ON Semiconductor Earnings 2019-09-27

ON 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

Comparables ($MM TTM)
Ticker	M Cap	Assets	Liab	Rev	G Profit	Net Inc	EBITDA	EV	G Margin	EV/EBITDA	ROA
ON	8,519	8,524	5,227	5,779	2,179	550	1,341	11,426	38%	8.5	6%
CY	8,378	3,648	1,539	2,349	661	325	321	8,914	28%	27.8	9%
DQ	7,786	855	330	0	0	0	0	7,828			0%
QRVO	7,686	5,926	1,589	3,173	1,253	203	849	8,075	39%	9.5	3%
IPGP	7,138	2,737	370	1,365	691	304	516	6,648	51%	12.9	11%
FSLR	6,900	7,138	2,003	2,484	305	24	66	6,059	12%	92.1	0%
IDTI	6,645	1,378	706	929	557	109	171	6,358	60%	37.2	8%
MLNX	6,377	1,822	359	1,185	771	0	112	5,768	65%	51.7	0%
MPWR	6,041	868	164	606	335	106	130	5,844	55%	45.0	12%
CREE	5,877	2,817	776	1,347	453	-375	-219	4,826	34%	-22.1	-13%

10-Q

Table of Contents

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, 2019


☐			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) 000-30419

ON SEMICONDUCTOR CORPORATION

(Exact name of registrant as specified in its charter)


Delaware						36-3840979
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

5005 E. McDowell Road

Phoenix, AZ 85008

(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
Common Stock, par value $0.01 per share	ON	The Nasdaq Stock Market LLC

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 and post 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


Large Accelerated Filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If 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, 2019:


Title of Each Class						Number of Shares
Common Stock, par value $0.01 per share						410,722,135

Table of Contents

ON SEMICONDUCTOR CORPORATION FORM 10-Q

TABLE OF CONTENTS


Part I: Financial Information
	Item 1. Financial Statements (unaudited)	5
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	38
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	51
	Item 4. Controls and Procedures	52
Part II: Other Information
	Item 1. Legal Proceedings	53
	Item 1A. Risk Factors	53
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	54
	Item 3. Defaults Upon Senior Securities	54
	Item 4. Mine Safety Disclosures	54
	Item 5. Other Information	54
	Item 6. Exhibits	55
	Signatures	56

(See the glossary of selected terms immediately following this table of contents for definitions of certain abbreviated terms)

Table of Contents

ON SEMICONDUCTOR CORPORATION

FORM 10-Q

GLOSSARY OF SELECTED ABBREVIATED TERMS*


Abbreviated Term						Defined Term
1.00% Notes						1.00% Convertible Senior Notes due 2020
1.625% Notes						1.625% Convertible Senior Notes due 2023

Amended Credit Agreement						Credit Agreement, dated as of April 15, 2016, as subsequently amended, by and among the Company, as borrower, the several lenders party thereto, Deutsche Bank AG, New York Branch, as administrative agent and collateral agent, and certain other parties, providing for the Revolving Credit Facility and the Term Loan “B” Facility
Amended and Restated SIP						ON Semiconductor Corporation Amended and Restated Stock Incentive Plan, as amended
AMIS						AMIS Holdings, Inc.
Aptina						Aptina, Inc.
ASU						Accounting Standards Update
ASC						Accounting Standards Codification
ASIC						Application specific integrated circuit


CMOS						Complementary metal oxide semiconductor
DSP						Digital signal processing

ESPP						ON Semiconductor Corporation 2000 Employee Stock Purchase Plan, as amended
Exchange Act						Securities Exchange Act of 1934, as amended
Fairchild						Fairchild Semiconductor International, Inc.
FASB						Financial Accounting Standards Board
Freescale						Freescale Semiconductor, Inc.
IC						Integrated circuit
IoT						Internet-of-Things
IP						Intellectual property

IPRD						In-process research and development

LED						Light-emitting diode
LIBOR						A base rate per annum equal to the London Interbank Offered Rate as administered by the International Exchange Benchmark Administration

LiDAR						Light detection and ranging
MCU						Microcontroller unit
MOSFET						Metal oxide semiconductor field effect transistor
Motorola						Motorola Inc.
ODM						Original device manufacturers
OEM						Original equipment manufacturers



Revolving Credit Facility						A $1.97 billion revolving credit facility created pursuant to the Amended Credit Agreement
RSU						Restricted stock unit

SCI LLC						Semiconductor Components Industries, LLC, a wholly-owned subsidiary of ON Semiconductor Corporation
SEC						Securities and Exchange Commission
SoC						System on chip
Securities Act						Securities Act of 1933, as amended



Term Loan “B” Facility						A $2.4 billion term loan “B” facility created pursuant to the Amended Credit Agreement
Wi-Fi						Wireless radio technologies compliant with Institute of Electrical and Electronics Engineers Standard 802.11b and commonly used in wireless local area networking devices
WSTS						World Semiconductor Trade Statistics

Table of Contents

* Terms used, but not defined, within the body of the Form 10-Q are defined in this Glossary.

Table of Contents

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

ON SEMICONDUCTOR CORPORATION

CONSOLIDATED BALANCE SHEET

(in millions, except share and per share data)

(unaudited)


	September 27, 2019		December 31, 2018
Assets
Cash and cash equivalents	$	928.7	$	1,069.6

Receivables, net	716.6		686.0
Inventories	1,240.7		1,225.2
Other current assets	187.0		187.0
Total current assets	3,073.0		3,167.8

Property, plant and equipment, net	2,602.1		2,549.6
Goodwill	1,659.2		932.5
Intangible assets, net	622.6		566.4
Deferred tax assets	291.5		266.2
Other assets	273.9		105.1
Total assets	$	8,522.3	$	7,587.6
Liabilities, Non-Controlling Interest and Stockholders’ Equity
Accounts payable	$	534.1	$	671.7
Accrued expenses and other current liabilities	730.9		659.1
Current portion of long-term debt	736.6		138.5
Total current liabilities	2,001.6		1,469.3
Long-term debt	2,878.8		2,627.6
Deferred tax liabilities	59.8		54.8
Other long-term liabilities	342.5		241.8
Total liabilities	5,282.7		4,393.5
Commitments and contingencies (Note 11)
ON Semiconductor Corporation stockholders’ equity:
Common stock ($0.01 par value, 1,250,000,000 shares authorized, 564,323,095 and 558,701,620 issued, 410,171,176 and 413,834,227 outstanding, respectively)	5.6		5.6
Additional paid-in capital	3,779.1		3,702.3
Accumulated other comprehensive loss	(55.6)		(37.9)
Accumulated earnings	1,134.8		979.6
Less: Treasury stock, at cost: 154,151,919 and 144,867,393 shares, respectively	(1,648.6)		(1,478.0)
Total ON Semiconductor Corporation stockholders’ equity	3,215.3		3,171.6
Non-controlling interest	24.3		22.5
Total stockholders' equity	3,239.6		3,194.1
Total liabilities and stockholders' equity	$	8,522.3	$	7,587.6

See accompanying notes to consolidated financial statements

Table of Contents

ON SEMICONDUCTOR CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

(in millions, except per share data)

(unaudited)


	Quarters Ended						Nine Months Ended
	September 27, 2019		September 28, 2018		September 27, 2019		September 28, 2018
Revenue	$	1,381.8	$	1,541.7	$	4,116.1	$	4,375.2
Cost of revenue (exclusive of amortization shown below)	906.6		945.1		2,628.2		2,706.2
Gross profit	475.2		596.6		1,487.9		1,669.0
Operating expenses:
Research and development	172.8		166.2		471.6		488.5
Selling and marketing	74.7		83.1		225.4		242.6
General and administrative	67.8		73.3		214.8		218.8
Litigation settlement (Note 11)	169.5		—		169.5		—
Amortization of acquisition-related intangible assets	29.9		28.0		83.1		83.3
Restructuring, asset impairments and other, net	4.4		4.4		28.1		8.0
Goodwill and intangible asset impairment	—		—		1.6		3.3
Total operating expenses	519.1		355.0		1,194.1		1,044.5
Operating income (loss)	(43.9)		241.6		293.8		624.5
Other income (expense), net:
Interest expense	(40.7)		(31.2)		(106.1)		(95.3)
Interest income	2.3		1.3		7.8		3.3
Loss on debt refinancing and prepayment	(5.8)		(0.6)		(6.2)		(4.6)
Gain on divestiture of business	—		0.4		—		5.0
Licensing income	—		1.0		—		32.9
Other income (expense)	3.5		3.5		4.6		0.5
Other income (expense), net	(40.7)		(25.6)		(99.9)		(58.2)
Income (loss) before income taxes	(84.6)		216.0		193.9		566.3
Income tax (provision) benefit	24.6		(48.9)		(36.9)		(102.4)
Net income (loss)	(60.0)		167.1		157.0		463.9
Less: Net income attributable to non-controlling interest	(0.7)		(0.2)		(1.8)		(2.1)
Net income (loss) attributable to ON Semiconductor Corporation	$	(60.7)	$	166.9	$	155.2	$	461.8
Comprehensive income (loss), net of tax:
Net income (loss)	$	(60.0)	$	167.1	$	157.0	$	463.9
Foreign currency translation adjustments	(0.1)		(0.7)		0.5		0.2
Effects of cash flow hedges	(2.1)		0.1		(18.2)		4.9

Other comprehensive income (loss), net of tax	(2.2)		(0.6)		(17.7)		5.1
Comprehensive income (loss)	(62.2)		166.5		139.3		469.0
Comprehensive income attributable to non-controlling interest	(0.7)		(0.2)		(1.8)		(2.1)
Comprehensive income (loss) attributable to ON Semiconductor Corporation	$	(62.9)	$	166.3	$	137.5	$	466.9
Net income (loss) per common share attributable to ON Semiconductor Corporation:
Basic	$	(0.15)	$	0.39	$	0.38	$	1.08
Diluted	$	(0.15)	$	0.38	$	0.37	$	1.05
Weighted-average common shares outstanding:
Basic	410.4		425.5		411.0		426.1
Diluted	410.4		435.3		415.3		441.2

See accompanying notes to consolidated financial statements

Table of Contents

ON SEMICONDUCTOR CORPORATION

CONSOLIDATED STATEMENT 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, 2019	563,192,019	$	5.6	$	3,757.6	$	(53.4)	$	1,195.5	(153,141,121)	$	(1,631.0)	$	23.6	$	3,297.9
Stock option exercises	50,900	—		0.4		—		—		—	—		—		0.4
Shares issued pursuant to the ESPP	370,910	—		6.4		—		—		—	—		—		6.4
RSUs and stock grant awards issued	709,266	—		—		—		—		—	—		—		—
Shares withheld for employee taxes on RSUs	—	—		—		—		—		(246,870)	(4.4)		—		(4.4)
Share-based compensation expense	—	—		14.7		—		—		—	—		—		14.7
Repurchase of common stock	—	—		—		—		—		(763,928)	(13.2)		—		(13.2)


Comprehensive (loss) income	—	—		—		(2.2)		(60.7)		—	—		0.7		(62.2)
Balance at September 27, 2019	564,323,095	$	5.6	$	3,779.1	$	(55.6)	$	1,134.8	(154,151,919)	$	(1,648.6)	$	24.3	$	3,239.6

Balance at December 31, 2018	558,701,620	$	5.6	$	3,702.3	$	(37.9)	$	979.6	(144,867,393)	$	(1,478.0)	$	22.5	$	3,194.1
Stock option exercises	208,097	—		1.3		—		—		—	—		—		1.3
Shares issued pursuant to the ESPP	898,399	—		13.8		—		—		—	—		—		13.8
RSUs and stock grant awards issued	4,514,979	—		—		—		—		—	—		—		—
Shares withheld for employee taxes on RSUs	—	—		—		—		—		(1,522,519)	(31.6)		—		(31.6)
Share-based compensation expense	—	—		61.7		—		—		—	—		—		61.7
Repurchase of common stock	—	—		—		—		—		(7,762,007)	(139.0)		—		(139.0)


Comprehensive (loss) income	—	—		—		(17.7)		155.2		—	—		1.8		139.3
Balance at September 27, 2019	564,323,095	$	5.6	$	3,779.1	$	(55.6)	$	1,134.8	(154,151,919)	$	(1,648.6)	$	24.3	$	3,239.6


Balance at June 29, 2018	555,619,904	$	5.6	$	3,646.1	$	(34.9)	$	646.9	(129,259,916)	$	(1,191.0)	$	24.1	$	3,096.8


Stock option exercises	15,605	—		0.1		—		—		—	—		—		0.1
Shares issued pursuant to the ESPP	326,090	—		6.2		—		—		—	—		—		6.2
RSUs and stock grant awards issued	1,182,642	—		—		—		—		—	—		—		—
Shares withheld for employee taxes on RSUs	—	—		—		—		—		(415,576)	(9.3)		—		(9.3)
Share-based compensation expense	—	—		17.9		—		—		—	—		—		17.9
Repurchase of common stock	—	—		—		—		—		(3,583,884)	(75.0)		—		(75.0)

Other	—	—		—		—		0.2		—	—		—		0.2
Comprehensive (loss) income	—	—		—		(0.6)		166.9		—	—		0.2		166.5
Balance at September 28, 2018	557,144,241	$	5.6	$	3,670.3	$	(35.5)	$	814.0	(133,259,376)	$	(1,275.3)	$	24.3	$	3,203.4

Balance at December 31, 2017	551,873,115	$	5.5	$	3,593.5	$	(40.6)	$	351.5	(126,754,921)	$	(1,131.1)	$	22.2	$	2,801.0
Impact of the adoption of ASU 2016-16	—	—		—		—		(1.4)		—	—		—		(1.4)
Impact of the adoption of ASC 606	—	—		—		—		2.1		—	—		—		2.1
Stock option exercises	630,281	—		4.4		—		—		—	—		—		4.4
Shares issued pursuant to the ESPP	710,137	—		13.0		—		—		—	—		—		13.0
RSUs and stock grant awards issued	3,930,708	0.1		—		—		—		—	—		—		0.1
Shares withheld for employee taxes on RSUs	—	—		—		—		—		(1,207,441)	(29.2)		—		(29.2)
Share-based compensation expense	—	—		59.4		—		—		—	—		—		59.4
Repurchase of common stock	—	—		—		—		—		(5,297,014)	(115.0)		—		(115.0)


Comprehensive income	—	—		—		5.1		461.8		—	—		2.1		469.0
Balance at September 28, 2018	557,144,241	$	5.6	$	3,670.3	$	(35.5)	$	814.0	(133,259,376)	$	(1,275.3)	$	24.3

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$0.00	418	$8,519

10-Q	2019-10-28	Quarter: 2019-09-27
10-Q	2019-08-05	Quarter: 2019-06-28
10-Q	2019-04-29	Quarter: 2019-03-29
10-K	2019-02-20	Annual: 2018-12-31
10-Q	2018-10-29	Quarter: 2018-09-28
10-Q	2018-07-30	Quarter: 2018-06-29
10-Q	2018-04-30	Quarter: 2018-03-30
10-K	2018-02-21	Annual: 2017-12-31
10-Q	2017-11-06	Quarter: 2017-09-29
10-Q	2017-08-07	Quarter: 2017-06-30
10-Q	2017-05-08	Quarter: 2017-03-31
10-K	2017-02-28	Annual: 2016-12-31
10-Q	2016-11-07	Quarter: 2016-09-30
10-Q	2016-08-08	Quarter: 2016-07-01
10-Q	2016-05-09	Quarter: 2016-04-01
10-K	2016-02-24	Annual: 2015-12-31
10-Q	2015-10-30	Quarter: 2015-10-02
10-Q	2015-08-03	Quarter: 2015-07-03
10-Q	2015-05-04	Quarter: 2015-04-03
10-K	2015-02-27	Annual: 2014-12-31
10-Q	2014-10-31	Quarter: 2014-09-26
10-Q	2014-08-01	Quarter: 2014-06-27
10-Q	2014-05-02	Quarter: 2014-03-28
10-K	2014-02-21	Annual: 2013-12-31
10-Q	2013-11-01	Quarter: 2013-09-27
10-Q	2013-08-02	Quarter: 2013-06-28
10-Q	2013-05-03	Quarter: 2013-03-29
10-K	2013-02-26	Annual: 2012-12-31
10-Q	2012-11-02	Quarter: 2012-09-28
10-Q	2012-08-03	Quarter: 2012-06-29
10-Q	2012-05-04	Quarter: 2012-03-30
10-K	2012-02-22	Annual: 2011-12-31
10-Q	2011-11-03	Quarter: 2011-09-30
10-Q	2011-08-08	Quarter: 2011-07-01
10-Q	2011-05-06	Quarter: 2011-04-01
10-K	2011-02-24	Annual: 2010-12-31
10-Q	2010-11-04	Quarter: 2010-10-01
10-Q	2010-08-05	Quarter: 2010-07-02
10-Q	2010-05-06	Quarter: 2010-04-02
10-K	2010-02-25	Annual: 2009-12-31

8-K	2019-10-27	Earnings, Exhibits
8-K	2019-10-14
8-K	2019-10-04	Enter Agreement
8-K	2019-09-19	Enter Agreement, Off-BS Arrangement, Exhibits
8-K	2019-08-04	Earnings, Exhibits
8-K	2019-06-19	Other Events, Exhibits
8-K	2019-06-12	Enter Agreement, Off-BS Arrangement, Exhibits
8-K	2019-05-08	Shareholder Vote
8-K	2019-04-27	Earnings, Exhibits
8-K	2019-04-22	Enter Agreement, Regulation FD, Exhibits
8-K	2019-03-27	Enter Agreement, Regulation FD, Exhibits
8-K	2019-03-08	Regulation FD, Exhibits
8-K	2019-02-14	Officers, Exhibits
8-K	2019-02-01	Earnings, Exhibits
8-K	2018-11-14	Other Events, Exhibits
8-K	2018-10-28	Earnings, Exhibits
8-K	2018-10-17	Officers
8-K	2018-09-26	Officers, Exhibits
8-K	2018-07-29	Earnings, Exhibits
8-K	2018-05-16	Shareholder Vote
8-K	2018-04-29	Earnings, Exhibits
8-K	2018-02-14	Officers
8-K	2018-02-02	Earnings, Exhibits

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EX-31.1	d820042dex311.htm
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EX-32	d820042dex32.htm