filings.toolsItem 1. Financial Statements (unaudited)
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Item 1. Financial Statements (unaudited)
ON SEMICONDUCTOR CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share data)
(unaudited)
| October 1, 2021 | December 31, 2020 | ||||||||||
| Assets | |||||||||||
| Cash and cash equivalents | $ | 1,389.2 | $ | 1,080.7 | |||||||
| Receivables, net | 720.0 | 676.0 | |||||||||
| Inventories | 1,327.6 | 1,251.4 | |||||||||
| Other current assets | 205.0 | 176.0 | |||||||||
| Total current assets | 3,641.8 | 3,184.1 | |||||||||
| Property, plant and equipment, net | 2,427.8 | 2,512.3 | |||||||||
| Goodwill | 1,662.7 | 1,663.4 | |||||||||
| Intangible assets, net | 390.3 | 469.0 | |||||||||
| Deferred tax assets | 382.1 | 429.0 | |||||||||
| Other assets | 436.0 | 410.2 | |||||||||
| Total assets | $ | 8,940.7 | $ | 8,668.0 | |||||||
| Liabilities, Non-Controlling Interest and Stockholders’ Equity | |||||||||||
| Accounts payable | $ | 599.3 | $ | 572.9 | |||||||
| Accrued expenses and other current liabilities | 641.8 | 570.0 | |||||||||
| Current portion of long-term debt | 203.0 | 531.6 | |||||||||
| Total current liabilities | 1,444.1 | 1,674.5 | |||||||||
| Long-term debt | 2,910.5 | 2,959.7 | |||||||||
| Deferred tax liabilities | 46.8 | 57.3 | |||||||||
| Other long-term liabilities | 394.9 | 418.4 | |||||||||
| Total liabilities | 4,796.3 | 5,109.9 | |||||||||
| Commitments and contingencies (Note 10) | |||||||||||
| ON Semiconductor Corporation stockholders’ equity: | |||||||||||
| Common stock ($0.01 par value, 1,250,000,000 shares authorized, 599,738,476 and 570,766,439 issued, 430,824,004 and 411,842,629 outstanding, respectively) | 6.0 | 5.7 | |||||||||
| Additional paid-in capital | 4,498.5 | 4,133.1 | |||||||||
| Accumulated other comprehensive loss | (48.6) | (57.6) | |||||||||
| Accumulated earnings | 2,009.2 | 1,425.5 | |||||||||
| Less: Treasury stock, at cost: 168,914,472 and 158,923,810 shares, respectively | (2,341.4) | (1,968.2) | |||||||||
| Total ON Semiconductor Corporation stockholders’ equity | 4,123.7 | 3,538.5 | |||||||||
| Non-controlling interest | 20.7 | 19.6 | |||||||||
| Total stockholders' equity | 4,144.4 | 3,558.1 | |||||||||
| Total liabilities and stockholders' equity | $ | 8,940.7 | $ | 8,668.0 |
See accompanying notes to consolidated financial statements
ON SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in millions, except per share data)
(unaudited)
| Quarters Ended | Nine Months Ended | ||||||||||||||||||||||
| October 1, 2021 | October 2, 2020 | October 1, 2021 | October 2, 2020 | ||||||||||||||||||||
| Revenue | $ | 1,742.1 | $ | 1,317.3 | $ | 4,893.7 | $ | 3,808.7 | |||||||||||||||
| Cost of revenue (exclusive of amortization shown below) | 1,021.3 | 876.1 | 3,011.6 | 2,590.5 | |||||||||||||||||||
| Gross profit | 720.8 | 441.2 | 1,882.1 | 1,218.2 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Research and development | 154.5 | 156.1 | 494.4 | 483.2 | |||||||||||||||||||
| Selling and marketing | 68.4 | 65.3 | 223.4 | 207.7 | |||||||||||||||||||
| General and administrative | 75.7 | 62.2 | 221.3 | 196.3 | |||||||||||||||||||
| Amortization of acquisition-related intangible assets | 24.7 | 29.6 | 74.5 | 91.0 | |||||||||||||||||||
| Restructuring, asset impairments and other charges, net | (1.7) | 9.0 | 58.3 | 58.0 | |||||||||||||||||||
| Intangible asset impairment | — | — | 2.9 | 1.3 | |||||||||||||||||||
| Total operating expenses | 321.6 | 322.2 | 1,074.8 | 1,037.5 | |||||||||||||||||||
| Operating income | 399.2 | 119.0 | 807.3 | 180.7 | |||||||||||||||||||
| Other income (expense), net: | |||||||||||||||||||||||
| Interest expense | (31.9) | (42.2) | (98.4) | (126.6) | |||||||||||||||||||
| Interest income | 0.5 | 0.9 | 1.1 | 4.3 | |||||||||||||||||||
| Loss on debt refinancing and prepayment | — | — | (26.2) | — | |||||||||||||||||||
| Gain on divestiture of business | 10.2 | — | 10.2 | — | |||||||||||||||||||
| Other income (expense) | (5.8) | 0.4 | (2.4) | (2.3) | |||||||||||||||||||
| Other income (expense), net | (27.0) | (40.9) | (115.7) | (124.6) | |||||||||||||||||||
| Income before income taxes | 372.2 | 78.1 | 691.6 | 56.1 | |||||||||||||||||||
| Income tax (provision) benefit | (61.8) | 83.1 | (106.8) | 90.5 | |||||||||||||||||||
| Net income | 310.4 | 161.2 | 584.8 | 146.6 | |||||||||||||||||||
| Less: Net income attributable to non-controlling interest | (0.7) | (0.6) | (1.1) | (1.4) | |||||||||||||||||||
| Net income attributable to ON Semiconductor Corporation | $ | 309.7 | $ | 160.6 | $ | 583.7 | $ | 145.2 | |||||||||||||||
| Comprehensive income, net of tax: | |||||||||||||||||||||||
| Net income | $ | 310.4 | $ | 161.2 | $ | 584.8 | $ | 146.6 | |||||||||||||||
| Foreign currency translation adjustments | (0.3) | 0.6 | (2.8) | 1.1 | |||||||||||||||||||
| Effects of cash flow hedges | 3.9 | 3.6 | 11.8 | (10.2) | |||||||||||||||||||
| Other comprehensive income (loss), net of tax | 3.6 | 4.2 | 9.0 | (9.1) | |||||||||||||||||||
| Comprehensive income | 314.0 | 165.4 | 593.8 | 137.5 | |||||||||||||||||||
| Comprehensive income attributable to non-controlling interest | (0.7) | (0.6) | (1.1) | (1.4) | |||||||||||||||||||
| Comprehensive income attributable to ON Semiconductor Corporation | $ | 313.3 | $ | 164.8 | $ | 592.7 | $ | 136.1 | |||||||||||||||
| Net income per share of common stock attributable to ON Semiconductor Corporation: | |||||||||||||||||||||||
| Basic | $ | 0.72 | $ | 0.39 | $ | 1.38 | $ | 0.35 | |||||||||||||||
| Diluted | $ | 0.70 | $ | 0.38 | $ | 1.32 | $ | 0.35 | |||||||||||||||
| Weighted-average shares of common stock outstanding: | |||||||||||||||||||||||
| Basic | 430.6 | 410.8 | 423.8 | 410.5 | |||||||||||||||||||
| Diluted | 440.7 | 418.3 | 443.1 | 414.4 |
See accompanying notes to consolidated financial statements
ON SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in millions, except share data)
(unaudited)
| Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Treasury Stock | Non-Controlling Interest | |||||||||||||||||||||||||
| Number of shares | At Par Value | Accumulated Earnings | Number of shares | At Cost | Total Equity | ||||||||||||||||||||||||
| Balance at July 2, 2021 | 599,397,171 | $ | 6.0 | $ | 4,470.3 | $ | (52.2) | $ | 1,699.5 | (168,864,960) | $ | (2,339.2) | $ | 20.0 | $ | 3,804.4 | |||||||||||||
| Shares issued pursuant to the ESPP | 171,146 | — | 5.5 | — | — | — | — | — | 5.5 | ||||||||||||||||||||
| RSUs and stock grant awards issued | 170,159 | — | — | — | — | — | — | — | — | ||||||||||||||||||||
| Payment of tax withholding for RSUs | — | — | — | — | — | (49,512) | (2.2) | — | (2.2) | ||||||||||||||||||||
| Share-based compensation | — | — | 22.7 | — | — | — | — | — | 22.7 | ||||||||||||||||||||
| Comprehensive income | — | — | — | 3.6 | 309.7 | — | — | 0.7 | 314.0 | ||||||||||||||||||||
| Balance at October 1, 2021 | 599,738,476 | $ | 6.0 | $ | 4,498.5 | $ | (48.6) | $ | 2,009.2 | (168,914,472) | $ | (2,341.4) | $ | 20.7 | $ | 4,144.4 | |||||||||||||
| Balance at December 31, 2020 | 570,766,439 | $ | 5.7 | $ | 4,133.1 | $ | (57.6) | $ | 1,425.5 | (158,923,810) | $ | (1,968.2) | $ | 19.6 | $ | 3,558.1 | |||||||||||||
| Stock option exercises | 4,000 | — | — | — | — | — | — | — | — | ||||||||||||||||||||
| Shares issued pursuant to the ESPP | 570,732 | — | 17.6 | — | — | — | — | — | 17.6 | ||||||||||||||||||||
| RSUs and stock grant awards issued | 2,782,381 | — | — | — | — | — | — | — | — | ||||||||||||||||||||
| Shares issued for warrants exercise - 1.00% Notes | 13,424,951 | 0.1 | (0.1) | — | — | — | — | — | — | ||||||||||||||||||||
| Partial settlement - 1.625% Notes | 5,425,239 | 0.1 | (141.7) | — | — | — | — | — | (141.6) | ||||||||||||||||||||
| Partial settlement of warrants - 1.625% Notes | 6,764,734 | 0.1 | (0.1) | — | — | — | — | — | — | ||||||||||||||||||||
| Partial settlement of bond hedges - 1.625% Notes | — | — | 339.0 | — | — | (9,120,930) | (339.0) | — | — | ||||||||||||||||||||
| Equity component - 0% Notes | — | — | 136.6 | — | — | — | — | — | 136.6 | ||||||||||||||||||||
| Warrants and bond hedges, net - 0% Notes | — | — | (66.5) | — | — | — | — | — | (66.5) | ||||||||||||||||||||
| Tax impact of convertible notes, warrants and bond hedges, net | — | — | 6.5 | — | — | — | — | — | 6.5 | ||||||||||||||||||||
| Payment of tax withholding for RSUs | — | — | — | — | — | (869,732) | (34.2) | — | (34.2) | ||||||||||||||||||||
| Share-based compensation | — | — | 74.1 | — | — | — | — | — | 74.1 | ||||||||||||||||||||
| Comprehensive income | — | — | — | 9.0 | 583.7 | — | — | 1.1 | 593.8 | ||||||||||||||||||||
| Balance at October 1, 2021 | 599,738,476 | $ | 6.0 | $ | 4,498.5 | $ | (48.6) | $ | 2,009.2 | (168,914,472) | $ | (2,341.4) | $ | 20.7 | $ | 4,144.4 |
| Balance at July 3, 2020 | 569,611,277 | $ | 5.7 | $ | 3,854.6 | $ | (67.6) | $ | 1,175.9 | (158,801,656) | $ | (1,732.5) | $ | 23.2 | $ | 3,259.3 | |||||||||||||
| Stock option exercises | 3,125 | — | — | — | — | — | — | — | — | ||||||||||||||||||||
| Shares issued pursuant to the ESPP | 342,461 | — | 5.5 | — | — | — | — | — | 5.5 | ||||||||||||||||||||
| RSUs and stock grant awards issued | 89,132 | — | — | — | — | — | — | — | — | ||||||||||||||||||||
| Payment of tax withholding for RSUs | — | — | — | — | — | (24,435) | (0.5) | — | (0.5) | ||||||||||||||||||||
| Share-based compensation | — | — | 17.5 | — | — | — | — | — | 17.5 | ||||||||||||||||||||
| Comprehensive income | — | — | — | 4.2 | 160.6 | — | — | 0.6 | 165.4 | ||||||||||||||||||||
| Balance at October 2, 2020 | 570,045,995 | $ | 5.7 | $ | 3,877.6 | $ | (63.4) | $ | 1,336.5 | (158,826,091) | $ | (1,733.0) | $ | 23.8 | $ | 3,447.2 | |||||||||||||
| Balance at December 31, 2019 | 565,562,607 | $ | 5.7 | $ | 3,809.5 | $ | (54.3) | $ | 1,191.3 | (154,249,943) | $ | (1,650.5) | $ | 22.4 | $ | 3,324.1 | |||||||||||||
| Stock option exercises | 3,125 | — | — | — | — | — | — | — | — | ||||||||||||||||||||
| Shares issued pursuant to the ESPP | 1,496,264 | — | 16.9 | — | — | — | — | — | 16.9 | ||||||||||||||||||||
| RSUs and stock grant awards issued | 2,983,999 | — | — | — | — | — | — | — | — | ||||||||||||||||||||
| Payment of tax withholding for RSUs | — | — | — | — | — | (964,735) | (17.1) | — | (17.1) | ||||||||||||||||||||
| Share-based compensation | — | — | 51.2 | — | — | — | — | — | 51.2 | ||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | — | (3,611,413) | (65.4) | — | (65.4) | ||||||||||||||||||||
| Comprehensive (loss) income | — | — | — | (9.1) | 145.2 | — | — | 1.4 | 137.5 | ||||||||||||||||||||
| Balance at October 2, 2020 | 570,045,995 | $ | 5.7 | $ | 3,877.6 | $ | (63.4) | $ | 1,336.5 | (158,826,091) | $ | (1,733.0) | $ | 23.8 | $ | 3,447.2 |
See accompanying notes to consolidated financial statements
ON SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
| Nine Months Ended | |||||||||||
| October 1, 2021 | October 2, 2020 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 584.8 | $ | 146.6 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 456.4 | 471.3 | |||||||||
| Loss (gain) on sale and disposal of fixed assets | 2.3 | (1.8) | |||||||||
| Gain on divestiture of business | (10.2) | — | |||||||||
| Loss on debt refinancing and prepayment | 26.2 | — | |||||||||
| Amortization of debt discount and issuance costs | 8.0 | 9.1 | |||||||||
| Share-based compensation | 74.1 | 51.2 | |||||||||
| Non-cash interest on convertible notes | 17.6 | 29.4 | |||||||||
| Non-cash asset impairment charges | 10.8 | 14.2 | |||||||||
| Intangible asset impairment charges | — | 1.3 | |||||||||
| Change in deferred tax balances | 39.5 | (149.1) | |||||||||
| Other | 0.2 | 5.3 | |||||||||
| Changes in assets and liabilities (exclusive of divestiture): | |||||||||||
| Receivables | (38.1) | (21.5) | |||||||||
| Inventories | (71.5) | (52.1) | |||||||||
| Other assets | (32.0) | (27.2) | |||||||||
| Accounts payable | 25.6 | 3.4 | |||||||||
| Accrued expenses and other current liabilities | 55.6 | (13.0) | |||||||||
| Other long-term liabilities | 6.1 | 16.8 | |||||||||
| Net cash provided by operating activities | $ | 1,155.4 | $ | 483.9 | |||||||
| Cash flows from investing activities: | |||||||||||
| Purchase of property, plant and equipment | $ | (275.0) | $ | (267.2) | |||||||
| Deposits and proceeds from sale of property, plant and equipment | 6.6 | 1.5 | |||||||||
| Deposits utilized (made) for purchase of property, plant and equipment | (21.5) | 2.3 | |||||||||
| Divestiture of business, net of cash transferred | 3.4 | — | |||||||||
| Purchase of business, net of cash acquired | — | (4.5) | |||||||||
| Purchase of available-for-sale securities | (43.8) | — | |||||||||
| Proceeds from sale or maturity of available-for-sale securities | 2.8 | — | |||||||||
| Settlement of purchase price from previous acquisition | — | 26.0 | |||||||||
| Net cash used in investing activities | $ | (327.5) | $ | (241.9) | |||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds for the issuance of common stock under the ESPP | $ | 18.5 | $ | 17.8 | |||||||
| Payment of tax withholding for RSUs | (34.2) | (17.1) | |||||||||
| Repurchase of common stock | — | (65.4) | |||||||||
| Issuance and borrowings under debt agreements | 787.3 | 1,858.0 | |||||||||
| Reimbursement of debt issuance costs | 2.7 | — | |||||||||
| Payment of debt issuance costs | (3.8) | (2.2) | |||||||||
| Repayment of borrowings under debt agreements | (1,218.8) | (1,264.6) | |||||||||
| Payment for purchase of bond hedges | (160.3) | — | |||||||||
| Proceeds from issuance of warrants | 93.8 | — | |||||||||
| Payments related to prior acquisition | (3.0) | (8.3) | |||||||||
| Net cash provided by (used in) financing activities | $ | (517.8) | $ | 518.2 | |||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (1.0) | 0.4 | |||||||||
| Net increase in cash, cash equivalents and restricted cash | 309.1 | 760.6 | |||||||||
| Beginning cash, cash equivalents and restricted cash (Note 6) | 1,081.5 | 894.2 | |||||||||
| Ending cash, cash equivalents and restricted cash (Note 6) | $ | 1,390.6 | $ | 1,654.8 |
See accompanying notes to consolidated financial statements
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1: Background and Basis of Presentation
ON Semiconductor Corporation, together with its wholly and majority-owned subsidiaries ("onsemi," "we," "us," "our" or the "Company"), uses a thirteen-week fiscal quarter accounting period for the first three fiscal quarters of each year, with the third quarter of 2021 having ended on October 1, 2021 and each fiscal year ending on December 31. The quarters ended October 1, 2021 and October 2, 2020 each contained 91 days. The nine months ended October 1, 2021 and October 2, 2020 contained 274 and 276 days, respectively. As of October 1, 2021, the Company was organized into the following three operating and reportable segments: the Power Solutions Group ("PSG"), the Advanced Solutions Group ("ASG") and the Intelligent Sensing Group ("ISG").
The accompanying unaudited financial statements as of and for the quarter and nine months ended October 1, 2021 have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP"). Accordingly, the unaudited financial statements do not include all of the information and footnotes required by GAAP for audited financial statements. The balance sheet as of December 31, 2020 was derived from the Company's audited financial statements, but does not include all disclosures required by GAAP for audited financial statements. In the opinion of the Company's management, the interim information includes all adjustments, which include normal recurring adjustments, necessary for a fair statement of the results for the interim periods. Certain reclassifications have been made to prior period amounts to conform to current-period presentation. The footnote disclosures related to the interim financial information included herein are also unaudited. Such financial information should be read in conjunction with the consolidated financial statements and related notes thereto for the year ended December 31, 2020 included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on February 16, 2021 (the "2020 Form 10-K").
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the reporting period. Management evaluates these estimates and judgments on an ongoing basis and bases its estimates on experience, current and expected future conditions, third-party evaluations and various other assumptions that management believes are reasonable under the circumstances. Significant estimates have been used by management in conjunction with the following: (i) future payouts for customer incentives and amounts subject to allowances and returns; (ii) valuation and obsolescence relating to inventories; (iii) variable and share-based compensation; and (iv) measurement of valuation allowances against deferred tax assets and evaluations of uncertain tax positions. Additionally, during periods where it becomes applicable, significant estimates will be used by management in determining the future cash flows used to assess and test for impairment of long-lived assets and goodwill and in assumptions used in connection with business combinations. Actual results may differ from the estimates and assumptions used in the consolidated financial statements.
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
Note 2: Revenue and Segment Information
The Company is organized into three operating and reportable segments consisting of PSG, ASG and ISG. These segments represent the Company’s view of the business, and its gross profit is used to evaluate the performance of the Company’s segments, the progress of major initiatives and the allocation of resources. Gross profit is exclusive of the amortization of acquisition-related intangible assets.
Revenue and gross profit for the Company’s operating and reportable segments are as follows (in millions):
| PSG | ASG | ISG | Total | ||||||||||||||||||||
| For the quarter ended October 1, 2021: | |||||||||||||||||||||||
| Revenue from external customers | $ | 892.1 | $ | 613.5 | $ | 236.5 | $ | 1,742.1 | |||||||||||||||
| Gross profit | $ | 346.0 | $ | 280.1 | $ | 94.7 | $ | 720.8 | |||||||||||||||
| For the quarter ended October 2, 2020: | |||||||||||||||||||||||
| Revenue from external customers | $ | 647.4 | $ | 494.6 | $ | 175.3 | $ | 1,317.3 | |||||||||||||||
| Gross profit (1) | $ | 194.2 | $ | 191.2 | $ | 55.8 | $ | 441.2 | |||||||||||||||
| For the nine months ended October 1, 2021: | |||||||||||||||||||||||
| Revenue from external customers | $ | 2,485.7 | $ | 1,752.6 | $ | 655.4 | $ | 4,893.7 | |||||||||||||||
| Gross profit | $ | 906.8 | $ | 739.2 | $ | 236.1 | $ | 1,882.1 | |||||||||||||||
| For the nine months ended October 2, 2020: | |||||||||||||||||||||||
| Revenue from external customers | $ | 1,889.7 | $ | 1,388.4 | $ | 530.6 | $ | 3,808.7 | |||||||||||||||
| Gross profit (1) | $ | 549.2 | $ | 500.4 | $ | 168.6 | $ | 1,218.2 |
(1)Beginning in the first quarter of 2021, the Company started including unallocated manufacturing costs as part of segment operating results to determine segment gross profit. As a result, the prior-period amounts have been reclassified to conform to current-period presentation.
The Company had one customer, a distributor, whose purchases accounted for approximately 14% and 13% of the Company's total revenue for the quarter and nine months ended October 1, 2021.
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
Revenue for the Company's operating and reportable segments disaggregated into geographic locations based on sales billed from the respective country and sales channels are as follows (in millions):
| Quarter Ended October 1, 2021 | |||||||||||||||||||||||
| PSG | ASG | ISG | Total | ||||||||||||||||||||
| Geographic Location | |||||||||||||||||||||||
| Singapore | $ | 285.4 | $ | 219.3 | $ | 39.3 | $ | 544.0 | |||||||||||||||
| Hong Kong | 281.8 | 152.2 | 53.0 | 487.0 | |||||||||||||||||||
| United Kingdom | 145.0 | 86.8 | 41.4 | 273.2 | |||||||||||||||||||
| United States | 115.8 | 74.3 | 48.6 | 238.7 | |||||||||||||||||||
| Other | 64.1 | 80.9 | 54.2 | 199.2 | |||||||||||||||||||
| Total | $ | 892.1 | $ | 613.5 | $ | 236.5 | $ | 1,742.1 | |||||||||||||||
| Sales Channel | |||||||||||||||||||||||
| Distributors | $ | 644.2 | $ | 355.6 | $ | 149.0 | $ | 1,148.8 | |||||||||||||||
| Direct Customers | 247.9 | 257.9 | 87.5 | 593.3 | |||||||||||||||||||
| Total | $ | 892.1 | $ | 613.5 | $ | 236.5 | $ | 1,742.1 | |||||||||||||||
| Nine Months Ended October 1, 2021 | |||||||||||||||||||||||
| PSG | ASG | ISG | Total | ||||||||||||||||||||
| Geographic Location | |||||||||||||||||||||||
| Singapore | $ | 833.0 | $ | 647.8 | $ | 105.2 | $ | 1,586.0 | |||||||||||||||
| Hong Kong | 738.9 | 397.0 | 142.6 | 1,278.5 | |||||||||||||||||||
| United Kingdom | 435.1 | 254.3 | 129.2 | 818.6 | |||||||||||||||||||
| United States | 299.2 | 220.9 | 128.5 | 648.6 | |||||||||||||||||||
| Other | 179.5 | 232.6 | 149.9 | 562.0 | |||||||||||||||||||
| Total | $ | 2,485.7 | $ | 1,752.6 | $ | 655.4 | $ | 4,893.7 | |||||||||||||||
| Sales Channel | |||||||||||||||||||||||
| Distributors | $ | 1,779.2 | $ | 988.8 | $ | 410.7 | $ | 3,178.7 | |||||||||||||||
| Direct Customers | 706.5 | 763.8 | 244.7 | 1,715.0 | |||||||||||||||||||
| Total | $ | 2,485.7 | $ | 1,752.6 | $ | 655.4 | $ | 4,893.7 |
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
| Quarter Ended October 2, 2020 | |||||||||||||||||||||||
| PSG | ASG | ISG | Total | ||||||||||||||||||||
| Geographic Location | |||||||||||||||||||||||
| Singapore | $ | 236.5 | $ | 177.1 | $ | 28.3 | $ | 441.9 | |||||||||||||||
| Hong Kong | 187.8 | 103.4 | 43.3 | 334.5 | |||||||||||||||||||
| United Kingdom | 98.6 | 71.0 | 37.2 | 206.8 | |||||||||||||||||||
| United States | 73.0 | 68.4 | 46.2 | 187.6 | |||||||||||||||||||
| Other | 51.5 | 74.7 | 20.3 | 146.5 | |||||||||||||||||||
| Total | $ | 647.4 | $ | 494.6 | $ | 175.3 | $ | 1,317.3 | |||||||||||||||
| Sales Channel | |||||||||||||||||||||||
| Distributors | $ | 436.3 | $ | 255.8 | $ | 87.3 | $ | 779.4 | |||||||||||||||
| Direct Customers | 211.1 | 238.8 | 88.0 | 537.9 | |||||||||||||||||||
| Total | $ | 647.4 | $ | 494.6 | $ | 175.3 | $ | 1,317.3 | |||||||||||||||
| Nine Months Ended October 2, 2020 | |||||||||||||||||||||||
| PSG | ASG | ISG | Total | ||||||||||||||||||||
| Geographic Location | |||||||||||||||||||||||
| Singapore | $ | 674.2 | $ | 507.1 | $ | 108.3 | $ | 1,289.6 | |||||||||||||||
| Hong Kong | 570.2 | 291.0 | 112.8 | 974.0 | |||||||||||||||||||
| United Kingdom | 279.5 | 190.2 | 105.0 | 574.7 | |||||||||||||||||||
| United States | 201.9 | 209.2 | 112.8 | 523.9 | |||||||||||||||||||
| Other | 163.9 | 190.9 | 91.7 | 446.5 | |||||||||||||||||||
| Total | $ | 1,889.7 | $ | 1,388.4 | $ | 530.6 | $ | 3,808.7 | |||||||||||||||
| Sales Channel | |||||||||||||||||||||||
| Distributors | $ | 1,259.5 | $ | 700.7 | $ | 294.5 | $ | 2,254.7 | |||||||||||||||
| Direct Customers | 630.2 | 687.7 | 236.1 | 1,554.0 | |||||||||||||||||||
| Total | $ | 1,889.7 | $ | 1,388.4 | $ | 530.6 | $ | 3,808.7 |
The Company operates in various geographic locations. Sales to customers have little correlation with the location of manufacturers. Accordingly, the Company does not present operating profit by geographical location.
The Company does not discretely allocate assets to its operating segments, nor does management evaluate operating segments using discrete asset information. The Company’s consolidated assets are not specifically ascribed to its individual reportable segments. Rather, assets used in operations are generally shared across the Company’s operating and reportable segments.
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
Property, plant and equipment, net, by geographic location, is summarized as follows (in millions):
| As of | |||||||||||
| October 1, 2021 | December 31, 2020 | ||||||||||
| United States | $ | 709.3 | $ | 686.6 | |||||||
| South Korea | 444.0 | 455.5 | |||||||||
| Philippines | 352.9 | 386.6 | |||||||||
| China | 213.6 | 229.6 | |||||||||
| Japan | 205.0 | 209.3 | |||||||||
| Czech Republic | 204.5 | 216.1 | |||||||||
| Malaysia | 181.0 | 190.2 | |||||||||
| Other | 117.5 | 138.4 | |||||||||
| Total | $ | 2,427.8 | $ | 2,512.3 |
Note 3: Recent Accounting Pronouncements
Pending adoption:
ASU 2020-06 - Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity ("ASU 2020-06")
In August 2020, the FASB issued ASU 2020-06, which simplifies the guidance on the issuer’s accounting for convertible debt instruments by removing the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. Entities will not separately present in equity an embedded conversion feature in such debt and will account for a convertible debt instrument wholly as debt, unless certain other conditions are met. Also, ASU 2020-06 requires the application of the if-converted method for the purpose of calculating diluted earnings per share, and the treasury stock method will be no longer available. As required, the Company plans to adopt ASU 2020-06 as of January 1, 2022 using a modified retrospective approach and expects to record a cumulative effect adjustment of an estimated $73.0 million to increase opening retained earnings. Due to the adoption of ASU 2020-06, the Company expects interest expense for fiscal 2022 will be lower than for fiscal 2021 by approximately $29.0 million and expects an increase of 9.8 million for fiscal 2022 compared to fiscal 2021 in dilutive shares included in diluted weighted-average shares of common stock outstanding for the purpose of calculating diluted earnings per share. These estimates are based on the balance of 1.625% Notes and 0% Notes outstanding as of October 1, 2021 and are subject to change depending on future repurchase or exchanges.
Note 4: Acquisition and Divestiture
Acquisition of GT Advanced Technologies Inc.
On August 25, 2021, the Company, through its wholly owned subsidiary Semiconductor Components Industries, LLC, entered into a definitive Agreement and Plan of Merger to acquire GT Advanced Technologies Inc. (“GTAT”), which closed on October 28, 2021. Pursuant to the terms and subject to the conditions set forth in the Agreement and Plan of Merger, including customary purchase price adjustments, the aggregate cash consideration the Company paid from its cash on hand in exchange for all of the outstanding equity interests of GTAT was approximately $425 million. Due to the timing of this acquisition, the initial accounting for the business combination is incomplete at the time of the filing of this Form 10-Q.
Divestiture
On October 1, 2021, the Company divested itself of one of its businesses along with the related intellectual property for aggregate consideration of approximately $13.6 million and recognized a gain of $10.2 million after offsetting the carrying values of the disposed assets and liabilities. Pursuant to the agreement governing the divestiture, the Company may receive additional cash consideration of $7.5 million if and when the divested business achieves certain milestones.
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
Note 5: Restructuring, Asset Impairments and Other, Net
Details of restructuring, asset impairments and other charges, net are as follows (in millions):
| Restructuring | Asset Impairments | Other | Total | ||||||||||||||||||||||||||||||||||||||
| Quarter ended October 1, 2021 | |||||||||||||||||||||||||||||||||||||||||
| 2021 Involuntary Separation Program | $ | 1.0 | $ | — | $ | — | $ | 1.0 | |||||||||||||||||||||||||||||||||
| Other | — | — | (2.7) | (2.7) | |||||||||||||||||||||||||||||||||||||
| Total | $ | 1.0 | $ | — | $ | (2.7) | $ | (1.7) | |||||||||||||||||||||||||||||||||
| Restructuring | Asset Impairments | Other | Total | ||||||||||||||||||||||||||||||||||||||
| Nine months ended October 1, 2021 | |||||||||||||||||||||||||||||||||||||||||
| 2021 Involuntary Separation Program | $ | 55.1 | $ | — | $ | — | $ | 55.1 | |||||||||||||||||||||||||||||||||
| Other | — | 3.3 | (0.1) | 3.2 | |||||||||||||||||||||||||||||||||||||
| Total | $ | 55.1 | $ | 3.3 | $ | (0.1) | $ | 58.3 |
A summary of changes in accrued restructuring balance is as follows (in millions):
| As of | As of | |||||||||||||||||||||||||||||||
| December 31, 2020 | Charges | Usage | October 1, 2021 | |||||||||||||||||||||||||||||
| Employee separation charges | $ | 6.2 | $ | 55.1 | $ | (46.1) | $ | 15.2 | ||||||||||||||||||||||||
| Total | $ | 6.2 | $ | 55.1 | $ | (46.1) | $ | 15.2 |
2021 Involuntary Separation Program
On March 4, 2021, as part of its ongoing efforts to realign its investments to focus on growth drivers and key markets and to streamline its operations, the Company announced its plans to implement certain employee terminations during 2021 (the "ISP").
Under the ISP, the Company notified approximately 725 employees of their employment termination, and incurred severance costs and other benefit costs amounting to $55.1 million during the nine months ended October 1, 2021. The severance and other benefit costs incurred during the quarter ended October 1, 2021 related to certain insignificant adjustments to the severance costs previously recorded. Approximately $14.8 million of the incurred charges remained accrued as of October 1, 2021, which the Company expects to pay during the fourth quarter of 2021 and the first quarter of 2022.
The Company continues to evaluate employee positions and locations for potential efficiencies and may incur additional severance and related charges in the future.
Note 6: Balance Sheet Information and Other
Goodwill
There was an insignificant change in the balance of goodwill from December 31, 2020 to October 1, 2021 relating to the divestiture of a business. See Note 4: ''Acquisition and Divestiture''. Goodwill is tested for impairment annually on the first day of the fourth quarter or more frequently if events or changes in circumstances (each, a "triggering event") would more likely than not reduce the carrying value of goodwill below its fair value. Management did not identify any triggering events during the quarter ended October 1, 2021 that would require an interim impairment analysis.
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
Inventory
Details of Inventory included in the Company’s Consolidated Balance Sheets are as follows (in millions):
| As of | |||||||||||
| October 1, 2021 | December 31, 2020 | ||||||||||
| Inventories: | |||||||||||
| Raw materials | $ | 160.8 | $ | 135.7 | |||||||
| Work in process | 871.7 | 829.7 | |||||||||
| Finished goods | 295.1 | 286.0 | |||||||||
| $ | 1,327.6 | $ | 1,251.4 | ||||||||
Defined Benefit Plans
The Company recognizes the aggregate amount of all overfunded plans as assets and the aggregate amount of all underfunded plans as liabilities in its financial statements. As of October 1, 2021, the net assets for the overfunded plans totaled $12.5 million. The total accrued pension liability for underfunded plans was $142.8 million, of which the current portion of $0.4 million was classified as accrued expenses and other current liabilities. As of December 31, 2020, the net funded status for all the plans was a liability of $141.9 million, of which the current portion of $0.3 million was classified as accrued expenses and other current liabilities.
The components of the net periodic pension expense were as follows (in millions):
| Quarters Ended | Nine Months Ended | ||||||||||||||||||||||
| October 1, 2021 | October 2, 2020 | October 1, 2021 | October 2, 2020 | ||||||||||||||||||||
| Service cost | $ | 2.8 | $ | 2.7 | $ | 8.9 | $ | 8.1 | |||||||||||||||
| Interest cost | 1.1 | 1.2 | 3.3 | 3.5 | |||||||||||||||||||
| Expected return on plan assets | (1.6) | (1.6) | (4.9) | (4.7) | |||||||||||||||||||
| Curtailment gain | (2.3) | — | (0.4) | (1.6) | |||||||||||||||||||
| Total net periodic pension cost | $ | — | $ | 2.3 | $ | 6.9 | $ | 5.3 |
Leases
Operating lease arrangements are comprised primarily of real estate and equipment agreements. The components of lease expense were as follows (in millions):
| Quarters Ended | Nine Months Ended | ||||||||||||||||||||||
| October 1, 2021 | October 2, 2020 | October 1, 2021 | October 2, 2020 | ||||||||||||||||||||
| Operating lease | $ | 9.8 | $ | 9.9 | $ | 29.6 | $ | 28.1 | |||||||||||||||
| Variable lease | 0.9 | 1.3 | 2.9 | 3.1 | |||||||||||||||||||
| Short-term lease | 0.4 | 1.0 | 1.6 | 3.4 | |||||||||||||||||||
| Total lease expense | $ | 11.1 | $ | 12.2 | $ | 34.1 | $ | 34.6 |
The lease liabilities recognized in the Consolidated Balance Sheets are as follows (in millions):
| As of | |||||||||||
| October 1, 2021 | December 31, 2020 | ||||||||||
| Accrued expenses and other current liabilities | $ | 32.4 | $ | 32.2 | |||||||
| Other long-term liabilities | 98.3 | 115.7 | |||||||||
| Total lease liabilities | $ | 130.7 | $ | 147.9 |
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
Operating right-of-use ("ROU") assets as of October 1, 2021 and December 31, 2020 amounted to $124.0 million and $136.3 million, respectively, and are included in other assets in the Consolidated Balance Sheets. As of October 1, 2021, the weighted-average remaining lease-term was 6.5 years and the weighted-average discount rate was 4.8%.
Supplemental Disclosure of Cash Flow Information
Certain of the Company's cash and non-cash activities were as follows (in millions):
| Nine Months Ended | |||||||||||||||||||||||
| October 1, 2021 | October 2, 2020 | ||||||||||||||||||||||
| Non-cash investing activities: | |||||||||||||||||||||||
| Capital expenditures in accounts payable and other long-term liabilities | $ | 153.3 | $ | 156.1 | |||||||||||||||||||
| Divestiture/Sale of property in exchange of receivable | 9.1 | 4.7 | |||||||||||||||||||||
| ROU assets obtained in exchange of lease liabilities | 14.2 | 54.8 | |||||||||||||||||||||
| Cash paid for: | |||||||||||||||||||||||
| Interest expense | $ | 80.7 | $ | 80.9 | |||||||||||||||||||
| Income taxes | 65.1 | 29.9 | |||||||||||||||||||||
| Operating lease payments in operating cash flows | 30.6 | 27.5 |
Reconciliation of the captions in the Consolidated Balance Sheets to the Consolidated Statements of Cash Flows (in millions)
| As of | ||||||||||||||||||||||||||
| October 1, 2021 | December 31, 2020 | October 2, 2020 | December 31, 2019 | |||||||||||||||||||||||
| Consolidated Balance Sheets: | ||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 1,389.2 | $ | 1,080.7 | $ | 1,654.0 | $ | 894.2 | ||||||||||||||||||
| Restricted cash (included in other current assets) | 1.4 | 0.8 | 0.8 | — | ||||||||||||||||||||||
| Cash, cash equivalents and restricted cash in Consolidated Statements of Cash Flows | $ | 1,390.6 | $ | 1,081.5 | $ | 1,654.8 | $ | 894.2 |
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
Note 7: Long-Term Debt
The Company's long-term debt consists of the following (annualized interest rates, dollars in millions):
| As of | |||||||||||
| October 1, 2021 | December 31, 2020 | ||||||||||
| Amended Credit Agreement: | |||||||||||
| Revolving Credit Facility due 2024, interest payable monthly at —% and 1.90%, respectively | $ | — | $ | 700.0 | |||||||
| Term Loan "B" Facility due 2026, interest payable monthly at 2.08% and 2.15%, respectively | 1,602.3 | 1,614.5 | |||||||||
| 0% Notes due 2027 | 805.0 | — | |||||||||
| 3.875% Notes due 2028 (1) | 700.0 | 700.0 | |||||||||
| 1.625% Notes due 2023 (2) | 202.6 | 575.0 | |||||||||
| Gross long-term debt, including current portion | $ | 3,309.9 | $ | 3,589.5 | |||||||
| Less: Debt discount (3) | (159.7) | (69.7) | |||||||||
| Less: Debt issuance costs (4) | (36.7) | (28.5) | |||||||||
| Net long-term debt, including current portion | $ | 3,113.5 | $ | 3,491.3 | |||||||
| Less: Current portion of long-term debt | (203.0) | (531.6) | |||||||||
| Net long-term debt | $ | 2,910.5 | $ | 2,959.7 |
(1)Interest is payable on March 1 and September 1 of each year at 3.875% annually.
(2)Interest is payable on April 15 and October 15 of each year at 1.625% annually.
(3)Debt discount of $8.0 million and $9.0 million for the Term Loan "B" Facility, $131.5 million and zero for the 0% Notes, $6.0 million and $6.5 million for the 3.875% Notes, $14.2 million and $54.2 million for the 1.625% Notes, in each case as of October 1, 2021 and December 31, 2020, respectively.
(4)Debt issuance costs of $18.5 million and $21.0 million for the Term Loan "B" Facility, $14.7 million and zero for the 0% Notes, $2.1 million and $2.3 million for the 3.875% Notes and $1.4 million and $5.2 million for the 1.625% Notes, in each case as of October 1, 2021 and December 31, 2020, respectively.
Expected maturities of gross long-term debt (including current portion - see section regarding 1.625% Notes below) as of October 1, 2021 were as follows (in millions):
| Period | Expected Maturities | |||||||
| Remainder of 2021 | $ | 206.8 | ||||||
| 2022 | 16.3 | |||||||
| 2023 | 16.3 | |||||||
| 2024 | 16.3 | |||||||
| 2025 | 16.3 | |||||||
| Thereafter | 3,037.9 | |||||||
| Total | $ | 3,309.9 |
The Company was in compliance with its covenants under all debt agreements as of October 1, 2021.
0% Convertible Senior Notes due 2027
On May 19, 2021, the Company completed a private offering of $805.0 million aggregate principal amount of its 0% Notes, the proceeds of which were used to repurchase a portion of the 1.625% Notes in privately negotiated note repurchase or exchange transactions, repay a portion of the Revolving Credit Facility, pay the net cost of the related convertible note hedges after such costs were offset by the proceeds from the sale of warrants, and general corporate purposes. The 0% Notes were issued under an indenture (the "0% Indenture") by and among the Company, the guarantors party thereto, and Wells Fargo Bank, National
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
Association, as trustee, which provides, among other things, that the 0% Notes will mature on May 1, 2027, unless earlier repurchased or redeemed by the Company or converted pursuant to their terms. On or after February 1, 2027, until the close of business on the second scheduled trading day immediately preceding May 1, 2027, holders may convert their 0% Notes at any time. The 0% Notes are the Company’s senior unsecured obligations and are fully and unconditionally guaranteed, on a joint and several basis, by each of the Company’s subsidiaries that is a borrower or guarantor under the Company’s Amended Credit Agreement. The Company may satisfy any conversion elections by paying cash up to the aggregate principal amount of the 0% Notes to be converted, and paying or delivering, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at the Company’s election, in respect of the remainder, if any, of its conversion obligation in excess of the aggregate principal amount of the 0% Notes to be converted.
The initial conversion rate of the 0% Notes is 18.8796 shares of common stock per $1,000 principal amount, which is equivalent to an initial conversion price of approximately $52.97 per share of common stock. The Company may redeem for cash all or any portion of the 0% Notes, at the Company’s option, on or after May 1, 2024, if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days during any consecutive 30 trading-day period. Prior to February 1, 2027, the holders may convert their 0% Notes under the following circumstances: (i) during any calendar quarter commencing after the calendar quarter ending on June 30, 2021 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (ii) during the five consecutive business-day period after any five consecutive trading-day period in which the trading price per $1,000 principal amount of the 0% Notes for each trading day of such period was less than 98% of the product of the last reported sale price of Company’s common stock and the conversion rate on each such trading day; (iii) if the Company calls any or all of the 0% Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or (iv) upon the occurrence of specified corporate transactions described in the 0% Indenture.
The conversion rate is subject to adjustment upon the occurrence of certain specified events as set forth in the 0% Indenture. The maximum number of shares of common stock issuable in connection with the conversion is 21.7 million. In accordance with the accounting guidance on embedded conversion features, the Company valued and bifurcated the conversion option, representing the debt discount, from the respective host debt instrument and recorded $139.9 million to stockholders’ equity. The Company also incurred issuance costs of $19.0 million, of which $15.7 million was capitalized as debt issuance costs and $3.3 million was allocated to the conversion option and recorded to stockholders’ equity. The debt discount and debt issuance costs are being amortized at an effective interest rate of 3.2% over the contractual term of the 0% Notes.
In addition, the Company entered into convertible note hedge transactions with respect to the common stock with the initial purchasers or their affiliates ("Counterparties"). The convertible note hedges cover, subject to customary anti-dilution adjustments, the number of shares of common stock that initially underlie the 0% Notes, and are expected to reduce the potential dilution to the common stock and/or offset potential cash payments in excess of the principal amount upon conversion. The Company paid $160.3 million in cash for the convertible note hedges, which was recorded to stockholders’ equity. The Company also entered into warrant transactions with the Counterparties, whereby the Company sold warrants to acquire, subject to anti-dilution adjustments, the same number of shares of the Company’s common stock covered by the convertible note hedges at an initial strike price of $74.34 per share, which represents a 100% premium over the closing price of $37.17 per share on May 11, 2021. The maximum number of shares of common stock issuable in connection with the warrants is 30.4 million. The Company received $93.8 million in cash for the sale of warrants, which was recorded to stockholders’ equity.
Partial exchange or repurchase and/or exchange of the 1.625% Notes
On May 11, 2021, contemporaneously with the issuance of the 0% Notes, the Company entered into separate privately negotiated transactions with certain holders of the 1.625% Notes to repurchase or exchange, as applicable, $372.4 million in aggregate principal amount of the 1.625% Notes for a total consideration of $506.5 million in cash and 5.4 million shares of the Company’s common stock. The repurchases and exchanges resulted in a loss on debt prepayment of $26.2 million based on the fair value of the debt component, while the remainder of the consideration amounting to $141.6 million attributable to the equity component was recorded to stockholders’ equity. Separately, the Company received 9.1 million shares into treasury by terminating a portion of the convertible note hedge transactions that were originally entered at the time of issuance of the 1.625% Notes in a notional amount corresponding to the principal amount of the 1.625% Notes repurchased or exchanged. The fair market value of these shares amounting to $339.0 million was recorded to additional paid-in capital and treasury stock, with no overall impact to equity. Additionally, the Company terminated a portion of the warrant transactions originally entered at the time of issuance of the 1.625% Notes and issued 6.8 million shares with respect to a number of shares of common stock equal to the notional shares underlying such 1.625% Notes repurchased or exchanged.
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
The remaining outstanding principal amount of the 1.625% Notes, amounting to $187.0 million, net of unamortized discount and issuance costs continues to be classified as a current portion of long-term debt as of October 1, 2021. Pursuant to the indenture governing the 1.625% Notes, because the last reported sale price of the Company’s common stock for at least 20 trading days during the period of 30 consecutive trading days ending on September 30, 2021 was greater than or equal to $26.94 (130% of the conversion price) on each applicable trading day, the holders have the right to surrender any portion of their 1.625% Notes (in minimum denominations of $1,000 in principal amount or an integral multiple thereof) for conversion during the calendar quarter ending December 31, 2021, and only during such calendar quarter.
Ninth Amendment to the Amended Credit Agreement
On May 10, 2021, in anticipation of the issuance of the 0% Notes, the Company entered into the Ninth Amendment to the Amended Credit Agreement ("Ninth Amendment"). The Ninth Amendment provided for, among other things, modifications to the Amended Credit Agreement to permit the issuance of the 0% Notes and the repurchase or exchange of the 1.625% Notes, remove the availability of borrowings in currencies other than U.S. dollars in light of the unavailability of LIBO Rate for such other currencies beginning December 31, 2021, provide for increased capacity to dispose of certain assets, make investments and incur certain types of indebtedness and liens, increase the threshold for real estate properties required to be mortgaged to secure the facility, increase the ability to incur incremental debt facilities and remove certain conditions applicable to the incurrence of incremental facilities. There was no impact to the consolidated financial statements due to the Ninth Amendment.
Repayments under the Revolving Credit Facility
During the quarter ended July 2, 2021, the Company repaid the entire outstanding balance under the Revolving Credit Facility of $550.0 million using a portion of the net proceeds from the issuance of the 0% Notes and cash generated from operations. During the quarter ended April 2, 2021, the Company repaid $150.0 million of the outstanding balance under the Revolving Credit Facility using cash generated from operations. As of October 1, 2021, the Company had approximately $1.97 billion available under the Revolving Credit Facility for future borrowings, except for amounts utilized for the letters of credit.
Note 8: Earnings Per Share and Equity
Earnings Per Share
Net income per share of common stock attributable to ON Semiconductor Corporation is calculated as follows (in millions, except per share data):
| Quarters Ended | Nine Months Ended | ||||||||||||||||||||||
| October 1, 2021 | October 2, 2020 | October 1, 2021 | October 2, 2020 | ||||||||||||||||||||
| Net income attributable to ON Semiconductor Corporation | $ | 309.7 | $ | 160.6 | $ | 583.7 | $ | 145.2 | |||||||||||||||
| Basic weighted-average shares of common stock outstanding | 430.6 | 410.8 | 423.8 | 410.5 | |||||||||||||||||||
| Dilutive effect of share-based awards | 2.3 | 1.8 | 2.3 | 1.6 | |||||||||||||||||||
| Dilutive effect of convertible notes and warrants | 7.8 | 5.7 | 17.0 | 2.3 | |||||||||||||||||||
| Diluted weighted-average shares of common stock outstanding | 440.7 | 418.3 | 443.1 | 414.4 | |||||||||||||||||||
| Net income per share of common stock attributable to ON Semiconductor Corporation: | |||||||||||||||||||||||
| Basic | $ | 0.72 | $ | 0.39 | $ | 1.38 | $ | 0.35 | |||||||||||||||
| Diluted | $ | 0.70 | $ | 0.38 | $ | 1.32 | $ | 0.35 |
Basic income per share of common stock is computed by dividing net income attributable to the Company by the weighted-average number of shares of common stock outstanding during the period. To calculate the diluted weighted-average shares of common stock outstanding, the treasury stock method has been applied to calculate the number of incremental shares from the assumed issuance of shares relating to RSUs. The excluded number of anti-dilutive share-based awards was approximately 0.2 million and zero for the quarters ended October 1, 2021 and October 2, 2020, respectively, and 0.4 million and 1.0 million for the nine months ended October 1, 2021 and October 2, 2020, respectively.
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
The dilutive impact related to the 0% Notes and 1.625% Notes has been determined in accordance with the net share settlement requirements. While the 0% Notes are convertible into cash up to the par value, in accordance with their terms, the Company has assumed the 1.625% Notes to be convertible into cash up to the par value in accordance with the existing accounting standards. The excess over par value for the 0% Notes and 1.625% Notes, if applicable, has been assumed to be convertible into common stock. Prior to conversion, the convertible note hedges are not considered for purposes of the earnings per share calculations, as their effect would be anti-dilutive. Upon conversion, the convertible note hedges are expected to offset the dilutive effect of the 0% Notes and 1.625% Notes when the stock price is above $52.97 and $20.72 per share, respectively.
The dilutive impact of the warrants issued concurrently with the issuance of the 0% Notes, 1.625% Notes and 1.00% Notes with exercise prices of $74.34, $30.70 and $25.96, respectively, has been included in the calculation of diluted weighted-average common shares outstanding, if applicable. All of the warrants issued in connection with the 1.00% Notes were settled during the first half of 2021.
Equity
1.00% Notes Warrants Settlement
At the time of issuance of the 1.00% Notes, the Company sold 37.3 million warrants to bank counterparties whereby the holders of the warrants had the option to purchase the equivalent number of shares of the Company’s common stock at a price of $25.96 per share from the Company beginning in March 2021. During the quarters ended July 2, 2021 and April 2, 2021, the warrant holders exercised 18.6 million and 18.7 million warrants, respectively, and the Company settled them by issuing 7.1 million and 6.3 million shares of common stock, respectively, on a net-share basis.
Share Repurchase Program
Under the Company's share repurchase program announced on November 15, 2018 (the "Share Repurchase Program"), the Company may repurchase up to $1.5 billion (exclusive of fees, commissions and other expenses) of the Company's common stock from December 1, 2018 through December 31, 2022.
There were no repurchases during the quarters ended October 1, 2021 and October 2, 2020 under the Share Repurchase Program. While there were no repurchases during the nine months ended October 1, 2021, the repurchases amounted to $65.3 million during the nine months ended October 2, 2020. As of October 1, 2021, the authorized amount remaining under the Share Repurchase Program was $1,295.8 million.
Activity under the Share Repurchase Program during the quarter and nine months ended October 1, 2021 and October 2, 2020 was as follows (in millions, except per share data):
| Quarters Ended | Nine Months Ended | ||||||||||||||||||||||
| October 1, 2021 | October 2, 2020 | October 1, 2021 | October 2, 2020 | ||||||||||||||||||||
| Number of repurchased shares (1) | — | — | — | 3.6 | |||||||||||||||||||
| Aggregate purchase price | $ | — | $ | — | $ | — | $ | 65.3 | |||||||||||||||
| Fees, commissions and other expenses | — | — | — | 0.1 | |||||||||||||||||||
| Total cash used for share repurchases | $ | — | $ | — | $ | — | $ | 65.4 | |||||||||||||||
| Weighted-average purchase price per share (2) | $ | — | $ | — | $ | — | $ | 18.08 |
(1)None of these shares had been reissued or retired as of October 1, 2021, but may be reissued or retired at a later date.
(2)Exclusive of fees, commissions and other expenses.
Shares for Restricted Stock Units Tax Withholding
The amounts remitted for employee withholding taxes during the quarter and nine months ended October 1, 2021 were $2.2 million and $34.2 million, respectively, for which the Company withheld approximately 0.1 million and 0.9 million shares of common stock, respectively, that were underlying the RSUs that vested. The amounts remitted during the quarter and nine months ended October 2, 2020 were $0.5 million and $17.1 million, respectively, for which the Company withheld less than 0.1
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
million and approximately 1.0 million shares of common stock, respectively, that were underlying the RSUs that vested. None of these shares had been reissued or retired as of October 1, 2021, but may be reissued or retired at a later date.
Non-Controlling Interest in Leshan-Phoenix Semiconductor Company Limited (“Leshan”)
The results of Leshan have been consolidated in the Company's financial statements. As of December 31, 2020, the non-controlling interest balance was $19.6 million and, along with the $1.1 million share of the earnings for the nine months ended October 1, 2021, increased to $20.7 million as of October 1, 2021.
Stockholders' Rights Plan
On June 7, 2020, the Company's Board of Directors authorized and declared a dividend of one preferred share purchase right (a "Right") for each outstanding share of common stock to the stockholders of record on June 18, 2020. The Rights, which continued to have a de minimis value from the time they were issued, expired on June 7, 2021.
Note 9: Share-Based Compensation
Total share-based compensation expense related to the Company's RSUs, stock grant awards and the ESPP was recorded within the Consolidated Statements of Operations and Comprehensive Income as follows (in millions):
| Quarters Ended | Nine Months Ended | ||||||||||||||||||||||
| October 1, 2021 | October 2, 2020 | October 1, 2021 | October 2, 2020 | ||||||||||||||||||||
| Cost of revenue | $ | 3.6 | $ | 3.1 | $ | 11.8 | $ | 8.5 | |||||||||||||||
| Research and development | 5.4 | 4.8 | 18.4 | 13.2 | |||||||||||||||||||
| Selling and marketing | 3.7 | 3.4 | 12.5 | 9.5 | |||||||||||||||||||
| General and administrative | 10.0 | 6.2 | 31.4 | 20.0 | |||||||||||||||||||
| Share-based compensation expense | $ | 22.7 | $ | 17.5 | $ | 74.1 | $ | 51.2 | |||||||||||||||
| Income tax benefit | (4.8) | (3.7) | (15.6) | (10.8) | |||||||||||||||||||
| Share-based compensation expense, net of taxes | $ | 17.9 | $ | 13.8 | $ | 58.5 | $ | 40.4 |
As of October 1, 2021, total unrecognized expected share-based compensation expense, net of estimated forfeitures, related to non-vested RSUs with service, performance and market conditions was $105.5 million, which is expected to be recognized over a weighted-average period of 1.4 years. Upon vesting of RSUs, stock grant awards or completion of a purchase under the ESPP, the Company issues new shares of common stock. The annualized pre-vesting forfeiture rate for RSUs was estimated to be 6% for the quarter and nine months ended October 1, 2021 and 5% for the quarter and nine months ended October 2, 2020.
Shares Available
On May 20, 2021, the Company's stockholders approved certain amendments to the Amended and Restated SIP to extend the expiration date from 2022 to 2031 and to increase the number of shares of common stock subject to all awards by 22.5 million, from 87.0 million to 109.5 million. On the same day, the stockholders also approved an amendment to the ESPP, which increased the number of shares available to be issued pursuant to the ESPP by 6.0 million, from 28.5 million to 34.5 million.
As of October 1, 2021 and December 31, 2020, there was an aggregate of 42.2 million and 16.5 million shares of common stock, respectively, available for grant under the Amended and Restated SIP. As of October 1, 2021 and December 31, 2020, there was an aggregate of 8.4 million and 3.0 million shares of common stock, respectively, available for issuance under the ESPP.
Restricted Stock Units
RSUs generally vest ratably over three years for awards with service conditions and over two or three years for awards with performance or market conditions, or a combination thereof, and are settled in shares of the Company's common stock upon vesting. A summary of the RSU transactions for the nine months ended October 1, 2021 is as follows (in millions, except per share data):
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
| Number of Shares | Weighted-Average Grant Date Fair Value Per Share | |||||||||||||
| Non-vested RSUs at December 31, 2020 | 11.3 | $ | 20.73 | |||||||||||
| Granted | 2.4 | 41.26 | ||||||||||||
| Released | (2.8) | 21.40 | ||||||||||||
| Forfeited | (4.5) | 21.86 | ||||||||||||
| Non-vested RSUs at October 1, 2021 | 6.4 | 27.33 |
Note 10: Commitments and Contingencies
Environmental Contingencies
There are no new material environmental contingencies subsequent to the filing of the 2020 Form 10-K.
Financing Contingencies
In the ordinary course of business, the Company provides standby letters of credit or other guarantee instruments to certain parties initiated by either the Company or its subsidiaries, as required for transactions, including, but not limited to, material purchase commitments, agreements to mitigate collection risk, leases, utilities or customs guarantees. As of October 1, 2021, the Company's Revolving Credit Facility included $15.0 million available for the issuance of letters of credit. There were $0.9 million in letters of credit outstanding under the Revolving Credit Facility as of October 1, 2021, which reduced the Company's borrowing capacity. As of October 1, 2021, the Company also had outstanding guarantees and letters of credit outside of its Revolving Credit Facility totaling $7.3 million.
As part of obtaining financing in the ordinary course of business, the Company issued guarantees related to certain of its subsidiaries, which totaled $0.9 million as of October 1, 2021.
Based on historical experience and information currently available, the Company believes that it will not be required to make payments under the standby letters of credit or guarantee arrangements for the foreseeable future.
Indemnification Contingencies
There are no new material indemnification contingencies subsequent to the filing of the 2020 Form 10-K.
Legal Matters
The Company is currently involved in a variety of legal matters that arise in the ordinary course of business. Based on information currently available, the Company is not involved in any pending or threatened legal proceedings that it believes could reasonably be expected to have a material adverse effect on its financial condition, results of operations or liquidity. The litigation process is inherently uncertain, and the Company cannot guarantee that the outcome of any litigation matter will be favorable to the Company.
Intellectual Property Matters
The Company faces risk of exposure from claims of infringement of the IP rights of others. In the ordinary course of business, the Company receives letters asserting that the Company’s products or components breach another party’s rights. Such letters may request royalty payments from the Company, that the Company cease and desist using certain IP or other remedies.
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
Note 11: Fair Value Measurements
Fair Value of Financial Instruments
During the quarter ended October 1, 2021, the Company began investing portions of its excess cash in different marketable securities, which are classified as available-for-sale. The following table summarizes the Company's financial assets and liabilities, excluding pension assets, disaggregated by the security type, measured at fair value on a recurring basis (in millions):
| As of October 1, 2021 | Fair Value Level | |||||||||||||||||||||||||||||||||||||||||||
| Description | Amortized Cost | Unrealized gains | Unrealized losses | Fair value | Level 1 | Level 2 | ||||||||||||||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents: | ||||||||||||||||||||||||||||||||||||||||||||
| Demand and time deposits | $ | 8.1 | $ | — | $ | — | $ | 8.1 | $ | 8.1 | $ | — | ||||||||||||||||||||||||||||||||
| Money market funds | 2.3 | — | — | 2.3 | 2.3 | — | ||||||||||||||||||||||||||||||||||||||
| Corporate bonds | 2.5 | — | — | 2.5 | — | 2.5 | ||||||||||||||||||||||||||||||||||||||
| Commercial paper | 4.0 | — | — | 4.0 | — | 4.0 | ||||||||||||||||||||||||||||||||||||||
| Other current assets: | ||||||||||||||||||||||||||||||||||||||||||||
| Corporate bonds | 12.7 | — | — | 12.7 | — | 12.7 | ||||||||||||||||||||||||||||||||||||||
| Certificate of deposit | 2.0 | — | — | 2.0 | — | 2.0 | ||||||||||||||||||||||||||||||||||||||
| Commercial paper | 4.9 | — | — | 4.9 | 2.9 | 2.0 | ||||||||||||||||||||||||||||||||||||||
| US Treasury bonds | 0.4 | — | — | 0.4 | — | 0.4 | ||||||||||||||||||||||||||||||||||||||
| Other assets: | ||||||||||||||||||||||||||||||||||||||||||||
| Corporate bonds | 19.0 | — | — | 19.0 | — | 19.0 | ||||||||||||||||||||||||||||||||||||||
| Certificate of deposit | 0.5 | — | — | 0.5 | — | 0.5 | ||||||||||||||||||||||||||||||||||||||
| US Treasury bonds | 1.5 | — | — | 1.5 | — | 1.5 | ||||||||||||||||||||||||||||||||||||||
The investments included in other assets have maturity dates ranging between one and five years.
| As of December 31, 2020 | Fair Value Level | |||||||||||||||||||||||||||||||||||||||||||
| Description | Amortized Cost | Unrealized gains | Unrealized losses | Fair value | Level 1 | Level 2 | ||||||||||||||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents: | ||||||||||||||||||||||||||||||||||||||||||||
| Demand and time deposits | $ | 8.5 | $ | — | $ | — | $ | 8.5 | $ | 8.5 | $ | — | ||||||||||||||||||||||||||||||||
Other
The carrying amounts of other current assets and liabilities, such as accounts receivable and accounts payable, approximate fair value based on the short-term nature of these instruments.
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
Fair Value of Long-Term Debt, including Current Portion
The carrying amounts and fair values of the Company’s long-term borrowings were as follows (in millions):
| As of | |||||||||||||||||||||||
| October 1, 2021 | December 31, 2020 | ||||||||||||||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||||||||||
| Long-term debt, including current portion (1) | |||||||||||||||||||||||
| Convertible notes | $ | 845.7 | $ | 1,443.1 | $ | 515.6 | $ | 967.1 | |||||||||||||||
| Other long-term debt | 2,267.8 | 2,259.7 | 2,975.7 | 2,966.8 |
(1) Carrying amounts shown are net of debt discount and debt issuance costs.
The fair values of the 3.875% Notes, 1.625% Notes and 0% Notes were estimated based on market prices in active markets (Level 1). The fair value of the Term Loan "B" Facility was estimated based on discounting the remaining principal and interest payments using current market rates for similar debt (Level 2).
Note 12: Financial Instruments
Foreign Currencies
As a multinational business, the Company engages in transactions that are denominated in a variety of currencies. When appropriate, the Company uses forward foreign currency contracts to reduce its overall exposure to the effects of currency fluctuations on its results of operations and cash flows. The Company’s policy prohibits trading in currencies for which there are no underlying exposures and entering into trades for any currency to intentionally increase the underlying exposure. The Company primarily hedges existing assets and liabilities associated with transactions currently on its balance sheet, which are undesignated hedges for accounting purposes.
As of October 1, 2021 and December 31, 2020, the Company had net outstanding foreign exchange contracts with notional amounts of $301.2 million and $263.4 million, respectively. Such contracts were obtained through financial institutions and were scheduled to mature within one to three months from the time of purchase. Management believes that these financial instruments should not subject the Company to increased risks from foreign exchange movements because gains and losses on these contracts should offset losses and gains on the underlying assets, liabilities and transactions to which they are related.
The following summarizes the Company’s net foreign exchange positions in U.S. Dollars (in millions):
| As of | ||||||||||||||||||||||||||
| October 1, 2021 | December 31, 2020 | |||||||||||||||||||||||||
| Buy (Sell) | Notional Amount | Buy (Sell) | Notional Amount | |||||||||||||||||||||||
| Euro | $ | 75.9 | $ | 75.9 | $ | 47.7 | $ | 47.7 | ||||||||||||||||||
| Philippine Peso | 66.8 | 66.8 | 57.2 | 57.2 | ||||||||||||||||||||||
| Japanese Yen | 56.2 | 56.2 | 71.2 | 71.2 | ||||||||||||||||||||||
| Korean Won | 36.5 | 36.5 | 34.4 | 34.4 | ||||||||||||||||||||||
| Chinese Yuan | 24.3 | 24.3 | 17.7 | 17.7 | ||||||||||||||||||||||
| Malaysian Ringgit | 14.0 | 14.0 | 11.7 | 11.7 | ||||||||||||||||||||||
| Singapore Dollar | 11.7 | 11.7 | 5.7 | 5.7 | ||||||||||||||||||||||
| Other Currencies - Buy | 9.0 | 9.0 | 6.7 | 6.7 | ||||||||||||||||||||||
| Other Currencies - Sell | (6.8) | 6.8 | (11.1) | 11.1 | ||||||||||||||||||||||
| $ | 287.6 | $ | 301.2 | $ | 241.2 | $ | 263.4 |
Amounts receivable or payable under the contracts are included in other current assets or accrued expenses and other current liabilities in the accompanying Consolidated Balance Sheets. During the quarters ended October 1, 2021 and October 2, 2020,
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
realized and unrealized foreign currency transactions totaled a loss of $0.8 million and a gain of $0.1 million, respectively. During the nine months ended October 1, 2021 and October 2, 2020, realized and unrealized foreign currency transactions totaled a gain of $1.5 million and a loss of $3.4 million, respectively. The realized and unrealized foreign currency transactions are included in other income (expense) in the Company's Consolidated Statements of Operations and Comprehensive Income.
Cash Flow Hedges
All derivatives are recognized on the Company’s Consolidated Balance Sheets at their fair value and classified based on the applicable instrument's maturity date.
Foreign Currency Risk
The purpose of the foreign currency hedging activities is to protect the Company from the risk that the eventual cash flows resulting from transactions in foreign currencies will be adversely affected by changes in exchange rates. During the quarter ended July 2, 2021, the Company entered into an insignificant forward contract that is designated as a foreign currency cash flow hedge of a forecasted payment denominated in a currency other than U.S. Dollars.
Interest Rate Risk
The Company uses interest rate swap contracts to mitigate its exposure to interest rate fluctuations. During the quarter ended July 2, 2021, the Company entered into interest rate swap agreements for notional amounts totaling $500.0 million, effective as of December 30, 2022 and December 29, 2023, with maturity dates of December 29, 2023 and December 31, 2024, respectively.
The Company did not identify any ineffectiveness with respect to the notional amounts of the interest rate swap contracts effective as of October 1, 2021 and October 2, 2020, amounting to $1.5 billion and $2.25 billion, respectively.
Other
As of October 1, 2021, the Company had no outstanding commodity derivatives, currency swaps or options relating to either its debt instruments or investments. The Company does not hedge the value of its equity investments in its subsidiaries or affiliated companies. The Company is exposed to credit-related losses if counterparties to hedge contracts fail to perform their obligations. As of October 1, 2021, the counterparties to the Company’s hedge contracts were held at financial institutions that the Company believes to be highly-rated, and no credit-related losses are anticipated.
Note 13: Income Taxes
The Company recognizes interest and penalties related to uncertain tax positions in tax expense on the Company's Consolidated Statements of Operations and Comprehensive Income. The Company had approximately $1.9 million and $4.7 million of net interest and penalties accrued as of October 1, 2021 and October 2, 2020, respectively. It is reasonably possible that $43.2 million of its uncertain tax positions will be reduced in the next 12 months due to settlement with tax authorities or expiration of the applicable statute of limitations.
The Company maintains a partial valuation allowance on its U.S. state deferred tax assets and a valuation allowance on foreign net operating losses and tax credits in certain foreign jurisdictions, a substantial portion of which relate to Japan net operating losses, which are projected to expire prior to utilization.
Tax years prior to 2017 are generally not subject to examination by the United States Internal Revenue Service (the "IRS") except for items involving tax attributes that have been carried forward to tax years with statutes of limitations that remain open. The Company is currently under IRS examination for the 2017 tax year. For state tax returns, the Company is generally not subject to income tax examinations for tax years prior to 2016. The Company is also subject to routine examinations by various foreign tax jurisdictions in which it operates. With respect to jurisdictions outside the United States, the Company is generally not subject to examination for tax years prior to 2011. The Company believes that adequate provisions have been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with the Company's expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.
ON SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
Note 14: Changes in Accumulated Other Comprehensive Loss
Amounts comprising the Company's accumulated other comprehensive loss and reclassifications are as follows (in millions):
| Currency Translation Adjustments | Effects of Cash Flow Hedges | Total | ||||||||||||||||||||||||
| Balance as of December 31, 2020 | $ | (40.6) | $ | (17.0) | $ | (57.6) | ||||||||||||||||||||
| Other comprehensive income (loss) prior to reclassifications | (2.8) | 26.1 | 23.3 | |||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | — | (14.3) | (14.3) | |||||||||||||||||||||||
| Net current period other comprehensive income (loss) (1) | (2.8) | 11.8 | 9.0 | |||||||||||||||||||||||
| Balance as of October 1, 2021 | $ | (43.4) | $ | (5.2) | $ | (48.6) |
(1) Effects of cash flow hedges are net of tax expense of $3.4 million for the nine months ended October 1, 2021.
Amounts reclassified from accumulated other comprehensive loss to the specific caption within Consolidated Statements of Operations and Comprehensive Income were as follows:
| Amounts Reclassified from Accumulated Other Comprehensive Loss | ||||||||||||||||||||||||||||||||
| Quarters Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
| October 1, 2021 | October 2, 2020 | October 1, 2021 | October 2, 2020 | To caption | ||||||||||||||||||||||||||||
| Interest rate swaps | $ | 4.9 | $ | 6.4 | $ | 14.3 | $ | 13.3 | Interest expense | |||||||||||||||||||||||
| Total reclassifications | $ | 4.9 | $ | 6.4 | $ | 14.3 | $ | 13.3 |
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