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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 April 1, 2022
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
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 |
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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
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Large Accelerated Filer | ☒ | 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 April 27, 2022: | | | | | | | | |
Title of Each Class | | Number of Shares |
Common Stock, par value $0.01 per share | | 434,505,663 |
ON SEMICONDUCTOR CORPORATION FORM 10-Q
TABLE OF CONTENTS
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Part I: Financial Information | |
| Item 1. Financial Statements (unaudited) | |
| Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk | |
| Item 4. Controls and Procedures | |
Part II: Other Information | |
| Item 1. Legal Proceedings | |
| Item 1A. Risk Factors | |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | |
| Item 3. Defaults Upon Senior Securities | |
| Item 4. Mine Safety Disclosures | |
| Item 5. Other Information | |
| Item 6. Exhibits | |
| Signatures | |
(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*
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Abbreviated Term | | Defined Term |
0% Notes | | 0% Convertible Senior Notes due 2027 |
1.00% Notes | | 1.00% Convertible Senior Notes due 2020 |
1.625% Notes | | 1.625% Convertible Senior Notes due 2023 |
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3.875% Notes | | 3.875% Senior Notes due 2028 |
ADAS | | Advanced driver-assistance systems |
AEC | | Automotive Electronics Council |
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 |
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ASU | | Accounting Standards Update |
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Commission or SEC | | Securities and Exchange Commission |
ESPP | | ON Semiconductor Corporation 2000 Employee Stock Purchase Plan, as amended |
Exchange Act | | Securities Exchange Act of 1934, as amended |
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FASB | | Financial Accounting Standards Board |
GTAT | | GT Advanced Technologies Inc. |
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IP | | Intellectual property |
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IRS | | United States Internal Revenue Service |
OEM | | Original Equipment Manufacturer |
Revolving Credit Facility | | A $1.97 billion revolving credit facility created pursuant to the Amended Credit Agreement |
ROU | | Right-of-use |
RSU | | Restricted stock unit |
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Securities Act | | Securities Act of 1933, as amended |
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Term Loan "B" Facility | | A $2.4 billion term loan "B" facility created pursuant to the Amended Credit Agreement |
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* 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)
| | | | | | | | | | | |
| April 1, 2022 | | December 31, 2021 |
Assets | | | |
Cash and cash equivalents | $ | 1,645.1 | | | $ | 1,352.6 | |
| | | |
Receivables, net | 910.7 | | | 809.4 | |
Inventories | 1,496.0 | | | 1,379.5 | |
Other current assets | 315.6 | | | 240.1 | |
Total current assets | 4,367.4 | | | 3,781.6 | |
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Property, plant and equipment, net | 2,559.4 | | | 2,524.3 | |
Goodwill | 1,936.7 | | | 1,937.5 | |
Intangible assets, net | 474.5 | | | 495.7 | |
Deferred tax assets | 349.3 | | | 366.3 | |
Other assets | 525.1 | | | 520.6 | |
Total assets | $ | 10,212.4 | | | $ | 9,626.0 | |
Liabilities, Non-Controlling Interest and Stockholders’ Equity | | | |
Accounts payable | $ | 725.3 | | | $ | 635.1 | |
Accrued expenses and other current liabilities | 670.4 | | | 747.6 | |
Current portion of long-term debt | 170.4 | | | 160.7 | |
Total current liabilities | 1,566.1 | | | 1,543.4 | |
Long-term debt | 3,035.4 | | | 2,913.9 | |
Deferred tax liabilities | 40.9 | | | 43.2 | |
Other long-term liabilities | 552.0 | | | 521.1 | |
Total liabilities | 5,194.4 | | | 5,021.6 | |
Commitments and contingencies (Note 10) | | | |
ON Semiconductor Corporation stockholders’ equity: | | | |
Common stock ($0.01 par value, 1,250,000,000 shares authorized, 606,021,655 and 603,044,079 issued, 434,494,753 and 432,472,818 outstanding, respectively) | 6.1 | | | 6.0 | |
Additional paid-in capital | 4,533.3 | | | 4,633.3 | |
Accumulated other comprehensive loss | (26.4) | | | (40.6) | |
Accumulated earnings | 2,992.4 | | | 2,435.1 | |
Less: Treasury stock, at cost: 171,526,902 and 170,571,261 shares, respectively | (2,507.2) | | | (2,448.4) | |
Total ON Semiconductor Corporation stockholders’ equity | 4,998.2 | | | 4,585.4 | |
Non-controlling interest | 19.8 | | | 19.0 | |
Total stockholders' equity | 5,018.0 | | | 4,604.4 | |
Total liabilities and stockholders' equity | $ | 10,212.4 | | | $ | 9,626.0 | |
See accompanying notes to consolidated financial statements
ON SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in millions, except per share data)
(unaudited) | | | | | | | | | | | | | | | |
| Quarters Ended | | |
| April 1, 2022 | | April 2, 2021 | | | | |
Revenue | $ | 1,945.0 | | | $ | 1,481.7 | | | | | |
Cost of revenue (exclusive of amortization shown below) | 983.7 | | | 960.5 | | | | | |
Gross profit | 961.3 | | | 521.2 | | | | | |
Operating expenses: | | | | | | | |
Research and development | 156.8 | | | 173.6 | | | | | |
Selling and marketing | 71.1 | | | 78.9 | | | | | |
General and administrative | 77.9 | | | 72.4 | | | | | |
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Amortization of acquisition-related intangible assets | 21.3 | | | 25.0 | | | | | |
Restructuring, asset impairments and other charges, net | (13.0) | | | 42.5 | | | | | |
Intangible asset impairment | — | | | 2.9 | | | | | |
Total operating expenses | 314.1 | | | 395.3 | | | | | |
Operating income | 647.2 | | | 125.9 | | | | | |
Other income (expense), net: | | | | | | | |
Interest expense | (21.6) | | | (33.4) | | | | | |
Interest income | 0.4 | | | 0.4 | | | | | |
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Other income (expense) | 2.1 | | | 4.5 | | | | | |
Other income (expense), net | (19.1) | | | (28.5) | | | | | |
Income before income taxes | 628.1 | | | 97.4 | | | | | |
Income tax provision | (97.1) | | | (7.1) | | | | | |
Net income | 531.0 | | | 90.3 | | | | | |
Less: Net income attributable to non-controlling interest | (0.8) | | | (0.4) | | | | | |
Net income attributable to ON Semiconductor Corporation | $ | 530.2 | | | $ | 89.9 | | | | | |
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Net income for diluted earnings per share of common stock (Note 8) | 530.7 | | | 89.9 | | | | | |
Net income per share of common stock: | | | | | | | |
Basic | $ | 1.22 | | | $ | 0.22 | | | | | |
Diluted | $ | 1.18 | | | $ | 0.20 | | | | | |
Weighted-average shares of common stock outstanding: | | | | | | | |
Basic | 433.3 | | | 413.4 | | | | | |
Diluted | 448.9 | | | 445.4 | | | | | |
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Comprehensive income, net of tax: | | | | | | | |
Net income | $ | 531.0 | | | $ | 90.3 | | | | | |
Foreign currency translation adjustments | (2.4) | | | (2.3) | | | | | |
Effects of cash flow hedges and other adjustments | 16.6 | | | 4.0 | | | | | |
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Other comprehensive income, net of tax | 14.2 | | | 1.7 | | | | | |
Comprehensive income | 545.2 | | | 92.0 | | | | | |
Comprehensive income attributable to non-controlling interest | (0.8) | | | (0.4) | | | | | |
Comprehensive income attributable to ON Semiconductor Corporation | $ | 544.4 | | | $ | 91.6 | | | | | |
See accompanying notes to consolidated financial statements
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 December 31, 2021 | 603,044,079 | | $ | 6.0 | | $ | 4,633.3 | | $ | (40.6) | | $ | 2,435.1 | | (170,571,261) | | $ | (2,448.4) | | $ | 19.0 | | $ | 4,604.4 | |
Impact of the adoption of ASU 2020-06 | — | | — | | (129.1) | | — | | 27.1 | | — | | — | | — | | (102.0) | |
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Shares issued pursuant to the ESPP | 126,388 | | — | | 6.7 | | — | | — | | — | | — | | — | | 6.7 | |
RSUs and stock grant awards issued | 2,851,188 | | 0.1 | | (0.1) | | — | | — | | — | | — | | — | | — | |
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Payment of tax withholding for RSUs | — | | — | | — | | — | | — | | (955,641) | | (58.8) | | — | | (58.8) | |
Share-based compensation | — | | — | | 22.5 | | — | | — | | — | | — | | — | | 22.5 | |
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Comprehensive income | — | | — | | — | | 14.2 | | 530.2 | | — | | — | | 0.8 | | 545.2 | |
Balance at April 1, 2022 | 606,021,655 | | $ | 6.1 | | $ | 4,533.3 | | $ | (26.4) | | $ | 2,992.4 | | (171,526,902) | | $ | (2,507.2) | | $ | 19.8 | | $ | 5,018.0 | |
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Balance at December 31, 2020 | 570,766,439 | | $ | 5.7 | | $ | 4,133.1 | | $ | (57.6) | | $ | 1,425.5 | | (158,923,810) | | $ | (1,968.2) | | $ | 19.6 | | $ | 3,558.1 | |
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Shares issued pursuant to the ESPP | 204,415 | | — | | 5.7 | | — | | — | | — | | — | | — | | 5.7 | |
RSUs and stock grant awards issued | 2,269,328 | | — | | — | | — | | — | | — | | — | | — | | — | |
Shares issued upon exercise of warrants for 1.00% Notes | 6,313,262 | | 0.1 | | (0.1) | | — | | — | | — | | — | | — | | — | |
Payment of tax withholding for RSUs | — | | — | | — | | — | | — | | (733,223) | | (28.5) | | — | | (28.5) | |
Share-based compensation | — | | — | | 22.3 | | — | | — | | — | | — | | — | | 22.3 | |
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Comprehensive income | — | | — | | — | | 1.7 | | 89.9 | | — | | — | | 0.4 | | 92.0 | |
Balance at April 2, 2021 | 579,553,444 | | $ | 5.8 | | $ | 4,161.0 | | $ | (55.9) | | $ | 1,515.4 | | (159,657,033) | | $ | (1,996.7) | | $ | 20.0 | | $ | 3,649.6 | |
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See accompanying notes to consolidated financial statements
ON SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited) | | | | | | | | | | | |
| Quarters Ended |
| April 1, 2022 | | April 2, 2021 |
Cash flows from operating activities: | | | |
Net income | $ | 531.0 | | | $ | 90.3 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 140.6 | | | 153.4 | |
(Gain) loss on sale or disposal of fixed assets | (16.6) | | | 0.3 | |
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Amortization of debt discount and issuance costs | 3.2 | | | 2.4 | |
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Share-based compensation | 22.5 | | | 22.3 | |
Non-cash interest on convertible notes | — | | | 4.6 | |
Non-cash asset impairment charges | 6.7 | | | 6.1 | |
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Change in deferred tax balances | 38.3 | | | (23.2) | |
Other | 0.5 | | | (2.0) | |
Changes in assets and liabilities (exclusive of divestiture): | | | |
Receivables | (107.2) | | | (9.9) | |
Inventories | (116.7) | | | (42.0) | |
Other assets | (0.8) | | | 9.9 | |
Accounts payable | 35.7 | | | 8.9 | |
Accrued expenses and other current liabilities | (83.2) | | | 12.8 | |
Other long-term liabilities | 24.6 | | | (15.4) | |
Net cash provided by operating activities | $ | 478.6 | | | $ | 218.5 | |
Cash flows from investing activities: | | | |
Purchase of property, plant and equipment | $ | (173.8) | | | $ | (77.0) | |
Proceeds from sale of property, plant and equipment | 36.7 | | | 0.2 | |
Deposits utilized (made) for purchase of property, plant and equipment | 1.6 | | | (0.4) | |
Divestiture of business, net of cash transferred and deposits received | 12.9 | | | — | |
Payments related to prior acquisition | (2.4) | | | — | |
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Purchase of available-for-sale securities | (7.8) | | | — | |
Proceeds from sale or maturity of available-for-sale securities | 3.4 | | | — | |
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Net cash used in investing activities | $ | (129.4) | | | $ | (77.2) | |
Cash flows from financing activities: | | | |
Proceeds for the issuance of common stock under the ESPP | $ | 7.8 | | | $ | 6.6 | |
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Payment of tax withholding for RSUs | (58.8) | | | (28.5) | |
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Repayment of borrowings under debt agreements | (4.1) | | | (154.1) | |
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Payments related to prior acquisition | — | | | (2.1) | |
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Dividend to non-controlling shareholder | (2.2) | | | — | |
Net cash used in financing activities | $ | (57.3) | | | $ | (178.1) | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (0.7) | | | (0.8) | |
Net increase (decrease) in cash, cash equivalents and restricted cash | 291.2 | | | (37.6) | |
Cash, cash equivalents and restricted cash, beginning of period (Note 6) | 1,377.7 | | | 1,081.5 | |
Cash, cash equivalents and restricted cash, end of period (Note 6) | $ | 1,668.9 | | | $ | 1,043.9 | |
See accompanying notes to consolidated financial statements
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1: Background and Basis of Presentation
ON Semiconductor Corporation, together with its wholly and majority-owned subsidiaries, which operate under the onsemiTM brand ("onsemi," "we," "us," "our" or the "Company"), uses a thirteen-week fiscal quarter accounting period for the first three fiscal quarters of each year, with the first quarter of 2022 having ended on April 1, 2022 and each fiscal year ending on December 31. The quarters ended April 1, 2022 and April 2, 2021 contained 91 and 92 days, respectively. As of April 1, 2022, the Company was organized into the following three operating and reportable segments: the Power Solutions Group ("PSG"), the Advanced Solutions Group ("ASG") and the Intelligent Sensing Group ("ISG").
The accompanying unaudited financial statements as of and for the quarter ended April 1, 2022 have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP"). 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, 2021 was derived from the Company's audited financial statements, but does not include all disclosures required by GAAP for audited financial statements. In the opinion of the Company's management, the interim information includes 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 included 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, 2021 included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on February 14, 2022 (the "2021 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) future payouts for customer incentives and amounts subject to allowances and returns; (ii) valuation and obsolescence relating to inventories; and (iii) measurement of valuation allowances against deferred tax assets and evaluations of uncertain tax positions. Additionally, during periods where it becomes applicable, significant estimates will be used by management in determining the future cash flows used to assess and test for impairment of long-lived assets and goodwill and in assumptions used in connection with business combinations. Actual results may differ from the estimates and assumptions used in the consolidated financial statements.
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
Note 2: Revenue and Segment Information
The Company is organized into three operating and reportable segments consisting of PSG, ASG and ISG. These segments represent the Company’s view of the business, and its gross profit is used to evaluate the performance of the Company’s segments, the progress of major initiatives and the allocation of resources. Gross profit is exclusive of the amortization of acquisition-related intangible assets.
During the quarter ended April 1, 2022, the Company received capacity payments and deposits of $5.5 million, which was recorded as a contract liability, of which an immaterial amount was recognized as revenue for satisfying the associated performance obligations. The remaining balances amounting to $27.6 million and $28.9 million were recorded as current liabilities and other long-term liabilities, respectively. Contract assets were immaterial as of April 1, 2022. There were no corresponding amounts for the quarter ended April 2, 2021.
A significant 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 firmly committed amounts for which the remaining performance obligations as of April 1, 2022 were approximately $8.6 billion (excluding the remaining performance obligations for contracts having a duration of one year or less). The Company expects to recognize approximately 30% of this amount as revenue during the next twelve months upon shipment of products under these contracts. Total sales estimates are based on negotiated contract prices and demand quantities, and could be influenced by manufacturing and supply chain constraints, among other things. Accordingly, the amount represented by remaining performance obligations may not be indicative of the actual revenue recognized for future periods.
Revenue and gross profit for the Company’s operating and reportable segments are as follows (in millions):
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| PSG | | ASG | | ISG | | Total |
For the quarter ended April 1, 2022: | | | | | | | |
Revenue from external customers | $ | 986.7 | | | $ | 689.3 | | | $ | 269.0 | | | $ | 1,945.0 | |
Gross profit | $ | 474.7 | | | $ | 366.7 | | | $ | 119.9 | | | $ | 961.3 | |
For the quarter ended April 2, 2021: | | | | | | | |
Revenue from external customers | $ | 747.0 | | | $ | 531.5 | | | $ | 203.2 | | | $ | 1,481.7 | |
Gross profit | $ | 246.5 | | | $ | 206.8 | | | $ | 67.9 | | | $ | 521.2 | |
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The Company had one customer, a distributor, whose revenue accounted for approximately 12.4% and 10.6% of the Company's total revenue for the quarters ended April 1, 2022 and April 2, 2021, respectively.
Revenue for the Company's operating and reportable segments disaggregated into geographic locations based on sales billed from the respective country and sales channels are as follows (in millions):
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| Quarter Ended April 1, 2022 |
| PSG | | ASG | | ISG | | Total |
Geographic Location | | | | | | | |
Singapore | $ | 280.5 | | | $ | 233.8 | | | $ | 41.4 | | | $ | 555.7 | |
Hong Kong | 303.1 | | | 173.9 | | | 52.6 | | | 529.6 | |
United Kingdom | 186.9 | | | 106.6 | | | 52.0 | | | 345.5 | |
United States | 144.9 | | | 92.3 | | | 74.5 | | | 311.7 | |
Other | 71.3 | | | 82.7 | | | 48.5 | | | 202.5 | |
Total | $ | 986.7 | | | $ | 689.3 | | | $ | 269.0 | | | $ | 1,945.0 | |
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Sales Channel | | | | | | | |
Distributors | $ | 633.9 | | | $ | 356.9 | | | $ | 150.6 | | | $ | 1,141.4 | |
Direct Customers | 352.8 | | | 332.4 | | | 118.4 | | | 803.6 | |
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Total | $ | 986.7 | | | $ | 689.3 | | | $ | 269.0 | | | $ | 1,945.0 | |
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ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
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| Quarter Ended April 2, 2021 |
| PSG | | ASG | | ISG | | Total |
Geographic Location | | | | | | | |
Singapore | $ | 274.5 | | | $ | 201.7 | | | $ | 32.8 | | | $ | 509.0 | |
Hong Kong | 196.1 | | | 100.5 | | | 45.6 | | | 342.2 | |
United Kingdom | 142.7 | | | 82.6 | | | 43.6 | | | 268.9 | |
United States | 75.3 | | | 70.2 | | | 38.8 | | | 184.3 | |
Other | 58.4 | | | 76.5 | | | 42.4 | | | 177.3 | |
Total | $ | 747.0 | | | $ | 531.5 | | | $ | 203.2 | | | $ | 1,481.7 | |
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Sales Channel | | | | | | | |
Distributors | $ | 523.9 | | | $ | 288.9 | | | $ | 121.2 | | | $ | 934.0 | |
Direct Customers | 223.1 | | | 242.6 | | | 82.0 | | | 547.7 | |
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Total | $ | 747.0 | | | $ | 531.5 | | | $ | 203.2 | | | $ | 1,481.7 | |
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The Company operates in various geographic locations. Sales to external customers have little correlation with the location of manufacturers. 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 Company’s consolidated assets are not specifically ascribed to its individual reportable segments. Rather, assets used in operations are generally shared across the Company’s operating and reportable segments.
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
Property, plant and equipment, net by geographic location, is summarized as follows (in millions):
| | | | | | | | | | | |
| As of |
| April 1, 2022 | | December 31, 2021 |
United States | $ | 752.4 | | | $ | 767.1 | |
South Korea | 573.0 | | | 492.8 | |
Philippines | 330.7 | | | 342.4 | |
Czech Republic | 220.7 | | | 214.2 | |
China | 214.0 | | | 216.8 | |
Japan | 188.1 | | | 198.6 | |
Malaysia | 172.8 | | | 175.3 | |
Other | 107.7 | | | 117.1 | |
Total | $ | 2,559.4 | | | $ | 2,524.3 | |
Note 3: Recent Accounting Pronouncements
Adopted:
ASU 2020-06 - Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity ("ASU 2020-06")
In August 2020, the FASB issued ASU 2020-06, which simplifies the guidance on the issuer’s accounting for convertible debt instruments by removing the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. Also, ASU 2020-06 requires the application of the if-converted method for the purpose of calculating diluted earnings per share, and the treasury stock method will be no longer available for instruments that fall under this category. The Company adopted ASU 2020-06 as of January 1, 2022 using the modified retrospective method, and recorded adjustments to reduce additional paid-in capital by $129.1 million and increase opening retained earnings by $27.1 million to reflect the cumulative effect of the adoption. See Note 7: ''Long-Term Debt'' for further information.
Pending adoption:
ASU 2021-10 - Government Assistance (Topic 832) - Disclosures by Business Entities about Government Assistance ("ASU 2021-10")
In November 2021, the FASB issued ASU 2021-10, which requires business entities to make annual disclosures about the nature of the certain government assistance received and the related accounting policy used to account for such assistance along with certain other disclosures related to the transactions. If an entity omits any required disclosures because it is legally prohibited, it must disclose that fact. ASU 2021-10 will be applicable to the 2022 annual financial statements, and the Company is currently evaluating the applicable disclosures.
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
Note 4: Acquisition and Divestitures
Acquisition:
The Company finalized its determination relating to the fair value of assets acquired and liabilities assumed from GTAT. The final allocation of purchase price, which did not change from the preliminary allocation disclosed in the 2021 Form 10-K is as follows (in millions):
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| | Purchase Price Allocation |
Cash and cash equivalents | | $ | 8.2 | |
Inventory and other current assets | | 10.0 | |
Property, plant and equipment | | 31.9 | |
Goodwill | | 274.8 | |
Intangible assets - Developed Technology | | 130.0 | |
Deferred tax assets | | 13.4 | |
Other non-current assets | | 7.4 | |
Total assets acquired | | 475.7 | |
Current liabilities | | 5.8 | |
Other long-term liabilities | | 35.0 | |
Total liabilities assumed | | 40.8 | |
Net assets acquired/purchase price | | $ | 434.9 | |
All assumptions and disclosures remained unchanged from the amounts included in the 2021 Form 10-K.
Divestitures:
Belgium fab
In February 2022, the Company divested its Oudenaarde, Belgium site to BelGaN Group BV, which primarily included the assets, liabilities and relevant employee group related to the six-inch front-end wafer manufacturing facility for an aggregate consideration of $19.9 million and recognized a nominal gain after offsetting the carrying values of the assets disposed and liabilities transferred.
South Portland, Maine fab
During the first quarter of 2022, the Company entered into an asset purchase agreement to divest its South Portland, Maine site to Diodes Incorporated, which includes the net assets and relevant employee group related to the eight-inch front-end wafer manufacturing facility. The transaction is expected to close during the second quarter of 2022 and result in a nominal gain or loss, and the corresponding assets have been classified as held for sale within other current assets.
Note 5: Restructuring, Asset Impairments and Other, Net
Details of restructuring, asset impairments and other charges, net are as follows (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Restructuring | | Asset Impairments | | Other | | Total | | | | | |
Quarter ended April 1, 2022 | | | | | | | | | | | | | |
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Other | | $ | (0.5) | | | $ | 4.0 | | | $ | (16.5) | | | $ | (13.0) | | | | | | |
Total | | $ | (0.5) | | | $ | 4.0 | | | $ | (16.5) | | | $ | (13.0) | | | | | | |
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ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
A summary of changes in accrued restructuring balance is as follows (in millions):
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| | As of | | | | | | | | As of |
| | December 31, 2021 | | Charges | | Usage | | | | April 1, 2022 |
Employee separation charges | | $ | 10.8 | | | $ | (0.5) | | | $ | (4.8) | | | | | $ | 5.5 | |
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Total | | $ | 10.8 | | | $ | (0.5) | | | $ | (4.8) | | | | | $ | 5.5 | |
The Other category primarily includes the gain from the sale of an office building. There were no new restructuring programs implemented and the activity during the quarter ended April 1, 2022 represented payments to employees whose employments were terminated during 2021.
The Company continues to evaluate employee positions and locations for potential efficiencies, and may incur additional charges in the future.
Note 6: Balance Sheet Information and Other
There was an insignificant change in the balance of goodwill from December 31, 2021 to April 1, 2022 relating to the divestiture of a business.
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 carrying value of goodwill below its fair value. Management did not identify any triggering events during the quarter ended April 1, 2022 that would require an interim impairment analysis.
Inventory
Details of Inventory included in the Company’s Consolidated Balance Sheets are as follows (in millions): | | | | | | | | | | | |
| As of |
| April 1, 2022 | | December 31, 2021 |
Inventories: | | | |
Raw materials | $ | 193.5 | | | $ | 174.2 | |
Work in process | 971.5 | | | 888.9 | |
Finished goods | 331.0 | | | 316.4 | |
| $ | 1,496.0 | | | $ | 1,379.5 | |
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Other current assets
Assets classified as held-for-sale, consisting of properties and certain other assets, are required to be recorded at the lower of carrying value or fair value less costs to sell. Fixed assets of approximately $70 million have been classified as held-for-sale within other current assets as of April 1, 2022.
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 April 1, 2022, the net assets for the over-funded plans totaled $14.3 million. The total accrued pension liability for underfunded plans was $112.6 million, of which the current portion of $0.2 million was classified as accrued expenses and other current liabilities. As of December 31, 2021, the net funded status for all the plans was a liability of $103.9 million, of which the current portion of $0.2 million was classified as accrued expenses and other current liabilities.
The components of the net periodic pension expense were as follows (in millions):
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
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| Quarters Ended | | |
| April 1, 2022 | | April 2, 2021 | | | | |
Service cost | $ | 2.2 | | | $ | 3.1 | | | | | |
Interest cost | 1.1 | | | 1.1 | | | | | |
Expected return on plan assets | (1.2) | | | (1.7) | | | | | |
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Curtailment loss | — | | | 1.9 | | | | | |
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Total net periodic pension cost | $ | 2.1 | | | $ | 4.4 | | | | | |
Leases
Operating lease arrangements are comprised primarily of real estate and equipment agreements. The components of lease expense were as follows (in millions):
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| Quarters Ended | | |
| April 1, 2022 | | April 2, 2021 | | | | |
Operating lease | $ | 11.2 | | | $ | 9.9 | | | | | |
Variable lease | 1.6 | | | 1.0 | | | | | |
Short-term lease | 0.4 | | | 0.7 | | | | | |
Total lease expense | $ | 13.2 | | | $ | 11.6 | | | | | |
The lease liabilities recognized in the Consolidated Balance Sheets are as follows (in millions):
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| As of |
| April 1, 2022 | | December 31, 2021 |
Operating lease liabilities included in: | | | |
Accrued expenses and other current liabilities | $ | 35.1 | | | $ | 32.5 | |
Other long-term liabilities | 137.9 | | | 142.4 | |
Total | $ | 173.0 | | | $ | 174.9 | |
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Operating ROU assets included in: | | | |
Other assets | $ | 169.7 | | | $ | 170.1 | |
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Financing lease liabilities included in: | | | |
Accrued expenses and other current liabilities | $ | 12.7 | | | $ | 12.7 | |
Other long-term liabilities | 10.2 | | | 10.2 | |
Total | $ | 22.9 | | | $ | 22.9 | |
Financing ROU assets included in: | | | |
Other assets | $ | 21.9 | | | $ | 22.3 | |
As of April 1, 2022, the weighted-average remaining lease-terms were 8.3 years and 19.8 years and the weighted-average discount rates were 4.2% and 6.0% for operating and financing leases, respectively.
Supplemental Disclosure of Cash Flow Information
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
Certain of the Company's cash and non-cash activities were as follows (in millions): | | | | | | | | | | | | | | | | | |
| | Quarters Ended | |
| | April 1, 2022 | | April 2, 2021 | | | |
Non-cash investing activities: | | | | | | | |
Capital expenditures in accounts payable and other long-term liabilities | | $ | 225.4 | | | $ | 180.9 | | | | |
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Operating ROU assets obtained in exchange of lease liabilities | | 10.7 | | | 7.1 | | | | |
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Cash paid for: | | | | | | | |
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Interest expense | | $ | 24.0 | | | $ | 31.4 | | | | |
Income taxes | | 15.7 | | | 20.9 | | | | |
Operating lease payments in operating cash flows | | 11.0 | | | 10.3 | | | | |
Reconciliation of the captions in the Consolidated Balance Sheets to the Consolidated Statements of Cash Flows (in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | April 1, 2022 | | December 31, 2021 | | April 2, 2021 | | December 31, 2020 |
Consolidated Balance Sheets: | | | | | | | | |
Cash and cash equivalents | | $ | 1,645.1 | | | $ | 1,352.6 | | | $ | 1,042.5 | | | $ | 1,080.7 | |
Restricted cash (included in other current assets) | | 18.8 | | | 20.1 | | | 1.4 | | | 0.8 | |
Restricted cash (included in other non-current assets) | | 5.0 | | | 5.0 | | | — | | | — | |
Cash, cash equivalents and restricted cash in Consolidated Statements of Cash Flows | | $ | 1,668.9 | | | $ | 1,377.7 | | | $ | 1,043.9 | | | $ | 1,081.5 | |
As of April 1, 2022, $15.0 million of the restricted cash balance was held in escrow relating to the acquisition of GTAT and will be released to the former stockholders of GTAT upon satisfaction of certain outstanding items contained in the acquisition agreement.
Note 7: Long-Term Debt
The Company's long-term debt consists of the following (annualized interest rates, dollars in millions):
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| As of |
| April 1, 2022 | | December 31, 2021 |
Amended Credit Agreement: | | | |
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Term Loan "B" Facility due 2026, interest payable monthly at 2.46% and 2.10%, respectively | 1,594.1 | | | 1,598.2 | |
0% Notes due 2027 | 805.0 | | | 805.0 | |
3.875% Notes due 2028 (1) | 700.0 | | | 700.0 | |
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1.625% Notes due 2023 (2) | 155.1 | | | 155.1 | |
Gross long-term debt, including current maturities | $ | 3,254.2 | | | $ | 3,258.3 | |
Less: Debt discount (3) | (12.6) | | | (149.0) | |
Less: Debt issuance costs (4) | (35.8) | | | (34.7) | |
Net long-term debt, including current maturities | $ | 3,205.8 | | | $ | 3,074.6 | |