onsemi Reports Fourth Quarter and 2021 Financial Results

This document includes “forward-looking statements,” as that term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, included or incorporated in this document could be deemed forward-looking statements, particularly statements about the future financial performance of onsemi, including financial guidance for the first fiscal quarter of 2022. 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 document are made based on our current expectations, forecasts, estimates and assumptions and involve risks, uncertainties, and other factors that could cause results or events to differ materially from those expressed in the forward-looking statements. Certain factors that could affect our future results or events are described under Part I, Item 1A “Risk Factors” in our 2020 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 16, 2021 (our “2020 Form 10-K”) and Part II, Item IA “Risk Factors” in each of our Quarterly Reports on Form 10-Q filed with the SEC for the quarters ended April 2, 2021, July 2, 2021, and October 1, 2021, and from time-to-time in our other SEC reports. Readers are cautioned not to place undue reliance on forward-looking statements. We assume no obligation to update such information, except as may be required by law. You should carefully consider the trends, risks, and uncertainties described in this document, our 2020 Form 10-K and other reports filed with or furnished to the SEC before making any investment decision with respect to our securities. If any of these trends, risks, or uncertainties actually occurs or continues, our business, financial condition or operating results could be materially adversely affected, the trading prices of our securities could decline and you could lose all or part of your investment. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement.

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


	Quarter Ended									Year Ended
	December 31, 2021			October 1, 2021			December 31, 2020			December 31, 2021			December 31, 2020
Revenue	$	1,846.1		$	1,742.1		$	1,446.3		$	6,739.8		$	5,255.0
Cost of revenue (exclusive of amortization shown below)		1,013.9			1,021.3			948.7			4,025.5			3,539.2
Gross profit		832.2			720.8			497.6			2,714.3			1,715.8
Gross margin		45.1	%		41.4	%		34.4	%		40.3	%		32.7	%
Operating expenses:
Research and development		160.6			154.5			159.7			655.0			642.9
Selling and marketing		70.2			68.4			71.0			293.6			278.7
General and administrative		83.5			75.7			62.4			304.8			258.7
Amortization of acquisition-related intangible assets		24.5			24.7			29.3			99.0			120.3
Restructuring, asset impairments and other charges, net		13.1			(1.7	)		7.2			71.4			65.2
Intangible asset impairment		—			—			—			2.9			1.3
Total operating expenses		351.9			321.6			329.6			1,426.7			1,367.1
Operating income		480.3			399.2			168.0			1,287.6			348.7
Other income (expense), net:
Interest expense		(32.0	)		(31.9	)		(41.8	)		(130.4	)		(168.4	)
Interest income		0.3			0.5			0.6			1.4			4.9
Loss on debt refinancing and prepayment		(2.8	)		—			—			(29.0	)		—
Gain on divestiture of business		—			10.2			—			10.2			—
Other income (expense)		20.4			(5.8	)		(6.3	)		18.0			(8.6	)
Other income (expense), net		(14.1	)		(27.0	)		(47.5	)		(129.8	)		(172.1	)
Income before income taxes		466.2			372.2			120.5			1,157.8			176.6
Income tax (provision) benefit		(39.8	)		(61.8	)		(30.7	)		(146.6	)		59.8
Net income		426.4			310.4			89.8			1,011.2			236.4
Less: Net income attributable to non-controlling interest		(0.5	)		(0.7	)		(0.8	)		(1.6	)		(2.2	)
Net income attributable to ON Semiconductor Corporation	$	425.9		$	309.7		$	89.0		$	1,009.6		$	234.2
Net income per share of common stock attributable to ON Semiconductor Corporation:
Basic	$	0.99		$	0.72		$	0.22		$	2.37		$	0.57
Diluted	$	0.96		$	0.70		$	0.21		$	2.27		$	0.56
Weighted average common shares outstanding:
Basic		431.1			430.6			411.3			425.7			410.7
Diluted		445.3			440.7			431.6			443.8			418.8

ON SEMICONDUCTOR CORPORATION UNAUDITED CONSOLIDATED BALANCE SHEETS (in millions)


	December 31, 2021			October 1, 2021			December 31, 2020
Assets
Cash and cash equivalents	$	1,352.6		$	1,389.2		$	1,080.7
Receivables, net		809.4			720.0			676.0
Inventories		1,379.5			1,327.6			1,251.4
Other current assets		240.1			205.0			176.0
Total current assets		3,781.6			3,641.8			3,184.1
Property, plant and equipment, net		2,524.3			2,427.8			2,512.3
Goodwill		1,937.5			1,662.7			1,663.4
Intangible assets, net		495.7			390.3			469.0
Deferred tax assets		366.3			382.1			429.0
Other assets		520.6			436.0			410.2
Total assets	$	9,626.0		$	8,940.7		$	8,668.0
Liabilities, Non-Controlling Interest and Stockholders’ Equity
Accounts payable	$	635.1		$	599.3		$	572.9
Accrued expenses and other current liabilities		747.6			641.8			570.0
Current portion of long-term debt		160.7			203.0			531.6
Total current liabilities		1,543.4			1,444.1			1,674.5
Long-term debt		2,913.9			2,910.5			2,959.7
Deferred tax liabilities		43.2			46.8			57.3
Other long-term liabilities		521.1			394.9			418.4
Total liabilities		5,021.6			4,796.3			5,109.9
ON Semiconductor Corporation stockholders’ equity:
Common stock		6.0			6.0			5.7
Additional paid-in capital		4,633.3			4,498.5			4,133.1
Accumulated other comprehensive loss		(40.6	)		(48.6	)		(57.6	)
Accumulated earnings		2,435.1			2,009.2			1,425.5
Less: Treasury stock, at cost		(2,448.4	)		(2,341.4	)		(1,968.2	)
Total ON Semiconductor Corporation stockholders’ equity		4,585.4			4,123.7			3,538.5
Non-controlling interest		19.0			20.7			19.6
Total stockholders' equity		4,604.4			4,144.4			3,558.1
Total liabilities and stockholders' equity	$	9,626.0		$	8,940.7		$	8,668.0

ON SEMICONDUCTOR CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions)


	Quarter Ended									Year Ended
	December 31, 2021			October 1, 2021			December 31, 2020			December 31, 2021			December 31, 2020
Cash flows from operating activities:
Net income	$	426.4		$	310.4		$	89.8		$	1,011.2		$	236.4
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		140.3			149.9			153.8			596.7			625.1
Gain on divestiture of business		—			(10.2	)		—			(10.2	)		—
Loss on debt refinancing and prepayment		2.8			—			—			29.0			—
Amortization of debt discount and issuance costs		2.7			2.9			3.0			10.7			12.1
Share-based compensation		27.2			22.7			16.5			101.3			67.7
Non-cash interest on convertible notes		7.1			7.0			8.8			24.7			38.2
Non-cash asset impairment charges		—			3.3			3.3			10.8			18.8
Change in deferred tax balances		22.9			44.2			26.5			62.4			(122.6	)
Other		1.8			2.2			3.8			4.3			7.3
Changes in assets and liabilities		(4.6	)		(83.5	)		94.9			(58.9	)		1.3
Net cash provided by operating activities	$	626.6		$	448.9		$	400.4		$	1,782.0		$	884.3
Cash flows from investing activities:
Purchase of Property, Plant and Equipment ("PP&E")	$	(169.6	)	$	(93.2	)	$	(116.4	)	$	(444.6	)	$	(383.6	)
Deposits and proceeds from sale of PP&E		7.4			—			4.8			14.0			6.3
Deposits utilized (made) for purchase of PP&E		(25.9	)		(18.7	)		(0.1	)		(47.4	)		2.2
Divestiture of business, net of cash transferred		3.6			3.4			—			7.0			—
Purchase of business, net of cash acquired		(399.4	)		—			—			(399.4	)		(4.5	)
Purchase of license and deposit made for manufacturing facility								(100.0	)		—			(100.0	)
Purchase of available-for-sale securities		(5.1	)		(43.8	)		—			(48.9	)		—
Proceeds from sale or maturity of available-for-sale securities		1.4			2.8			—			4.2			—
Settlement of purchase price from previous acquisition		—			—			—			—			26.0
Net cash used in investing activities	$	(587.6	)	$	(149.5	)	$	(211.7	)	$	(915.1	)	$	(453.6	)
Cash flows from financing activities:
Proceeds for the issuance of common stock under the ESPP	$	5.0		$	6.2		$	5.8		$	23.5		$	23.6
Payment of tax withholding for RSUs		(4.7	)		(2.2	)		(2.9	)		(38.9	)		(20.0	)
Repurchase of common stock		—			—			—			—			(65.4	)
Issuance and borrowings under debt agreements		—			—			—			787.3			1,858.0
Reimbursement of debt issuance costs		—			—			—			2.7			—
Payment of debt issuance costs		—			(0.3	)		(0.2	)		(3.8	)		(2.4	)
Repayment of borrowings under debt agreements		(51.7	)		(4.1	)		(759.3	)		(1,270.5	)		(2,023.9	)
Payment for purchase of bond hedges		—			—			—			(160.3	)		—
Proceeds from issuance of warrants		—			—			—			93.8			—
Payments related to prior acquisition		(0.2	)		(0.7	)		(0.6	)		(3.2	)		(8.9	)
Dividend to non-controlling shareholder		—			—			(5.0	)		—			(5.0	)
Net cash used in financing activities	$	(51.6	)	$	(1.1	)	$	(762.2	)	$	(569.4	)	$	(244.0	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(0.3	)		(0.2	)		0.2			(1.3	)		0.6
Net increase in cash, cash equivalents and restricted cash		(12.9	)		298.1			(573.3	)		296.2			187.3
Beginning cash, cash equivalents and restricted cash		1,390.6			1,092.5			1,654.8			1,081.5			894.2
Ending cash, cash equivalents and restricted cash	$	1,377.7		$	1,390.6		$	1,081.5		$	1,377.7		$	1,081.5

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


			Quarter Ended									Year Ended
			December 31, 2021			October 1, 2021			December 31, 2020			December 31, 2021			December 31, 2020
Reconciliation of GAAP to non-GAAP gross profit:
GAAP gross profit			$	832.2		$	720.8		$	497.6		$	2,714.3		$	1,715.8
	Special items:
	a)	Non-recurring facility costs		2.3			2.5			—			5.5			—
		Total special items		2.3			2.5			—			5.5			—
Non-GAAP gross profit			$	834.5		$	723.3		$	497.6		$	2,719.8		$	1,715.8
Reconciliation of GAAP to non-GAAP gross margin:
GAAP gross margin				45.1	%		41.4	%		34.4	%		40.3	%		32.7	%
	Special items:
	a)	Non-recurring facility costs		0.1	%		0.1	%		—	%		0.1	%		—	%
		Total special items		0.1	%		0.1	%		—	%		0.1	%		—	%
Non-GAAP gross margin				45.2	%		41.5	%		34.4	%		40.4	%		32.7	%
Reconciliation of GAAP to non-GAAP operating expenses:
GAAP operating expenses			$	351.9		$	321.6		$	329.6		$	1,426.7		$	1,367.1
	Special items:
	a)	Amortization of acquisition-related intangible assets		(24.5	)		(24.7	)		(29.3	)		(99.0	)		(120.3	)
	b)	Restructuring, asset impairments and other, net		(13.1	)		1.7			(7.2	)		(71.4	)		(65.2	)
	c)	Intangible asset impairment		—			—			—			(2.9	)		(1.3	)
	d)	Third party acquisition and divestiture related costs		(7.9	)		(2.4	)		(0.7	)		(11.9	)		(1.0	)
		Total special items		(45.5	)		(25.4	)		(37.2	)		(185.2	)		(187.8	)
Non-GAAP operating expenses			$	306.4		$	296.2		$	292.4		$	1,241.5		$	1,179.3
Reconciliation of GAAP to non-GAAP operating income:
GAAP operating income			$	480.3		$	399.2		$	168		$	1,287.6		$	348.7
	Special items:
	a)	Non-recurring facility costs		2.3			2.5			—			5.5			—
	b)	Amortization of acquisition-related intangible assets		24.5			24.7			29.3			99.0			120.3
	c)	Restructuring, asset impairments and other, net		13.1			(1.7	)		7.2			71.4			65.2
	d)	Intangible asset impairment		—			—			—			2.9			1.3
	e)	Third party acquisition and divestiture related costs		7.9			2.4			0.7			11.9			1.0
		Total special items		47.8			27.9			37.2			190.7			187.8
Non-GAAP operating income			$	528.1		$	427.1		$	205.2		$	1,478.3		$	536.5
*Reconciliation of GAAP to non-GAAP operating margin (operating income / revenue)* :**
GAAP operating margin				26.0	%		22.9	%		11.6	%		19.1	%		6.6	%
	Special items:
	a)	Non-recurring facility costs		0.1	%		0.1	%		—	%		0.1	%		—	%
	b)	Amortization of acquisition-related intangible assets		1.3	%		1.4	%		2.0	%		1.5	%		2.3	%
	c)	Restructuring, asset impairments and other, net		0.7	%		(0.1	) %		0.5	%		1.1	%		1.2	%
	d)	Intangible asset impairment		—	%		—	%		—	%		—	%		—	%
	e)	Third party acquisition and divestiture related costs		0.4	%		0.1	%		—	%		0.2	%		—	%
		Total special items		2.6	%		1.6	%		2.6	%		2.8	%		3.6	%
Non-GAAP operating margin				28.6	%		24.5	%		14.2	%		21.9	%		10.2	%
Reconciliation of GAAP to non-GAAP income before income taxes:
GAAP income before income taxes			$	466.2		$	372.2		$	120.5		$	1,157.8		$	176.6
	Special items:
	a)	Non-recurring facility costs		2.3			2.5			—			5.5			—
	b)	Amortization of acquisition-related intangible assets		24.5			24.7			29.3			99.0			120.3
	c)	Restructuring, asset impairments and other, net		13.1			(1.7	)		7.2			71.4			65.2
	d)	Intangible asset impairment		—			—			—			2.9			1.3
	e)	Third party acquisition and divestiture related costs		7.9			2.4			0.7			11.9			1.0
	f)	Actuarial (gains) losses on pension plans and other pension benefits		(22.2	)		5.5			4.0			(16.7	)		4.0
	g)	Loss on debt refinancing and prepayment		2.8			—			—			29.0			—
	h)	Non-cash interest on convertible notes		7.1			7.0			8.8			24.7			38.2
	i)	Gain on divestiture of a business		—			(10.2	)		—			(10.2	)		—
		Total special items		35.5			30.2			50.0			217.5			230.0
Non-GAAP income before income taxes			$	501.7		$	402.4		$	170.5		$	1,375.3		$	406.6
Reconciliation of GAAP to non-GAAP net income attributable to ON Semiconductor Corporation:
GAAP net income attributable to ON Semiconductor Corporation			$	425.9		$	309.7		$	89.0		$	1,009.6		$	234.2
	Special items:
	a)	Non-recurring facility costs		2.3			2.5			—			5.5			—
	b)	Amortization of acquisition-related intangible assets		24.5			24.7			29.3			99.0			120.3
	c)	Restructuring, asset impairments and other, net		13.1			(1.7	)		7.2			71.4			65.2
	d)	Intangible asset impairment		—			—			—			2.9			1.3
	e)	Third party acquisition and divestiture related costs		7.9			2.4			0.7			11.9			1.0
	f)	Actuarial (gains) losses on pension plans and other pension benefits		(22.2	)		5.5			4.0			(16.7	)		4.0
	g)	Loss on debt refinancing and prepayment		2.8			—			—			29.0			—
	h)	Non-cash interest on convertible notes		7.1			7.0			8.8			24.7			38.2
	i)	Gain on divestiture of a business		—			(10.2	)		—			(10.2	)		—
	j)	Adjustment of income taxes		16.6			40.4			8.1			58.4			(112.3	)
		Total special items		52.1			70.6			58.1			275.9			117.7
Non-GAAP net income attributable to ON Semiconductor Corporation			$	478.0		$	380.3		$	147.1		$	1,285.5		$	351.9
Adjustment of income taxes:
Tax adjustment for special items (1)			$	(7.5	)	$	(6.3	)	$	(10.5	)	$	(45.7	)	$	(48.3	)
Impact of Domestication of non-U.S. IP and related effects (2)				—			—			(2.1	)		—			(112.4	)
Other non-GAAP tax adjustment (3)				24.1			46.7			20.7			104.1			48.4
		Total adjustment of income taxes	$	16.6		$	40.4		$	8.1		$	58.4		$	(112.3	)
Reconciliation of GAAP to non-GAAP diluted shares outstanding:
GAAP diluted shares outstanding				445.3			440.7			431.6			443.8			418.8
	Special items:
	a)	Less: dilutive shares attributable to convertible notes		(6.9	)		(5.0	)		(14.8	)		(8.6	)		(5.5	)
		Total special items		(6.9	)		(5.0	)		(14.8	)		(8.6	)		(5.5	)
Non-GAAP diluted shares outstanding				438.4			435.7			416.8			435.2			413.3
Non-GAAP diluted earnings per share:
Non-GAAP net income attributable to ON Semiconductor Corporation			$	478.0		$	380.3		$	147.1		$	1,285.5		$	351.9
Non-GAAP diluted shares outstanding				438.4			435.7			416.8			435.2			413.3
Non-GAAP diluted earnings per share			$	1.09		$	0.87		$	0.35		$	2.95		$	0.85
Reconciliation of net cash provided by operating activities to free cash flow:
Net cash provided by operating activities			$	626.6		$	448.9		$	400.4		$	1,782.0		$	884.3
	Special items:
	a)	Purchase of property, plant and equipment		(169.6	)		(93.2	)		(116.4	)		(444.6	)		(383.6	)
		Total special items		(169.6	)		(93.2	)		(116.4	)		(444.6	)		(383.6	)
Free cash flow			$	457.0		$	355.7		$	284.0		$	1,337.4		$	500.7

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

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