ON SEMICONDUCTOR CORP [ON] Filings

10-Q 1 on-20230630.htm 10-Q on-20230630

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 June 30, 2023


☐			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.)

5701 N. Pima Road

Scottsdale, AZ 85250

(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 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 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 July 26, 2023:


Title of Each Class						Number of Shares
Common Stock, par value $0.01 per share						431,528,954

Table of Contents

ON SEMICONDUCTOR CORPORATION FORM 10-Q

TABLE OF CONTENTS


Part I: Financial Information
	Item 1. Financial Statements (unaudited)	4
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	27
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	35
	Item 4. Controls and Procedures	35
Part II: Other Information
	Item 1. Legal Proceedings	36
	Item 1A. Risk Factors	36
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	37
	Item 3. Defaults Upon Senior Securities	37
	Item 4. Mine Safety Disclosures	37
	Item 5. Other Information	37
	Item 6. Exhibits	39
	Signatures	40

(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
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 due 2028
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

GTAT						GT Advanced Technologies Inc.



IP						Intellectual property



















IRS						United States Internal Revenue Service
IT						Information Technology
Existing 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 Revolver due 2024 and the Term Loan “B” Facility
Revolver due 2024						A $1.97 billion revolving credit facility created pursuant to the Existing Credit Agreement
QCS						Division within ASG, primarily associated with the legacy Quantenna division
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
SCI LLC						Semiconductor Components Industries, LLC
SiC						Silicon carbide




Securities Act						Securities Act of 1933, as amended



Term Loan "B" Facility						A $2.4 billion term loan "B" facility created pursuant to the Existing Credit Agreement
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.

Table of Contents

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

ON SEMICONDUCTOR CORPORATION

CONSOLIDATED BALANCE SHEETS

(in millions, except share and per share data)

(unaudited)


	June 30, 2023		December 31, 2022
Assets
Cash and cash equivalents	$	2,622.2	$	2,919.0

Receivables, net	944.4		842.3
Inventories	1,964.4		1,616.8
Other current assets	399.2		351.3

Total current assets	5,930.2		5,729.4

Property, plant and equipment, net	3,991.4		3,450.7
Goodwill	1,577.6		1,577.6
Intangible assets, net	326.3		359.7
Deferred tax assets	502.4		376.7
ROU financing lease assets	44.6		45.8
Other assets	390.2		438.6
Total assets	$	12,762.7	$	11,978.5
Liabilities and Stockholders’ Equity
Accounts payable	$	907.5	$	852.1
Accrued expenses and other current liabilities	654.1		1,047.3
Current portion of financing lease liabilities	7.0		14.2
Current portion of long-term debt	912.1		147.8
Total current liabilities	2,480.7		2,061.4
Long-term debt	2,539.6		3,045.7
Deferred tax liabilities	37.7		34.1
Long-term financing lease liabilities	24.1		23.0
Other long-term liabilities	677.0		607.3
Total liabilities	5,759.1		5,771.5
Commitments and contingencies (Note 9)
ON Semiconductor Corporation stockholders’ equity:
Common stock ($0.01 par value, 1,250,000,000 shares authorized, 611,286,417 and 608,367,713 issued, 431,520,606 and 431,936,415 outstanding, respectively)	6.1		6.1
Additional paid-in capital	4,714.6		4,670.9
Accumulated other comprehensive loss	(37.4)		(23.2)
Accumulated earnings	5,402.7		4,364.4
Less: Treasury stock, at cost: 179,765,811 and 176,431,298 shares, respectively	(3,101.9)		(2,829.7)
Total ON Semiconductor Corporation stockholders’ equity	6,984.1		6,188.5
Non-controlling interest	19.5		18.5
Total stockholders’ equity	7,003.6		6,207.0
Total liabilities and stockholders’ equity	$	12,762.7	$	11,978.5

See accompanying notes to consolidated financial statements

Table of Contents

ON SEMICONDUCTOR CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(in millions, except per share data)

(unaudited)


	Quarters Ended				Six Months Ended
	June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022
Revenue	$	2,094.4	$	2,085.0	$	4,054.1	$	4,030.0
Cost of revenue	1,101.0		1,047.9		2,143.2		2,031.6
Gross profit	993.4		1,037.1		1,910.9		1,998.4
Operating expenses:
Research and development	145.3		161.6		283.7		318.4
Selling and marketing	71.6		73.1		143.4		144.2
General and administrative	87.2		83.2		163.1		161.1

Amortization of acquisition-related intangible assets	12.0		21.9		27.0		43.2
Restructuring, asset impairments and other charges, net	2.6		(1.7)		54.1		(14.7)
Goodwill and intangible asset impairment charges	—		115.0		—		115.0
Total operating expenses	318.7		453.1		671.3		767.2
Operating income	674.7		584.0		1,239.6		1,231.2
Other income (expense), net:
Interest expense	(16.4)		(22.1)		(42.8)		(43.7)
Interest income	24.0		1.1		41.1		1.5
Loss on debt prepayment	—		(7.3)		(13.3)		(7.3)

Gain (loss) on divestiture of business	0.5		1.9		(0.6)		1.9

Other income (expense)	(1.3)		6.4		3.4		8.5
Other income (expense), net	6.8		(20.0)		(12.2)		(39.1)
Income before income taxes	681.5		564.0		1,227.4		1,192.1
Income tax provision	(104.4)		(107.4)		(188.1)		(204.5)
Net income	577.1		456.6		1,039.3		987.6
Less: Net income attributable to non-controlling interest	(0.5)		(0.8)		(1.0)		(1.6)
Net income attributable to ON Semiconductor Corporation	$	576.6	$	455.8	$	1,038.3	$	986.0

Net income for diluted earnings per share of common stock (Note 7)	$	577.0	$	456.3	$	1,039.1	$	987.0
Net income per share of common stock attributable to ON Semiconductor Corporation:
Basic	$	1.34	$	1.05	$	2.40	$	2.27
Diluted	$	1.29	$	1.02	$	2.32	$	2.20
Weighted-average shares of common stock outstanding:
Basic	431.7		434.2		431.8		433.8
Diluted	448.7		447.0		448.6		448.1

Comprehensive income (loss), net of tax:
Net income	$	577.1	$	456.6	$	1,039.3	$	987.6
Foreign currency translation adjustments	(3.0)		(4.2)		(2.7)		(6.6)
Effects of cash flow hedges and other adjustments	(4.8)		1.3		(11.5)		17.9

Other comprehensive income (loss), net of tax	(7.8)		(2.9)		(14.2)		11.3
Comprehensive income	569.3		453.7		1,025.1		998.9
Comprehensive income attributable to non-controlling interest	(0.5)		(0.8)		(1.0)		(1.6)
Comprehensive income attributable to ON Semiconductor Corporation	$	568.8	$	452.9	$	1,024.1	$	997.3

See accompanying notes to consolidated financial statements

Table of Contents

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 March 31, 2023	610,278,043	$	6.1	$	4,633.6	$	(29.6)	$	4,826.1	(178,426,953)	$	(2,988.2)	$	19.0	$	6,467.0



Shares issued pursuant to the ESPP	83,858	—		5.9		—		—		—	—		—		5.9
RSUs released and stock grant awards issued	396,303	—		—		—		—		—	—		—		—


Partial settlement - 1.625% Notes	528,213	—		—		—		—		—	—		—		—

Partial settlement of bond hedges - 1.625% Notes	—	—		43.5		—		—		(528,205)	(43.5)		—		—


Payment of tax withholding for RSUs	—	—		—		—		—		(116,917)	(9.8)		—		(9.8)
Share-based compensation	—	—		31.6		—		—		—	—		—		31.6
Repurchase of common stock	—	—		—		—		—		(693,736)	(60.4)		—		(60.4)


Comprehensive income (loss)	—	—		—		(7.8)		576.6		—	—		0.5		569.3
Balance at June 30, 2023	611,286,417	$	6.1	$	4,714.6	$	(37.4)	$	5,402.7	(179,765,811)	$	(3,101.9)	$	19.5	$	7,003.6

Balance at December 31, 2022	608,367,713	$	6.1	$	4,670.9	$	(23.2)	$	4,364.4	(176,431,298)	$	(2,829.7)	$	18.5	$	6,207.0



Shares issued pursuant to the ESPP	220,714	—		13.2		—		—		—	—		—		13.2
RSUs released and stock grant awards issued	2,076,679	—		—		—		—		—	—		—		—


Warrants and bond hedges, net - 0.50% Notes	—	—		(171.5)		—		—		—	—		—		(171.5)
Tax impact of warrants and bond hedges, net	—	—		92.3		—		—		—	—		—		92.3
Partial settlement - 1.625% Notes	621,311	—		—		—		—		—	—		—		—

Partial settlement of bond hedges - 1.625% Notes	—	—		50.4		—		—		(621,303)	(50.4)		—		—
Payment of tax withholding for RSUs	—	—		—		—		—		(695,323)	(57.4)		—		(57.4)
Share-based compensation	—	—		59.3		—		—		—	—		—		59.3
Repurchase of common stock	—	—		—		—		—		(2,017,887)	(164.4)		—		(164.4)


Comprehensive income (loss)	—	—		—		(14.2)		1,038.3		—	—		1.0		1,025.1
Balance at June 30, 2023	611,286,417	$	6.1	$	4,714.6	$	(37.4)	$	5,402.7	(179,765,811)	$	(3,101.9)	$	19.5	$	7,003.6


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



Shares issued pursuant to the ESPP	127,830	—		5.5		—		—		—	—		—		5.5
RSUs released and stock grant awards issued	277,961	—		—		—		—		—	—		—		—

Partial settlement - 1.625% Notes	238	—		—		—		—		—	—		—		—

Partial settlement of bond hedges - 1.625% Notes	—	—		—		—		—		(232)	—		—		—



Payment of tax withholding for RSUs	—	—		—		—		—		(77,690)	(4.5)		—		(4.5)
Share-based compensation	—	—		27.1		—		—		—	—		—		27.1
Repurchase of common stock	—	—		—		—		—		(1,500,000)	(89.7)		—		(89.7)


Comprehensive income (loss)	—	—		—		(2.9)		455.8		—	—		0.8		453.7
Balance at July 1, 2022	606,427,684	$	6.1	$	4,565.9	$	(29.3)	$	3,448.2	(173,104,824)	$	(2,601.4)	$	20.6	$	5,410.1

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)


Shares issued pursuant to the ESPP	254,218	—		12.2		—		—		—	—		—		12.2
RSUs released and stock grant awards issued	3,129,149	0.1		(0.1)		—		—		—	—		—		—

Partial settlement - 1.625% Notes	238	—		—		—		—		—	—		—		—

Partial settlement of bond hedges - 1.625% Notes	—	—		—		—		—		(232)	—		—		—



Payment of tax withholding for RSUs	—	—		—		—		—		(1,033,331)	(63.3)		—		(63.3)
Share-based compensation	—	—		49.6		—		—		—	—		—		49.6
Repurchase of common stock	—	—		—		—		—		(1,500,000)	(89.7)		—		(89.7)


Comprehensive income	—	—		—		11.3		986.0		—	—		1.6		998.9
Balance at July 1, 2022	606,427,684	$	6.1	$	4,565.9	$	(29.3)	$	3,448.2	(173,104,824)	$	(2,601.4)	$	20.6	$	5,410.1

See accompanying notes to consolidated financial statements

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ON SEMICONDUCTOR CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)


	Six Months Ended
	June 30, 2023		July 1, 2022
Cash flows from operating activities:
Net income	$	1,039.3	$	987.6
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	293.8		279.0
Loss (gain) on sale or disposal of fixed assets	4.8		(16.6)
Loss (gain) on divestiture of business	0.6		(1.9)
Loss on debt prepayment	13.3		7.3

Amortization of debt discount and issuance costs	5.8		6.0


Share-based compensation	59.3		49.6

Non-cash asset impairment charges	12.7		6.7
Goodwill and intangible asset impairment charges	—		115.0
Change in deferred tax balances	(29.6)		6.7

Other	(9.3)		1.3
Changes in assets and liabilities (exclusive of divestitures):
Receivables	(106.0)		(344.4)
Inventories	(347.8)		(184.5)
Other assets	(29.6)		(51.5)
Accounts payable	(25.6)		58.1
Accrued expenses and other current liabilities	(175.3)		9.2
Other long-term liabilities	93.3		(28.2)
Net cash provided by operating activities	$	799.7	$	899.4
Cash flows from investing activities:
Purchase of property, plant and equipment	$	(752.1)	$	(391.9)
Proceeds from sale of property, plant and equipment	2.6		38.2
Deposits utilized (made) for purchase of property, plant and equipment	19.5		(31.4)
Divestiture of business, net of cash transferred	—		90.5




Purchase of available-for-sale securities	—		(16.3)
Proceeds from sale or maturity of available-for-sale securities	20.8		13.8


Payments related to acquisition of business	(236.3)		(2.4)


Net cash used in investing activities	$	(945.5)	$	(299.5)
Cash flows from financing activities:
Proceeds for the issuance of common stock under the ESPP	$	13.2	$	12.5

Payment of tax withholding for RSUs	(56.5)		(63.3)
Repurchase of common stock	(164.1)		(89.7)
Issuance and borrowings under debt agreements	1,845.0		500.0
Reimbursement of debt issuance and other financing costs	4.5		—
Payment of debt issuance and other financing costs	(11.3)		—
Repayment of borrowings under debt agreements	(1,603.7)		(506.8)
Payment for purchase of bond hedges	(414.0)		—
Proceeds from issuance of warrants	242.5		—

Payment of financing lease obligations	(8.6)		(10.9)

Dividend to non-controlling shareholder	—		(2.2)
Net cash used in financing activities	$	(153.0)	$	(160.4)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(1.0)		(2.6)
Net increase (decrease) in cash, cash equivalents and restricted cash	(299.8)		436.9
Cash, cash equivalents and restricted cash, beginning of period (Note 5)	2,933.0		1,377.7
Cash, cash equivalents and restricted cash, end of period (Note 5)	$	2,633.2	$	1,814.6

See accompanying notes to consolidated financial statements

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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 operating and reportable segments: the Power Solutions Group ("PSG"), the Advanced Solutions Group ("ASG"), and the Intelligent Sensing Group ("ISG").

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 June 30, 2023 and July 1, 2022 contained 91 days each. The six months ended June 30, 2023 and July 1, 2022 contained 181 days and 182 days, respectively.

The accompanying unaudited financial statements as of and for the quarter and six months ended June 30, 2023 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, 2022 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, 2022, included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on February 6, 2023 (the "2022 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) calculating 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; and (iv) cash flow projections for impairment of long-lived assets and goodwill. Additionally, during periods where it becomes applicable, significant estimates will be used by management in determining the future cash flows in assumptions used in business combinations. Actual results may differ from the estimates and assumptions used in the consolidated financial statements.

Table of Contents

ON SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

Note 2: Revenue and Segment Information

A significant portion of the Company’s revenue orders are firm commitments that are non-cancellable, including certain orders or contracts with a duration of one year or less. Certain customer contracts are multi-year agreements that include committed amounts ("Long-term Supply Agreements" or "LTSAs").

The estimated remaining performance obligations as of June 30, 2023 are approximately $20.0 billion (excluding the remaining performance obligations for contracts having an original duration of one year or less). This amount is subject to contractual increases based on negotiated contract prices and volumes, defined product mix flexibility, and the timing of new part introductions, among other contractual provisions. The Company expects to recognize approximately 32% of the remaining purchase obligation as revenue during the next 12 months upon shipment of products under these contracts. Total revenue estimates could be influenced by risks and uncertainties, including manufacturing or supply chain constraints, modifications to customer agreements, and regulatory changes, among other factors. Accordingly, the actual revenue recognized for the remaining performance obligation in future periods may significantly fluctuate from these 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. For the quarters and six months ending June 30, 2023, and July 1, 2022, the Company recognized revenue of $16.8 million and $4.6 million, and $31.6 million and $9.1 million, respectively, representing the corresponding portions of performance obligations fulfilled.

As of June 30, 2023, and December 31, 2022, the remaining capacity payments were $317.9 million and $190.4 million, respectively, of which $88.8 million and $60.5 million were recorded as other current liabilities, with the remainder recorded as other long-term liabilities.

The Company is organized into three operating and reportable segments consisting of PSG, ASG and ISG. These segments represent management's view of the business, and gross profit is used to evaluate its performance, the progress of major initiatives and the allocation of resources. During the quarter ended June 30, 2023, management reorganized and consolidated the existing divisions within ASG from the divisions of Automotive (AUT), Mobile, Computing and Cloud (MCC), and Industrial Solutions (ISD) to the divisions of Power Management (PMD) and Sensor Interface (SID). Management performed a goodwill impairment analysis on AUT, MCC and ISD (which are the reporting units) prior to the reorganization and no impairments were identified. Goodwill assigned to AUT, MCC and ISD was reallocated to PMD and SID based on the relative fair value of the businesses transferred. There were no changes to the presentation of operating and reportable segments due to this reorganization.

Revenue and gross profit for the operating and reportable segments are as follows (in millions):


	PSG		ASG		ISG		Total
For the quarter ended June 30, 2023:
Revenue from external customers	$	1,119.8	$	649.5	$	325.1	$	2,094.4
Gross profit	$	536.7	$	301.5	$	155.2	$	993.4
For the quarter ended July 1, 2022:
Revenue from external customers	$	1,057.0	$	716.7	$	311.3	$	2,085.0
Gross profit	$	511.2	$	380.3	$	145.6	$	1,037.1
For the six months ended June 30, 2023:
Revenue from external customers	$	2,132.6	$	1,242.3	$	679.2	$	4,054.1
Gross profit	$	1,017.0	$	561.6	$	332.3	$	1,910.9
For the six months ended July 1, 2022:
Revenue from external customers	$	2,043.7	$	1,406.0	$	580.3	$	4,030.0
Gross profit	$	985.9	$	747.0	$	265.5	$	1,998.4

The Company had one customer, a distributor, whose revenue accounted for approximately 10.9% and 12% of the total revenue for the quarters ended June 30, 2023 and July 1, 2022, respectively, and 10.1% and 12% of the total revenue for the six months ended June 30, 2023 and July 1, 2022, respectively.

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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 channels are as follows (in millions):


	Quarter Ended June 30, 2023
	PSG		ASG		ISG		Total
Geographic Location
Hong Kong	$	325.6	$	144.6	$	60.0	$	530.2
Singapore	331.2		138.4		49.7		519.3
United Kingdom	227.0		130.7		91.7		449.4
United States	159.7		144.8		76.4		380.9
Other	76.3		91.0		47.3		214.6
Total	$	1,119.8	$	649.5	$	325.1	$	2,094.4

Sales Channel
Distributors	$	682.6	$	292.4	$	152.7	$	1,127.7
Direct customers	437.2		357.1		172.4		966.7

Total	$	1,119.8	$	649.5	$	325.1	$	2,094.4

	Six Months Ended June 30, 2023
	PSG		ASG		ISG		Total
Geographic Location
Hong Kong	$	612.5	$	284.3	$	123.8	$	1,020.6
Singapore	607.6		254.5		107.9		970.0
United Kingdom	431.1		258.8		172.8		862.7
United States	326.0		266.1		177.9		770.0
Other	155.4		178.6		96.8		430.8
Total	$	2,132.6	$	1,242.3	$	679.2	$	4,054.1

Sales Channel
Distributors	$	1,311.9	$	515.2	$	339.8	$	2,166.9
Direct customers	820.7		727.1		339.4		1,887.2

Total	$	2,132.6	$	1,242.3	$	679.2	$	4,054.1

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ON SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)


	Quarter Ended July 1, 2022
	PSG		ASG		ISG		Total
Geographic Location
Hong Kong	$	326.5	$	181.7	$	76.2	$	584.4
Singapore	292.3		221.0		42.4		555.7
United Kingdom	182.7		109.4		67.7		359.8
United States	180.1		107.0		74.1		361.2
Other	75.4		97.6		50.9		223.9
Total	$	1,057.0	$	716.7	$	311.3	$	2,085.0

Sales Channel
Distributors	$	696.4	$	372.8	$	164.5	$	1,233.7
Direct customers	360.6		343.9		146.8		851.3

Total	$	1,057.0	$	716.7	$	311.3	$	2,085.0

	Six Months Ended July 1, 2022
	PSG		ASG		ISG		Total
Geographic Location
Hong Kong	$	629.6	$	355.6	$	128.8	$	1,114.0
Singapore	572.8		454.8		83.9		1,111.5
United Kingdom	369.5		216.0		119.7		705.2
United States	325.0		199.3		148.7		673.0
Other	146.8		180.3		99.2		426.3
Total	$	2,043.7	$	1,406.0	$	580.3	$	4,030.0

Sales Channel
Distributors	$	1,330.3	$	729.7	$	315.0	$	2,375.0
Direct customers	713.4		676.3		265.3		1,655.0

Total	$	2,043.7	$	1,406.0	$	580.3	$	4,030.0

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 across and are not specifically ascribed to operating and reportable segments.

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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
	June 30, 2023		December 31, 2022
United States	$	1,380.0	$	1,329.2
South Korea	1,133.1		871.0
Czech Republic	448.5		279.3
Philippines	273.5		296.8
China	239.9		215.3
Malaysia	199.2		190.2
Japan	125.7		133.2
Other	191.5		135.7
Total	$	3,991.4	$	3,450.7

Note 3: Acquisition and Divestitures

Acquisition:

During the quarter ended June 30, 2023, the Company finalized its determination relating to the fair value of assets acquired and liabilities assumed from the EFK acquisition, which was completed on December 31, 2022. The final allocation of the purchase price, which is materially consistent with the preliminary allocation disclosed in the 2022 Form 10-K, is as follows (in millions):


	Purchase Price Allocation
Inventory	$	3.3
Other current assets	4.4
Property, plant and equipment	396.5
Other non-current assets	11.4



Total assets acquired	415.6

Current liabilities	3.0
Other long-term liabilities	6.3
Total liabilities assumed	9.3
Net assets acquired/purchase price	$	406.3

All other assumptions and disclosures are materially consistent with the amounts included in the 2022 Form 10-K. The Company paid the remaining acquisition consideration of $236.3 million on January 3, 2023, which is disclosed under investing activities in the Consolidated Statement of Cash Flows.

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ON SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

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		Total
Quarter ended June 30, 2023
2023 Business Realignment	$	3.1	$	—		$	—	$	3.1

Other	—		—			(0.5)		(0.5)
Total	$	3.1	$	—		$	(0.5)	$	2.6

	Restructuring		Asset Impairments			Other Charges		Total
Six months ended June 30, 2023
2023 Business Realignment	$	39.2	$	2.5		$	2.8	$	44.5
QCS wind down	—		—			(2.4)		(2.4)


Other	—		10.2		(1)	1.8		12.0
Total	$	39.2	$	12.7		$	2.2	$	54.1

(1)Relates to property, plant and equipment and ROU asset impairment charges associated with site consolidation efforts in the U.S.

A summary of changes in accrued restructuring balance is as follows (in millions):


	As of						As of
	December 31, 2022		Charges		Usage		June 30, 2023
Employee separation charges	$	4.4	$	39.2	$	(14.6)	$	29.0

Total	$	4.4	$	39.2	$	(14.6)	$	29.0

2023 Business Realignment

During the first quarter of 2023, the Company announced the elimination of approximately 400 jobs in an effort to realign its operating models, drive organizational effectiveness and efficiencies, and increase collaboration primarily within its ASG operating segment and IT support organizations. As a result, ASG ceased its design and test operations in certain Asia and U.S.-based locations and initiated a plan to exit its Toulouse, France design center location. The announcement also included changes in the IT operating model by transferring selected IT functions to strategic service providers. During the second quarter of 2023, an additional 60 employees were notified of their employment termination for similar reasons.

In connection with these actions, severance costs, related benefit expenses and other ancillary charges of $39.2 million were recognized with an insignificant amount expected to be recorded during the remainder of 2023. The Company paid approximately $11.5 million of the aggregate expense for the 293 terminated employees and had $27.7 million accrued as of June 30, 2023. The remaining employees subject to this realignment are expected to be terminated and paid any applicable severance and related benefit payments over the next nine months.

The Company continues to evaluate employee positions and locations for potential operating improvements and efficiencies, and may incur additional severance and related charges in the future.

QCS wind down

As of June 30, 2023, $0.7 million of severance costs and other benefits originally accrued under the QCS wind down plan remained accrued and, based on the exit dates of the notified employees, is expected to be paid during the fourth quarter of 2023.

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ON SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

Note 5: Balance Sheet Information and Other Supplemental Disclosures

Goodwill

There was no change in the balance of goodwill from December 31, 2022 to June 30, 2023. 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. Management did not identify any triggering events during the quarter ended June 30, 2023 that would require an interim impairment analysis.

Inventory

Details of Inventory included in the Consolidated Balance Sheets are as follows (in millions):


	As of
	June 30, 2023		December 31, 2022
Inventories:
Raw materials	$	336.9	$	236.8
Work in process	1,177.9		951.0
Finished goods	449.6		429.0
	$	1,964.4	$	1,616.8

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 June 30, 2023, the net assets for the over-funded plans totaled $12.9 million. The total accrued pension liability for underfunded plans was $68.8 million, of which the current portion of $1.3 million was classified as accrued expenses and other current liabilities. As of December 31, 2022, the net funded status for all the plans was a liability of $53.8 million, of which the current portion of $0.4 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				Six Months Ended
	June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022
Service cost	$	1.2	$	2.2	$	2.4	$	4.4
Interest cost	1.6		1.0		3.2		2.1
Expected return on plan assets	(1.2)		(1.1)		(2.4)		(2.3)



Total net periodic pension cost	$	1.6	$	2.1	$	3.2	$	4.2

Leases

Operating lease arrangements are comprised primarily of real estate and equipment agreements.