ON Semiconductor (ON) 10-K risk factor changes: FY2018 vs FY2017

These factors include, among others: our [removed: revenues] [added: revenue] and operating performance; economic conditions and markets (including current financial conditions); risks related to our ability to meet our assumptions regarding outlook for [removed: revenues] [added: 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; technological and product development risks; enforcement and protection of our IP 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 [removed: acquisitions and dispositions including] our acquisition of Fairchild [removed: (including] [added: and with other acquisitions and dispositions, including] our ability to realize the anticipated benefits of our acquisitions and [added: 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 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; 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, including the impact of the recent U.S. tax 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.]

[added: Any revisions to,] inaccuracies in or restatements of our consolidated financial statements due to accounting for our acquisitions could have a material adverse effect our financial condition and results of operations.

If we are unable to utilize our manufacturing and testing facilities at expected levels, or if production capacity increases while [removed: revenues do] [added: revenue does] not, the fixed costs and other operating expenses associated with these facilities will not be fully absorbed, resulting in higher average unit costs and lower gross profits, which could have a material adverse effect on our results of operations.

We believe that the state of economic conditions in the United States is particularly uncertain due to [removed: likely] [added: recent and expected] shifts in legislative and regulatory conditions concerning, among other matters, international trade and taxation, and that an uneven recovery or a renewed global downturn may put pressure on our sales due to reductions in customer demand as well as customers deferring purchases.

Moreover, volatility in [removed: revenues] [added: revenue] as a result of unpredictable economic conditions may alter our anticipated working capital needs and interfere with our short-term and long-term strategies.

The failure to obtain a license from a [removed: third party] [added: third-party] for IP we use could cause us to incur substantial liabilities or to suspend the manufacture or shipment of products or our use of processes requiring such technologies.

Further, we may be subject to IP litigation, which could cause us to incur significant expense, materially adversely affect sales of the challenged product or [added: technologies and divert the efforts of our technical and management personnel, whether or not such litigation is resolved in our favor.]

Please see Note [removed: 12:] [added: 13:] “Commitments and Contingencies” in the notes to our audited consolidated financial statements included elsewhere in this Form 10-K for a more detailed description of the litigation and related administrative matters with PI and other legal matters we are currently engaged in.

For example, our facility in [removed: Roznov,] [added: Rožnov pod Radhoštěm,] Czech Republic, manufactures silicon wafers used by a number of our facilities, and [added: our Intelligent Sensing Group relies predominantly on one third-party for manufacturing at the front-end of its manufacturing process, and] any operational disruption, natural or man-made disaster or other extraordinary event that impacted [removed: the Roznov facility] [added: either of those facilities] would have a material adverse effect on our ability to produce a number of our products worldwide.

From time to time, we have implemented cost reduction initiatives in response to significant downturns in our industry, including relocating manufacturing to lower cost regions, transitioning higher-cost external supply to [added: internal manufacturing, working with our material suppliers to lower costs, implementing personnel reductions and voluntary retirement programs, reducing employee compensation, temporary shutdowns of facilities with mandatory vacation and aggressively streamlining our overhead.]

[added: Additionally, the emergence of new industry or regulatory] standards and certification requirements may adversely affect the demand for our products.

[removed: Generally, our] [added: Our] customers may cancel orders 30 days prior to shipment for standard products [removed: and 90 days] [added: and, generally prior to start of production] for custom products without incurring a [removed: significant] penalty.

Unsold inventory, canceled orders and cancellation penalties may materially adversely affect our results of operations, and inventory [removed: write-downs] [added: write-downs, which] may materially adversely affect our financial condition.

If we fail to compete effectively on developing strategic relationships with customers and customer sales and technical support, our sales and [removed: revenues] [added: revenue] may be materially adversely affected.

Competitive pressures may limit our ability to raise prices, and any inability to maintain [removed: revenues] [added: revenue] or raise prices to offset increases in costs could have a significant adverse effect on our gross margin.

The occurrence of natural disasters in any of the regions in which we operate could severely [added: disrupt the operations of our businesses by negatively impacting our supply chain, our ability to deliver products, and the cost of our products.]

Such events can negatively impact [removed: revenues] [added: revenue] and earnings and can significantly impact cash flow, both from decreased revenue and from increased costs associated with the event.

To the extent any losses from natural disasters or other business disruptions are not covered by insurance, any costs, write-downs, impairments and decreased [removed: revenues] [added: revenue] can materially adversely affect our business, our results of operations and our financial condition.

_The loss of one of our largest customers, or a significant reduction in the revenue we generate from these customers, could materially adversely affect our [removed: revenues,] [added: revenue,] profitability, and results of operations._

Product sales to our ten largest [removed: customers] [added: end-customers, which excludes distributors,] have historically accounted for a significant amount of our business.

For instance, for the years ended December 31, [removed: 2017] [added: 2018] and [removed: 2016,] [added: 2017,] revenue from our 10 largest end-customers collectively represented approximately [removed: 24%] [added: 25%] and 24%, respectively, of our total [removed: revenues] [added: revenue] for those years.

We cannot assure you that our largest customers will not cease purchasing products from us in favor of products produced by other suppliers, significantly reduce orders or seek price reductions in the future, and any such event could have a material adverse effect on our [removed: revenues,] [added: revenue,] profitability, and results of operations.

A significant portion of our sales are to customers within the automotive, industrial (including medical, aerospace and defense) and communications industries (including [added: wireless and] networking).

Sales into these industries represented approximately 31%, [removed: 25%,] [added: 27%,] and [removed: 20%] [added: 18%] of our revenue, respectively, for the year ended December 31, [removed: 2017,] [added: 2018,] and those percentages will vary from quarter to quarter.

[added: If we are unable to obtain adequate supplies of raw materials in a timely manner,] the costs of our raw materials increases significantly, their quality deteriorates or they give rise to compatibility or performance issues in our products, our results of operations could be materially adversely affected.

_Our [removed: international] [added: global] operations subject us to risks inherent in doing business on [removed: an international] [added: a global] level that could adversely impact our business, financial condition and results of operations._

A significant amount of our total revenue [removed: outside of the U.S.] is derived from the Asia/Pacific region and Europe, and we maintain significant operations in these regions.

Risks inherent in doing business on [removed: an international] [added: a global] level include, among others, the following:

| | • | | limitations on the repatriation of earnings and potential [added: additional] taxation of foreign profits in the U.S.; |

| | • | | potential violations by our international employees or [removed: third party] [added: third-party] agents of international or U.S. laws relevant to foreign operations (e.g., the Foreign Corrupt Practices Act (“FCPA”)); |

Changes to income tax [added: laws or] regulations in the United States and the jurisdictions in which we operate, or in the interpretation of such [removed: laws,] [added: laws or regulations,] could, under our existing tax structure, significantly increase our effective tax rate and ultimately reduce our cash flow from operating [removed: activities] [added: activities, result in us having to restructure] and otherwise have a material adverse effect on our financial condition.

_The impact of [removed: new] [added: recent] U.S. tax legislation is uncertain and could have a material adverse impact on our cash flows and results of operations._

Any benefit associated with the lower U.S. corporate tax rate could be reduced or outweighed by [added: the cost of compliance or] other adverse [added: regulatory] changes [removed: enacted in] [added: related to] the Tax Act or [removed: by the cost of compliance.][added: final Treasury Regulations.]

The various laws and regulations governing our registered and unregistered IP assets, patents, [added: trade secrets, trademarks, mask works and copyrights to protect our products and technologies are subject to legislative and regulatory change and interpretation by courts.]

In addition, if any of our designed products are or are alleged to be defective, we may be required to participate in [added: their recall.]

Since a defect or failure in our product could give rise to failures in the goods that incorporate them (and claims for consequential damages against our customers from their customers), we may face claims for damages that are disproportionate to the [removed: revenues] [added: revenue] and profits we receive from the products involved.

There is no assurance that such limitations will be effective, and to the extent that we are liable for damages in excess of the [removed: revenues] [added: revenue] and profits we received from the products involved, our results of operations and financial condition could be materially adversely affected.

Our security measures and/or those of our [removed: third party] [added: third-party] service providers and/or customers may not detect or prevent such security breaches.

Violations of the FCPA or similar laws by distributors or other third-party intermediaries could have a material impact on our [added: business.]

Many foreign countries and governmental bodies, including the European Union and other relevant jurisdictions where the Company conducts business, have laws and regulations concerning the collection and use of PII and other data obtained from their residents or by businesses operating within their jurisdictions that are currently more restrictive than those in the U.S. Additionally, in May 2016, the European Union adopted the General Data Protection Regulation [added: (“GDPR”)] that [removed: will impose] [added: imposed] more stringent data protection requirements and [removed: will provide] [added: provided] for greater penalties for noncompliance beginning in May 2018.

In times of under supply for certain products, some customers could respond by inflating their demand signals.

As markets level off and supply capacity begins to match actual market demands, we could experience an increased risk of inventory write-downs, which may materially adversely affect our results of operations and our financial condition.

The Tax Act made broad and complex changes to the U.S. tax code.

Many of the changes require additional guidance, including through the issuance of final Treasury Regulations, which could lessen or increase certain adverse impacts of the Tax Act.

Although our accounting under ASC 740 for the provisions of the Tax Act is now complete, our analysis and interpretation of the Tax Act and proposed Treasury Regulations are ongoing and may include judgments and interpretations that could change based on final Treasury Regulations or other guidance or due to actions that the Company may take in response to such regulatory change.

As a result, the impact of the Tax Act may differ from our estimates, possibly materially.

_Changes in tariffs or other government trade policies may materially adversely affect our business and results of operations, including by reducing demand for our products._

The imposition of tariffs and trade restrictions as a result of international trade disputes or changes in trade policies may adversely affect our sales and profitability.

For example, in 2018, the U.S. government imposed and proposed, among other actions, new or higher tariffs on specified imported products originating from China in response to what it characterizes as unfair trade practices, and China has responded by imposing and proposing new or higher tariffs on specified products including some semiconductors fabricated in the United States.

There can be no assurance that a broader trade agreement will be successfully negotiated between the United States and China to reduce or eliminate these tariffs.

These tariffs, and the related geopolitical uncertainty between the United States and China, may cause decreased end-market demand for our products from distributors and other customers, which could have a material adverse effect on our business and results of operations.

For example, certain of our foreign customers may respond to the imposition of tariffs or threat of tariffs on products we produce by delaying purchase orders, purchasing products from our competitors or developing their own products.

Ongoing international trade disputes and changes in trade policies could also impact economic activity and lead to a general contraction of customer demand.

In addition, tariffs on components that we import from China or other nations that have imposed, or may in the future impose, tariffs will adversely affect our profitability unless we are able to exclude such components from the tariffs or we raise prices for our products, which may result in our products becoming less attractive relative to products offered by our competitors.

Future actions or escalations by either the United States or China that affect trade relations may also impact our business, or that of our suppliers or customers, and we cannot provide any assurances as to whether such actions will occur or the form that they may take.

To the extent that our sales or profitability are negatively affected by any such tariffs or other trade actions, our business and results of operations may be materially adversely affected.

_Changes in government trade policies could limit our ability to sell our products to certain customers, which may materially adversely affect our sales and results of operations._

The U.S. Congress or U.S. regulatory authorities may take administrative, legislative or regulatory action that could materially interfere with our ability to make sales to certain of our customers, particularly in China.

We could experience unanticipated restrictions on our ability to sell to certain foreign customers where sales of products and the provision of services may require export licenses or are prohibited by government action.

For example, the U.S. Department of Commerce could ban the export of U.S. products to foreign customers.

The terms and duration of any such restrictions may not be known to us in advance and may be subject to ongoing modifications.

Even to the extent such restrictions are subsequently lifted, any financial or other penalties imposed on affected foreign customers could have a negative impact on future orders.

Such foreign customers may also respond to sanctions or the threat of sanctions by developing their own solutions or adopting alternative solutions or competitors’ solutions.

The loss or temporary loss of customers as a result of such future regulatory limitations could materially adversely affect our sales, business and results of operations.

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dispositions; risks that acquisitions or dispositions disrupt our current plans and operations, the risk of unexpected costs, charges or expenses resulting from acquisitions or dispositions and difficulties encountered from integrating and consolidating and timely filing financial information with the SEC for acquired businesses and accurately predicting 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; 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 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, including the impact of the new U.S. tax 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.

Any revisions to,

technologies and divert the efforts of our technical and management personnel, whether or not such litigation is resolved in our favor.

| --- | --- | --- | --- |

internal manufacturing, working with our material suppliers to lower costs, implementing personnel reductions and voluntary retirement programs, reducing employee compensation, temporary shutdowns of facilities with mandatory vacation and aggressively streamlining our overhead.

Additionally, the emergence of new industry or regulatory

disrupt the operations of our businesses by negatively impacting our supply chain, our ability to deliver products, and the cost of our products.

If we are unable to obtain adequate supplies of raw materials in a timely manner,

| | • | | fluctuations in raw material costs and energy costs; |

The Tax Act makes broad and complex changes to the U.S. tax code, and it will take time for additional clarifying guidance and legislation to be issued, and this guidance will be required for the interpretation of these comprehensive changes.

Based on our current understanding of the law following a preliminary review, we estimated significant impacts to our fourth quarter and full year 2017 earnings.

The impact of the Tax Act may differ from this estimate, possibly materially, due to, among other things, changes in interpretations and assumptions the Company has made, guidance that may be issued and actions the Company may take as a result of the Tax Act.

We are in the process of analyzing the potential aggregate current

and future impacts of the Tax Act relative to how we do business, cash flows and results of operations.

trade secrets, trademarks, mask works and copyrights to protect our products and technologies are subject to legislative and regulatory change and interpretation by courts.

their recall.

business.

While the Company has developed and is executing plans to meet these requirements, these plans are subject to many variables that could delay or otherwise affect implementation.

other purposes, and if we incur additional debt, the related risks that we now face could intensify.

additional financing for working capital, capital expenditures, acquisitions, and other general corporate purposes and could reduce our flexibility to respond to changing business and economic conditions.

that indebtedness, which could materially negatively impact our results of operations and financial condition.

any such issuance of common stock could materially dilute the ownership interests of existing stockholders, including stockholders who previously converted such notes to shares of our common stock.

As of December 31, [removed: 2017,] [added: 2018,] our long-term debt (including current maturities) totaled [removed: $3,175.0] [added: $2,939.0] million.

We have no interest rate exposure to rate changes on our fixed rate debt, which totaled [removed: $2,053.5 million (excluding the SMBC note of $122.7 million which was paid on January 2, 2018).][added: $2,295.4 million.]

We do have interest rate exposure with respect to the [removed: $998.8] [added: $643.6] million balance of our variable interest rate debt outstanding as of December 31, [removed: 2017.][added: 2018.]

A 50 basis point increase in interest rates would impact our expected annual interest expense for the next 12 months by approximately [removed: $5.0] [added: $3.2] million.

[removed: Our] [added: Some of our] Japanese operations utilize Japanese Yen as the functional currency, which results in a translation adjustment that is included as a component of accumulated other comprehensive income.

The notional amount of foreign currency contracts at December 31, [removed: 2017] [added: 2018] and [removed: 2016] [added: 2017] was [removed: $130.5] [added: $157.3] million and [removed: $95.9] [added: $130.5] million, respectively.

For example, we determined that based on a hypothetical weighted-average change of 10% in currency exchange rates, our results would have impacted our income before taxes by approximately [removed: $101.2] [added: $102.9] million for the year ended December 31, [removed: 2017,] [added: 2018,] assuming no [removed: offsetting hedge positions.][added: inter-relationship between the currencies.]

See Note [removed: 14:] [added: 15:] “Financial Instruments” in the notes to the audited consolidated financial statements included elsewhere in this Form 10-K for further information with respect to our hedging activity.

ON Semiconductor Corporation, [removed: which was incorporated under the laws of the state of Delaware in 1999,] together with its subsidiaries (“we,” “us,” “our,” “ON Semiconductor,” or the “Company”), [removed: is driving innovation] [added: was incorporated under the laws of the state of Delaware] in [removed: energy-efficient electronics.][added: 1992 under the name Motorola Energy Systems, Inc. Immediately prior to our August 4, 1999 recapitalization, we were a wholly-owned subsidiary of Motorola, Inc.]

Our extensive portfolio of sensors, power management, connectivity, custom and SoC, analog, logic, [removed: timing,] [added: timing] and discrete devices helps customers efficiently solve their design challenges in advanced electronic systems and products.

Our growing portfolio of sensors, including image sensors, [removed: optical image stabilization] [added: radar] and [removed: auto focus devices,] [added: LiDAR,] provide advanced solutions for automotive, [removed: wireless,] industrial and [removed: consumer] [added: IoT] applications.

Our devices are found in a wide variety of end [removed: products] [added: products,] including automobiles, smartphones, [removed: media tablets,] [added: data center and enterprise servers,] wearable [removed: electronics,] [added: medical devices,] personal computers, [removed: servers,] industrial building and home automation systems, factory automation, consumer white goods, security and surveillance systems, machine [removed: vision,] [added: vision and robotics,] LED lighting, power supplies, networking and telecom equipment, medical diagnostics, imaging and hearing [removed: health, sensor networks and robotics.][added: health.]

We shipped approximately [removed: 72.8] [added: 75.7] billion units in [removed: 2017,] [added: 2018,] as compared to [removed: 59.4] [added: 72.8] billion units in [removed: 2016.][added: 2017.]

| Power Solutions Group | | Analog Solutions Group | | [removed: Image Sensor] [added: Intelligent Sensing] Group |

| [removed: (1) ASIC] [added: Discrete] products | | [removed: (8) Discrete] [added: ASIC] products | | [added: Sensors] |

| [removed: (2)] Analog products | | [removed: (9) Memory] [added: Analog] products | | [added: LSI products] |

| [removed: (3)] TMOS products | | [removed: (10) HD products] | | |

| [removed: (4) ECL] [added: HD] products | | [removed: (11) IPM] [added: ECL] products | | |

| [removed: (5) Foundry] [added: IPM] products [removed: / services] | | [removed: (12) LSI] [added: Foundry] products [added: / services] | | |

| [removed: (6)] Standard logic products | | [removed: (13) Other sensor products] | | |

We also have foreign design operations in Belgium, Canada, China, the Czech Republic, France, Germany, India, Ireland, Israel, [added: Italy,] Japan, Korea, Philippines, Romania, Singapore, Slovakia, Slovenia, Switzerland, Taiwan and the United Kingdom.

Additionally, we currently operate domestic manufacturing facilities in Idaho, Maine, Pennsylvania, New York and Oregon and have foreign manufacturing facilities in Belgium, Canada, China, [added: the] Czech Republic, Japan, Korea, Malaysia, the Philippines and Vietnam.

_Company Highlights for the year ended December 31, [removed: 2017_][added: 2018_]

| | • | | Gross margin of [removed: 36.7%] [added: 38.1%] |

| | • | | Net income of [removed: $1.89] [added: $1.44] per diluted share |

| | • | | Cash and cash equivalents of [removed: $949.2] [added: $1,069.6] million |

The aggregate purchase price of the Fairchild Transaction was approximately $2,532.2 million and was funded with cash on hand and by borrowings under a Credit Agreement, dated as of April 15, 2016, 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 (as subsequently amended, the “Amended Credit Agreement”) [removed: which provided] [added: which, as subsequently amended, provides] for a [removed: $600 million] [added: $1.0 billion] revolving credit facility (the “Revolving Credit Facility”) and a $2.4 billion term loan “B” facility (the “Term Loan “B” Facility”).

See Note [removed: 4:] [added: 5:] “Acquisitions, Divestitures and Licensing Transactions” in the notes to our audited consolidated financial statements included elsewhere in this Form 10-K for additional information.

See “Business Overview” above and Note [removed: 18: “Segment] [added: 3: “Revenue and Segment] Information” in the notes to our audited consolidated financial statements included elsewhere in this Form 10-K for other information regarding our segments and their [removed: revenues] [added: revenue] and property, plant and equipment and the income derived from each segment.

The advancement of existing volt electrical infrastructure, electrification of power train in the form of EV/HEV, higher trench density enabling lower losses in power efficient packages and lower capacitance and integrated signal conditioning products to support faster data transmission rates significantly increase the use of high power [added: semiconductor solutions.]

Advanced power technologies to support high performance power conversion for high-end power supply/UPS, alternative [removed: energy,] [added: energy] and industrial motors.

MOSFETs and protection devices supporting [added: the] latest chipsets.

[removed: World’s] [added: Our] smallest packages: DFN MOSFETs, CSP (MOSFET/EEPROMs), EEPROMs and LDOs, [added: and] X4DFN 01005 for small signal devices and protection.

Additionally, the Analog Solutions Group offers trusted foundry and design services for certain of our government [removed: customers,] [added: customers] as well [removed: as,] [added: as] manufacturing [removed: services,] [added: services] and IPD products technology, which leverage the Company’s broad range of manufacturing, IC design, packaging, and silicon technology offerings to provide turn-key solutions for our customers.

| | [removed: _•_] [added: •] | | _Communications_ |

| | [removed: _•_] [added: •] | | _Computing_ |

The [removed: Image Sensor] [added: Intelligent Sensing] Group designs and develops CMOS and CCD image sensors, as well as proximity sensors, image signal [removed: processors] [added: processors, single photon detectors, including SiPM] and [added: SPAD arrays, as well as] actuator drivers for autofocus and image stabilization for a broad base of end-users in the automotive, industrial, consumer, wireless, medical and aerospace/defense markets.

Our broad range of product offerings delivers excellent pixel performance, sensor functionality and camera systems capabilities [removed: to a world] in which high quality visual imagery is becoming increasingly important to our customers and their [removed: end-users.][added: end-users, particularly in applications powered by AI.]

Certain of the [removed: Image Sensor] [added: Intelligent Sensing] Group’s broad portfolio of products and solutions are summarized below:

| | [removed: _•_] [added: •] | | _Automotive Imaging_ |

| | [removed: _•_] [added: •] | | _Industrial Imaging_ |

| | [removed: _•_] [added: •] | | _Wireless and Consumer Electronics_ |

Sales agreements with customers are renewable periodically and contain certain terms and conditions with respect to payment, delivery, warranty [added: and supply, but generally do not require minimum purchase commitments.]

Most of our OEM customers negotiate pricing terms with us on an annual basis near the end of the calendar year, [removed: while] our [removed: other customers, including electronic manufacturer service providers and distributors,] [added: distributors] generally negotiate pricing terms [removed: with us] on a quarterly [removed: basis.][added: basis, and electronic manufacturer service providers negotiate prices periodically during the year.]

For the year ended December 31, [removed: 2017,] [added: 2018,] aggregate revenue from our five largest customers [removed: per segment] for our Power Solutions Group, Analog Solutions [removed: Group,] [added: Group] and [removed: Image Sensor] [added: Intelligent Sensing] Group, comprised approximately [removed: 43%, 35%] [added: 44%, 36%] and [removed: 48%,] [added: 49%,] respectively, of our total consolidated revenue.

[removed: Generally, our] [added: Our] customers may cancel orders 30 days prior to shipment for standard products [removed: and 90 days] [added: and, generally] prior to [removed: shipment] [added: start of production] for custom products without incurring a [removed: significant] penalty.

The following table sets forth our principal end-markets, the estimated percentage (based in part on information provided by our distributors and electronic manufacturing service providers) of our [removed: revenues] [added: revenue] generated from each end-market during [removed: 2017,] [added: 2018, and] sample applications for our [removed: products and representative OEM customers and end-users.][added: products.]

[removed: We include] [added: Our Industrial end-market includes] the data relating to the Medical, Aerospace and Defense [removed: end-markets as part of] [added: and] our [removed: Industrial] [added: Communications] end-market [removed: and] [added: includes] the data relating to the Networking and [removed: Wireless end-markets as part of our Communications end-market.][added: Wireless.]

ON Semiconductor is driving innovation in energy-efficient electronics.

As of December 31, 2018, we were organized into the following three operating and reporting segments: the Power Solutions Group, the Analog Solutions Group and the Intelligent Sensing Group.

During 2018, we changed the name of one of our operating and reporting segments from the Image Sensor Group to the Intelligent Sensing Group.

The following table illustrates the product technologies under each of our segments based on our operating strategy:

| Memory products | | LSI products | | |

| PIM products | | Standard logic products | | |

| Sensors | | TMOS products | | |

| WBG products | | | | |

| | • | | Total revenue of $5,878.3 million |

On May 8, 2018, we acquired 100% of the outstanding shares of SensL, a company specializing in silicon photomultipliers, single photon avalanche diode and LiDAR sensing products for the automotive, medical, industrial and consumer markets for $71.6 million, funded with cash on hand.

This acquisition positions us to extend our products in automotive sensing applications for ADAS and autonomous driving by adding LiDAR capabilities to our existing capabilities in imaging and radar.

_Intelligent Sensing Group_

A broad portfolio of automotive sensing technologies spanning ultrasonic, imaging, radar and LiDAR paving the way to high levels of driver assistance (ADAS) and automated driving with built in functional safety and cybersecurity processing.

A broad range of CMOS, CCD and SiPM sensors with an emphasis on machine vision for factory automation, robotics and logistics, intelligent transportation systems, agriculture, medical, cinematography, scientific and aerospace/defense applications.

Pricing terms on product development agreements are negotiated at the beginning of a project.

We allocate the transaction price to each distinct product based on its relative stand-alone selling price.

For additional information regarding agreements with our customers, see “End-Markets for Our Products,” “Manufacturing and Operations,” and “Backlog and Inventory,” below, “Risk Factors - Trends, Risks and Uncertainties Related to Our Business” included elsewhere in this Form 10-K and Note 2: “Significant Accounting Policies - Revenue Recognition” in the notes to our audited consolidated financial statements included elsewhere in this Form 10-K.

| Approximate percentage of 2018 Revenue | | 31% | | 27% | | 18% | | 13% | | 11% |

OEM customers include a variety of companies in the electronics industry.

| Aizuwakamatsu, Japan | | Analog Solutions Group and Power Solutions Group | | 734,482 |

Our joint venture partner in OSA is Fujitsu Semiconductor Limited (“FSL”), a Japanese corporation.

Pursuant to a foundry agreement, on a quarterly basis, ON and FSL are required to allocate the capacity of OSA and provide a rolling twenty-four month forecast consistent with the capacity allocated to each joint venture partner.

We have committed to purchase approximately 50% of OSA’s production capacity, and our committed capacity is scheduled to increase gradually through the second quarter of 2020, when, subject to the fulfillment of certain conditions, we are required to increase our ownership in OSA to 100%.

_Intelligent Sensing Group_

During 2018, semi-annual groundwater monitoring indicated that the treatment was effective, and accordingly, we ceased such monitoring and have determined that this remediation project is complete.

Any costs to us in connection with this matter have not been material.

We have completed remediation on this project, and accordingly, have ceased all related monitoring efforts.

The facility has ongoing environmental remediation projects to respond to certain releases of hazardous substances that occurred prior to the leveraged recapitalization of Fairchild from its former parent company, National Semiconductor Corporation, which is now owned by Texas Instruments Incorporated.

_Vincent C.

From September 2016 to May 2018, he was Senior Vice President and General Manager of the Digital and DC/DC Solutions Division.

During his career, Mr. Hopkin has held various leadership positions within business units, sales and manufacturing.

Prior to joining ON Semiconductor in 2008, he successfully managed several businesses including ASIC, military/aerospace, image sensing and foundry services at AMI Semiconductor, Inc. Mr. Hopkin joined AMIS in 1983 and worked in several operations functions.

Mr. Hopkin holds a Bachelor of Science degree in management and organizational behavior from Idaho State University.

_Simon Keeton_.

Before Mr. Keeton’s promotion to his current role on January 1, 2019, he was a Senior Vice President and General Manager of the MOSFET Division.

From 2012 to 2016, Mr. Keeton served as Vice President and General Manager of the Integrated Circuit Division under our former Standard Products Group.

Prior to that time, he served as Vice President and General Manager of the Consumer Products Division from 2009 to 2012 and as Business Unit Director of our Signals and Interface Business Unit from 2007 to 2009.

Before joining the Company, Mr. Keeton served as Strategic Planning Manager of the Digital Enterprise Group of Intel Corporation at Intel and held various marketing and business management roles at Vitesse Semiconductor Corporation.

During the third quarter of 2016, we realigned our segments into three operating segments, which also represent our three reporting segments, to optimize efficiencies resulting from the acquisition of Fairchild: Power Solutions Group, Analog Solutions Group, and Image Sensor Group.

Each of our major product lines has been assigned to a segment, as illustrated in the table below, based on our operating strategy:

| | | | | |

| --- | --- | --- | --- | --- |

| Bipolar Power (8) | | Automotive ASSPs (1) | | CCD Image Sensors (7) |

| Thyristor (8) | | Analog Automotive (2) | | CMOS Image Sensors (7) |

| Small Signal (8) | | Automotive Power Switching (3) | | Proximity Sensors (13) |

| Zener (8) | | Automotive Mixed-Signal Solutions (1) | | Linear Light Sensors (7) |

| Protection (3) | | Medical ASICs & ASSPs (1) | | Image Stabilizer ICs (12) |

| Rectifier (8) | | Mixed-Signal ASICs (1) | | Auto Focus ICs (12) |

| Filters (3) | | Industrial ASSPs (1) | | |

| MOSFETs (3) | | High Frequency / Timing (4) | | |

| Signal & Interface (2) | | IPDs (5) | | |

| Standard Logic (6) | | Foundry and Manufacturing Services (5) | | |

| LDO’s & VREGs (2) | | Hearing Components (1) | | |

| EE Memory and Programmable Analog (9) | | DC-DC Conversion (2) | | |

| IGBTs (3) | | Analog Switches (6) | | |

| Power MOSFETs (10) | | AC-DC Conversion (2) | | |

| Power and Signal Discretes (10) | | Low Voltage Power Management (2) | | |

| Intelligent Power Modules (11) | | Power Switching (2) | | |

| Smart Passive Sensors (13) | | RF Antenna Tuning Solutions (1) | | |

| PIM (14) | | Motor Driver ICs (12) | | |

| | | Display Drivers (12) | | |

| | | ASICs (12) | | |

| | | Microcontrollers (12) | | |

| | | Flash Memory (12) | | |

| | | Touch Sensor (12) | | |

| | | Power Supply IC (12) | | |

| | | Audio DSP (12) | | |

| | | Audio Tuners (12) | | |

| (7) Image sensor / ASIC products | | (14) PIM Products | | |

| | • | | Total revenues of $5,543.1 million |

semiconductor solutions.

_Image Sensor Group_

With our high-quality imaging portfolio, camera system and applications expertise, our customers can deliver new and differentiated imaging solutions to their end-markets.

High dynamic range, low-light, fast video frame rates with near-IR sensitivity for scene viewing to improve safety, and scene understanding for ADAS and automated driving to improve safety and enhance the overall driving experience.

A broad range of both CMOS and CCD image sensors for aerial surveillance, intelligent traffic systems, one dimensional light and proximity sensor modules, smart home, lighting, industrial automation, smart cities and aerospace/defense applications.

and supply, but typically do not require minimum purchase commitments.

For the years ended December 31, 2017, 2016 and 2015, we had no sales to individual customers, including distributors, that accounted for 10% or more of our total consolidated revenues.

For additional information regarding agreements with our customers, see “Backlog and Inventory” below.

See Note [removed: 12:] [added: 13:] “Commitments and Contingencies” under the heading “Legal Matters” in the notes to our audited consolidated financial statements included elsewhere in this Form 10-K for a description of legal proceedings and related matters.

For the fiscal year ended December 31, [removed: 2017][added: 2018]

Indicate by check mark whether the registrant has submitted electronically [removed: and posted on its corporate Web site, if any,] every Interactive Data File required to be submitted [removed: and posted] 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 [removed: and post] such files).

| Non-accelerated filer ☐ | | [removed: (Do not check if a smaller reporting company)] | | Smaller reporting company ☐ |

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was [removed: $5,851,728,750] [added: $9,369,083,794] as of [removed: July 3, 2017,] [added: June 29, 2018,] based on the closing sales price of such stock on the [removed: NASDAQ] [added: Nasdaq] Global Select Market.

The number of shares of the registrant’s common stock outstanding at February [removed: 16, 2018] [added: 15, 2019] was [removed: 425,440,679.][added: 409,710,366.]

Portions of the registrant’s Definitive Proxy Statement relating to its [removed: 2018] [added: 2019] Annual Meeting of Stockholders, which is expected to be filed pursuant to Regulation 14A within 120 days after the registrant’s fiscal year ended December 31, [removed: 2017,] [added: 2018,] are incorporated by reference into Part III of this Form 10-K.

| _Item 1._ | | [removed: [Business](#tx508456_1)] [added: [Business](#tx664850_1)] | | | 5 | |

| | | [Business [removed: Overview](#tx508456_2)] [added: Overview](#tx664850_2)] | | | 5 | |

| | | [Products and [removed: Technology](#tx508456_3)] [added: Technology](#tx664850_3)] | | | 7 | |

| | | [End-Markets for Our [removed: Products](#tx508456_5)] [added: Products](#tx664850_5)] | | | [removed: 11] [added: 10] | |

| | | [Manufacturing [removed: Operations](#tx508456_6)] [added: Operations](#tx664850_6)] | | | [removed: 12] [added: 11] | |

| | | [Raw [removed: Materials](#tx508456_7)] [added: Materials](#tx664850_7)] | | | [removed: 14] [added: 13] | |

| | | [Sales, Marketing and [removed: Distribution](#tx508456_8)] [added: Distribution](#tx664850_8)] | | | 14 | |

| | | [Patents, Trademarks, Copyrights and Other Intellectual Property [removed: Rights](#tx508456_9)] [added: Rights](#tx664850_9)] | | | 14 | |

| | | [Backlog and [removed: Inventory](#tx508456_11)] [added: Inventory](#tx664850_11)] | | | [removed: 15] [added: 14] | |

| | | [Research and [removed: Development](#tx508456_13)] [added: Development](#tx664850_13)] | | | 16 | |

| | | [Government [removed: Regulation](#tx508456_14)] [added: Regulation](#tx664850_14)] | | | [removed: 17] [added: 16] | |

| | | [Executive Officers of the [removed: Registrant](#tx508456_16)] [added: Registrant](#tx664850_16)] | | | [removed: 19] [added: 18] | |

| | | [Geographical [removed: Information](#tx508456_17)] [added: Information](#tx664850_17)] | | | [removed: 22] [added: 21] | |

| | | [Available [removed: Information](#tx508456_18)] [added: Information](#tx664850_18)] | | | [removed: 22] [added: 21] | |

| _Item 1A._ | | [Risk [removed: Factors](#tx508456_19)] [added: Factors](#tx664850_19)] | | | 22 | |

| _Item 1B._ | | [Unresolved Staff [removed: Comments](#tx508456_20)] [added: Comments](#tx664850_20)] | | | [removed: 45] [added: 47] | |

| _Item 2._ | | [removed: [Properties](#tx508456_21)] [added: [Properties](#tx664850_21)] | | | [removed: 45] [added: 48] | |

| _Item 3._ | | [Legal [removed: Proceedings](#tx508456_22)] [added: Proceedings](#tx664850_22)] | | | [removed: 46] [added: 48] | |

| _Item 4._ | | [Mine Safety [removed: Disclosures](#tx508456_23)] [added: Disclosures](#tx664850_23)] | | | [removed: 46] [added: 48] | |

| _Item 5._ | | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#tx508456_24)] [added: Securities](#tx664850_24)] | | | [removed: 47] [added: 49] | |

| _Item 6._ | | [Selected Financial [removed: Data](#tx508456_25)] [added: Data](#tx664850_25)] | | | [removed: 49] [added: 51] | |

| _Item 7._ | | [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#tx508456_26)] [added: Operations](#tx664850_26)] | | | [removed: 49] [added: 51] | |

| _Item 7A._ | | [Quantitative and Qualitative Disclosures about Market [removed: Risk](#tx508456_27)] [added: Risk](#tx664850_27)] | | | [removed: 76] [added: 77] | |

| _Item 8._ | | [Financial Statements and Supplementary [removed: Data](#tx508456_28)] [added: Data](#tx664850_28)] | | | [removed: 77] [added: 78] | |

| _Item 9._ | | [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#tx508456_29)] [added: Disclosure](#tx664850_29)] | | | [removed: 77] [added: 78] | |

| _Item 9A._ | | [Controls and [removed: Procedures](#tx508456_30)] [added: Procedures](#tx664850_30)] | | | [removed: 78] [added: 79] | |

| _Item 9B._ | | [Other [removed: Information](#tx508456_31)] [added: Information](#tx664850_31)] | | | 79 | |

| _Item 10._ | | [Directors, Executive Officers and Corporate [removed: Governance](#tx508456_32)] [added: Governance](#tx664850_32)] | | | 80 | |

| _Item 11._ | | [Executive [removed: Compensation](#tx508456_33)] [added: Compensation](#tx664850_33)] | | | 80 | |

| _Item 12._ | | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#tx508456_34)] [added: Matters](#tx664850_34)] | | | 80 | |

| _Item 13._ | | [Certain Relationships and Related Transactions, and Director [removed: Independence](#tx508456_35)] [added: Independence](#tx664850_35)] | | | 80 | |

| _Item 14._ | | [Principal Accountant Fees and [removed: Services](#tx508456_36)] [added: Services](#tx664850_36)] | | | 80 | |

| _Item 15._ | | [Exhibits and Financial Statement [removed: Schedules](#tx508456_37)] [added: Schedules](#tx664850_37)] | | | 81 | |

| _Item 16._ | | [Form 10-K [removed: Summary](#tx508456_38)] [added: Summary](#tx664850_38)] | | | 92 | |

10-K 1 d664850d10k.htm 10-K

| | | [Customers](#tx664850_4) | | | 9 | |

| | | [Seasonality](#tx664850_10) | | | 14 | |

| | | [Competition](#tx664850_12) | | | 15 | |

| | | [Employees](#tx664850_15) | | | 18 | |

| [Signatures](#tx664850_39) | | | | | 93 | |

| EDI | | Electronic data interface |

| LiDAR | | Light detection and ranging |

| MOS | | Metal oxide semiconductor |

| PIM | | Power integrated module |

| SensL | | SensL Technologies Ltd. |

| SiC | | Silicon carbide |

| SiPM | | Silicon photomultipliers |

| SPAD | | Single photon avalanche diode arrays |

| WBG | | Wide band gap |

| X4DFN 01005 | | Dual-flat no-leads 0.445 x 0.24 x 0.18 mm package |

10-K 1 d508456d10k.htm 10-K

| | | [Customers](#tx508456_4) | | | 9 | |

| | | [Seasonality](#tx508456_10) | | | 14 | |

| | | [Competition](#tx508456_12) | | | 15 | |

| | | [Employees](#tx508456_15) | | | 18 | |

| [Signatures](#tx508456_39) | | | | | 93 | |

| AFS | | Adaptive front lighting systems |

| Catalyst | | Catalyst Semiconductor, Inc. |

| CMD | | California Micro Devices Corporation |

| ERISA | | Employee Retirement Income Security Act |

| HV | | High voltage |

| IR | | Infrared |

| KSS | | Back-end manufacturing facility in Hanyu, Japan |

| PIMs | | Power integrated modules |

| Truesense | | Truesense Imaging, Inc. |

##### [Table of Contents](#toc)

We operate distribution centers, which are leased or contracted through a [removed: third party,] [added: third-party,] in locations throughout Asia, Europe and the Americas.

See “Business - Manufacturing Operations” included elsewhere in this Form 10-K for information on properties used in our [added: manufacturing operations.]

Our joint [removed: venture] [added: ventures] in Leshan, China [added: and in Aizuwakamatsu, Japan] also [removed: owns] [added: own] manufacturing, warehouse, laboratory, office and other unused space.

We believe that our facilities around the world, whether owned or leased, are [removed: well maintained.][added: well-maintained.]

See Note [removed: 8:] [added: 9:] “Long-Term Debt” in the notes to our audited consolidated financial statements included elsewhere in this Form 10-K for further information.

##### [Table of Contents](#toc)

manufacturing operations.

Not applicable.

None.

As of February [removed: 16, 2018,] [added: 15, 2019,] there were approximately [removed: 246] [added: 233] holders of record of our common stock and [removed: 425,440,679] [added: 409,710,366] shares of common stock outstanding.

Our outstanding debt facilities may limit the amount of dividends we are permitted to [removed: pay.][added: pay and the amount we are permitted to buy back shares under the Share Repurchase Programs (as defined below).]

So long as no default has occurred and is continuing or results therefrom, our Amended Credit Agreement permits us to pay cash dividends to our common [removed: stockholders of] [added: stockholders, buy back shares under the Share Repurchase Programs, or a combination thereof, in an amount] up to $100.0 million.

Additionally, we may pay dividends [added: and buy back shares under the Share Repurchase Programs] in an unlimited amount so long as, after giving effect thereto, the consolidated total net leverage ratio (calculated in accordance with our Amended Credit Agreement) does not exceed 2.50 to 1.00.

See Note [removed: 8:] [added: 9:] “Long-Term Debt” in the notes to the audited consolidated financial statements included elsewhere in this Form 10-K for further discussion of our Amended Credit Agreement.

The following table provides information regarding repurchases of our common stock during the quarter ended December 31, [removed: 2017.][added: 2018:]

| Period (1) | | Total Number of Shares Purchased (2) | | | | Average Price Paid per Share (3) | | | [added: | Total Number of Shares Purchased as part of Publicly Announced Plans or Programs | | | | Approximate dollar value of Shares that may yet be Purchased under the Plans or Programs ($ in millions) (4) (5) | | |]

| (1) | These time periods represent our fiscal month start and end dates for the fourth quarter of [removed: 2017.] [added: 2018.] |

| (2) | The number of shares purchased represents shares of common stock held by employees who tendered owned shares of common stock to the Company to satisfy the employee withholding taxes due upon the vesting of [removed: RSUs.] [added: RSUs and shares purchased under the Share Repurchase Programs.] |

| (3) | The price per share is based on the fair market value at the time of [removed: tender.] [added: tender or repurchase, respectively.] |

_Share Repurchase [removed: Program_][added: Programs_]

[removed: The Company did not repurchase any] [added: We repurchased 11.5 million shares] of our common stock [added: for approximately $200.0 million] under [removed: our share repurchase program] [added: the 2014 Share Repurchase Program] during the quarter ended December 31, [removed: 2017.][added: 2018.]

Under the [removed: share repurchase program we announced in December] 2014 [removed: (the “2014] Share Repurchase [removed: Program”),] [added: Program,] we [removed: may] [added: were permitted to] repurchase up to $1.0 billion (exclusive of fees, commissions and other expenses) of our common stock over a period of four years from December 1, 2014, subject to certain contingencies.

The [removed: 2014] [added: 2018] Share Repurchase Program does not require us to purchase any particular amount of common stock and is subject to a variety of factors including the Board’s discretion.

As of December 31, [removed: 2017, $603.2 million] [added: 2018, $1.5 billion] remained of the total [removed: authorized] amount [added: authorized] to purchase common stock pursuant to the [removed: 2014] [added: 2018] Share Repurchase Program.

See Note [removed: 9:] [added: 10:] “Earnings Per Share and Equity” of the notes to our audited consolidated financial statements included elsewhere in this Form 10-K for further information on shares of common stock tendered to the Company by employees to satisfy applicable employee withholding taxes due upon vesting of [removed: RSUs and] [added: RSUs,] the 2014 Share Repurchase [added: Program and the 2018 Share Repurchase] Program.

The stock price details can be obtained from the Nasdaq website at www.nasdaq.com.

| | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| _September 29, 2018 - October 26, 2018_ | | | 3,622,003 | | | $ | 16.84 | | | | 3,570,198 | | | $ | 428.2 | |

| _October 27, 2018 - November 23, 2018_ | | | 7,916,139 | | | | 17.73 | | | | 7,901,299 | | | | 288.2 | |

| _November 24, 2018 - December 31, 2018_ | | | 69,875 | | | | 17.75 | | | | — | | | | 1,500.0 | |

| | | | | | | | | | | | | | | | | |

| _Total_ | | | 11,608,017 | | | | 17.46 | | | | 11,471,497 | | | | | |

| | | | | | | | | | | | | | | | | |

| (4) | On December 1, 2014, we announced a capital allocation policy (the “Capital Allocation Policy”) and a share repurchase program pursuant to the Capital Allocation Policy (the “2014 Share Repurchase Program”) for up to $1.0 billion of our common stock over a four-year period effective December 1, 2014, exclusive of any fees, commissions or other expenses. The 2014 Share Repurchase Program expired on November 30, 2018, and approximately $288.2 million that remained unutilized was canceled. |

| --- | --- |

| (5) | On November 15, 2018, we announced a new share repurchase program pursuant to the Capital Allocation Policy (the “2018 Share Repurchase Program” and, together with the 2014 Share Repurchase Program, the “Share Repurchase Programs”) for up to $1.5 billion of our common stock over a four-year period effective from December 1, 2018, exclusive of any fees, commissions or other expenses. |

| --- | --- |

We were permitted to repurchase our common stock from time to time in privately negotiated transactions or open market transactions, including pursuant to a trading plan in accordance with Rule 10b5-1 and Rule 10b-18 of the Exchange Act, or by any combination of such methods or other methods.

The timing of any repurchases and the actual number of shares repurchased depended on a variety of factors, including our stock price, corporate and regulatory requirements, restrictions under our debt obligations and other market and economic conditions.

The 2014 Share Repurchase Program did not require us to purchase any particular amount of common stock and was subject to a variety of factors including the Board’s discretion.

The 2014 Share Repurchase Program expired on November 30, 2018.

Under the 2018 Share Repurchase Program, we may repurchase up to $1.5 billion (exclusive of fees, commissions and other expenses) of our common stock over a period of four years from December 1, 2018, subject to certain contingencies.

No shares were repurchased under the 2018 Share Repurchase Program during the quarter ended December 31, 2018.

The following table sets forth the high and low sales prices for our common stock for the fiscal periods indicated as reported by the NASDAQ Global Select Market.

| | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | Range of Sales Price | | | | | | |

| | | High | | | | Low | | |

| 2016 | | | | | | | | |

| First Quarter | | $ | 9.92 | | | $ | 6.97 | |

| Second Quarter | | $ | 10.15 | | | $ | 8.21 | |

| Third Quarter | | $ | 12.55 | | | $ | 8.11 | |

| Fourth Quarter | | $ | 13.32 | | | $ | 10.74 | |

| 2017 | | | | | | | | |

| First Quarter | | $ | 16.06 | | | $ | 12.37 | |

| Second Quarter | | $ | 16.93 | | | $ | 13.77 | |

| Third Quarter | | $ | 18.49 | | | $ | 13.65 | |

| Fourth Quarter | | $ | 22.15 | | | $ | 18.52 | |

As of December 31, 2017, we were permitted to pay an unlimited amount in cash dividends based on the current consolidated total net leverage ratio.

| _September 30, 2017 - October 27, 2017_ | | | 67,748 | | | $ | 18.94 | |

| _October 28, 2017 - November 24, 2017_ | | | 12,095 | | | | 21.48 | |

| _November 25, 2017 - December 31, 2017_ | | | 83,018 | | | | 19.63 | |

| _Total_ | | | 162,861 | | | | 19.48 | |

The statement of operations and balance sheet data set forth below [removed: for the years ended and as of December 31, 2017, 2016, 2015, 2014 and 2013] are derived from our audited consolidated financial statements.

| | | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | | | [removed: 2013] [added: 2014] | | |

| [removed: Statement] [added: Consolidated Statements] of Operations data: | | | | | | | | | | | | | | | | | | | | |

| [removed: Revenues] [added: Revenue] | | $ | [removed: 5,543.1] [added: 5,878.3] | | | $ | [removed: 3,906.9] [added: 5,543.1] | | | $ | [removed: 3,495.8] [added: 3,906.9] | | | $ | [removed: 3,161.8] [added: 3,495.8] | | | $ | [removed: 2,782.7] [added: 3,161.8] | |

| Restructuring, asset impairments and other, net | | | [removed: 20.8] [added: 4.3] | | | | [removed: 33.2] [added: 20.8] | | | | [removed: 9.3] [added: 33.2] | | | | [removed: 30.5] [added: 9.3] | | | | [removed: 33.2] [added: 30.5] | |

| Goodwill and intangible asset impairment charges | | | [removed: 13.1] [added: 6.8] | | | | [removed: 2.2] [added: 13.1] | | | | [removed: 3.8] [added: 2.2] | | | | [removed: 9.6] [added: 3.8] | | | | [removed: —] [added: 9.6] | |

| Net income | | | [removed: 813.0] [added: 629.9] | | | | [removed: 184.5] [added: 813.0] | | | | [removed: 209.0] [added: 184.5] | | | | [removed: 192.1] [added: 209.0] | | | | [removed: 153.6] [added: 192.1] | |

| Diluted net income per common share attributable to ON Semiconductor Corporation | | | [removed: 1.89] [added: 1.44] | | | | [removed: 0.43] [added: 1.89] | | | | [removed: 0.48] [added: 0.43] | | | | [removed: 0.43] [added: 0.48] | | | | [removed: 0.33] [added: 0.43] | |

| [removed: Balance Sheet] [added: Consolidated Balance Sheets] data: | | | | | | | | | | | | | | | | | | | | |

| Total assets (1) | | $ | [removed: 7,195.1] [added: 7,587.6] | | | $ | [removed: 6,924.4] [added: 7,195.1] | | | $ | [removed: 3,869.6] [added: 6,924.4] | | | $ | [removed: 3,822.1] [added: 3,869.6] | | | $ | [removed: 3,292.5] [added: 3,822.1] | |

| Net long-term debt, including current maturities, less capital lease obligations (1) | | | [removed: 2,947.6] [added: 2,765.2] | | | | [removed: 3,609.3] [added: 2,947.6] | | | | [removed: 1,365.7] [added: 3,609.3] | | | | [removed: 1,150.9] [added: 1,365.7] | | | | [removed: 887.5] [added: 1,150.9] | |

| Capital lease obligations | | | [removed: 4.2] [added: 0.9] | | | | [removed: 13.0] [added: 4.2] | | | | [removed: 28.2] [added: 13.0] | | | | [removed: 40.8] [added: 28.2] | | | | [removed: 53.4] [added: 40.8] | |

| Total stockholders’ equity | | | [removed: 2,801.0] [added: 3,194.1] | | | | [removed: 1,845.0] [added: 2,801.0] | | | | [removed: 1,631.9] [added: 1,845.0] | | | | [removed: 1,647.4] [added: 1,631.9] | | | | [removed: 1,523.6] [added: 1,647.4] | |

| (1) | Increased in 2016 primarily due to the Fairchild [removed: transaction.] [added: Transaction.] See Note [removed: 4:] [added: 5:] “Acquisitions, Divestitures and Licensing Transactions” and Note [removed: 8:] [added: 9:] “Long-Term Debt” in the notes to our audited consolidated financial statements included elsewhere in this Form 10-K for additional information. |

This executive overview presents summarized information regarding our industry, markets, [removed: business] [added: business,] and operating trends only.

According to WSTS (an industry research firm), worldwide semiconductor industry sales were [removed: $412.2] [added: $468.8] billion in [removed: 2017,] [added: 2018,] an increase of approximately [removed: 21.6%] [added: 13.7%] from [removed: $338.9] [added: $412.2] billion in [removed: 2016.][added: 2017.]

The following table sets forth total worldwide semiconductor industry [removed: revenues] [added: revenue] and [removed: revenues] [added: revenue] in our Serviceable Addressable Market (“SAM”) since [removed: 2013:][added: 2014:]

| 2017 | | $ | 412.2 | | | | 21.6 % | | | $ | [removed: 133.7] [added: 74.4] | | | | [removed: 12.4] [added: 12.6] % | |

| 2016 | | $ | 338.9 | | | | 1.1 % | | | $ | [removed: 118.9] [added: 66.1] | | | | [removed: 2.6] [added: 5.4] % | |

| 2015 | | $ | 335.2 | | | | (0.2)% | | | $ | [removed: 115.9] [added: 62.7] | | | | [removed: (0.2)%] [added: (1.9)%] | |

| 2014 | | $ | 335.8 | | | | 9.9 % | | | $ | [removed: 116.1] [added: 63.9] | | | | [removed: 11.3] [added: 11.5] % | |

| (2) | [added: From time to time, we reassess the WSTS product categories that our SAM comprises. For comparison purposes, the information for 2014 through 2017 in the table above has been revised from previously-reported SAM sales to reflect our current assessment.] Our SAM comprises [added: mainly] the following [removed: specific] WSTS product categories: (a) discrete [removed: products (all discrete semiconductors other than sensors, microwave power transistors/modules, microwave] [added: products, which includes] diodes, [removed: microwave] [added: small signal] transistors, power [added: transistors and] modules, [removed: logic] [added: rectifiers] and [removed: optoelectronics);] [added: thyristors;] (b) [removed: standard analog products (amplifiers, VREGs and references, comparators, ASSP consumer, ASSP communications, ASSP computer, ASSP automotive and ASSP industrial and others);] [added: image sensors;] (c) [removed: standard logic products (general] [added: general] purpose [removed: logic);] [added: analog;] (d) [removed: standard product logic (consumer other, computer other peripherals, wired / wireless communications,] [added: application specific analog for computer,] automotive, [removed: industrial] and [removed: multipurpose); (e) CMOS and CCD image sensors; (f) memory; (g) microcontrollers] [added: industrial;] and [removed: (h) motor control modules.] [added: (e) MOS general purpose logic.] Our SAM is derived using the most recent information available, excluding foundry exposure, at the time of the filing of each respective period’s annual report and is revised in subsequent periods to reflect final results. |

As indicated above, worldwide semiconductor sales increased from [removed: $305.6] [added: $335.8] billion in [removed: 2013] [added: 2014] to [removed: $412.2] [added: $468.8] billion in [removed: 2017.][added: 2018.]

Sales in our SAM increased from [removed: $104.3] [added: $63.9] billion in [removed: 2013] [added: 2014] to [removed: $133.7] [added: $82.0] billion in [removed: 2017.][added: 2018.]

The increase of [removed: 12.4%] [added: 10.2%] from [removed: 2016 to] 2017 [added: to 2018] is consistent with the trend in the worldwide semiconductor market.

| | • | | An uncertain political climate and related impacts on global [removed: trade;] [added: trade, such as tariffs on imports into the U.S. from China;] |

| | • | | The effects of trends in the automotive and industrial end-markets on our [removed: revenues;] [added: revenue;] and |

| | • | | Competitive conditions, and in [removed: particular] [added: particular,] consolidation, within our industry. |

See [removed: “Business - 2016 Acquisition Activity,” “Risk Factors” and] [added: also] “Management’s Discussion and [removed: Analysis of Financial Condition and Results] [added: Analysis—Results] of [removed: Operations”] [added: Operations—Income Tax Provision (Benefit)”] for additional information.

See Note [removed: 4:] [added: 5:] “Acquisitions, Divestitures and Licensing Transactions” in the notes to our audited consolidated financial statements included elsewhere in this Form 10-K for additional information.

Our total [removed: revenues] [added: revenue] for the year ended December 31, [removed: 2017 were $5,543.1] [added: 2018 was $5,878.3] million, an increase of approximately [removed: 41.9%] [added: 6.0%] from [removed: $3,906.9] [added: $5,543.1] million from the year ended December 31, [removed: 2016.][added: 2017.]

During [removed: 2017,] [added: 2018,] we reported net income attributable to ON Semiconductor of [removed: $810.7] [added: $627.4] million compared to [removed: $182.1] [added: $810.7] million in [removed: 2016.][added: 2017.]

Our gross margin increased by approximately [removed: 350] [added: 140] basis points to [removed: 36.7%] [added: 38.1%] in [removed: 2017] [added: 2018] from [removed: 33.2%] [added: 36.7%] in [removed: 2016.][added: 2017.]

[removed: Additionally, we] [added: We] have historically pursued, and expect to continue to pursue, [removed: other] cost-saving initiatives to align our overall cost structure, capital investments and other expenditures with our expected revenue, spending and capacity levels based on our current sales and manufacturing projections.

See “Results of [removed: Operations - Restructuring,] [added: Operations—Restructuring,] asset impairments and other, net” below, along with Note [removed: 6:] [added: 7:] “Restructuring, Asset Impairments and Other, Net” in the notes to our audited consolidated financial statements included elsewhere in this Form 10-K for information relating to our most recent cost-saving initiatives.

[removed: We] [added: Once our U.S. federal net operating losses are fully utilized, we] expect our future effective tax [removed: rate] [added: rate, before discrete items,] to [removed: more approximate] [added: approximate, or be lower than,] the [removed: new U.S.] federal statutory rate of 21%.

[removed: The change in] [added: We expect] our future [removed: effective tax rate is not anticipated] [added: Cash Tax Rate] to [removed: have an effect on] [added: approximate] our [removed: cash] [added: effective] tax [removed: until all of] [added: rate once] our U.S. federal net operating losses and credits [removed: have been] [added: are fully] utilized.

Our results of operations for the [removed: year] [added: years] ended December 31, [added: 2018 and December 31,] 2017 include the full year [added: results, and our] results of operations [added: for the year ended December 2016 include the partial year results] from our acquisition of Fairchild on September 19, 2016.

The following table summarizes certain information relating to our operating results that has been derived from our audited consolidated financial statements [removed: for the years ended December 31, 2017, 2016 and 2015] (in millions):

| | | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2016] [added: 2017] to [removed: 2017] [added: 2018] | | | | [removed: 2015] [added: 2016] to [removed: 2016] [added: 2017] | | |

| 2018 | | $ | 468.8 | | | | 13.7 % | | | $ | 82.0 | | | | 10.2 % | |

The increase of 13.7% from 2017 to 2018 was the result of increased demand for semiconductor products.

The increase was primarily attributable to an increase in revenue in our Power Solutions Group and Analog Solutions Group as a result of better demand.

Net income attributable to ON Semiconductor for the year ended December 31, 2017 was positively impacted by $449.9 million relating to the U.S. tax reform as well as the change in revenue recognition from sell-through to sell-in for shipment to our distributors.

Excluding the impact of these items, the improved results for 2018 were attributable to healthy end-user demand for our products and contributions from the acquired Fairchild business.

The increase in gross margin was primarily due to more favorable product mix.

Our results of operations for the year ended December 31, 2018 include the partial year results, from our acquisition of SensL on May 8, 2018.

| Revenue | | $ | 5,878.3 | | | $ | 5,543.1 | | | $ | 3,906.9 | | | $ | 335.2 | | | $ | 1,636.2 | |

| Cost of revenue (exclusive of amortization shown below) | | | 3,639.6 | | | | 3,507.5 | | | | 2,606.4 | | | | 132.1 | | | | 901.1 | |

| | | | | | | | | | | | | | | | | | | | | |

| Gross profit | | | 2,238.7 | | | | 2,035.6 | | | | 1,300.5 | | | | 203.1 | | | | 735.1 | |

| Research and development | | | 650.7 | | | | 594.7 | | | | 446.8 | | | | 56.0 | | | | 147.9 | |

| Selling and marketing | | | 324.7 | | | | 316.6 | | | | 236.7 | | | | 8.1 | | | | 79.9 | |

| General and administrative | | | 293.3 | | | | 285.0 | | | | 230.0 | | | | 8.3 | | | | 55.0 | |

| | | | | | | | | | | | | | | | | | | | | |

| Total operating expenses | | | 1,391.5 | | | | 1,354.0 | | | | 1,053.7 | | | | 37.5 | | | | 300.3 | |

| | | | | | | | | | | | | | | | | | | | | |

| Operating income | | | 847.2 | | | | 681.6 | | | | 246.8 | | | | 165.6 | | | | 434.8 | |

| | | | | | | | | | | | | | | | | | | | | |

| Other expense | | | (7.1 | ) | | | (8.8 | ) | | | (11.3 | ) | | | 1.7 | | | | 2.5 | |

| | | | | | | | | | | | | | | | | | | | | |

| Other income (expense), net | | | (92.2 | ) | | | (134.1 | ) | | | (66.2 | ) | | | 41.9 | | | | (67.9 | ) |

| | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | |

_Revenue_

Prior to the first quarter of 2017, we recognized revenue from distributors under the sell-through method as we did not have the ability to estimate the effects of returns and allowances.

This change resulted in us recognizing an additional $155.1 million in revenue during the first quarter of 2017, which resulted in an increase of $59.0 million to gross profit and income before income taxes for such period.

The impact of this change is reflected in the discussion below.

Excluding the one-time impact of the change in revenue recognition for the year ended December 31, 2017 amounting to $155.1 million, revenue increased $490.3 million, or approximately 9%.

The year 2017 included an entire twelve-month period of Fairchild revenue and $155.1 million in revenue due to the change in revenue recognition on distributor sales.

Excluding the one-time impact of the change in revenue recognition for the year ended December 31, 2017, revenue increased $1,481.1 million, or approximately 38%.

| Intelligent Sensing Group | | | 768.9 | | | | 13.1% | | | | 772.9 | | | | 13.9% | | | | 716.8 | | | | 18.3% | |

Excluding the $107.8 million increase in revenue due to the change in revenue recognition on distributor sales during the year ended December 31, 2017, revenue increased by $326.7 million or 12% in 2018 compared to 2017.

The 2018 increase was primarily attributable to an increase in revenue of $165.9 million in our Power MOSFET division due to increased demand, an increase in revenue of our High Power division by $83.8 million due to entry into new markets, and to a lesser extent, $30.0 million increase in our Integrated Circuits division and $28.5 million increase in our Protection and Signal division also due to better demand.

Excluding the $42.1 million increase in revenue due to the change in revenue recognition on distributor sales during the year ended December 31, 2017, revenue increased by $162.4 million or 9% in 2018 compared to 2017.

The 2018 increase was primarily attributable to revenue in our Mobile and Computing Division increasing by $78.5 million, revenue in our Signal, Wireless and Medical Division increasing by $30.5 million and revenue in our Automotive Division increasing by $52.8 million, all due to increase in demand in the markets served.

_Revenue from the Intelligent Sensing Group_

| Other | | | 625.0 | | | | 10.6% | | | | 873.6 | | | | 15.8% | | | | 580.2 | | | | 14.9% | |

| --- | --- |

##### [Table of Contents](#toc)

| 2013 | | $ | 305.6 | | | | 4.8 % | | | $ | 104.3 | | | | 0.6 % | |

The increase of 21.6% from 2016 to 2017 reflected improving macroeconomic conditions in the second half of 2017.

The most recently published estimates of WSTS project a compound annual growth rate in our SAM of approximately 5.0% for the next three years.

These projections are not ours and may not be indicative of actual results.

Historically, the semiconductor industry has been highly cyclical.

During a down cycle, unit demand and pricing have tended to fall in tandem, resulting in revenue declines.

In response to such declines, manufacturers have reduced or shut down production capacity.

When new applications or other factors have caused demand to strengthen, production volumes have historically stabilized and then grown again.

As market unit demand reaches levels above capacity production capabilities, shortages begin to occur, which typically causes pricing power to swing back from customers to manufacturers, thus prompting further capacity expansion.

Such expansion has typically resulted in overcapacity following a decrease in demand, which has triggered another similar cycle.

We are driving innovation in energy-efficient electronics.

Our extensive portfolio of sensors, power management, connectivity, custom and SoC, analog, logic, timing, and discrete devices helps customers efficiently solve their design challenges in advanced electronic systems and products.

Our power management and motor driver semiconductor components control, convert, protect and monitor the supply of power to the different elements within a wide variety of electronic devices.

Our custom ASICs and SOC devises use analog, MCU, DSP, mixed-signal and advanced logic capabilities to act as the brain behind many of our automotive, medical, aerospace/defense, consumer and industrial customers’ products.

Our signal management semiconductor components provide high-performance clock management and data flow management for precision computing, communications and industrial systems.

Our growing portfolio of sensors, including image sensors, optical image stabilization and auto focus devices provide advanced solutions for automotive, wireless, industrial and consumer applications.

Our standard semiconductor components serve as “building blocks” within virtually all types of electronic devices.

These various products fall into the logic, analog, discrete, image sensors and memory categories used by the WSTS group.

| | • | | Our acquisition of Fairchild and our integration of Fairchild’s business into our operations; |

| --- | --- | --- | --- |

_Fairchild Acquisition_

On September 19, 2016, we completed the Fairchild Transaction.

The purchase price totaled $2,532.2 million and was funded by the borrowings against our Term Loan “B” Facility and a partial draw of our revolving Revolving Credit Facility and with cash on hand.

We believe that this acquisition has created a power semiconductor leader with strong capabilities in a rapidly consolidating semiconductor industry.

The combination of Fairchild operations with our own has provided complementary product lines to offer customers the full spectrum of high, medium and low voltage products, and we will continue to pioneer technology and design innovation in efficient energy consumption to help our customers achieve success and drive value for our partners and employees around the world.

The acquisition also expanded our footprint in wireless communication products, particularly in high efficiency power conversions and USB Type C communication and power delivery.

The increase was primarily attributable to the acquisition of Fairchild.

The increase was attributable to the impact of the U.S. tax reform, as well as improved results and contributions from the acquired Fairchild business.

The increase in gross margin was primarily due to higher factory utilization, product mix and contributions from the acquired Fairchild business.

_ON Semiconductor Q1 2018 Outlook_

Based upon product booking trends, backlog levels, and estimated turns levels, we estimate that our revenues will be approximately $1,340.0 to $1,390.0 million, gross margin as a percentage of revenues will be approximately 36.4% to 38.4%, operating expenses will be approximately $318.0 to $336.0 million, other income and expense (including interest expense), net will be approximately $33.0 to $36.0 million and diluted share count will be approximately 445.0 to 447.0 million in the first quarter of 2018.

Statements related to our outlook for the first quarter of 2018 are based on our current expectations, forecasts, estimates and assumptions.

Such statements involve risks, uncertainties and other factors that could cause results or events to differ materially from those expressed in the forward-looking statements.

See “Risk Factors” for additional information.

In 2017 our initiatives were focused on synergy-related cost reductions from the Fairchild acquisition.

_Anticipated Impact of U.S. Tax Reform_

On December 22, 2017, the U.S. enacted the Tax Act.

The Tax Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one- time mandatory repatriation tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain future foreign earnings.

_Evaluation of Disclosure Controls and [removed: Procedures._][added: Procedures_.]

We also carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the fiscal quarter ended December 31, [removed: 2017.][added: 2018.]

[removed: Other than as described above, there] [added: There] have been no [removed: other] changes to our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the fiscal quarter ended December 31, [removed: 2017] [added: 2018] which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, [removed: 2017.][added: 2018.]

In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in _Internal [removed: Control_ - _Integrated] [added: Control_—_Integrated] Framework 2013_.

Based on this assessment, management has concluded that our internal control over financial reporting was effective as of December 31, [removed: 2017.][added: 2018.]

The effectiveness of our internal control over financial reporting as of December 31, [removed: 2017] [added: 2018] has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears in “Exhibits and Financial Statement Schedules” of this Form 10-K.

On September 19, 2016, we acquired Fairchild, which operated under its own set of systems and internal controls.

Fairchild’s systems and control environment have been integrated into the Company’s systems and control environment as of October 30, 2017.

##### [Table of Contents](#toc)

Information concerning directors and persons nominated to become directors and executive officers is incorporated by reference from the text under the captions “Management [removed: Proposals - Proposal] [added: Proposals—Proposal] No. 1: Election of Directors,” “The Board of Directors and Corporate Governance,” “Section 16(a) Reporting Compliance” and “Miscellaneous [removed: Information - Stockholder] [added: Information—Stockholder] Nominations and Proposals” in our Proxy Statement to be filed pursuant to Regulation 14A within 120 days after our [added: fiscal] year ended December 31, [removed: 2017] [added: 2018] in connection with our [removed: 2018] [added: 2019] Annual Meeting of Stockholders (“Proxy Statement”).

Information concerning our Code of Business Conduct is incorporated by reference from the text under the caption “The Board of Directors and Corporate [removed: Governance - Code] [added: Governance—Code] of Business Conduct” in our Proxy Statement.

Information concerning executive compensation is incorporated by reference from the text under the captions “The Board of Directors and Corporate [removed: Governance - 2017] [added: Governance—2018] Compensation of Directors,” “Compensation of Executive Officers,” “Compensation Committee Report,” “Compensation Discussion and Analysis” and “Compensation Committee Interlocks and Insider Participation” in our Proxy Statement.

Information concerning certain relationships and related transactions involving us and certain others is incorporated by reference from the text under the captions “Management [removed: Proposals - Proposal] [added: Proposals—Proposal] No. 1: Election of Directors,” “The Board of Directors and Corporate Governance,” “Compensation of Executive Officers” and “Relationships and Related Transactions” in our Proxy Statement.

Information concerning principal accounting fees and services is incorporated by reference from the text under the caption “Management [removed: Proposals - Proposal] [added: Proposals—Proposal] No. 3: Ratification of Appointment of Independent Registered Public Accounting [removed: Firm - Audit] [added: Firm—Audit] and Related Fees” in our Proxy Statement.

| [Report of Independent Registered Public Accounting [removed: Firm](#tx508456_1011)] [added: Firm](#tx664850_41)] | | | 94 | |

| [Consolidated Balance Sheets as of December 31, [removed: 2017] [added: 2018] and December 31, [removed: 2016](#tx508456_1012)] [added: 2017](#tx664850_42)] | | | 96 | |

| [Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015](#tx508456_1013)] [added: 2016](#tx664850_43)] | | | 97 | |

| [Consolidated Statements of Stockholders’ Equity for the years ended December 31, [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015](#tx508456_1014)] [added: 2016](#tx664850_44)] | | | 98 | |

| [Consolidated Statements of Cash Flows for the years ended December 31, [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015](#tx508456_1015)] [added: 2016](#tx664850_45)] | | | 99 | |

| [Notes to Consolidated Financial [removed: Statements](#tx508456_1016)] [added: Statements](#tx664850_46)] | | | 100 | |

| [Schedule II - Valuation and Qualifying [removed: Accounts](#tx508456_1017)] [added: Accounts](#tx664850_47)] | | | [removed: 170] [added: 168] | |

| 3.1(c) | | [Certificate of Amendment to the Amended and Restated Certificate of Incorporation, dated May 17, 2017 (incorporated by reference to Exhibit 3.1 to the Company’s [removed: Current] [added: Quarterly] Report on Form 10-Q filed with the Commission on August 7, 2017)](http://www.sec.gov/Archives/edgar/data/1097864/000119312517249592/d428805dex31.htm) |

| 4.1 | | [Specimen of share certificate of Common Stock, par value $0.01, ON Semiconductor Corporation (incorporated by reference to Exhibit 4.1 to the Company’s [added: Annual Report on] Form 10-K filed with the Commission on March 10, 2004)](http://www.sec.gov/Archives/edgar/data/1097864/000119312504038086/dex41.htm) |

| 4.2(d) | | [Second Supplemental Indenture to the Indenture regarding the 1.00% Convertible Senior Notes 2020, dated April 14, 2016, among ON Semiconductor Corporation, [removed: ,] the guarantors party thereto and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Commission on April 15, 2016)](http://www.sec.gov/Archives/edgar/data/1097864/000119312516543360/d175901dex41.htm) |

| 10.5(a) | | [Credit Agreement, dated April 15, 2016, among ON Semiconductor Corporation, as borrower, the several lenders party thereto, Deutsche Bank AG New York Branch, as administrative agent and collateral agent, Deutsche Bank Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, BMO Capital Markets Corp., HSBC Securities (USA) Inc. and Sumitomo Mitsui Banking Corporation, as joint lead arrangers and joint bookrunners, Barclays Bank PLC, Compass Bank, The Bank of Tokyo-Mitsubishi UFJ, Ltd., Morgan Stanley Senior Funding, Inc., BOKF, NA and KBC Bank N.V., as co-managers, and HSBC Bank USA, N.A. and Sumitomo Mitsui Banking Corporation, as co-documentation agents (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on April 15, [removed: 2016).](http://www.sec.gov/Archives/edgar/data/1097864/000119312516543360/d175901dex101.htm)] [added: 2016)](http://www.sec.gov/Archives/edgar/data/1097864/000119312516543360/d175901dex101.htm)] |

| [removed: 10.7(d)] [added: 10.7(i)] | | [Non-qualified Stock Option Agreement for Senior Vice Presidents and Above for the ON Semiconductor Corporation [removed: 2000] [added: Amended and Restated] Stock Incentive Plan (form of standard agreement) (incorporated by reference to Exhibit [removed: 10.5] [added: 10.3] to the Company’s [removed: Current] [added: Quarterly] Report on Form [removed: 8-K] [added: 10-Q] filed with the Commission on [removed: February 16, 2005)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312505031263/dex105.htm)] [added: August 5, 2010)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312510179445/dex103.htm)] |

| [removed: 10.7(e)] [added: 10.7(h)] | | [Non-qualified Stock Option Agreement for Directors for the ON Semiconductor Corporation [removed: 2000] [added: Amended and Restated] Stock Incentive Plan (form of standard agreement) (incorporated by reference to Exhibit 10.2 to the Company’s [removed: Current] [added: Quarterly] Report on Form [removed: 8-K] [added: 10-Q] filed with the Commission on [removed: February 16, 2005)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312505031263/dex102.htm)] [added: August 5, 2010)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312510179445/dex102.htm)] |

| [removed: 10.7(f)] [added: 10.7(d)] | | [ON Semiconductor Corporation Amended and Restated Stock Incentive Plan (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement filed with the Commission on May 19, 2010 (File No. 333-166958))(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312510124296/dex41.htm) |

| [removed: 10.7(g)] [added: 10.7(e)] | | [First Amendment to the ON Semiconductor Corporation Amended and Restated Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on August 3, 2012)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312512332540/d382774dex102.htm) |

| [removed: 10.7(h)] [added: 10.7(f)] | | [Second Amendment to the ON Semiconductor Corporation Amended and Restated Stock Incentive Plan, effective May 20, 2015 (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on August 3, 2015)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312515274289/d63451dex105.htm) |

| [removed: 10.7(i)] [added: 10.7(j)] | | [removed: [Non-qualified] [added: [Restricted] Stock [removed: Option] [added: Units Award] Agreement for [removed: Directors] [added: Senior Vice Presidents and Above] for the ON Semiconductor Corporation Amended and Restated Stock Incentive Plan (form of standard agreement) (incorporated by reference to Exhibit [removed: 10.2] [added: 10.4] to the Company’s Quarterly Report on Form 10-Q filed with the Commission on August 5, [removed: 2010)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312510179445/dex102.htm)] [added: 2010)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312510179445/dex104.htm)] |

| [removed: 10.7(j)] [added: 10.7(r)] | | [removed: [Non-qualified] [added: [Performance-Based Restricted] Stock [removed: Option] [added: Units Award] Agreement [removed: for Senior Vice Presidents and Above for] [added: under] the ON Semiconductor Corporation Amended and Restated Stock Incentive Plan [removed: (form] [added: (2017 form] of [removed: standard agreement)] [added: Performance-Based Award for Senior Vice Presidents and Above)] (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on August [removed: 5, 2010)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312510179445/dex103.htm)] [added: 7, 2017)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312517249592/d428805dex103.htm)] |

| [removed: 10.7(k)] [added: 10.7(p)] | | [removed: [Restricted] [added: [Performance-Based Restricted] Stock Units Award Agreement [removed: for Senior Vice Presidents and Above for] [added: under] the ON Semiconductor Corporation Amended and Restated Stock Incentive Plan [removed: (form] [added: (2015 form] of [removed: standard agreement)] [added: Performance-Based Award for Senior Vice Presidents and Above)] (incorporated by reference to Exhibit [removed: 10.4] [added: 10.7] to the Company’s Quarterly Report on Form 10-Q filed with the Commission on August [removed: 5, 2010)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312510179445/dex104.htm)] [added: 3, 2015)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312515274289/d63451dex107.htm)] |

| [removed: 10.7(l)] [added: 10.7(k)] | | [Stock Grant Award Agreement for Directors under the ON Semiconductor Corporation Amended and Restated Stock Incentive Plan (form of standard Stock Grant Award for Non-employee Directors) (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 6, 2011)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312511130227/dex101.htm) |

| [removed: 10.7(m)] [added: 10.7(l)] | | [removed: [Performance Based] [added: [Performance-Based] Restricted Stock Units Award Agreement under the ON Semiconductor Corporation Amended and Restated Stock Incentive Plan (form of [removed: Performance Based] [added: Performance-Based] Award for Senior Vice Presidents and Above) (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 6, 2011)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312511130227/dex102.htm) |

| [removed: 10.7(n)] [added: 10.7(m)] | | [removed: [Performance Based] [added: [Performance-Based] Restricted Stock Units Award Agreement under the ON Semiconductor Corporation Amended and Restated Stock Incentive Plan (2012 form of [removed: Performance Based] [added: Performance-Based] Award for Senior Vice Presidents and Above) (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 4, 2012)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312512209140/d309062dex101.htm) |

| [removed: 10.7(o)] [added: 10.7(n)] | | [removed: [Performance Based] [added: [Performance-Based] Restricted Stock Units Award Agreement under the ON Semiconductor Corporation Amended and Restated Stock Incentive Plan (2013 form of [removed: Performance Based] [added: Performance-Based] Award for Senior Vice Presidents and Above) (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 3, 2013)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312513196669/d528322dex101.htm) |

| [removed: 10.7(p)] [added: 10.7(o)] | | [removed: [Performance Based] [added: [Performance-Based] Restricted Stock Units Award Agreement under the ON Semiconductor Corporation Amended and Restated Stock Incentive Plan (2014 form of [removed: Performance Based] [added: Performance-Based] Award for Senior Vice Presidents and Above) (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 2, 2014)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312514177680/d715527dex101.htm) |

| 10.7(q) | | [removed: [Performance Based] [added: [Performance-Based] Restricted Stock Units Award Agreement under the ON Semiconductor Corporation Amended and Restated Stock Incentive Plan [removed: (2015] [added: (2016] form of [removed: Performance Based] [added: Performance-Based] Award for Senior Vice Presidents and Above) (incorporated by reference to Exhibit [removed: 10.7] [added: 10.1] to the Company’s Quarterly Report on Form 10-Q filed with the Commission on August [removed: 3, 2015)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312515274289/d63451dex107.htm)] [added: 8, 2016)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312516674368/d398426dex101.htm)] |

| [removed: 10.7(r)] [added: 10.7(s)] | | [removed: [Performance Based] [added: [Performance-Based] Restricted Stock Units Award Agreement under the ON Semiconductor Corporation Amended and Restated Stock Incentive Plan [removed: (2016] [added: (2018] form of [removed: Performance Based] [added: Performance-Based] Award for Senior Vice Presidents and Above) (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on [removed: August 8, 2016) (2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312516674368/d398426dex101.htm)] [added: April 30, 2018)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312518141784/d570004dex101.htm)] |

| [removed: 10.7(s)] [added: 10.7(w)] | | [removed: [Performance Based] [added: [Performance-Based] Restricted Stock Units [added: Upside] Award Agreement under the ON Semiconductor Corporation Amended and Restated Stock Incentive Plan [removed: (2017] [added: (2019] form [removed: of Performance Based Award] [added: agreement] for Senior Vice Presidents and Above) (incorporated by reference to Exhibit 10.3 to the Company’s [removed: Quarterly] [added: Current] Report on Form [removed: 10-Q] [added: 8-K] filed with the Commission on [removed: August 7, 2017)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312517249592/d428805dex103.htm)] [added: February 19, 2019)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312519044289/d708156dex103.htm)] |

| [removed: 10.7(t)] [added: 10.7(g)] | | [Third Amendment to the ON Semiconductor Corporation Amended and Restated Stock Incentive Plan, effective May 17, 2017 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on August 7, 2017)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312517249592/d428805dex101.htm) |

| 10.9(a) | | [ON Semiconductor 2002 Executive Incentive Plan (incorporated by reference to Exhibit 10.1 of the Company’s [added: Quarterly Report on] Form 10-Q filed with the Commission on August 9, 2002)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000095012302007659/p66835exv10w1.txt) |

| 10.10(a) | | [Employee Incentive Plan January 2002 (incorporated by reference to Exhibit 10.2 to the Company’s [added: Quarterly Report on] Form 10-Q filed with the Commission on August 9, 2002)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000095012302007659/p66835exv10w2.txt) |

| 10.12 | | [Amended and Restated Employment Agreement, effective June 1, 2017, by and between Semiconductor Components Industries, LLC and George H. Cave [removed: (1)(2)](https://www.sec.gov/Archives/edgar/data/1097864/000119312518051397/d508456dex1012.htm)] [added: (incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K filed with the Commission on February 21, 2018)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312518051397/d508456dex1012.htm)] |

| 10.13(c) | | [Amendment No. 2 to Employment Agreement by and between Semiconductor Components Industries, LLC and William M. Hall, dated as of June 1, 2017 (incorporated by reference to Exhibit 10.3 to the Company’s [removed: Quarterly] [added: Current] Report on Form 8-K filed with the Commission on June 2, 2017)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312517193065/d400280dex103.htm) |

| 10.14(b) | | [Amendment No. 1 to Employment Agreement by and between Semiconductor Components Industries, LLC and Bernard Gutmann, dated as of June 1, 2017 (incorporated by reference to Exhibit 10.2 to the Company’s [removed: Quarterly] [added: Current] Report on Form 8-K filed with the Commission on June 2, 2017)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312517193065/d400280dex102.htm) |

| 10.15(a) | | [Employment Agreement by and between Semiconductor Components Industries, LLC and Robert Klosterboer, dated as of March 14, 2008 (incorporated by reference to Exhibit 10.16 to the Company’s [added: Annual Report on] Form 10-K filed with the Commission on February 21, 2014)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312514062363/d675717dex1016.htm) |

| 10.15(b) | | [Amendment No. 1 to Employment Agreement by and between Semiconductor Components Industries, LLC and Robert Klosterboer, effective June 1, 2017 [removed: (1)(2)](https://www.sec.gov/Archives/edgar/data/1097864/000119312518051397/d508456dex1015b.htm)] [added: (incorporated by reference to Exhibit 10.15(b) to the Company’s Annual Report on Form 10-K filed with the Commission on February 21, 2018)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312518051397/d508456dex1015b.htm)] |

| [removed: 10.16] [added: 10.19] | | [Employment [removed: Agreement, effective January 7, 2013,] [added: Agreement by and] between Semiconductor Components Industries, LLC and [removed: Mamoon Rashid] [added: Vince Hopkin, dated as of May 11, 2018] (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on [removed: May 2, 2014)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312514177680/d715527dex102.htm)] [added: July 30, 2018)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312518230892/d550734dex102.htm)] |

| [removed: 10.17] [added: 10.18] | | [Key Officer Severance and Change of Control Agreement [removed: with Mamoon Rashid] [added: by and between Semiconductor Components Industries, LLC and Taner Ozcelik,] dated as of June 1, 2017 (incorporated by reference to Exhibit [removed: 10.5] [added: 10.22] to the Company’s [added: Annual Report on] Form [removed: 8-K] [added: 10-K] filed with the Commission on [removed: June 2, 2017)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312517193065/d400280dex105.htm)] [added: February 21, 2018)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312518051397/d508456dex1022.htm)] |

| [removed: 10.18] [added: 10.17(a)] | | [removed: [International Assignment Letter of Understanding, effective January 7, 2013, by and among] [added: [Employment Agreement between] Semiconductor Components Industries, [removed: LLC, SANYO Semiconductor Co., Ltd.] [added: LLC] and [removed: Mamoon Rashid] [added: Paul Rolls dated as of July 14, 2013] (incorporated by reference to Exhibit [removed: 10.3] [added: 10.1] to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May [removed: 2, 2014)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312514177680/d715527dex103.htm)] [added: 4, 2015)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312515168384/d914942dex101.htm)] |

| [removed: 10.19] [added: 10.16(a)] | | [removed: [Retention Bonus Agreement, effective January 7, 2013, by and among] [added: [Employment Agreement between] Semiconductor Components Industries, [removed: LLC, SANYO Semiconductor Co., Ltd.] [added: LLC] and [removed: Mamoon Rashid] [added: William Schromm dated as of August 25, 2014] (incorporated by reference to Exhibit [removed: 10.4] [added: 10.1] to the Company’s [removed: Quarterly] [added: Current] Report on Form [removed: 10-Q] [added: 8-K] filed with the Commission on [removed: May 2, 2014)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312514177680/d715527dex104.htm)] [added: August 25, 2014)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312514320041/d779882dex101.htm)] |

| [removed: 10.20(a)] [added: 10.16(b)] | | [removed: [Employment] [added: [Amendment No. 1 to Employment] Agreement [added: by and] between Semiconductor Components Industries, LLC and William [removed: Schromm] [added: Schromm,] dated as of [removed: August 25, 2014] [added: June 1, 2017] (incorporated by reference to Exhibit [removed: 10.1] [added: 10.4] to the Company’s Current Report on Form 8-K filed with the Commission on [removed: August 25, 2014)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312514320041/d779882dex101.htm)] [added: June 2, 2017)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312517193065/d400280dex104.htm)] |

| 10.5(m) | | [Fourth Amendment to Credit Agreement, dated May 31, 2018, among ON Semiconductor Corporation, as borrower, certain subsidiaries thereof, as guarantors, the several lenders party thereto, and Deutsche Bank AG New York Branch, as administrative agent and collateral agent (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on July 30, 2018)](http://www.sec.gov/Archives/edgar/data/1097864/000119312518230892/d550734dex101.htm) |

| 10.7(t) | | [Restricted Stock Units Award Agreement under the ON Semiconductor Corporation Amended and Restated Stock Incentive Plan (2018 form agreement for Senior Vice Presidents and Above) (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on April 30, 2018)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312518141784/d570004dex102.htm) |

| 10.7(v) | | [Performance-Based Restricted Stock Units Award Agreement under the ON Semiconductor Corporation Amended and Restated Stock Incentive Plan (2019 form agreement for Senior Vice Presidents and Above) (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on February 19, 2019)(2)](http://www.sec.gov/Archives/edgar/data/1097864/000119312519044289/d708156dex102.htm) |

| --- | --- | --- |

| Exhibit No. | | Exhibit Description |

| | | |

| | | |

| | | |

| 10.22 | | [Key Officer Severance and Change of Control Agreement by and between Semiconductor Components Industries, LLC and Taner Ozcelik, dated as of June 1, 2017 (1)(2)](https://www.sec.gov/Archives/edgar/data/1097864/000119312518051397/d508456dex1022.htm) |

| | | /s/ KEITH D. JACKSON | | President, Chief Executive Officer | | February [removed: 21, 2018] [added: 20, 2019] |

| | | /s/ BERNARD GUTMANN | | Executive Vice President, Chief | | February [removed: 21, 2018] [added: 20, 2019] |

| | | /s/ BERNARD R. COLPITTS, JR. | | Chief Accounting Officer | | February [removed: 21, 2018] [added: 20, 2019] |

| | | * | | Chair of the Board of Directors | | February [removed: 21, 2018] [added: 20, 2019] |

| | | * | | Director | | February [removed: 21, 2018] [added: 20, 2019] |

| *By: | | /s/ BERNARD GUTMANN | | Attorney in Fact | | February [removed: 21, 2018] [added: 20, 2019] |

We have audited the accompanying consolidated balance sheets of ON Semiconductor Corporation and its subsidiaries as of December 31, [removed: 2017] [added: 2018] and [removed: 2016,] [added: 2017,] and the related consolidated statements of operations and comprehensive income, of stockholders’ equity and [added: of] cash flows for each of the three years in the period ended December 31, [removed: 2017,] [added: 2018,] including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, [removed: 2017] [added: 2018] appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

We also have audited the Company’s internal control over financial reporting as of December 31, [removed: 2017,] [added: 2018,] based on criteria established in _Internal [removed: Control_—_Integrated] [added: Control—Integrated] Framework_ (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, [removed: 2017] [added: 2018] and [removed: 2016,] [added: 2017,] and the results of [removed: their] [added: its] operations and [removed: their] [added: its] cash flows for each of the three years in the period ended December 31, [removed: 2017] [added: 2018] in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, [removed: 2017,] [added: 2018,] based on criteria established in _Internal [removed: Control_—_Integrated] [added: Control—Integrated] Framework_ (2013) issued by the COSO.

As discussed in Note [removed: 3: “Recent Accounting Pronouncements”] [added: 11: “Share-Based Compensation”] to the consolidated financial statements, the Company changed the manner in which it accounts for [added: the] excess tax benefits from share-based compensation in 2017.

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over [removed: Financial] [added: Financing] Reporting appearing under Item 9A.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures [added: that respond to those risks.]

| | | December 31, [added: 2018 | | | | December 31,] 2017 | | | | December 31, 2016 | | |

| Cash and cash equivalents | | $ | [added: 1,069.6 | | | $ |] 949.2 | | | $ | 1,028.1 | |

| Receivables, net | | | [removed: 701.5] [added: 686.0] | | | | [removed: 629.8] [added: 701.5] | |

| Inventories | | | [removed: 1,089.5] [added: 1,225.2] | | | | [removed: 1,030.2] [added: 1,089.5] | |

| Other current assets | | | [removed: 193.0] [added: 187.0] | | | | [removed: 181.0] [added: 193.0] | |

| Total current assets | | | [removed: 2,933.2] [added: 3,167.8] | | | | [removed: 2,869.1] [added: 2,933.2] | |

| Property, plant and equipment, net | | | [removed: 2,279.1] [added: 2,549.6] | | | | [removed: 2,159.1] [added: 2,279.1] | |

| Goodwill | | | [removed: 916.9] [added: 932.5] | | | | [removed: 924.7] [added: 916.9] | |

| Intangible assets, net | | | [removed: 628.3] [added: 566.4] | | | | [removed: 762.1] [added: 628.3] | |

| Deferred tax assets | | | [removed: 339.1] [added: 266.2] | | | | [removed: 138.9] [added: 339.1] | |

| Other assets | | | [removed: 98.5] [added: 105.1] | | | | [removed: 70.5] [added: 98.5] | |

| Total assets | | $ | [removed: 7,195.1] [added: 7,587.6] | | | $ | [removed: 6,924.4] [added: 7,195.1] | |

| Accounts payable | | $ | [removed: 548.0] [added: 671.7] | | | $ | [removed: 434.0] [added: 548.0] | |

| Accrued expenses | | | [removed: 612.8] [added: 659.1] | | | | [removed: 405.0] [added: 612.8] | |

| Deferred income on sales to distributors | | | — | | | | [removed: 109.8] [added: (109.8)] | | [added: | | 0.1 | |]

| Current portion of long-term debt | | | [removed: 248.1] [added: 138.5] | | | | [removed: 553.8] [added: 248.1] | |

| Total current liabilities | | | [removed: 1,408.9] [added: 1,469.3] | | | | [removed: 1,502.6] [added: 1,408.9] | |

| Long-term debt | | | [removed: 2,703.7] [added: 2,627.6] | | | | [removed: 3,068.5] [added: 2,703.7] | |

| Deferred tax liabilities | | | [removed: 55.1] [added: 54.8] | | | | [removed: 288.9] [added: 55.1] | |

| Other long-term liabilities | | | [removed: 226.4] [added: 241.8] | | | | [removed: 186.5] [added: 226.4] | |

| Total liabilities | | | [removed: 4,394.1] [added: 4,393.5] | | | | [removed: 5,046.5] [added: 4,394.1] | |

| Commitments and contingencies (Note [removed: 12)] [added: 13)] | | | | | | | | |

| Common stock ($0.01 par value, 1,250,000,000 [removed: and 750,000,000] shares authorized, [removed: 551,873,115] [added: 558,701,620] and [removed: 542,317,788] [added: 551,873,115] shares issued, [removed: 425,118,194] [added: 413,834,227] and [removed: 418,941,713] [added: 425,118,194] shares outstanding, respectively) | | | [removed: 5.5] [added: 5.6] | | | | [removed: 5.4] [added: 5.5] | |

| Additional paid-in capital | | | [removed: 3,593.5] [added: 3,702.3] | | | | [removed: 3,473.3] [added: 3,593.5] | |

| Accumulated other comprehensive loss | | | [removed: (40.6] [added: (37.9)] | [removed: )] | | | [removed: (50.2)] [added: (40.6)] | |

| Accumulated earnings [removed: (deficit)] | | | [removed: 351.5] [added: 979.6] | | | | [removed: (527.3)] [added: 351.5] | |

| Less: Treasury stock, at cost; [removed: 126,754,921] [added: 144,867,393] and [removed: 123,376,075] [added: 126,754,921] shares, respectively | | | [removed: (1,131.1] [added: (1,478.0)] | [removed: )] | | | [removed: (1,078.0)] [added: (1,131.1)] | |

February 20, 2019

| | | * | | Director | | February 20, 2019 |

| | | * | | Director | | February 20, 2019 |

| | | * | | Director | | February 20, 2019 |

| | | * | | Director | | February 20, 2019 |

| | | * | | Director | | February 20, 2019 |

| | | * | | Director | | February 20, 2019 |

| | | * | | Director | | February 20, 2019 |

| | | Christine Y. Yan | | | | |

| | | | | | | |

February 20, 2019

| Cost of revenue (exclusive of amortization shown below) | | | 3,639.6 | | | | 3,507.5 | | | | 2,606.4 | |

| Gross profit | | | 2,238.7 | | | | 2,035.6 | | | | 1,300.5 | |

| Research and development | | | 650.7 | | | | 594.7 | | | | 446.8 | |

| Selling and marketing | | | 324.7 | | | | 316.6 | | | | 236.7 | |

| General and administrative | | | 293.3 | | | | 285.0 | | | | 230.0 | |

| Total operating expenses | | | 1,391.5 | | | | 1,354.0 | | | | 1,053.7 | |

| Operating income | | | 847.2 | | | | 681.6 | | | | 246.8 | |

| Other expense | | | (7.1) | | | | (8.8) | | | | (11.3) | |

| Impact of the adoption of ASU 2016-16 | | | | | | | | | | | | | | | | | | | (1.4) | | | | | | | | | | | | | | | | (1.4) | |

| Impact of the Adoption of ASC 606 | | | — | | | | — | | | | — | | | | — | | | | 2.1 | | | | — | | | | — | | | | — | | | | 2.1 | |

| Stock option exercises | | | 794,165 | | | | — | | | | 5.7 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 5.7 | |

| Shares issued pursuant to the ESPP | | | 1,516,012 | | | | — | | | | 24.9 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 24.9 | |

| Repurchase of common stock | | | — | | | | — | | | | — | | | | — | | | | — | | | | (16,768,511) | | | | (315.3) | | | | — | | | | (315.3) | |

| Dividend to non-controlling shareholder | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (2.2) | | | | (2.2) | |

| Comprehensive income | | | — | | | | — | | | | — | | | | 2.7 | | | | 627.4 | | | | — | | | | — | | | | 2.5 | | | | 632.6 | |

| Balance at December 31, 2018 | | | 558,701,620 | | | $ | 5.6 | | | $ | 3,702.3 | | | $ | (37.9) | | | $ | 979.6 | | | | (144,867,393) | | | $ | (1,478.0) | | | $ | 22.5 | | | $ | 3,194.1 | |

| Net income | | $ | 629.9 | | | $ | 813.0 | | | $ | 184.5 | |

| Purchase of equity interest and assets, net of cash acquired | | | (24.6) | | | | — | | | | — | |

| Proceeds from repayment of note receivable | | | 10.2 | | | | — | | | | — | |

| Other | | | 2.2 | | | | (2.6) | | | | — | |

| Cash, cash equivalents and restricted cash, beginning of period (Note 18) | | | 966.6 | | | | 1,045.8 | | | | 637.2 | |

| Cash, cash equivalents and restricted cash, end of period (Note 18) | | | 1,087.1 | | | | 966.6 | | | | 1,045.8 | |

During the year ended December 31, 2018, the Company adopted the provisions of ASU No 2017-07—Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”) retrospectively, which required the net benefit cost to be split in the income statement resulting in the service cost component to be included in operating income while the other components, including the interest cost and the expected return on plan assets, are reported separately outside of operating income.

The Company utilized the practical expedient to estimate the impact of ASU 2017-07 for the years ended December 31, 2017 and 2016 using the information previously disclosed in the notes to the consolidated financial statements in the 2017 Form 10-K.

This resulted in the operating income increasing by $0.7 million and $10.7 million for the years ended December 31, 2017 and 2016, respectively, compared to the amounts previously disclosed, with offsetting impact to other expense.

The service cost is allocated between the cost of revenue, research and development, selling and marketing and general and administrative line items, while the other components are included in other expense in the Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2018, 2017 and 2016.

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 goodwill, indefinite-lived intangible assets and long-lived assets and in assumptions used in connection with business combinations.

The Company adopted the New Revenue Standard using the modified retrospective method, applying the guidance to all open contracts, and recognized the cumulative effect adjustment of $2.1 million to retained earnings and accrued expenses.

The comparative financial information has not been restated and continues to be presented under the accounting standards in effect for the respective periods.

##### [Table of Contents](#toc)

February 21, 2018

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that respond to those risks.

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

| | | | | | | | | |

| 2.625% Notes, Series B - Redeemable conversion feature | | | — | | | | 32.9 | |

| Revenues | | $ | 5,543.1 | | | $ | 3,906.9 | | | $ | 3,495.8 | |

| Cost of revenues (exclusive of amortization shown below) | | | 3,509.3 | | | | 2,610.0 | | | | 2,302.6 | |

| Gross profit | | | 2,033.8 | | | | 1,296.9 | | | | 1,193.2 | |

| Research and development | | | 594.4 | | | | 452.3 | | | | 396.7 | |

| Selling and marketing | | | 315.9 | | | | 238.0 | | | | 204.3 | |

| General and administrative | | | 284.9 | | | | 230.3 | | | | 182.3 | |

| Total operating expenses | | | 1,352.9 | | | | 1,060.8 | | | | 932.1 | |

| Operating income | | | 680.9 | | | | 236.1 | | | | 261.1 | |

| Other (expense) income | | | (8.1) | | | | (0.6) | | | | 7.7 | |

| Effects of available-for-sale securities | | | — | | | | — | | | | (4.5) | |

| Balance at December 31, 2014 | | | 524,615,562 | | | $ | 5.2 | | | $ | 3,281.2 | | | $ | (41.5 | ) | | $ | (915.6 | ) | | | (90,515,545 | ) | | $ | (702.8 | ) | | $ | 20.9 | | | $ | 1,647.4 | |

| Comprehensive (loss) income | | | — | | | | — | | | | — | | | | (0.8 | ) | | | 206.2 | | | | — | | | | — | | | | 2.8 | | | | 208.2 | |

| Stock option exercises | | | 3,487,238 | | | | 0.1 | | | | 27.0 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 27.1 | |

| Shares issued pursuant to the employee stock purchase plan | | | 1,729,100 | | | | — | | | | 14.6 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 14.6 | |

| Repurchase of common stock | | | — | | | | — | | | | — | | | | — | | | | — | | | | (30,352,607 | ) | | | (348.2 | ) | | | — | | | | (348.2 | ) |

| Warrants and bond hedge, net | | | — | | | | — | | | | (59.5 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (59.5 | ) |

| Issuance of 2023 convertible notes | | | — | | | | — | | | | 113.1 | | | | — | | | | | | | | — | | | | — | | | | — | | | | 113.1 | |

| Deferred income on sales to distributors | | | (109.8) | | | | 0.1 | | | | (53.1) | |

| Proceeds from sale of available-for-sale securities | | | — | | | | — | | | | 5.5 | |

| Proceeds from sale of held-to-maturity securities | | | — | | | | — | | | | 2.8 | |

| Purchases of held-to-maturity securities | | | (1.6) | | | | — | | | | (0.8) | |

| Cash and cash equivalents, beginning of period | | | 1,028.1 | | | | 617.6 | | | | 511.7 | |

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

institutions.

_Short-Term Investments_

Short-term investments include held-to-maturity securities and available-for-sale securities.

Held-to-maturity securities have an original maturity to the Company between three months and one year and are carried at amortized cost as it is the intent of the Company to hold these securities until maturity.

Available-for-sale securities are stated at fair value and the net unrealized gains or losses on available-for-sale securities are recorded as a component of accumulated other comprehensive loss or income, net of income taxes.

_Allowance for Doubtful Accounts_

In the ordinary course of business, the Company provides non-collateralized credit terms to its customers.

Accordingly, the Company maintains an allowance for doubtful accounts for probable losses on uncollectible accounts receivable.

The Company routinely analyzes accounts receivable and considers history, customer creditworthiness, facts and circumstances specific to outstanding balances, current economic trends and payment term changes when evaluating the adequacy of the allowance for doubtful accounts.

The Company’s divisions are one level below the operating segments, constituting individual businesses, at which level the Company’s segment management conducts regular reviews of the operating results.