ON Semiconductor Reports First Quarter 2019 Results

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    • Revenue of $1,386.6 million
    • Gross margin of 37.0 percent
    • GAAP operating margin of 12.9 percent and non-GAAP operating margin of
      15.5 percent
    • GAAP diluted earnings per share of $0.27 and non-GAAP diluted earnings
      per share of $0.43

    PHOENIX–(BUSINESS WIRE)–ON Semiconductor Corporation (Nasdaq: ON)
    today announced that revenue in first quarter of 2019 was
    $1,386.6 million, up approximately one percent compared to revenue in
    first quarter of 2018. First quarter 2019 revenue was down approximately
    eight percent as compared to revenue in fourth quarter of 2018.

    “Our execution continues to be strong, despite soft business conditions.
    While we are facing near-term headwinds, key secular drivers powering
    our business remain intact, and we are well positioned to benefit from
    increasing semiconductor content in automotive, industrial, and
    cloud-power applications,” said Keith Jackson, president and CEO of ON
    Semiconductor. “We are prudently managing our business, and we intend to
    deliver strong operational results to mitigate the impact of slowing
    demand environment.”

    “We remain upbeat about our future, and we are making prudent long term
    investments to strengthen our position in our strategic markets and to
    further improve our industry-leading cost structure.”

                     

    First Quarter Results (GAAP)

     
    (in millions, except per share data) 1Q 2019     1Q 2018

    Year-Over-
    Year Change

    4Q 2018 Sequential

    Change

    Revenue $1,386.6 $1,377.6 1 % $1,503.1 (8 )%
    Gross Profit $513.7 $517.4 (1 )% $569.7 (10 )%
    Operating Income $179.4 $185.7 (3 )% $222.7 (19 )%
    Net Income Attributable to ON Semiconductor Corporation $114.1 $139.6 (18 )% $165.6 (31 )%
    Diluted Earnings Per Share $0.27 $0.31 (13 )% $0.39 (31 )%
    Diluted Share Count 417.7 444.2 (6 )% 420.0 (1 )%
     

    First Quarter Results (Non-GAAP)

                     
    (in millions, except per share data) 1Q 2019     1Q 2018 Year-Over-
    Year Change
    4Q 2018 Sequential

    Change

    Revenue $1,386.6 $1,377.6 1 % $1,503.1 (8 )%
    Gross Profit $513.7 $517.4 (1 )% $570.3 (10 )%
    Operating Income $215.2 $216.7 (1 )% $253.0 (15 )%
    Net Income Attributable to ON Semiconductor Corporation $177.1 $170.7 4 % $222.0 (20 )%
    Diluted Earnings Per Share $0.43 $0.40 8 % $0.53 (19 )%
    Diluted Share Count 413.8 431.6 (4 )% 420.0 (1 )%
     

    First Quarter Key Cash Flow Items

                     
    (in millions) 1Q 2019     1Q 2018 Year-Over-
    Year Change
    4Q 2018 Sequential

    Change

    Cash Taxes, net of indemnification $15.2 $19.1 (20 )% $8.2 85 %
    Operating Cash Flow $138.2 $226.5 (39 )% $421.0 (67 )%
    Free Cash Flow ($18.8 ) $127.0 (115 )% $289.0 (107 )%
     

    SECOND QUARTER 2019 OUTLOOK

    Based on product booking trends, backlog levels, and estimated turns
    levels, the Company anticipates revenue in second quarter of 2019 to be
    approximately $1,360 to $1,410 million. Revenue outlook for second
    quarter of 2019 includes revenue of approximately $15 million from
    manufacturing services provided by ON Semiconductor Aizu Co., Ltd.
    (“OSA”).

    Gross margin for second quarter of 2019 is expected to be in range of
    36.5 percent to 37.5 percent. Second quarter 2019 gross margin outlook
    includes negative impact of 40 basis points from manufacturing services
    provided by OSA.

    The outlook for second quarter of 2019 also includes anticipated
    stock-based compensation expense of approximately $26 million to $28
    million. Net cash paid for income taxes is expected to be $12 million to
    $16 million.

    The following table outlines ON Semiconductor’s projected second quarter
    of 2019 GAAP and non-GAAP outlook.

         
    Total ON Semiconductor

    GAAP

      Special

    Items ***

      Total ON Semiconductor

    Non-GAAP****

    Revenue $1,360 to $1,410 $1,360 to $1,410
    Gross Margin 36.5% to 37.5% 36.5% to 37.5%
    Operating Expenses $322 to $340 million $27 to $31 million $295 to $309 million
    Other Income and Expense (including interest expense), net $31 to $34 million $9 to $10 million* $22 to $24 million
    Diluted Share Count ** 418 million 4 million 414 million
    *   Convertible Notes, Non-cash Interest Expense is calculated pursuant
    to FASB’s Accounting Standards Codification Topic 470: Debt.
     
    ** Diluted share count can vary as a result of, among other things, the
    actual exercise of options or vesting of restricted stock units, the
    incremental dilutive shares from the Company’s convertible senior
    subordinated notes, and the repurchase or the issuance of stock or
    convertible notes or the sale of treasury shares. In periods in
    which the quarterly average stock price per share exceeds $18.50,
    the non-GAAP diluted share count and non-GAAP net income per share
    includes the impact of the Company’s hedge transactions issued
    concurrently with our 1.00% convertible notes. As such, at an
    average stock price per share between $18.50 and $25.96, the hedging
    activity offsets the potentially dilutive effect of the 1.00%
    convertible notes. In periods when the quarterly average stock price
    per share exceeds $20.72, the non-GAAP diluted share count and
    non-GAAP net income per share includes the anti-dilutive impact of
    the Company’s hedge transactions issued concurrently with the 1.625%
    convertible notes. At an average stock price per share between
    $20.72 and $30.70, the hedging activity offsets the potentially
    dilutive effect of the 1.625% convertible notes. Both GAAP and
    non-GAAP diluted share counts are based on the Company’s stock price
    as of March 29, 2019.
     
    *** Special items may include: amortization of acquisition-related
    intangibles; expensing of appraised inventory fair market value
    step-up; purchased in-process research and development expenses;
    restructuring, asset impairments and other, net; goodwill impairment
    charges; gains and losses on debt prepayment; non-cash interest
    expense; actuarial (gains) losses on pension plans and other pension
    benefits; and certain other special items, as necessary. These
    special items are out of our control and could change significantly
    from period to period. As a result, we are not able to reasonably
    estimate and separately present the individual impact or probable
    significance of these special items, and we are similarly unable to
    provide a reconciliation of the non-GAAP measures. The
    reconciliation that is unavailable would include a forward-looking
    income statement, balance sheet and statement of cash flows in
    accordance with GAAP. For this reason, we use a projected range of
    the aggregate amount of special items in order to calculate our
    projected non-GAAP operating expense outlook.
     
    **** We believe these non-GAAP measures provide important supplemental
    information to investors. We use these measures, together with GAAP
    measures, for internal managerial purposes and as a means to
    evaluate period-to-period comparisons. However, we do not, and you
    should not, rely on non-GAAP financial measures alone as measures of
    our performance. We believe that non-GAAP financial measures reflect
    an additional way of viewing aspects of our operations that, when
    taken together with GAAP results and the reconciliations to
    corresponding GAAP financial measures that we also provide in our
    releases, provide a more complete understanding of factors and
    trends affecting our business. Because non-GAAP financial measures
    are not standardized, it may not be possible to compare these
    financial measures with other companies’ non-GAAP financial
    measures, even if they have similar names.

    TELECONFERENCE

    ON Semiconductor will host a conference call for the financial community
    at 9 a.m. Eastern Daylight Time (EDT) on April 29, 2019 to discuss this
    announcement and ON Semiconductor’s results for first quarter of 2019.
    The Company will also provide a real-time audio webcast of the
    teleconference on the Investor Relations page of its website at http://www.onsemi.com.
    The webcast replay will be available at this site approximately one hour
    following the live broadcast and will continue to be available for
    approximately 30 days following the conference call. Investors and
    interested parties can also access the conference call through a
    telephone call by dialing (877) 356-3762 (U.S./Canada) or (262) 558-6155
    (International). In order to join this conference call, you will be
    required to provide the Conference ID Number, which is 2874546.

    About ON Semiconductor

    ON Semiconductor (Nasdaq: ON) is driving energy efficient innovations,
    empowering customers to reduce global energy use. The Company is a
    leading supplier of semiconductor-based solutions, offering a
    comprehensive portfolio of energy efficient power management, analog,
    sensors, logic, timing, connectivity, discrete, SoC and custom devices.
    The Company’s products help engineers solve their unique design
    challenges in automotive, communications, computing, consumer,
    industrial, medical, aerospace and defense applications. ON
    Semiconductor operates a responsive, reliable, world-class supply chain
    and quality program, a robust compliance and ethics program and a
    network of manufacturing facilities, sales offices and design centers in
    key markets throughout North America, Europe and the Asia Pacific
    regions. For more information, visit http://www.onsemi.com.

    ON Semiconductor and the ON Semiconductor logo are registered
    trademarks of Semiconductor Components Industries, LLC.
    All other
    brand and product names appearing in this document are registered
    trademarks or trademarks of their respective holders.
    Although
    the Company references its website in this news release, information on
    the website is not to be incorporated herein.

    This document contains “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 ON Semiconductor, including financial guidance for the
    year ending December 31, 2019. Forward-looking statements are often
    characterized by the use of words such as “believes,” “estimates,”
    “expects,” “projects,” “may,” “will,” “intends,” “plans” or
    “anticipates” 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. Among these factors are our revenue and operating
    performance; economic conditions and markets (including current
    financial conditions); risks related to our ability to meet our
    assumptions regarding outlook for revenue and gross margin as a
    percentage of revenue; effects of exchange rate fluctuations; the
    cyclical nature of the semiconductor industry; changes in demand for our
    products; changes in inventories at our customers and distributors;
    risks associated with restructuring actions and workforce reductions;
    technological and product development risks; enforcement and protection
    of our intellectual property rights and related risks; risks related to
    the security of our information systems and secured network;
    availability of raw materials, electricity, gas, water and other supply
    chain uncertainties; our ability to effectively shift production to
    other facilities when required in order to maintain supply continuity
    for our customers; variable demand and the aggressive pricing
    environment for semiconductor products; our ability to successfully
    manufacture in increasing volumes on a cost-effective basis and with
    acceptable quality for our current products; risks associated with our
    acquisitions and dispositions generally, including our ability to
    realize the anticipated benefits of our acquisitions and dispositions;
    risks that acquisitions or dispositions may disrupt our current plans
    and operations, the risk of unexpected costs, charges or expenses
    resulting from acquisitions or dispositions and difficulties arising
    from integrating and consolidating acquired businesses, our timely
    filing of financial information with the Securities and Exchange
    Commission (“SEC”) for acquired businesses and our ability to accurately
    predict the future financial performance of acquired businesses);
    competitor actions, including the adverse impact of competitor product
    announcements; pricing and gross profit pressures; loss of key customers
    or distributors; order cancellations or reduced bookings; changes in
    manufacturing yields; control of costs and expenses and realization of
    cost savings and synergies from restructurings; significant litigation;
    risks associated with decisions to expend cash reserves for various uses
    in accordance with our capital allocation policy such as debt
    prepayment, stock repurchases or acquisitions rather than to retain such
    cash for future needs; risks associated with our substantial leverage
    and restrictive covenants in our debt agreements that may be in place
    from time to time; risks associated with our worldwide operations,
    including changes in trade policies, foreign employment and labor
    matters associated with unions and collective bargaining arrangements as
    well as man-made and/or natural disasters affecting our operations or
    financial results; the threat or occurrence of international armed
    conflict and terrorist activities both in the United States and
    internationally; risks of changes in U.S. or international tax rates or
    legislation; risks and costs associated with increased and new
    regulation of corporate governance and disclosure standards; risks
    related to new legal requirements; and risks involving environmental or
    other governmental regulation. Additional factors that could affect our
    future results or events are described under Part I, Item 1A “Risk
    Factors” in our 2018 Annual Report on Form 10-K filed with the SEC on
    February 20, 2019 (our “2018 Form 10-K”) 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 2018 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 STATEMENT OF OPERATIONS

    (in millions, except per share data)

     
    Quarters Ended
    March 29, 2019   December 31, 2018   March 30, 2018
    Revenue $ 1,386.6 $ 1,503.1 $ 1,377.6
    Cost of revenue (exclusive of amortization shown below) 872.9   933.4   860.2  
    Gross profit 513.7 569.7 517.4
    Gross margin 37.0 % 37.9 % 37.6 %
    Operating expenses:
    Research and development 151.8 162.2 155.2
    Selling and marketing 77.1 82.1 77.8
    General and administrative 72.9 74.5 70.9
    Amortization of acquisition-related intangible assets 25.7 28.4 27.4
    Restructuring, asset impairments and other, net 5.6 (3.7 ) 0.4
    Intangible asset impairment 1.2   3.5    

    Total operating expenses

    334.3   347.0   331.7  
    Operating income 179.4   222.7   185.7  
    Other income (expense), net:
    Interest expense (31.7 ) (32.9 ) (31.5 )
    Interest income 2.5 2.8 0.9
    Licensing income 3.7 3.8
    Other income (expense) 2.1   (7.6 ) (2.0 )
    Other income (expense), net (27.1 ) (34.0 ) (28.8 )
    Income before income taxes 152.3 188.7 156.9
    Income tax provision (38.2 ) (22.7 ) (16.4 )
    Net income 114.1 166.0 140.5
    Less: Net income attributable to non-controlling interest   (0.4 ) (0.9 )
    Net income attributable to ON Semiconductor Corporation $ 114.1   $ 165.6   $ 139.6  
    Net income per common share attributable to ON Semiconductor
    Corporation:
    Basic $ 0.28   $ 0.40   $ 0.33  
    Diluted $ 0.27   $ 0.39   $ 0.31  
    Weighted average common shares outstanding:
    Basic 410.6   416.9   425.9  
    Diluted 417.7   420.0   444.2  
     
     
    ON SEMICONDUCTOR CORPORATION
    UNAUDITED CONSOLIDATED BALANCE SHEETS

    (in millions)

               
    March 29, 2019   December 31, 2018   March 30, 2018
    Assets
    Cash and cash equivalents $ 939.6 $ 1,069.6 $ 924.9
    Receivables, net 704.0 686.0 696.9
    Inventories 1,225.2 1,225.2 1,160.0
    Other current assets 177.9   187.0   185.2  
    Total current assets 3,046.7 3,167.8 2,967.0
    Property, plant and equipment, net 2,585.0 2,549.6 2,336.4
    Goodwill 932.5 932.5 916.9
    Intangible assets, net 539.5 566.4 600.9
    Deferred tax assets 238.2 266.2 333.3
    Other assets 222.4   105.1   108.6  
    Total assets $ 7,564.3   $ 7,587.6   $ 7,263.1  
    Liabilities, Non-Controlling Interest and Stockholders’ Equity
    Accounts payable $ 583.3 $ 671.7 $ 612.0
    Accrued expenses and other current liabilities 603.4 659.1 585.8
    Current portion of long-term debt 130.8   138.5   747.2  
    Total current liabilities 1,317.5 1,469.3 1,945.0
    Long-term debt 2,639.0 2,627.6 2,084.4
    Deferred tax liabilities 54.1 54.8 57.1
    Other long-term liabilities 333.0   241.8   225.1  
    Total liabilities 4,343.6   4,393.5   4,311.6  
    ON Semiconductor Corporation stockholders’ equity:
    Common stock 5.6 5.6 5.5
    Additional paid-in capital 3,722.5 3,702.3 3,615.5
    Accumulated other comprehensive loss (43.7 ) (37.9 ) (34.4 )
    Accumulated earnings 1,093.7 979.6 491.7
    Less: Treasury stock, at cost (1,579.9 ) (1,478.0 ) (1,149.9 )
    Total ON Semiconductor Corporation stockholders’ equity 3,198.2 3,171.6 2,928.4
    Non-controlling interest 22.5   22.5   23.1  
    Total stockholders’ equity 3,220.7   3,194.1   2,951.5  
    Total liabilities and stockholders’ equity $ 7,564.3   $ 7,587.6   $ 7,263.1  
     
     
    ON SEMICONDUCTOR CORPORATION
    UNAUDITED RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA AND
    NET CASH PROVIDED BY OPERATING ACTIVITIES

    (in millions)

     
    Quarters Ended
    March 29, 2019   December 31, 2018   March 30, 2018
    Net income $ 114.1 $ 166.0 $ 140.5
    Adjusted for:
    Licensing income (3.7 ) (3.8 )
    R&D costs related to licensing income 2.8
    Restructuring, asset impairments and other, net 5.6 (3.7 ) 0.4
    Intangible asset impairment 1.2 3.5
    Interest expense 31.7 32.9 31.5
    Interest income (2.5 ) (2.8 ) (0.9 )
    Income tax provision 38.2 22.7 16.4
    Net income attributable to non-controlling interest (0.4 ) (0.9 )
    Depreciation and amortization 135.8 136.2 119.9
    Amortization of fair market value step-up of inventory 0.6
    Adjustment to contingent consideration (2.1 )
    Actuarial losses on pension plans and other pension benefits 5.8
    Third party acquisition and divestiture related costs 3.3 1.5 0.4
    Indemnification gain (4.9 )    
    Adjusted EBITDA 322.5   358.6   304.2  
    Increase (decrease):
    Licensing income 3.7 3.8
    R&D costs related to licensing income (2.8 )
    Restructuring, asset impairments and other, net (5.6 ) 3.7 (0.4 )
    Interest expense (31.7 ) (32.9 ) (31.5 )
    Interest income 2.5 2.8 0.9
    Income tax provision (38.2 ) (22.7 ) (16.4 )
    Net income attributable to non-controlling interest 0.4 0.9
    Amortization of fair market value step-up of inventory (0.6 )
    Adjustment to contingent consideration 2.1
    Actuarial losses on pension plans and other pension benefits (5.8 )
    Third party acquisition and divestiture related costs (3.3 ) (1.5 ) (0.4 )
    Indemnification gain 4.9
    Loss (gain) on sale or disposal of fixed assets 0.4 (1.2 ) 1.3
    Amortization of debt discount and issuance costs 3.2 3.4 3.3
    Share-based compensation expense 19.7 18.9 18.4
    Non-cash interest on convertible notes 9.1 9.5 8.7
    Change in deferred taxes 29.0 (10.7 ) 7.5
    Other (4.3 ) 2.0 (1.2 )
    Changes in operating assets and liabilities (170.0 ) 93.4   (71.9 )
    Net cash provided by operating activities $ 138.2   $ 421.0   $ 226.5  
    Cash flows from investing activities:
    Purchase of property, plant and equipment $ (157.0 ) $ (132.0 ) $ (99.5 )
    Proceeds from sales of property, plant and equipment 30.2 5.6
    Deposits utilized (made) for purchase of property, plant and
    equipment
    (10.1 ) 9.7 (11.6 )
    Purchase of equity interest and assets, net of cash acquired (4.8 )
    Proceeds from divestiture of business, net of cash transferred 1.1
    Other   2.2    
    Net cash used in investing activities $ (167.1 ) $ (93.6 ) $ (105.5 )
    Cash flows from financing activities:
    Proceeds for the issuance of common stock under the ESPP 7.4 $ 6.3 $
    Proceeds from exercise of stock options 0.5 1.3 3.6
    Payment of tax withholding for RSUs (26.1 ) (2.4 ) (18.8 )
    Repurchase of common stock (75.0 ) (200.3 )
    Proceeds from debt issuance 4.5 7.1 5.3
    Repayment of long-term debt (12.2 ) (18.5 ) (135.9 )
    Payment of finance lease obligations (0.2 ) (0.3 ) (1.1 )
    Dividend to non-controlling shareholder   (2.2 )  
    Net cash used in financing activities $ (101.1 ) $ (209.0 ) $ (146.9 )
    Effect of exchange rate changes on cash, cash equivalents and
    restricted cash
    $   $ 0.2   $ 1.6  
    Net (decrease) increase in cash, cash equivalents and restricted cash $ (130.0 ) $ 118.6 $ (24.3 )
    Cash, cash equivalents and restricted cash, beginning of period $ 1,087.1   $ 968.5   $ 966.6  
    Cash, cash equivalents and restricted cash, end of period $ 957.1   $ 1,087.1   $ 942.3  
     
     
    ON SEMICONDUCTOR CORPORATION
    RECONCILIATION OF GAAP VERSUS NON-GAAP DISCLOSURES

    (in millions, except per share and percentage data)

         
    Quarters Ended
    March 29, 2019   December 31, 2018   March 30, 2018
    Reconciliation of GAAP gross profit to non-GAAP gross profit:
    GAAP gross profit $ 513.7   $ 569.7   $ 517.4  
    Special items:
    a) Expensing of appraised inventory at fair market value step-up   0.6    
    Total special items   0.6    
    Non-GAAP gross profit $ 513.7   $ 570.3   $ 517.4  
    Reconciliation of GAAP gross margin to non-GAAP gross margin:
    GAAP gross margin 37.0 % 37.9 % 37.6 %
    Special items:
    a) Expensing of appraised inventory at fair market value step-up % % %
    Total special items % % %
    Non-GAAP gross margin 37.0 % 37.9 % 37.6 %
    Reconciliation of GAAP operating expenses to non-GAAP operating
    expenses:
    GAAP operating expenses $ 334.3   $ 347.0   $ 331.7  
    Special items:
    a) Amortization of acquisition-related intangible assets (25.7 ) (28.4 ) (27.4 )
    b) Restructuring, asset impairments and other, net (5.6 ) 3.7 (0.4 )
    c) Intangible asset impairment (1.2 ) (3.5 )
    d) Third party acquisition and divestiture related costs (3.3 ) (1.5 ) (0.4 )
    e) R&D costs related to licensing income     (2.8 )
    Total special items (35.8 ) (29.7 ) (31.0 )
    Non-GAAP operating expenses $ 298.5   $ 317.3   $ 300.7  
    Reconciliation of GAAP operating income to non-GAAP operating
    income:
    GAAP operating income $ 179.4   $ 222.7   $ 185.7  
    Special items:
    a) Expensing of appraised inventory at fair market value step-up 0.6
    b) Amortization of acquisition-related intangible assets 25.7 28.4 27.4
    c) Restructuring, asset impairments and other, net 5.6 (3.7 ) 0.4
    d) Intangible asset impairment 1.2 3.5
    e) Third party acquisition and divestiture related costs 3.3 1.5 0.4
    f) R&D costs related to licensing income     2.8  
    Total special items 35.8   30.3   31.0  
    Non-GAAP operating income $ 215.2   $ 253.0   $ 216.7  
    Reconciliation of GAAP operating margin to non-GAAP operating
    margin (operating income / revenue):
    GAAP operating margin 12.9 % 14.8 % 13.5 %
    Special items:
    a) Expensing of appraised inventory at fair market value step-up % % %
    b) Amortization of acquisition-related intangible assets 1.9 % 1.9 % 2.0 %
    c) Restructuring, asset impairments and other, net 0.4 % (0.2 )% %
    d) Intangible asset impairment 0.1 % 0.2 % %
    e) Third party acquisition and divestiture related costs 0.2 % 0.1 % %
    f) R&D costs related to licensing income % % 0.2 %
    Total special items 2.6 % 2.0 % 2.2 %
    Non-GAAP operating margin 15.5 % 16.8 % 15.7 %
    Reconciliation of GAAP income before income taxes to non-GAAP
    income before income taxes:
    GAAP income before income taxes $ 152.3   $ 188.7   $ 156.9  
    Special items:
    a) Expensing of appraised inventory at fair market value step-up 0.6
    b) Amortization of acquisition-related intangible assets 25.7 28.4 27.4
    c) Restructuring, asset impairments and other, net 5.6 (3.7 ) 0.4
    d) Intangible asset impairment 1.2 3.5
    e) Third party acquisition and divestiture related costs 3.3 1.5 0.4
    f) R&D costs related to licensing income 2.8
    g) Actuarial losses on pension plans and other pension benefits 5.8
    h) Non-cash interest on convertible notes 9.1 9.5 8.7
    i) Indemnification gain (4.9 )
    j) Adjustment to contingent consideration (2.1 )
    k) Licensing income   (3.7 ) (3.8 )
    Total special items 40.0   41.9   33.8  
    Non-GAAP income before income taxes $ 192.3   $ 230.6   $ 190.7  
    Reconciliation of GAAP net income attributable to ON
    Semiconductor Corporation to non-GAAP net income attributable to ON
    Semiconductor Corporation:
    GAAP net income attributable to ON Semiconductor Corporation $ 114.1   $ 165.6   $ 139.6  
    Special items:
    a) Expensing of appraised inventory at fair market value step-up 0.6
    b) Amortization of acquisition-related intangible assets 25.7 28.4 27.4
    c) Restructuring, asset impairments and other, net 5.6 (3.7 ) 0.4
    d) Intangible asset impairment 1.2 3.5
    e) Third party acquisition and divestiture related costs 3.3 1.5 0.4
    f) R&D costs related to licensing income 2.8
    g) Actuarial losses on pension plans and other pension benefits 5.8
    h) Non-cash interest on convertible notes 9.1 9.5 8.7
    i) Indemnification gain (4.9 )
    j) Adjustment to contingent consideration (2.1 )
    k) Licensing income (3.7 ) (3.8 )
    l) Adjustment of income taxes 23.0   14.5   (2.7 )
    Total special items 63.0   56.4   31.1  
    Non-GAAP net income attributable to ON Semiconductor Corporation $ 177.1   $ 222.0   $ 170.7  
    Adjustment of income taxes:
    Tax adjustment for special items (1) $ (8.4 ) $ (8.8 ) $ (7.1 )
    Other non-GAAP tax adjustment (2) 31.0 36.4 4.4
    Non-cash impact of U.S. tax reform (3) 35.1
    Impact of U.S. tax method changes (48.2 )
    Tax indemnified by third parties 0.4      
    Total adjustment of income taxes $ 23.0   $ 14.5   $ (2.7 )
    Reconciliation of GAAP diluted share count to non-GAAP diluted
    share count:
    GAAP diluted share count 417.7 420.0 444.2
    Special items:
    a) Dilutive share count attributable to convertible notes (3.9 )   (12.6 )
    Total special items (3.9 )   (12.6 )
    Non-GAAP diluted share count 413.8   420.0   431.6  
    Non-GAAP diluted earnings per share:
    Non-GAAP net income attributable to ON Semiconductor Corporation $ 177.1 $ 222.0 $ 170.7
    Non-GAAP diluted share count 413.8   420.0   431.6  
    Non-GAAP diluted earnings per share $ 0.43   $ 0.53   $ 0.40  
    Reconciliation of net cash provided by operating activities to
    free cash flow:
    Net cash provided by operating activities $ 138.2 $ 421.0 $ 226.5
    Special items:
    a) Purchase of property, plant and equipment (157.0 ) (132.0 ) (99.5 )
    Total special items (157.0 ) (132.0 ) (99.5 )
    Free cash flow $ (18.8 ) $ 289.0   $ 127.0  
     
    (1) Tax impact of non-GAAP special items (a-k) is calculated using the
    federal statutory rate of 21% for all periods presented.
    (2) 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.
    (3) Tax impacts of U.S. tax reform legislation, H.R.1, commonly referred
    to as the “Tax Cuts and Jobs Act,” and related provisional impacts
    recorded pursuant to Staff Accounting Bulletin (SAB) No. 118, Income
    Tax Accounting Implications of the Tax Cuts and Jobs Act.

    Contacts

    Kris Pugsley
    Corporate/Media Communications
    ON Semiconductor
    (312)
    909-0661
    [email protected]

    Parag Agarwal
    Vice President – Investor Relations & Corporate
    Development
    ON Semiconductor
    (602) 244-3437
    [email protected]

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