in this Form 10-Q. See Part II, Item 1A. "Risk Factors" of this Form 10-Q and Part I, Item 1A. "Risk Factors" of the 2023 Form 10-K.
Executive Overview
onsemi Overview
We provide intelligent power and intelligent sensing solutions with a primary focus towards automotive and industrial markets to help our customers solve challenging problems and create cutting-edge products for a better future. Our intelligent power technologies enable the electrification of the automotive industry that allows for lighter and longer-range electric vehicles, empowers efficient fast-charging systems and propels sustainable energy for the highest efficiency solar strings and industrial power. Our intelligent power solutions for the automotive industry allow our customers to exceed range targets with lower weight and reduce system cost through efficiency. We are utilizing our extensive range of power technologies to address the growing power demands of artificial intelligence and data centers. Our intelligent sensing technologies support the next generation industry, allowing for smarter factories and buildings while also enhancing the automotive mobility experience with imaging and depth sensing that make advanced vehicle safety and automated driving systems possible.
We believe the evolution of the automotive industry, with advancements in autonomous driving, ADAS, vehicle electrification, and the increase in electronics content for vehicle platforms, is reshaping the boundaries of transportation. Through sensing integration, we believe our intelligent power solutions achieve superior efficiencies compared to our peers. This integration allows lower temperature operation and reduced cooling requirements while saving costs and minimizing weight. In addition, our power solutions deliver power with less die per module, achieving higher range for a given battery capacity.
During the first quarter of 2024, we renamed our Advanced Solutions Group ("ASG") reportable segment to Analog and Mixed-Signal Group ("AMG") and reorganized the existing divisions within PSG and AMG. See Note 2: ''Segments and Revenue'' in the notes to the unaudited consolidated financial statements included elsewhere in this Form 10-Q for additional information regarding the segment reorganization. As of September 27, 2024, we were organized into the three operating and reportable segments of PSG, AMG and ISG.
Business Strategy Developments
Our primary focus continues to be on profitable revenue with stable gross margin by capturing high-growth megatrends in our focused end-markets of automotive and industrial infrastructure. We design products in highly-differentiated markets focused on customer needs while optimizing and right-sizing our manufacturing footprint to support growth and maintain gross margins through efficiencies and new product development. We are focused on achieving efficiencies in our operating and capital expenditures, capital allocation on research and development investments and resources to accelerate growth in high-margin products.
2024 Business Realignment
In an effort to streamline resources, drive organizational efficiencies, consolidate our global corporate footprint, and align with our "Fab Right" manufacturing strategy, we initiated the 2024 business realignment efforts during the second quarter of 2024. Under this business realignment, approximately 1,100 employees were notified of their employment termination and around 200 additional employees were reassigned or asked to relocate to another site so far. During the nine months ended September 27, 2024, we incurred severance and other related charges of approximately $70.1 million and asset impairments and other charges of approximately $29.5 million. For additional information, see Note 4: ''Restructuring, Asset Impairments and Other Charges, Net'' in the notes to our unaudited consolidated financial statements included elsewhere in this Form 10-Q.
Share Repurchases
During the quarter ended September 27, 2024, we repurchased approximately 2.8 million shares of common stock for an aggregate purchase price of $200.4 million. For additional information, see Note 7: ''Earnings Per Share and Equity'' in the notes to our unaudited consolidated financial statements included elsewhere in this Form 10-Q.
27
Results of Operations
Quarter Ended September 27, 2024 compared to the Quarter Ended September 29, 2023
The following table summarizes certain information relating to our operating results that has been derived from our unaudited consolidated financial statements (in millions):
| Quarters Ended | |||||||||||||||||
| September 27, 2024 | September 29, 2023 | Dollar Change | |||||||||||||||
| Revenue | $ | 1,761.9 | $ | 2,180.8 | $ | (418.9) | |||||||||||
| Cost of revenue | 962.5 | 1,150.1 | (187.6) | ||||||||||||||
| Gross profit | 799.4 | 1,030.7 | (231.3) | ||||||||||||||
| Operating expenses: | |||||||||||||||||
| Research and development | 151.0 | 143.4 | 7.6 | ||||||||||||||
| Selling and marketing | 65.4 | 68.2 | (2.8) | ||||||||||||||
| General and administrative | 95.5 | 110.7 | (15.2) | ||||||||||||||
| Amortization of acquisition-related intangible assets | 13.0 | 12.0 | 1.0 | ||||||||||||||
| Restructuring, asset impairments and other charges, net | 29.1 | 9.4 | 19.7 | ||||||||||||||
| Total operating expenses | 354.0 | 343.7 | 10.3 | ||||||||||||||
| Operating income | 445.4 | 687.0 | (241.6) | ||||||||||||||
| Other income (expense), net: | |||||||||||||||||
| Interest expense | (15.7) | (16.2) | 0.5 | ||||||||||||||
| Interest income | 28.6 | 25.7 | 2.9 | ||||||||||||||
| Loss on divestiture of business | — | (0.1) | 0.1 | ||||||||||||||
| Other income (expense) | (3.7) | 1.1 | (4.8) | ||||||||||||||
| Other income (expense), net | 9.2 | 10.5 | (1.3) | ||||||||||||||
| Income before income taxes | 454.6 | 697.5 | (242.9) | ||||||||||||||
| Income tax provision | (51.9) | (114.6) | 62.7 | ||||||||||||||
| Net income | 402.7 | 582.9 | (180.2) | ||||||||||||||
| Less: Net income attributable to non-controlling interest | (1.0) | (0.2) | (0.8) | ||||||||||||||
| Net income attributable to ON Semiconductor Corporation | $ | 401.7 | $ | 582.7 | $ | (181.0) | |||||||||||
Revenue
Revenue was $1,761.9 million and $2,180.8 million for the quarters ended September 27, 2024 and September 29, 2023, respectively, representing a decrease of $418.9 million, or approximately 19%, year over year. We had one customer, a distributor, whose revenue accounted for approximately 12% and 11% of our total revenue for the quarters ended September 27, 2024 and September 29, 2023, respectively.
Revenue by operating and reportable segments was as follows (dollars in millions):
| Quarter Ended September 27, 2024 | As a % of Total Revenue (1) | Quarter Ended September 29, 2023 | As a % of Total Revenue (1) | ||||||||||||||||||||
| PSG | $ | 829.4 | 47.1 | % | $ | 1,076.5 | 49.4 | % | |||||||||||||||
| AMG | 653.7 | 37.1 | % | 775.7 | 35.6 | % | |||||||||||||||||
| ISG | 278.8 | 15.8 | % | 328.6 | 15.1 | % | |||||||||||||||||
| Total revenue | $ | 1,761.9 | $ | 2,180.8 | |||||||||||||||||||
(1) Certain amounts may not total due to rounding of individual amounts.
28
Revenue from PSG decreased by $247.1 million, or approximately 23%, for the quarter ended September 27, 2024 compared to the quarter ended September 29, 2023. Revenue from our Automotive Power Division, Multi-Market Power Division and Industrial Power Division decreased by $129.7 million, $58.9 million and $58.5 million, respectively, primarily driven by a decrease in demand in the automotive and industrial end-markets.
Revenue from AMG decreased by $122.0 million, or approximately 16%, for the quarter ended September 27, 2024 compared to the quarter ended September 29, 2023. Revenue from our Sensor Interface Division, Power Management Division and Integrated Circuit Division decreased by $65.4 million, $47.4 million and $9.2 million, respectively, primarily due to a decrease in demand in the automotive and industrial end-markets.
Revenue from ISG decreased by $49.8 million, or approximately 15%, for the quarter ended September 27, 2024 compared to the quarter ended September 29, 2023, largely driven by a decrease in revenue from our Industrial and Consumer Solutions Division and Automotive Sensing Division of $35.1 million and $14.7 million, respectively, primarily due to the decrease in demand for these products in the automotive and industrial end-markets.
Revenue by geographic location, based on sales billed from the respective country or region, was as follows (dollars in millions):
| Quarter Ended September 27, 2024 | As a % of Total Revenue (1) | Quarter Ended September 29, 2023 | As a % of Total Revenue (1) | ||||||||||||||||||||
| Hong Kong | $ | 466.9 | 26.5 | % | $ | 581.9 | 26.7 | % | |||||||||||||||
| Singapore | 449.5 | 25.5 | % | 506.8 | 23.2 | % | |||||||||||||||||
| United Kingdom | 395.8 | 22.5 | % | 464.2 | 21.3 | % | |||||||||||||||||
| United States | 281.9 | 16.0 | % | 424.5 | 19.5 | % | |||||||||||||||||
| Other | 167.8 | 9.5 | % | 203.4 | 9.3 | % | |||||||||||||||||
| Total revenue | $ | 1,761.9 | $ | 2,180.8 | |||||||||||||||||||
(1) Certain amounts may not total due to rounding of individual amounts.
Gross Profit and Gross Margin
Gross profit decreased by $231.3 million, or approximately 22%, to $799.4 million for the quarter ended September 27, 2024 compared to $1,030.7 million for the quarter ended September 29, 2023. This was primarily due to the decline in sales volume from existing products and new products which negatively impacted gross profit by approximately $162 million and $77 million, respectively, partially offset by approximately $8 million due to a reduction in the lower-margin manufacturing services revenue at our EFK location.
Our gross margin decreased by approximately 1.9 percentage points to 45.4% for the quarter ended September 27, 2024 from 47.3% for the quarter ended September 29, 2023, primarily due to changes as explained in the segment gross margin sections below.
Our gross profit by operating and reportable segments was as follows (dollars in millions):
| Quarter Ended September 27, 2024 | As a % of Revenue | Quarter Ended September 29, 2023 | As a % of Revenue | ||||||||||||||||||||
| PSG | $ | 344.9 | 41.6 | % | $ | 513.5 | 47.7 | % | |||||||||||||||
| AMG | 325.3 | 49.8 | % | 361.1 | 46.6 | % | |||||||||||||||||
| ISG | 129.2 | 46.3 | % | 156.1 | 47.5 | % | |||||||||||||||||
| Total gross profit | $ | 799.4 | 45.4 | % | $ | 1,030.7 | 47.3 | % | |||||||||||||||
Explanation for the fluctuation in gross profit amounts and gross margin percentages for the quarter ended September 27, 2024 compared to the quarter ended September 29, 2023 is provided below:
PSG gross profit decreased by $168.6 million, primarily driven by the decline in sales volume from existing products and new products which negatively impacted gross profit by approximately $91 million and $77 million, respectively. PSG gross margin decreased by 6.1 percentage points to 41.6% from 47.7% primarily as a result of the decline in volume, underutilization and the related impact of unfavorable product mix.
29
AMG gross profit decreased by $35.8 million, primarily driven by the decline in sales volume from existing products which negatively impacted gross profit by approximately $43 million, partially offset by improved gross profit of approximately $8 million due to the reduction in the lower-margin manufacturing services revenue at our EFK location. AMG gross margin increased by 3.2 percentage points to 49.8% from 46.6%, primarily due to the reduction in the lower-margin manufacturing services revenue at our EFK location and favorable changes in product mix.
ISG gross profit decreased by $26.9 million, primarily driven by the decline in sales volume from existing products. ISG gross margin decreased by 1.2 percentage points to 46.3% from 47.5%, primarily driven by unfavorable changes in product mix.
Operating Expenses
Research and development expenses were $151.0 million for the quarter ended September 27, 2024, as compared to $143.4 million for the quarter ended September 29, 2023, representing an increase of $7.6 million, or approximately 5%. The increase was primarily attributable to an increase in payroll-related expenses and production supplies.
Selling and marketing expenses were $65.4 million for the quarter ended September 27, 2024, as compared to $68.2 million for the quarter ended September 29, 2023, representing a decrease of $2.8 million, or approximately 4%. The decrease was primarily attributable to a decrease in sales commissions.
General and administrative expenses were $95.5 million for the quarter ended September 27, 2024, as compared to $110.7 million for the quarter ended September 29, 2023, representing a decrease of $15.2 million, or approximately 14%. The decrease was primarily attributable to a decrease in the bad debt provision with a strategic business partner, compared to the quarter ended September 29, 2023.
Other Operating Expenses
Amortization of Acquisition-Related Intangible Assets
Amortization of acquisition-related intangible assets was $13.0 million for the quarter ended September 27, 2024, as compared to $12.0 million for the quarter ended September 29, 2023, representing an increase of $1.0 million, or approximately 8%.
Restructuring, Asset Impairments and Other, Net
Restructuring, asset impairments and other, net was $29.1 million for the quarter ended September 27, 2024, as compared to $9.4 million for the quarter ended September 29, 2023. Charges incurred for the quarter ended September 27, 2024 primarily relate to restructuring actions during the period. See Note 4: ''Restructuring, Asset Impairments and Other Charges, Net'' in the notes to our unaudited consolidated financial statements included elsewhere in this Form 10-Q for additional information.
Interest Expense
Interest expense decreased by $0.5 million to $15.7 million during the quarter ended September 27, 2024, as compared to $16.2 million during the quarter ended September 29, 2023. The decrease was primarily due to the maturity of the 1.625% Notes in 2023. Our average gross long-term debt for the quarter ended September 27, 2024 was $3,379.9 million at a weighted-average interest rate of 1.9%, as compared to $3,499.5 million at a weighted-average interest rate of 1.8% for the quarter ended September 29, 2023. The calculation of our weighted-average interest rates includes the effect of our interest rate swap agreements.
Interest Income
Interest income increased by $2.9 million, or approximately 11%, to $28.6 million during the quarter ended September 27, 2024 compared to $25.7 million during the quarter ended September 29, 2023, primarily due to higher interest rates and increased balances in interest-bearing accounts.
Other Income (Expense)
During the quarter ended September 27, 2024, other income was $3.7 million compared to an expense of $1.1 million during the quarter ended September 29, 2023.
30
Income Tax Provision
We recorded an income tax provision of $51.9 million and $114.6 million for the quarters ended September 27, 2024 and September 29, 2023, respectively, representing effective tax rates of 11.4% and 16.4%, respectively. The decrease in our effective tax rate is mainly due to return-to-provision adjustments reflecting additional tax benefits from Foreign Derived Intangible Income.
For additional information, see Note 12: ''Income Taxes'' in the notes to the unaudited consolidated financial statements included elsewhere in this Form 10-Q.
Results of Operations
Nine Months Ended September 27, 2024 compared to the Nine Months Ended September 29, 2023
The following table summarizes certain information relating to our operating results that has been derived from our unaudited consolidated financial statements (in millions):
| Nine Months Ended | |||||||||||||||||
| September 27, 2024 | September 29, 2023 | Dollar Change | |||||||||||||||
| Revenue | $ | 5,359.8 | $ | 6,234.9 | $ | (875.1) | |||||||||||
| Cost of revenue | 2,922.8 | 3,293.3 | (370.5) | ||||||||||||||
| Gross profit | 2,437.0 | 2,941.6 | (504.6) | ||||||||||||||
| Operating expenses: | |||||||||||||||||
| Research and development | 457.5 | 427.1 | 30.4 | ||||||||||||||
| Selling and marketing | 203.1 | 211.6 | (8.5) | ||||||||||||||
| General and administrative | 275.8 | 273.8 | 2.0 | ||||||||||||||
| Amortization of acquisition-related intangible assets | 38.5 | 39.0 | (0.5) | ||||||||||||||
| Restructuring, asset impairments and other charges, net | 103.0 | 63.5 | 39.5 | ||||||||||||||
| Total operating expenses | 1,077.9 | 1,015.0 | 62.9 | ||||||||||||||
| Operating income | 1,359.1 | 1,926.6 | (567.5) | ||||||||||||||
| Other income (expense), net: | |||||||||||||||||
| Interest expense | (47.0) | (59.0) | 12.0 | ||||||||||||||
| Interest income | 83.6 | 66.8 | 16.8 | ||||||||||||||
| Loss on debt prepayment | — | (13.3) | 13.3 | ||||||||||||||
| Loss on divestiture of business | — | (0.7) | 0.7 | ||||||||||||||
| Other income | (0.8) | 4.5 | (5.3) | ||||||||||||||
| Other income (expense), net | 35.8 | (1.7) | 37.5 | ||||||||||||||
| Income before income taxes | 1,394.9 | 1,924.9 | (530.0) | ||||||||||||||
| Income tax provision | (200.1) | (302.7) | 102.6 | ||||||||||||||
| Net income | 1,194.8 | 1,622.2 | (427.4) | ||||||||||||||
| Less: Net income attributable to non-controlling interest | (1.9) | (1.2) | (0.7) | ||||||||||||||
| Net income attributable to ON Semiconductor Corporation | $ | 1,192.9 | $ | 1,621.0 | $ | (428.1) | |||||||||||
Revenue
Revenue was $5,359.8 million and $6,234.9 million for the nine months ended September 27, 2024 and September 29, 2023, respectively, representing a decrease of $875.1 million, or approximately 14%, year over year. We had one customer, a distributor, whose revenue accounted for approximately 11% and 10% of our total revenue for the nine months ended September 27, 2024 and September 29, 2023, respectively.
31
Revenue by operating and reportable segments was as follows (dollars in millions):
| Nine Months Ended September 27, 2024 | As a % of Total Revenue (1) | Nine Months Ended September 29, 2023 | As a % of Total Revenue (1) | ||||||||||||||||||||
| PSG | $ | 2,538.8 | 47.4 | % | $ | 2,914.8 | 46.7 | % | |||||||||||||||
| AMG | 1,998.5 | 37.3 | % | 2,312.3 | 37.1 | % | |||||||||||||||||
| ISG | 822.5 | 15.3 | % | 1,007.8 | 16.2 | % | |||||||||||||||||
| Total revenue | $ | 5,359.8 | $ | 6,234.9 | |||||||||||||||||||
(1) Certain amounts may not total due to rounding of individual amounts.
Revenue from PSG decreased by $376.0 million, or approximately 13%, for the nine months ended September 27, 2024 compared to the nine months ended September 29, 2023. Revenue from our Multi-Market Power Division, Industrial Power Division and Automotive Power Division decreased by $176.3 million, $115.8 million and $83.9 million, respectively, primarily driven by a decrease in demand in the automotive and industrial end-markets.
Revenue from AMG decreased by $313.8 million, or approximately 14%, for the nine months ended September 27, 2024 compared to the nine months ended September 29, 2023. Revenue from our Power Management Division, Integrated Circuit Division and Sensor Interface Division decreased by $157.3 million, $78.6 million and $77.9 million, respectively, primarily due to a decrease in demand in the automotive and industrial end-markets.
Revenue from ISG decreased by $185.3 million, or approximately 18%, for the nine months ended September 27, 2024 compared to the nine months ended September 29, 2023, largely driven by a decrease in revenue from our Industrial and Consumer Solutions Division and Automotive Sensing Division of $100.3 million and $85.0 million, respectively, primarily due to the decrease in demand for these products in the automotive and industrial end-markets.
Revenue by geographic location, including local sales made by operations within each area, based on sales billed from the respective region, was as follows (dollars in millions):
| Nine Months Ended September 27, 2024 | As a % of Total Revenue (1) | Nine Months Ended September 29, 2023 | As a % of Total Revenue (1) | ||||||||||||||||||||
| Hong Kong | $ | 1,325.8 | 24.7 | % | $ | 1,602.5 | 25.7 | % | |||||||||||||||
| Singapore | 1,273.0 | 23.8 | % | 1,476.8 | 23.7 | % | |||||||||||||||||
| United Kingdom | 1,253.6 | 23.4 | % | 1,326.8 | 21.3 | % | |||||||||||||||||
| United States | 1,025.7 | 19.1 | % | 1,194.5 | 19.2 | % | |||||||||||||||||
| Other | 481.7 | 9.0 | % | 634.3 | 10.2 | % | |||||||||||||||||
| Total revenue | $ | 5,359.8 | $ | 6,234.9 | |||||||||||||||||||
(1) Certain amounts may not total due to rounding of individual amounts.
Gross Profit and Gross Margin
Gross profit was $2,437.0 million for the nine months ended September 27, 2024 compared to $2,941.6 million for the nine months ended September 29, 2023, representing a decrease of $504.6 million, or approximately 17%. This was primarily due to the decline in sales volume from existing products and new products which negatively impacted gross profit by approximately $487 million and $79 million, respectively, partially offset by approximately $62 million due to a reduction in the lower-margin manufacturing services revenue at our EFK location.
Our gross margin decreased by 1.7 percentage points to 45.5% for the nine months ended September 27, 2024 from 47.2% for the nine months ended September 29, 2023, primarily due to changes as explained in the segment gross margin sections below.
32
Our gross profit by operating and reportable segments was as follows (dollars in millions):
| Nine Months Ended September 27, 2024 | As a % of Revenue | Nine Months Ended September 29, 2023 | As a % of Revenue | ||||||||||||||||||||
| PSG | $ | 1,059.1 | 41.7 | % | $ | 1,377.9 | 47.3 | % | |||||||||||||||
| AMG | 986.0 | 49.3 | % | 1,075.3 | 46.5 | % | |||||||||||||||||
| ISG | 391.9 | 47.6 | % | 488.4 | 48.5 | % | |||||||||||||||||
| Total gross profit | $ | 2,437.0 | 45.5 | % | $ | 2,941.6 | 47.2 | % | |||||||||||||||
Explanation for the increase or decrease in gross profit amounts and gross margin percentages for the nine months ended September 27, 2024 compared to the nine months ended September 29, 2023 is provided below:
PSG gross profit decreased by $318.8 million, primarily driven by the decline in sales volume from existing products and new products which negatively impacted gross profit by approximately $240 million and $79 million, respectively. PSG gross margin decreased by 5.6 percentage points to 41.7% from 47.3%, primarily as a result of the decline in volume, underutilization and the related impact of unfavorable product mix.
AMG gross profit decreased by $89.3 million, primarily driven by the decline sales volume from existing products which negatively impacted gross profit by approximately $151 million, partially offset by improved gross profit of approximately $62 million from the lower-margin manufacturing services revenue at our EFK location. AMG gross margin increased by 2.8 percentage points to 49.3% from 46.5%, primarily due to the reduction in the lower-margin manufacturing services revenue at our EFK location.
ISG gross profit decreased by $96.5 million, primarily driven by the decline in sales volume from existing products. ISG gross margin decreased 0.9 percentage points to 47.6% from 48.5%, primarily driven by unfavorable changes in product mix.
Operating Expenses
Research and development expenses were $457.5 million for the nine months ended September 27, 2024, as compared to $427.1 million for the nine months ended September 29, 2023, representing an increase of $30.4 million, or approximately 7%. The increase was primarily attributable to an increase in payroll-related expenses and production supplies, partially offset by a decrease in variable compensation.
Selling and marketing expenses were $203.1 million for the nine months ended September 27, 2024, as compared to $211.6 million for the nine months ended September 29, 2023, representing a decrease of $8.5 million, or approximately 4%. The decrease was primarily attributable to a decrease in sales commissions.
General and administrative expenses were $275.8 million for the nine months ended September 27, 2024, as compared to $273.8 million for the nine months ended September 29, 2023, representing an increase of $2.0 million, or approximately 1%. The increase was primarily attributable to expenses associated with information technology initiatives, partially offset by a decrease in the bad debt provision with a strategic business partner and a decrease in variable compensation.
Other Operating Expenses
Amortization of Acquisition-Related Intangible Assets
Amortization of acquisition-related intangible assets was $38.5 million and $39.0 million for the nine months ended September 27, 2024 and September 29, 2023, respectively, representing a decrease of $0.5 million, or approximately 1%. The decrease was due to a reduction in amortization expense as certain intangible assets became fully amortized.
Restructuring, Asset Impairments and Other, Net
Restructuring, asset impairments and other, net was $103.0 million for the nine months ended September 27, 2024, as compared to $63.5 million for the nine months ended September 29, 2023, representing an increase of $39.5 million. Amounts incurred for the nine months ended September 27, 2024 related primarily to the business realignment efforts in the first nine months of 2024. See Note 4: ''Restructuring, Asset Impairments and Other Charges, Net'' in the notes to our unaudited consolidated financial statements included elsewhere in this Form 10-Q for additional information.
33
Interest Expense
Interest expense decreased by $12.0 million to $47.0 million during the nine months ended September 27, 2024, as compared to $59.0 million during the nine months ended September 29, 2023. The decrease was primarily due to higher variable-rate debt that was paid down and replaced by the 0.50% Notes in 2023. Our average gross long-term debt balance for the nine months ended September 27, 2024 was $3,379.9 million at a weighted-average interest rate of 1.9%, as compared to $3,363.9 million at a weighted-average interest rate of 2.3% for the nine months ended September 29, 2023. The calculation of our weighted-average interest rates includes the effect of our interest rate swap agreements.
Interest Income
Interest income increased by $16.8 million, or approximately 25%, to $83.6 million during the nine months ended September 27, 2024 compared to $66.8 million during the nine months ended September 29, 2023, primarily due to higher interest rates and increased balances in interest-bearing accounts.
Loss on Debt Prepayment
There was no loss on debt prepayment recognized for the nine months ended September 27, 2024, as compared to $13.3 million for the nine months ended September 29, 2023 due to the write-off relating to the partial repayment of the Term Loan "B" Facility in 2023.
Other Income (Expense)
Other income (expense) was an income of $0.8 million for the nine months ended September 27, 2024 as compared to $4.5 million for the nine months ended September 29, 2023.
Income Tax Provision
We recorded an income tax provision of $200.1 million and $302.7 million during the nine months ended September 27, 2024 and September 29, 2023, respectively, representing effective tax rates of 14.3% and 15.7%, respectively. The decrease in our effective tax rate is mainly due to return-to-provision adjustments reflecting additional tax benefits from Foreign Derived Intangible Income.
For additional information, see Note 12: ''Income Taxes'' in the notes to the unaudited consolidated financial statements included elsewhere in this Form 10-Q.
Liquidity and Capital Resources
Overview
Our principal sources of liquidity are cash on hand, cash generated from operations, available borrowings under our Revolving Credit Facility as well as new debt and/or equity issuances. In the near term, we expect to fund our cash requirements by utilizing any or a combination of these principal sources, including any amounts required to satisfy our current portion of long-term debt. Our cash and cash equivalents and short-term investments were approximately $2.8 billion as of September 27, 2024, and the Revolving Credit Facility has approximately $1.1 billion available for future borrowings.
We require cash to: (i) fund our operating expenses, working capital requirements, outlays for strategic acquisitions and investments; (ii) service our debt, including principal and interest; (iii) incur capital expenditures; and (iv) repurchase our common stock. During the ordinary course of business, we evaluate our cash requirements and, if necessary, adjust our expenditures to reflect the current market conditions and our projected sales and demand. Our capital expenditures are primarily directed towards manufacturing equipment. Future capital expenditures may be impacted by events and transactions that are not currently forecasted.
We believe that our cash on hand, cash generated from our operations and the amounts available under the Revolving Credit Facility are adequate to meet our working capital requirements and other business needs for at least the next 12 months.
34
Operating Activities
Our cash flows from operating activities were $1,326.7 million and $1,366.3 million for the nine months ended September 27, 2024 and September 29, 2023, respectively. The decrease of $39.6 million was primarily due to a reduction in net income driven by lower end-market demand for our products partially offset by the timing of cash receipts and payments related to working capital balances.
Our ability to maintain positive operating cash flows is dependent on, among other factors, our success in achieving our revenue goals and manufacturing and operating cost targets. Management of our assets and liabilities, including both working capital and long-term assets and liabilities, also influences our operating cash flows.
Investing Activities
Our cash flows used in investing activities were $858.1 million and $1,352.7 million for the nine months ended September 27, 2024 and September 29, 2023, respectively. The decrease of $494.6 million was primarily attributable to a decrease in capital expenditures and payments for the acquisition of our EFK location during the nine months ended September 29, 2023 partially offset by the purchase of short-term investments. Our capital expenditures as a percent of revenue were approximately 10%, and we expect capital expenditures to be in the range of 8% - 10% of revenue for the remainder of 2024.
Financing Activities
Our cash flows used in financing activities were $480.5 million and $254.3 million for the nine months ended September 27, 2024 and September 29, 2023, respectively. The increase of $226.2 million was primarily attributable to increased share repurchases during the nine months ended September 27, 2024 compared to the same period in 2023. Additionally, during the nine months ended September 29, 2023, we had net cash outflows related to the establishment of our New Credit Agreement.
We do not have any meaningful debt maturing during the next 12 months. Our 0% Notes are also classified as a current liability based on share price trigger provisions. We expect to continue our Share Repurchase Program subject to market conditions, the price of our shares and other factors (including liquidity needs). However, the Share Repurchase Program may be modified, suspended or terminated by the Board of Directors at any time without prior notice.
Key Factors Potentially Affecting Liquidity
We believe that the key factors that could adversely affect our internal and external sources of cash include, among other considerations:
•changes in demand for our products, competitive pricing pressures, supply chain constraints, effective management of our manufacturing capacity, our ability to achieve further reductions in operating expenses, our ability to make progress on the achievement of our business strategy and sustainability goals, the impact of our restructuring programs on our production and cost efficiency, and our ability to make the research and development expenditures required to remain competitive in our business; and
•the debt and equity capital markets could impact our ability to obtain needed financing on acceptable terms or to respond to business opportunities and developments as they arise, including interest rate fluctuations, macroeconomic conditions, sudden reductions in the general availability of lending from banks or the related increase in cost to obtain bank financing and our ability to maintain compliance with covenants under our debt agreements in effect from time to time.
Debt Guarantees and Related Covenants
As of September 27, 2024, we were in compliance with the indentures relating to our 0% Notes, 0.50% Notes and 3.875% Notes and with covenants included in the New Credit Agreement. The 0% Notes, 0.50% Notes and 3.875% Notes are senior to the existing and future subordinated indebtedness of onsemi and its guarantor subsidiaries, rank equally in right of payment to all of our existing and future senior debt and, as unsecured obligations, are subordinated to all of our existing and future secured debt to the extent of the assets securing such debt.
35
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see Note 3: ''Recent Accounting Pronouncements and Other Developments'' in the notes to the unaudited consolidated financial statements included elsewhere in this Form 10-Q and our 2023 Form 10-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in market risk from the information presented in Part II, Item 7A. "Quantitative and Qualitative Disclosures About Market Risk," in the 2023 Form 10-K.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were effective to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
We also carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the fiscal quarter ended September 27, 2024.
There have been no changes to our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the fiscal quarter ended September 27, 2024 which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
36
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
See Note 9: ''Commitments and Contingencies'' under the heading "Legal Matters" in the notes to the consolidated unaudited financial statements included elsewhere in this Form 10-Q for additional information on our legal proceedings and related matters. See also Part I, Item 1 "Business - Government Regulation" of the 2023 Form 10-K for information on certain environmental matters.
Item 1A. Risk Factors
Our business, financial condition and results of operations are subject to a number of trends, risks and uncertainties. We review and, where applicable, update our risk factors each quarter. There have been no material changes from the risk factors disclosed in Part I, Item 1A of the 2023 Form 10-K.
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes "forward-looking statements," as that term is defined in Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements, other than statements of historical facts, included or incorporated in this Form 10-Q could be deemed forward-looking statements, particularly statements about our plans, strategies and prospects under the heading "Management’s Discussion and Analysis of Financial Condition and Results of Operations." Forward-looking statements are often characterized by the use of words such as "believes," "estimates," "expects," "projects," "may," "will," "intends," "plans," "anticipates," "should" or similar expressions, or by discussions of strategy, plans or intentions. All forward-looking statements in this Form 10-Q 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.
Important factors that could cause our actual results to differ materially from those anticipated in the forward-looking statements are described under Part I, Item 1A "Risk Factors" in the 2023 Form 10-K, in this Form 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, which speaks only as of the date made, except as may be required by law. Investing in our securities involves a high degree of risk and uncertainty, and you should carefully consider the trends, risks and uncertainties described in the aforementioned reports and subsequent reports filed with or furnished to the SEC before making any investment decision with respect to our securities. The risk factors described herein and in our 2023 Form 10-K are not all of the risks we may face. Other risks not presently known to us or that we currently believe are immaterial may materially affect our business. If any of the 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.
37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information regarding repurchases of our common stock during the quarter ended September 27, 2024:
Period (1) | Total Number of Shares Purchased | Average Price Paid per Share ($) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar value of Shares that May Yet be Purchased Under the Plans or Programs (in millions) ($) | ||||||||||||||||||||||
| June 29, 2024 - July 26, 2024 | — | — | — | 2,186.0 | ||||||||||||||||||||||
| July 27, 2024 - August 23, 2024 | 2,469,967 | 71.90 | 2,469,957 | 2,008.4 | ||||||||||||||||||||||
| August 24, 2024 - September 27, 2024 | 298,577 | 75.20 | 298,577 | 1,986.0 | ||||||||||||||||||||||
| Total | 2,768,544 | 72.26 | 2,768,534 | |||||||||||||||||||||||
(1) These time periods represent our fiscal month start and end dates for the third quarter of 2024.
Shares withheld to satisfy statutory tax withholding requirements related to the vesting of share-based awards are not issued or considered repurchases of our common stock under our Share Repurchase Program and, therefore, are excluded from the table above.
Share Repurchase Program
In February 2023, the Board of Directors approved a share repurchase program (the "Share Repurchase Program"), which allows for the repurchase of our common stock from time to time in privately negotiated transactions or open market transactions, including pursuant to a trading plan in accordance with Rule 10b5-1 and Rule 10b-18 of the Exchange Act, or by any combination of such methods or other methods. The Share Repurchase Program, which does not require us to purchase any minimum amount of our common stock, has an aggregate limit of $3.0 billion from February 8, 2023 through December 31, 2025 (exclusive of fees, commissions and other expenses). Any repurchases will be at the Company’s discretion and will be subject to market conditions, the price of our shares and other factors (including liquidity needs). The Share Repurchase Program may be modified, suspended or terminated by the Board of Directors at any time without prior notice.
There were 2.8 million shares of the Company's common stock repurchased under the Share Repurchase Program during the quarter ended September 27, 2024. As of September 27, 2024, the authorized amount remaining under the Share Repurchase Program was approximately $2.0 billion.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Insider Trading Arrangements
During the quarter ended September 27, 2024, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted terminated
38
Item 6. Exhibits
EXHIBIT INDEX
| Exhibit No. | Exhibit Description* | ||||||||||||||||
| 31.1 | |||||||||||||||||
| 31.2 | |||||||||||||||||
| 32 | |||||||||||||||||
| 10.1 | |||||||||||||||||
| 101.INS | XBRL Instance Document (1) | ||||||||||||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document (1) | ||||||||||||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document (1) | ||||||||||||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document (1) | ||||||||||||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document (1) | ||||||||||||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document (1) | ||||||||||||||||
| 104 | Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document. | ||||||||||||||||
* | Reports filed under the Exchange Act (Form 10-K, Form 10-Q and Form 8-K) are filed under File No. 000-30419 and File No. 001-39317. | ||||
† | The Company has omitted certain schedules and exhibits pursuant to Item 601(b)(2) of Regulation S-K and, upon request by the Commission, agrees to furnish supplementally to the Commission a copy of any omitted schedule or exhibit. | ||||
(1) | Filed herewith. | ||||
(2) | Furnished herewith. | ||||
(3) | Management contract or compensatory plan, contract or arrangement. | ||||
39
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| ON SEMICONDUCTOR CORPORATION (Registrant) | |||||||||||
| Date: | October 28, 2024 | By: | /s/ THAD TRENT | ||||||||
| Thad Trent | |||||||||||
Executive Vice President, Chief Financial Officer and Treasurer | |||||||||||
(Principal Financial and Accounting Officer and officer duly authorized to sign this report) | |||||||||||
40
Exhibit 10.1
ON SEMICONDUCTOR CORPORATION
2000 EMPLOYEE STOCK PURCHASE PLAN
2000 EMPLOYEE STOCK PURCHASE PLAN
APPROVED BY STOCKHOLDERS: MAY 20, 2021
(AS AMENDED AND RESTATED EFFECTIVE AUGUST 16, 2024)
1.Purpose.
(a)The purpose of this ON Semiconductor Corporation 2000 Employee Stock Purchase Plan (the “Plan”) is to encourage stock ownership by eligible employees of ON Semiconductor Corporation (the “Company”), its Subsidiaries and Affiliates and thereby provide employees with an incentive to contribute to the profitability and success of the Company.
(b)This Plan includes two components: a Code Section 423 Component (the “423 Component”) and a non-Code Section 423 Component (the “Non-423 Component”). It is the intention of the Company that the 423 Component qualify as an “employee stock purchase plan” under Section 423 of the Code. The provisions of the Plan will govern the 423 Component, and accordingly will be construed so as to extend and limit participation in a uniform and nondiscriminatory basis consistent with the requirements of Section 423 of the Code. In addition, this Plan authorizes the grant of Purchase Rights under the Non-423 Component, which is not intended to qualify as an “employee stock purchase plan” under Section 423 of the Code, and which Purchase Rights will be granted pursuant to rules, procedures or subplans adopted by the Board designed to achieve tax, securities laws or other objectives for eligible employees, the Company, its Subsidiaries and Affiliates. Except as otherwise provided in the Plan or determined by the Board, the Non-423 Component will operate and be administered in the same manner as the 423 Component.
2.Definitions. For purposes of the Plan, in addition to the terms defined in Section 1, the following terms are defined:
(a)“Affiliate” means any person or entity that directly or indirectly controls or is controlled by the Company. The term “control” (including, with correlative meaning, the term “controlled by”), as applied to any person or entity, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person or entity, whether through the ownership of voting or other securities, by contract or otherwise. The Board will have the authority to determine the time or times at which “Affiliate” status is determined within the foregoing definition.
(b)“Board” means the Board of Directors of the Company.
(c)“Cash Account” means the account maintained on behalf of a Participant by the Company for the purpose of holding cash contributions withheld from payroll pending investment in Stock.
(d)“Code” means the Internal Revenue Code of 1986, as amended.
(e)“Custodian” means Morgan Stanley At Work or any successor or replacement appointed by the Board under Section 3(a).
(f)“Designated Company” means any Subsidiary or Affiliate, whether now existing or existing in the future, that has been designated by the Board from time to time in its discretion as eligible to participate in the Plan. The Board may designate any Subsidiary or Affiliate as a Designated Company in the Non-423 Component. For purposes of an Offering under the 423 Component, only the Company and any Subsidiary may be Designated Companies; provided, however, that at any given time, a Subsidiary that is a Designated Company under an Offering under the 423 Component will not be a Designated Company under a Non-423 Component.
(g)“Earnings” means a Participant’s salary or wages, including bonuses, for services performed for the Company and Designated Companies and received by a Participant for services rendered during an Offering Period.
(h)“Fair Market Value” means the closing price of the Stock on the relevant date as reported on NASDAQ (or any national securities exchange or quotation system on which the Stock is then listed), or if there were no sales on that date the closing price on the next preceding date for which a closing price was reported; provided, however, that for any Offering Period beginning on the IPO Date, the Fair Market Value of the Stock on the first day of such Offering Period shall be deemed to be the price at which the Company’s Stock is offered under its initial public offering of Stock.
(i)“IPO Date” means the date on which the Company’s initial public offering of Stock is consummated.
(j)“Offering” means an offering of Purchase Rights during an Offering Period, as further described in the Plan, under either the 423 Component or the Non-423 Component. Unless otherwise determined by the Board, each Offering under the Plan in which eligible employees of the Company or one or more Designated Companies may participate will be deemed a separate Offering for purposes of Section 423 of the Code, even if the dates of each such Offering are identical, and the provisions of the Plan will separately apply to each Offering.
(k)“Offering Period” means the period beginning on the IPO Date and ending on the last day of the next calendar quarter, and every three-month period thereafter. For Participants who do not reside in the United States, if the day on which the Company receives approval by the applicable foreign jurisdiction to offer common stock to Participants residing in that jurisdiction is later than the day on which the Company’s initial public offering becomes effective, the Offering Period means the period beginning on the day on which the Company receives approval by the applicable foreign jurisdiction to offer common stock to such Participants and ending on the last day of the next calendar quarter, and every three-month period thereafter.
(l)“Participant” means an employee of the Company or a Designated Company who is participating in the Plan.
2
(m)“Purchase Right” means a Participant’s option to purchase Stock that is deemed to be outstanding during an Offering Period. With respect to the 423 Component, a Purchase Right represents an “option” under Section 423 of the Code.
(n)“Stock” means the common stock of the Company.
(o)“Stock Account” means the account maintained on behalf of the Participant by the Custodian for the purpose of holding Stock acquired under the Plan.
(p)“Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations (other than the last corporation in the unbroken chain) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain as set forth in Code Section 424(f).
3.Administration.
(a)Board Administration. The Plan will be administered by the Board. The Board may delegate its administrative duties and authority (other than its authority to amend the Plan) to any Board committee or to any officers or employees or committee thereof as the Board may designate (in which case references to the Board will be deemed to refer to the administrator to which such duties and authority have been delegated). The Board will have full authority to adopt, amend, suspend, waive, and rescind rules and regulations and appoint agents as it deems necessary or advisable to administer the Plan, to correct any defect or supply any omission or reconcile any inconsistency in the Plan and to construe and interpret the Plan and rules and regulations thereunder, to furnish to the Custodian such information as the Custodian may require, and to make all other decisions and determinations under the Plan (including determinations relating to eligibility). No person acting in connection with the administration of the Plan will, in that capacity, participate in deciding any matter relating to his or her participation in the Plan.
(b)The Custodian. The Custodian will act as custodian under the Plan and will perform duties under the Plan and in any agreement between the Company and the Custodian. The Custodian will establish and maintain Participants’ Stock Accounts and any subaccounts as may be necessary or desirable to administer the Plan.
(c)Waivers. The Board may waive or modify any requirement that a notice or election be made or filed under the Plan a specified period in advance on an individual case or by adopting a rule or regulation under the Plan, without amending the Plan.
(d)Other Administrative Provisions. The Company will furnish information from its records as directed by the Board, and such records, including a Participant’s Earnings, will be conclusive on all persons unless determined by the Board to be incorrect. Each Participant and other person claiming benefits under the Plan must furnish to the Company in writing an up-to-date mailing address and any other information as the Board or Custodian may reasonably request. Any communication, statement, or notice mailed with postage prepaid to any such Participant or other person at the last mailing address filed with the Company will be deemed sufficiently
3
given when mailed and will be binding upon the named recipient. The Plan will be administered on a reasonable and nondiscriminatory basis and uniform rules will apply to all persons similarly situated. All Participants will have equal rights and privileges (subject to the terms of the Plan) with respect to Purchase Right outstanding during any given Offering Period in accordance with Code Section 423(b)(5). With respect to an Offering under the 423 Component, the terms of separate Offerings need not be identical, provided that all Participants in a particular Offering will have equal rights and privileges, except as otherwise may be permitted by Section 423 of the Code. An Offering under the Non-423 Component need not satisfy such requirements.
(e)Non-423 Component. Notwithstanding any provision to the contrary in this Plan, the Board may adopt terms and conditions governing Offerings which shall take precedence over the provisions of this Plan and/or adopt rules or procedures relating to the operation and administration of the Plan, in each case, to accommodate the specific requirements of local laws, customs and procedures for or to facilitate favorable tax treatment available in jurisdictions outside of the United States. To the extent inconsistent with the requirements of Section 423, any Offering containing such differing terms and conditions contemplated under the foregoing sentence shall be considered to be made under the Non-423 Component and such Offering shall not be required by the terms of the Plan to comply with Section 423 of the Code. Without limiting the generality of the foregoing, the Board specifically is authorized to adopt rules, procedures and subplans, which, for purposes of the Non-423 Component, may be outside the scope of Section 423 of the Code, regarding, without limitation, eligibility to participate in the Plan, the definition of Earnings, handling of payroll deductions, making of contributions to the Plan (including, without limitation, in forms other than payroll deductions), establishment of bank or trust accounts to hold payroll deductions or other contributions, payment of interest, conversion of local currency, obligations to pay payroll tax, determination of beneficiary-designation requirements, withholding procedures and handling of Stock issuances, which may vary according to local requirements.
4.Stock Subject to Plan. Subject to adjustment as provided below, the total number of shares of Stock reserved and available for issuance or which may be otherwise acquired upon exercise of Purchase Rights under the Plan will be 34,500,000. If, at the end of any Offering Period, the number of shares of Stock with respect to which Purchase Rights are to be exercised exceeds the number of shares of Stock then available under the Plan, the Board shall make a pro rata allocation of the shares of Stock remaining available for purchase in as uniform a manner as shall be practicable and as it shall determine to be equitable. Any shares of Stock delivered by the Company under the Plan may consist, in whole or in part, of authorized and unissued shares or treasury shares or shares of Stock purchased on the open market. The number of such shares of Stock or kind and number of other securities subject to the Plan, the maximum number of shares of Stock that may be purchased during an Offering Period and the Purchase Price will be proportionately adjusted, as determined by the Board, in the event of any extraordinary dividend or other distribution, recapitalization, forward or reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase, or share exchange, or other similar corporate transaction or event affecting the Stock. For the avoidance of doubt, up to the maximum number of shares of Stock reserved under this Section 4 may be used to satisfy purchases of Stock under the 423 Component and any remaining portion of such
4
maximum number of shares of Stock may be used to satisfy purchases of Stock under the Non-423 Component.
5.Enrollment and Contributions.
(a)Eligibility. An employee of the Company or any Designated Company may be enrolled in the Plan for any Offering Period if such employee is employed by the Company or a Designated Company on the first day of the Offering Period unless such person would, immediately upon enrollment, be deemed to own, for purposes of Section 423(b)(3) of the Code, an aggregate of five percent or more of the total combined voting power or value of all outstanding shares of all classes of the Stock of the Company or any Subsidiary. In addition, prior to an Offering Period, the Board may determine, in its discretion (but on a uniform and nondiscriminatory basis for Offerings under the 423 Component), to exclude employees from participating in that Offering, if, as of the first day of the Offering Period, the employee:
i)has not completed a specified minimum period of service (not to exceed two years); or
ii)customarily works 20 hours or less per week (or a lesser number of weekly hours as may be specified by the Board); or
iii)customarily works five months or less in a calendar year (or a lesser number of months as may be specified by the Board).
The Company will notify an employee of the date as of which he or she is eligible to enroll in the Plan and will make available to each eligible employee the necessary enrollment forms. Notwithstanding the above, any individual who is employed by the Company or a Designated Company and who is a citizen or resident of a foreign jurisdiction (without regard to whether they are also citizens of the United States or resident aliens (within the meaning of section 7701(b)(1)(A))) will be ineligible to participate in the Plan if the offering is prohibited under the laws of the jurisdiction or if compliance with the laws of the jurisdiction would cause the offering to violate Section 423 of the Code. Additionally, the offer of the Purchase Right and the delivery of Stock under the Plan shall be effective for any individual who is employed by the Company or Designated Company and who is working outside of the United States only after the Company has complied with the applicable laws of the country in which the employee is working.
For purposes of clarity, and unless otherwise required by Section 423 of the Code, the term “employee” will not include the following, regardless of any subsequent reclassification as an employee by the Company or a Designated Company, any governmental agency, or any court: any independent contractor; any consultant; any individual performing services for the Company or a Designated Company who has entered into an independent contractor or consultant agreement with the Company or a Designated Company; any individual performing services for the Company or a Designated Company under a purchase order, a supplier agreement or any other agreement that the Company or a Designated Company enters into for services; any individual classified by the
5
Company or a Designated Company as contract labor (such as contractors, contract employees, job shoppers), regardless of length of service; any individual whose base wage or salary is not processed for payment by the payroll department(s) or payroll provider(s) of the Company or a Designated Company; and any leased employee. The Board has exclusive discretion to determine whether an individual is an “employee” for purposes of the Plan.
(b)Initial Enrollment. An employee who is eligible under Section 5(a) (or who will become eligible on or before a given Offering Period) may, after receiving current information about the Plan, initially enroll in the Plan by executing and filing with the Company a properly completed enrollment form, including the employee’s election as to the rate of payroll contributions for the Offering Period. To be effective for any Offering Period, such enrollment form must be filed at least two weeks (or such other period determined by the Board) preceding such Offering Period.
(c)Automatic Re-enrollment for Subsequent Offering Periods. A Participant whose enrollment in, and payroll contributions under, the Plan continues throughout an Offering Period will automatically be re-enrolled in the Plan for the next Offering Period unless (i) the Participant terminates enrollment before the next Offering Period in accordance with Section 7(a), or (ii) the Participant is ineligible to participate under Section 5(a). The initial rate of payroll contributions for a Participant who is automatically re-enrolled for an Offering Period will be the same as the rate of payroll contribution in effect at the end of the preceding Offering Period, unless the Participant files a new enrollment form designating a different rate of payroll contributions and such new enrollment form is received no later than two weeks (or such other period determined by the Board) prior to the beginning of the next Offering Period.
(d)Payroll Contributions. A Participant will make contributions under the Plan at the rate elected by the Participant in his or her enrollment form in effect for that Offering Period (except that such rate may be changed during the Offering Period to the extent permitted below) by means of payroll deductions from each payroll period which ends during the Offering Period. The rate of payroll contributions elected by a Participant may not be less than one percent (1%) nor more than ten percent (10%) of the Participant’s Earnings for the Offering Period, and only whole percentages may be elected; provided, however, that the Board may specify a lower minimum rate and higher maximum rate, subject to Section 8(c). Notwithstanding the above, a Participant’s payroll contributions will be adjusted downward by the Company as necessary to ensure that the limit on the amount of Stock purchased for an Offering Period set forth in Section 6(a)(iii) is not exceeded. A Participant may elect to increase, decrease, or discontinue payroll contributions for a future Offering Period by filing a new enrollment form designating a different rate of payroll contributions, which form must be received at least two weeks (or such other period determined by the Board) prior to the beginning of an Offering Period to be effective for that Offering Period. In addition, a Participant may elect to discontinue payroll contributions during an Offering Period by filing a new enrollment form, such change to be effective for the next payroll after the Participant’s new enrollment form is received.
6
(e)Crediting Payroll Contributions to Cash Accounts. All payroll contributions by a Participant under the Plan will be credited to a Cash Account maintained by the Company on behalf of the Participant. The Company will credit payroll contributions to each Participant’s Cash Account as soon as practicable after the contributions are withheld from the Participant’s Earnings.
(f)No Interest on Cash Accounts. No interest will be credited or paid on cash balances in any Participant’s Cash Account pending investment in Stock.
6.Purchases of Stock.
(a)Purchase Rights. Enrollment in the Plan for any Offering Period by a Participant will constitute a grant by the Company of a Purchase Right to such Participant for such Offering Period. Each Purchase Right will be subject to the following terms:
i)The purchase price of each share of Stock purchased for each Offering Period will equal 85% of the lesser of the Fair Market Value of a share of Stock on the first day of an Offering Period, or the Fair Market Value of a share of Stock on the last day of an Offering Period.
ii)Except as limited in (iii) below, the number of shares of Stock that may be purchased upon exercise of the Purchase Right for an Offering Period will equal the number of shares (including fractional shares) that can be purchased at the purchase price specified in Section 6(a)(i) with the aggregate amount credited to the Participant’s Cash Account as of the last day of an Offering Period.
iii)The number of shares of Stock subject to a Participant’s Purchase Right for any Offering Period will not exceed the lesser of: (1) 500 shares of Stock, or (2) the number derived by dividing $6,250 by 100% of the Fair Market Value of one share of Stock on the first day of the Offering Period for the Offering Period.
iv)The Purchase Right will be automatically exercised on the last day of the Offering Period.
v)Payments by a Participant for Stock purchased under a Purchase Right will be made only through payroll deduction in accordance with Section 5(d) and (e).
vi)The Purchase Right will expire on the earlier of the last day of the Offering Period or the date on which the Participant’s enrollment in the Plan terminates.
(b)Purchase of Stock. At or as promptly as practicable after the last day of an Offering Period, amounts credited to each Participant’s Cash Account will be applied by the Company to purchase Stock, in accordance with the terms of the Plan. Shares of Stock will be purchased from the Company or in the open market, as the Board
7
determines. The Company will aggregate the amounts in all Cash Accounts when purchasing Stock, and shares purchased will be allocated to each Participant’s Stock Account in proportion to the cash amounts withdrawn from such Participant’s Cash Account. After completing purchases for each Offering Period (which will be completed in not more than 15 calendar days after the last day of an Offering Period), all shares of Stock so purchased for a Participant will be credited to the Participant’s Stock Account.
(c)Dividend Reinvestment; Other Distributions. Cash dividends on any Stock credited to a Participant’s Stock Account will be automatically reinvested in additional shares of Stock; such amounts will not be available in the form of cash to Participants. The Company will aggregate all purchases of Stock in connection with dividend reinvestment for a given dividend payment date. Purchases of Stock for purposes of dividend reinvestment will be made as promptly as practicable (but not more than 15 calendar days) after a dividend payment date. The purchases will be made directly from the Company at 100% of the Fair Market Value of a share of Stock on the dividend payment date or on the open market. Any shares of Stock distributed as a dividend or distribution in respect of shares of Stock or in connection with a split of the Stock credited to a Participant’s Stock Account will be credited to such Account.
(d)Withdrawals and Transfers. Shares of Stock may be withdrawn from a Participant’s Stock Account, in which case one or more certificates for whole shares may be issued in the name of, and delivered to, the Participant, with such Participant receiving cash in lieu of fractional shares based on the Fair Market Value of a share of Stock on the day preceding the date of withdrawal. Alternatively, whole shares of Stock may be withdrawn from a Participant’s Stock Account by means of a transfer to a broker-dealer or financial institution that maintains an account for the Participant, together with the transfer of cash in lieu of fractional shares based on the Fair Market Value of a share of Stock on the day preceding the date of withdrawal. Participants may not designate any other person to receive shares of Stock withdrawn or transferred under the Plan. A Participant seeking to withdraw or transfer shares of Stock must give instructions to the Custodian in such manner and form as may be prescribed by the Custodian, which instructions will be acted upon as promptly as practicable. Withdrawals and transfers will be subject to any fees imposed in accordance with Section 8(a).
(e)Excess Account Balances. If any amounts remain in a Cash Account following the date on which the Company purchases Stock for an Offering Period as a result of the limitation set forth in Section 6(a)(iii) or for any other reason, such amounts will be returned to the Participant as promptly as practicable.
7.Termination and Distributions.
(a)Termination of Enrollment. A Participant’s enrollment in the Plan will terminate upon (i) the beginning of any payroll period or Offering Period that begins after he or she files a written notice of termination of enrollment with the Company, provided that such Participant will continue to be deemed to be enrolled with respect to any completed Offering Period for which purchases have not been completed, (ii) such time as the Participant becomes ineligible to participate under Section 5(a) of the
8
Plan, or (iii) the termination of the Participant’s employment by the Company and its Subsidiaries. An employee whose enrollment in the Plan terminates may again enroll in the Plan as of any subsequent Offering Period if he or she satisfies the eligibility requirements of Section 5(a) as of such Offering Period. A Participant’s election to discontinue payroll contributions will not constitute a termination of enrollment.
(b)Distribution. As soon as practicable after a Participant’s enrollment in the Plan terminates, amounts in the Participant’s Cash Account which resulted from payroll contributions will be repaid to the Participant. The Custodian will continue to maintain the Participant’s Stock Account for the Participant until the earlier of such time as the Participant directs the sale of all Stock in the Account, withdraws, or transfers all Stock in the Account, or one year after the Participant ceases to be employed by the Company and its Subsidiaries. If a Participant’s termination of enrollment results from his or her death, all amounts payable will be paid to his or her estate.
8.General.
(a)Costs. Costs and expenses incurred in the administration of the Plan and maintenance of Accounts will be paid by the Company, to the extent provided in this Section 8(a). Any brokerage fees and commissions for the purchase of Stock under the Plan (including Stock purchased upon reinvestment of dividends and distributions) will be paid by the Company, but any brokerage fees and commissions for the sale of Stock under the Plan by a Participant will be borne by such Participant. The rate at which such fees and commissions will be charged to Participants will be determined by the Custodian or any broker-dealer used by the Custodian (including an affiliate of the Custodian) and communicated from time to time to Participants. In addition, the Custodian may impose or pass through a reasonable fee for the withdrawal of Stock in the form of stock certificates (as permitted under Section 6(d)), and reasonable fees for other services unrelated to the purchase of Stock under the Plan, to the extent approved in writing by the Company and communicated to Participants.
(b)Statements to Participants. The Participant’s statement will reflect payroll contributions, purchases, sales, and withdrawals and transfers of shares of Stock and other Plan transactions by appropriate adjustments to the Participant’s Accounts. The Custodian will, not less frequently than quarterly, provide or cause to be provided a written statement to the Participant showing the transactions in his or her Stock Account and the date thereof, the number of shares of Stock credited or sold, the aggregate purchase price paid or sales price received, the purchase or sales price per share, the brokerage fees and commissions paid (if any), the total shares held for the Participant’s Stock Account (computed to at least three decimal places), and such other information as agreed to by the Custodian and the Company.
(c)Compliance with Section 423. It is the intent of the Company that the 423 Component of this Plan comply in all respects with applicable requirements of Section 423 of the Code and regulations thereunder. Accordingly, if any provision of this Plan does not comply with such requirements, such provision will be construed or deemed amended to the extent necessary to conform to such requirements as it pertains to an Offering under the 423 Component.
9
9.General Provisions.
(a)Compliance With Legal and Other Requirements. The Plan, the granting and exercising of Purchase Rights hereunder, and the other obligations of the Company and the Custodian under the Plan will be subject to all applicable federal and state laws, rules, and regulations, and to such approvals by any regulatory or governmental agency as may be required. The Company may, in its discretion, postpone the issuance or delivery of Stock upon exercise of Purchase Rights until completion of such registration or qualification of such Stock or other required action under any federal or state law, rule, or regulation, or the laws of any country in which employees of the Company and a Subsidiary who are nonresident aliens and who are eligible to participate reside, or other required action with respect to any automated quotation system or stock exchange upon which the Stock or other Company securities are designated or listed, or compliance with any other contractual obligation of the Company, as the Company may consider appropriate. In addition, the Company may require any Participant to make such representations and furnish such information as it may consider appropriate in connection with the issuance or delivery of Stock in compliance with applicable laws, rules, and regulations, designation or listing requirements, or other contractual obligations.
(b)Limits on Encumbering Rights. No right or interest of a Participant under the Plan, including any Purchase Right, may be pledged, encumbered, or hypothecated to or in favor of any party, subject to any lien, obligation, or liability of such Participant, or otherwise assigned, transferred, or disposed of except pursuant to the laws of descent or distribution, and any right of a Participant under the Plan will be exercisable during the Participant’s lifetime only by the Participant.
(c)No Right to Continued Employment. Neither the Plan nor any action taken hereunder, including the grant of a Purchase Right, will be construed as giving any employee the right to be retained in the employ of the Company, any of its Subsidiaries or any Affiliate, nor will it interfere in any way with the right of any of the foregoing to terminate any employee’s employment at any time.
(d)Taxes. The Company, any Subsidiary or Affiliate is authorized to withhold from any payment to be made to a Participant, including any payroll and other payments not related to the Plan, amounts of withholding and other taxes due in connection with any transaction under the Plan, and a Participant’s enrollment in the Plan will be deemed to constitute his or her consent to such withholding. In addition, Participants may be required to advise the Company of sales and other dispositions of Stock acquired under the plan in order to permit the Company to comply with tax laws and to claim any tax deductions to which the Company may be entitled with respect to the Plan. This provision and other Plan provisions do not set forth an explanation of the tax consequences to Participants under the Plan. A brief summary of the tax consequences will be included in disclosure documents to be separately furnished to Participants.
(e)Changes to the Plan. The Board may amend, alter, suspend, discontinue, or terminate the Plan without the consent of shareholders or Participants, except that any such action will be subject to the approval of the Company’s shareholders within
10
one year after such Board action if such shareholder approval is required by any federal or state law or regulation or the rules of any automated quotation system or stock exchange on which the Stock may then be quoted or listed, or if such shareholder approval is necessary in order for the Plan to continue to meet the requirements of Section 423 of the Code, and the Board may otherwise, in its discretion, determine to submit other such actions to shareholders for approval. However, without the consent of an affected Participant, no amendment, alteration, suspension, discontinuation, or termination of the Plan may materially and adversely affect the rights of such Participant with respect to outstanding Purchase Rights relating to any Offering Period that has been completed prior to such Board action. The foregoing notwithstanding, upon termination of the Plan the Board may (i) elect to terminate all outstanding Purchase Rights at such time as the Board may designate, and all amounts contributed to the Plan which remain in a Participant’s Cash Account will be returned to the Participant (without interest) as promptly as practicable, or (ii) shorten the Offering Period to such period determined by the Board and use amounts credited to a Participant Cash Account to purchase Stock.
(f)No Rights to Participate; No Shareholder Rights. No Participant or employee will have any claim to participate in the Plan with respect to Offering Periods that have not commenced, and the Company will have no obligation to continue the Plan. No Purchase Right will confer on any Participant any of the rights of a shareholder of the Company unless and until Stock is duly issued or transferred and delivered to the Participant (or credited to the Participant’s Stock Account).
(g)Fractional Shares. Unless otherwise determined by the Board, purchases of Stock under the Plan executed by the Custodian may result in the crediting of fractional shares of Stock to the Participant’s Stock Account. Such fractional shares will be computed to at least three decimal places. Fractional shares will not, however, be issued by the Company, and certificates representing fractional shares will not be delivered to Participants under any circumstances.
(h)Plan Year. The Plan will operate on a plan year that begins on January 1 and ends December 31 in each year.
(i)Governing Law. The validity, construction, and effect of the Plan and any rules and regulations relating to the Plan will be determined in accordance with the laws of the State of Arizona, without giving effect to principles of conflicts of laws, and applicable federal law.
(j)Effective Date. The Plan will become effective on the IPO Date, subject to the Plan being approved by shareholders of the Company, at a meeting by a vote sufficient to meet the requirements of Section 423(b)(2) of the Code. If the Plan is not approved in accordance with Section 423(b)(2) of the Code, each Participant’s Purchase Right shall be void and amounts credited to the Participant’s Cash Account shall be promptly returned to the Participant.
(k)Section 409A. Purchase Rights granted under the 423 Component are exempt from the application of Section 409A of the Code. Purchase Rights granted under the Non-423 Component to U.S. taxpayers are intended to be exempt from the
11
application of Section 409A of the Code under the short-term deferral exception and any ambiguities will be construed and interpreted in accordance with such intent. Subject to Section 9(l), Purchase Rights granted to U.S. taxpayers under the Non-423 Component will be subject to such terms and conditions that will permit such Purchase Rights to satisfy the requirements of the short-term deferral exception available under Section 409A of the Code, including the requirement that the Stock subject to a Purchase Right be delivered within the short-term deferral period. Subject to Section 9(l), in the case of a Participant who would otherwise be subject to Section 409A of the Code, to the extent the Board determines that a Purchase Right or its exercise, payment, settlement or deferral is subject to Section 409A of the Code, the Purchase Right will be granted, exercised, paid, settled or deferred in a manner that will comply with Section 409A of the Code, including without limitation any regulations or other guidance issued thereunder. Notwithstanding the foregoing, the Company will have no liability to a Participant or any other party if the Purchase Right that is intended to be exempt from or compliant with Section 409A of the Code is not so exempt or compliant or for any action taken by the Board with respect thereto.
(l)Tax Qualification and Limitations. Although the Company may endeavor to (i) qualify a Purchase Right for favorable tax treatment under the laws of the United States or jurisdictions outside of the United States or (ii) avoid adverse tax treatment (for example, under Section 409A of the Code), the Company makes no representation to that effect and expressly disavows any covenant to maintain favorable or avoid unfavorable tax treatment, notwithstanding anything to the contrary in this Plan, including Section 9(k). The Company will be unconstrained in its corporate activities without regard to the potential negative tax impact on Participants under the Plan.
12
Exhibit 31.1
CERTIFICATIONS
I, Hassane El-Khoury, certify that:
1.I have reviewed this quarterly report on Form 10-Q of ON Semiconductor Corporation;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: October 28, 2024 | /s/ HASSANE EL-KHOURY | ||||
Hassane El-Khoury | |||||
Chief Executive Officer | |||||
Exhibit 31.2
CERTIFICATIONS
I, Thad Trent, certify that:
1.I have reviewed this quarterly report on Form 10-Q of ON Semiconductor Corporation;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: October 28, 2024 | /s/ THAD TRENT | ||||
Thad Trent | |||||
| Chief Financial Officer | |||||
Exhibit 32
Certification
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
For purposes of Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of ON Semiconductor Corporation, a Delaware corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:
The Quarterly Report on Form 10-Q for the fiscal quarter ended September 27, 2024 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Dated: October 28, 2024 | /s/ HASSANE EL-KHOURY | ||||
| Hassane El-Khoury | |||||
| President and Chief Executive Officer | |||||
| Dated: October 28, 2024 | /s/ THAD TRENT | ||||
| Thad Trent | |||||
| Executive Vice President, | |||||
| Chief Financial Officer and Treasurer | |||||