Item 1. Financial Statements (unaudited)

ON SEMICONDUCTOR CORPORATION

CONSOLIDATED BALANCE SHEETS

(in millions, except share and per share data)

(unaudited)


	September 30, 2022		December 31, 2021
Assets
Cash and cash equivalents	$	2,450.2	$	1,352.6

Receivables, net	857.3		809.4
Inventories	1,575.4		1,379.5
Assets held-for-sale	135.0		—
Other current assets	291.5		240.1

Total current assets	5,309.4		3,781.6

Property, plant and equipment, net	2,762.1		2,524.3
Goodwill	1,600.4		1,937.5
Intangible assets, net	373.8		495.7
Deferred tax assets	409.9		366.3
Other assets	645.1		520.6
Total assets	$	11,100.7	$	9,626.0
Liabilities, Non-Controlling Interest and Stockholders’ Equity
Accounts payable	$	791.7	$	635.1
Accrued expenses and other current liabilities	766.7		747.6
Liabilities held-for-sale	37.3		—
Current portion of long-term debt	165.3		160.7
Total current liabilities	1,761.0		1,543.4
Long-term debt	3,046.5		2,913.9
Deferred tax liabilities	30.5		43.2
Other long-term liabilities	586.1		521.1
Total liabilities	5,424.1		5,021.6
Commitments and contingencies (Note 11)
ON Semiconductor Corporation stockholders’ equity:
Common stock ($0.01 par value, 1,250,000,000 shares authorized, 606,766,278 and 603,044,079 issued, 432,406,805 and 432,472,818 outstanding, respectively)	6.1		6.0
Additional paid-in capital	4,598.8		4,633.3
Accumulated other comprehensive loss	(23.4)		(40.6)
Accumulated earnings	3,760.1		2,435.1
Less: Treasury stock, at cost: 174,359,473 and 170,571,261 shares, respectively	(2,685.6)		(2,448.4)
Total ON Semiconductor Corporation stockholders’ equity	5,656.0		4,585.4
Non-controlling interest	20.6		19.0
Total stockholders' equity	5,676.6		4,604.4
Total liabilities and stockholders' equity	$	11,100.7	$	9,626.0

See accompanying notes to consolidated financial statements

ON SEMICONDUCTOR CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(in millions, except per share data)

(unaudited)


	Quarters Ended				Nine Months Ended
	September 30, 2022		October 1, 2021		September 30, 2022		October 1, 2021
Revenue	$	2,192.6	$	1,742.1	$	6,222.6	$	4,893.7
Cost of revenue (exclusive of amortization shown below)	1,134.3		1,021.3		3,165.9		3,011.6
Gross profit	1,058.3		720.8		3,056.7		1,882.1
Operating expenses:
Research and development	145.4		154.5		463.8		494.4
Selling and marketing	69.5		68.4		213.7		223.4
General and administrative	84.9		75.7		246.0		221.3

Amortization of acquisition-related intangible assets	21.9		24.7		65.1		74.5
Restructuring, asset impairments and other, net	40.3		(1.7)		25.6		58.3
Goodwill and intangible asset impairment	271.8		—		386.8		2.9
Total operating expenses	633.8		321.6		1,401.0		1,074.8
Operating income	424.5		399.2		1,655.7		807.3
Other income (expense), net:
Interest expense	(23.7)		(31.9)		(67.4)		(98.4)
Interest income	4.9		0.5		6.4		1.1
Loss on debt refinancing and prepayment	—		—		(7.3)		(26.2)

Gain on divestiture of business	0.2		10.2		2.1		10.2

Other income (expense)	0.9		(5.8)		9.4		(2.4)
Other income (expense), net	(17.7)		(27.0)		(56.8)		(115.7)
Income before income taxes	406.8		372.2		1,598.9		691.6
Income tax provision	(94.9)		(61.8)		(299.4)		(106.8)
Net income	311.9		310.4		1,299.5		584.8
Less: Net income attributable to non-controlling interest	—		(0.7)		(1.6)		(1.1)
Net income attributable to ON Semiconductor Corporation	$	311.9	$	309.7	$	1,297.9	$	583.7

Net income for diluted earnings per share of common stock (Note 9)	312.4		309.7		$	1,299.4	$	583.7
Net income per share of common stock:
Basic	$	0.72	$	0.72	$	2.99	$	1.38
Diluted	$	0.70	$	0.70	$	2.90	$	1.32
Weighted-average shares of common stock outstanding:
Basic	432.9		430.6		433.5		423.8
Diluted	448.7		440.7		448.3		443.1

Comprehensive income, net of tax:
Net income	$	311.9	$	310.4	$	1,299.5	$	584.8
Foreign currency translation adjustments	(1.8)		(0.3)		(8.4)		(2.8)
Effects of cash flow hedges and other adjustments	7.7		3.9		25.6		11.8

Other comprehensive income, net of tax	5.9		3.6		17.2		9.0
Comprehensive income	317.8		314.0		1,316.7		593.8
Comprehensive income attributable to non-controlling interest	—		(0.7)		(1.6)		(1.1)
Comprehensive income attributable to ON Semiconductor Corporation	$	317.8	$	313.3	$	1,315.1	$	592.7

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 1, 2022	606,427,684	$	6.1	$	4,565.9	$	(29.3)	$	3,448.2	(173,104,824)	$	(2,601.4)	$	20.6	$	5,410.1



Shares issued pursuant to the ESPP	149,300	—		6.0		—		—		—	—		—		6.0
RSUs and stock grant awards issued	189,202	—		—		—		—		—	—		—		—

Partial settlement - 1.625% Notes	92	—		—		—		—		—	—		—		—

Partial settlement of bond hedges - 1.625% Notes	—	—		—		—		—		(90)	—		—		—



Payment of tax withholding for RSUs	—	—		—		—		—		(58,559)	(4.1)		—		(4.1)
Share-based compensation	—	—		26.9		—		—		—	—		—		26.9
Repurchase of common stock	—	—		—		—		—		(1,196,000)	(80.1)		—		(80.1)


Comprehensive income	—	—		—		5.9		311.9		—	—		—		317.8
Balance at September 30, 2022	606,766,278	$	6.1	$	4,598.8	$	(23.4)	$	3,760.1	(174,359,473)	$	(2,685.6)	$	20.6	$	5,676.6

Balance at December 31, 2021	603,044,079	$	6.0	$	4,633.3	$	(40.6)	$	2,435.1	(170,571,261)	$	(2,448.4)	$	19.0	$	4,604.4
Impact of the adoption of ASU 2020-06	—	—		(129.1)		—		27.1		—	—		—		(102.0)


Shares issued pursuant to the ESPP	403,518	—		18.2		—		—		—	—		—		18.2
RSUs and stock grant awards issued	3,318,351	0.1		(0.1)		—		—		—	—		—		—

Partial settlement - 1.625% Notes	330	—		—		—		—		—	—		—		—

Partial settlement of bond hedges - 1.625% Notes	—	—		—		—		—		(322)	—		—		—



Payment of tax withholding for RSUs	—	—		—		—		—		(1,091,890)	(67.4)		—		(67.4)
Share-based compensation	—	—		76.5		—		—		—	—		—		76.5
Repurchase of common stock	—	—		—		—		—		(2,696,000)	(169.8)		—		(169.8)


Comprehensive income	—	—		—		17.2		1,297.9		—	—		1.6		1,316.7
Balance at September 30, 2022	606,766,278	$	6.1	$	4,598.8	$	(23.4)	$	3,760.1	(174,359,473)	$	(2,685.6)	$	20.6	$	5,676.6


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

See accompanying notes to consolidated financial statements

ON SEMICONDUCTOR CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)


	Nine Months Ended
	September 30, 2022		October 1, 2021
Cash flows from operating activities:
Net income	$	1,299.5	$	584.8
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	418.6		456.4
(Gain) loss on sale or disposal of fixed assets	(33.1)		2.3
Gain on divestiture of business	(2.1)		(10.2)
Loss on debt refinancing and prepayment	7.3		26.2

Amortization of debt discount and issuance costs	8.6		8.0


Share-based compensation	76.5		74.1
Non-cash interest on convertible notes	—		17.6
Non-cash asset impairment charges	18.6		10.8
Goodwill and intangible asset impairment charges	386.8		—
Change in deferred tax balances	(64.6)		39.5

Other	0.6		0.2
Changes in assets and liabilities (exclusive of divestitures):
Receivables	(67.2)		(38.1)
Inventories	(196.9)		(71.5)
Other assets	(48.6)		(32.0)
Accounts payable	68.8		25.6
Accrued expenses and other current liabilities	4.8		55.6
Other long-term liabilities	24.2		6.1
Net cash provided by operating activities	$	1,901.8	$	1,155.4
Cash flows from investing activities:
Purchase of property, plant and equipment	$	(663.0)	$	(275.0)
Proceeds from sale of property, plant and equipment	59.0		6.6
Deposits made for purchase of property, plant and equipment	(53.7)		(21.5)
Divestiture of business, net of cash transferred	90.5		3.4




Purchase of available-for-sale securities	(18.0)		(43.8)
Proceeds from sale or maturity of available-for-sale securities	24.0		2.8


Payments related to prior acquisition	(2.4)		—


Net cash used in investing activities	$	(563.6)	$	(327.5)
Cash flows from financing activities:
Proceeds for the issuance of common stock under the ESPP	$	18.2	$	18.5

Payment of tax withholding for RSUs	(67.4)		(34.2)
Repurchase of common stock	(166.9)		—
Issuance and borrowings under debt agreements	500.0		787.3
Reimbursement of debt issuance costs	—		2.7
Payment of debt issuance and other financing costs	—		(3.8)
Repayment of borrowings under debt agreements	(509.5)		(1,218.8)
Payment for purchase of bond hedges	—		(160.3)
Proceeds from issuance of warrants	—		93.8
Payments related to prior acquisition	—		(3.0)
Financing lease payment	(12.5)		—

Dividend to non-controlling shareholder	(2.2)		—
Net cash used in financing activities	$	(240.3)	$	(517.8)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(3.2)		(1.0)
Net increase in cash, cash equivalents and restricted cash	1,094.7		309.1
Cash, cash equivalents and restricted cash, beginning of period (Note 7)	1,377.7		1,081.5
Cash, cash equivalents and restricted cash, end of period (Note 7)	$	2,472.4	$	1,390.6

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 (“onsemi,” “we,” “us,” “our,” or the “Company”) with its wholly and majority-owned subsidiaries operates under the onsemiTM brand.

The Company is 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 Company's fiscal calendar year begins on January 1 and ends on December 31. The fiscal quarters contain a thirteen-week accounting period. Minor day adjustments are required in the first and fourth quarters to account for the Company's fiscal calendar year's starting and ending dates. The quarters ended September 30, 2022 and October 1, 2021 contained 91 days each. The nine months ended September 30, 2022 and October 1, 2021 contained 273 and 274 days, respectively.

The accompanying unaudited financial statements as of and for the quarter and nine months ended September 30, 2022 have been prepared following generally accepted accounting principles in the United States of America ("GAAP"). Accordingly, the unaudited financial statements do not include all of the information and footnotes required by GAAP for audited financial statements. The balance sheet as of December 31, 2021 was derived from the Company's audited financial statements but does not include all disclosures required by GAAP for audited financial statements. In the opinion of the Company's management, the interim information contains all adjustments, which include normal recurring adjustments necessary for a fair statement of the results for the interim periods. The footnote disclosures related to the interim financial information contained herein are also unaudited. Such financial information should be read in conjunction with the consolidated financial statements and related notes thereto for the year ended December 31, 2021, included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on February 14, 2022 (the "2021 Form 10-K").

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the reporting period. Management evaluates these estimates and judgments on an ongoing basis and bases its estimates on experience, current and expected future conditions, third-party evaluations, and various other assumptions that management believes are reasonable under the circumstances. Significant estimates have been used by management in conjunction with the following: (i) future payouts for customer incentives and amounts subject to allowances and returns; (ii) valuation and obsolescence relating to inventories; (iii) measurement of valuation allowances against deferred tax assets and evaluations of uncertain tax positions and (iv) testing for impairment of long-lived assets and goodwill. Additionally, during periods where it becomes applicable, significant estimates will be used by management in determining the future cash flows 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.

Table of Contents

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.

A significant portion of the Company’s orders are firm commitments that are non-cancellable, including certain orders or contracts with a duration of less than one year. Certain of the Company's customer contracts are multi-year agreements that include firmly committed amounts ("Long-term Supply Agreements" or "LTSA's") for which the remaining performance obligations as of September 30, 2022 were approximately $14.1 billion (excluding the remaining performance obligations for contracts having a duration of one year or less). The Company expects to recognize approximately 31% of this amount as revenue during the next twelve months upon shipment of products under these contracts. Total sales estimates are based on negotiated contract prices and demand quantities, and could be influenced by manufacturing issues, supply chain constraints, and modifications to customer agreements, among other things. Accordingly, the amount represented by remaining performance obligations may not be indicative of the actual revenue recognized for future periods.

A portion of our LTSA’s include non-cancellable capacity payments which secure production availability for our customers' orders or represent deposits, which prepay a portion of a given customer’s product obligation. During the quarter and nine months ended September 30, 2022, the Company recorded capacity payments of $67.8 million and $104.1 million, respectively, which were recorded within contract liabilities. As of September 30, 2022, $22.3 million of the capacity payments were recorded in accounts receivable. Capacity payments totaled $143.8 million as of September 30, 2022, of which $40.3 million and $103.5 million were recorded as current liabilities and other long-term liabilities, respectively. Contract assets were $13.1 million as of September 30, 2022. During the quarter and nine months ended September 30, 2022, $4.7 million and $13.8 million, respectively, was recognized as revenue for satisfying the associated performance obligations.

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 September 30, 2022:
Revenue from external customers	$	1,116.1	$	734.3	$	342.2	$	2,192.6
Gross profit	$	508.5	$	381.7	$	168.1	$	1,058.3
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 nine months ended September 30, 2022:
Revenue from external customers	$	3,159.8	$	2,140.3	$	922.5	$	6,222.6
Gross profit	$	1,494.4	$	1,128.7	$	433.6	$	3,056.7
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

The Company had one customer, a distributor, whose revenue accounted for approximately 12% and 14% of the Company's total revenue for the quarters ended September 30, 2022 and October 1, 2021, respectively, and 12% and 13% of the Company's total revenue for the nine months ended September 30, 2022, and October 1, 2021.

Table of Contents

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 September 30, 2022
	PSG		ASG		ISG		Total
Geographic Location
Hong Kong	$	351.2	$	192.7	$	74.0	$	617.9
Singapore	284.2		203.2		56.6		544.0
United Kingdom	192.3		113.7		66.5		372.5
United States	208.1		117.3		90.0		415.4
Other	80.3		107.4		55.1		242.8
Total	$	1,116.1	$	734.3	$	342.2	$	2,192.6

Sales Channel
Distributors	$	726.0	$	368.1	$	187.4	$	1,281.5
Direct Customers	390.1		366.2		154.8		911.1

Total	$	1,116.1	$	734.3	$	342.2	$	2,192.6

	Nine Months Ended September 30, 2022
	PSG		ASG		ISG		Total
Geographic Location
Hong Kong	$	980.7	$	548.4	$	202.8	$	1,731.9
Singapore	857.0		658.0		140.5		1,655.5
United Kingdom	561.9		329.6		186.2		1,077.7
United States	533.1		316.5		238.7		1,088.3
Other	227.1		287.8		154.3		669.2
Total	$	3,159.8	$	2,140.3	$	922.5	$	6,222.6

Sales Channel
Distributors	$	2,056.3	$	1,097.8	$	502.4	$	3,656.5
Direct Customers	1,103.5		1,042.5		420.1		2,566.1

Total	$	3,159.8	$	2,140.3	$	922.5	$	6,222.6

Table of Contents

ON SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)


	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

The Company operates in various geographic locations. Sales to external customers have little correlation with the location of end-customers. It is, therefore, not meaningful to present operating profit by geographical location. The Company does not discretely allocate assets to its operating segments, nor does management evaluate operating segments using discrete asset information. The Company’s consolidated assets are not specifically ascribed to its individual reportable segments. Instead, assets used in operations are generally shared across the Company’s operating and reportable segments.

Table of Contents

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
	September 30, 2022		December 31, 2021
United States	$	822.8	$	767.1
South Korea	737.6		492.8
Philippines	307.4		342.4
Czech Republic	248.3		214.2
China	204.5		216.8
Japan	135.6		198.6
Malaysia	181.0		175.3
Other	124.9		117.1
Total	$	2,762.1	$	2,524.3

Note 3: Recent Accounting Pronouncements and Other Developments

Adopted:

ASU 2020-06 - Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity ("ASU 2020-06")

In August 2020, the FASB issued ASU 2020-06, which simplifies the guidance on the issuer’s accounting for convertible debt instruments by removing the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. Also, ASU 2020-06 requires the application of the if-converted method for the purpose of calculating diluted earnings per share, and the treasury stock method will be no longer available for instruments that fall under this category. The Company adopted ASU 2020-06 as of January 1, 2022 using the modified retrospective method, and recorded adjustments to reduce additional paid-in capital by $129.1 million and increase opening retained earnings by $27.1 million to reflect the cumulative effect of the adoption. See Note 8: ''Long-Term Debt'' for further information.

Pending adoption:

ASU 2021-10 - Government Assistance (Topic 832) - Disclosures by Business Entities about Government Assistance ("ASU 2021-10")

In November 2021, the FASB issued ASU 2021-10, which requires business entities to make annual disclosures about the nature of certain government assistance received, the related accounting policies used to account for the transactions, the effect of the transactions on company financial statements and the significant terms and conditions of the transactions. The Company is planning to complete the required ASU 2021-10 disclosures with the filing of its Annual Report on Form 10-K for the year ending on December 31, 2022.

Recent Legislation

CHIPS Act

On August 9, 2022, the CHIPS and Science Act of 2022, H.R. 4346 (the “CHIPS Act”) was signed into law. The CHIPS Act provides for a 25% refundable tax credits on certain investments in domestic semiconductor manufacturing. The credit is provided for qualifying property, which is placed in service after December 31, 2022. The CHIPS Act also provides for certain other financial incentives to further investments in domestic semiconductor manufacturing. The Company is evaluating the provisions of the new law and its potential impact to the Company.

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ON SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

Inflation Reduction Act

On August 16, 2022, the Inflation Reduction Act of 2022, H.R. 5376 (the “IRA”), was signed into law. The IRA introduces a 15% CAMT for corporations whose average annual adjusted financial statement income for any consecutive three-tax-year period preceding the applicable tax year exceeds $1 billion and a 1% excise tax on certain stock repurchases The CAMT and the excise tax are effective in taxable years beginning after December 31, 2022. The Company is evaluating the provisions of the new law and its potential impact to the Company.

Note 4: Acquisition and Divestitures

Acquisition:

The Company finalized its determination relating to the fair value of assets acquired and liabilities assumed from GTAT during the quarter ended April 1, 2022. The final allocation of the purchase price, which did not change from the preliminary allocation disclosed in the 2021 Form 10-K is as follows (in millions):


	Purchase Price Allocation
Cash and cash equivalents	$	8.2
Inventory and other current assets	10.0
Property, plant and equipment	31.9
Goodwill	274.8
Intangible assets - Developed Technology	130.0
Deferred tax assets	13.4
Other non-current assets	7.4
Total assets acquired	475.7
Current liabilities	5.8
Other long-term liabilities	35.0
Total liabilities assumed	40.8
Net assets acquired/purchase price	$	434.9

All assumptions and disclosures remained unchanged from the amounts included in the 2021 Form 10-K.

Divestitures:

During the first quarter of 2022, the Company divested its six-inch front-end wafer manufacturing facility in Oudenaarde, Belgium, to BelGaN Group BV for an aggregate consideration of approximately $19.9 million.

During the second quarter of 2022, the Company completed the divestiture of its eight-inch front-end wafer manufacturing facility in South Portland, Maine to Diodes Incorporated for an aggregate consideration of approximately $80.0 million. Additionally, during the second quarter of 2022, the Company divested its non-strategic GTAT Sapphire business in Salem, Massachusetts to Crystal Systems, LLC for nominal consideration. These divestiture transactions resulted in a gain on divestiture of approximately $1.9 million.

The Company has signed wafer supply agreements with the buyers of the Belgium and South Portland, Maine manufacturing facilities.

During the third quarter of 2022, the Company entered into an Asset Purchase Agreement with LA Semiconductor to divest its wafer manufacturing facility in Pocatello, Idaho for an aggregate consideration of approximately $80.0 million. The transaction closed on October 14, 2022.

During the third quarter of 2022, the Company entered into a Stock Purchase Agreement with JS Foundry K.K., a Japanese based foundry company, to divest its wafer manufacturing facility in Niigata, Japan. The transaction is expected to close as soon as regulatory approvals are received and closing conditions are met.

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ON SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

As of September 30, 2022, approximately $49.5 million and $81.9 million of assets were reclassified as Assets held-for-sale, related to the divestiture of the wafer manufacturing facilities in Pocatello, Idaho and Niigata, Japan, respectively. Approximately $37.3 million of liabilities were reclassified as Liabilities held-for-sale related to the divestiture of the Niigata, Japan facility.

Note 5: Goodwill and Intangible Assets

Goodwill

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.

During the third quarter of 2022, the Company approved an exit plan to wind down its QCS division within ASG that is generally associated with the Company’s legacy Quantenna division, representing less than 3.0% of the Company's consolidated revenue for 2021. This exit plan constituted a change in circumstances (a “triggering event”). The Company determined that it was appropriate to evaluate the long-lived assets and assigned goodwill for impairment. The division, which is also a reporting unit for purposes of evaluating the recoverability of goodwill, had an assigned goodwill balance of approximately $215.0 million and an unamortized intangible assets balance of approximately $58.0 million as of the exit plan approval date.

The Company determined that the discounted cash flow method under the income approach was the most appropriate method to evaluate the recoverability of the carrying value of the reporting unit's net assets. During the quarter ended September 30, 2022, management performed an event-triggered impairment analysis and determined that the remaining balance of goodwill and unamortized intangible assets totaling $215.0 million and $56.8 million, respectively, was impaired.

Previously, during the second quarter of 2022, management performed an event-triggered impairment analysis, which resulted in a partial impairment of the QCS division's goodwill amounting to $115.0 million. For this impairment, the Company determined that a market approach was the most appropriate method to evaluate the recoverability of the carrying value of the net assets of the reporting unit, as the Company was attempting to sell this reporting unit to an interested party due to the Company's focus on its long-term product mix into its strategic markets.

During the nine months ended September 30, 2022, approximately $386.8 million of impairment charges was recorded under the caption ‘Goodwill and intangible asset impairment’ within the Consolidated Statements of Operations and Comprehensive Income.

The following table summarizes goodwill by operating and reportable segments (in millions):


	As of
	September 30, 2022				December 31, 2021
	Goodwill		Accumulated Impairment Losses		Carrying Value		Goodwill		Accumulated Impairment Losses		Carrying Value
Operating and Reportable Segments:
PSG	$	708.0	$	(31.9)	$	676.1	$	708.0	$	(31.9)	$	676.1
ASG	1,559.2		(748.9)		810.3		1,566.3		(418.9)		1,147.4
ISG	114.0		—		114.0		114.0		—		114.0
	$	2,381.2	$	(780.8)	$	1,600.4	$	2,388.3	$	(450.8)	$	1,937.5

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ON SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

Changes in the goodwill balance from December 31, 2021 to September 30, 2022 related to the ASG reporting unit impairment and the divestiture of the Belgium and South Portland, Maine manufacturing facilities, and were as follows (in millions):


Net balance as of December 31, 2021	$	1,937.5

Goodwill impairment	(330.0)
Goodwill disposed	(7.1)
Net balance as of September 30, 2022	$	1,600.4

Intangible Assets

Intangible assets, net, were as follows (in millions):


	As of September 30, 2022
	Original Cost		Accumulated Amortization		Accumulated Impairment Losses		Carrying Value
Customer relationships	$	581.5	$	(454.7)	$	(36.3)	$	90.5
Developed technology	939.6		(645.1)		(40.7)		253.8

Licenses	30.0		(1.3)		—		28.7
Other intangibles	79.1		(63.1)		(15.2)		0.8
Total intangible assets	$	1,630.2	$	(1,164.2)	$	(92.2)	$	373.8


	As of December 31, 2021
	Original Cost		Accumulated Amortization		Accumulated Impairment Losses		Carrying Value
Customer relationships	$	581.5	$	(436.3)	$	(17.6)	$	127.6
Developed technology	928.1		(600.5)		(2.6)		325.0

Licenses	30.0		(0.3)		—		29.7
Other intangibles	79.1		(62.1)		(15.2)		1.8
Total intangible assets	$	1,618.7	$	(1,099.2)	$	(35.4)	$	484.1

Not included in the above table are the value of IPRD projects amounting to $11.6 million as of December 31, 2021. During the nine months ended September 30, 2022, the Company completed its remaining IPRD projects resulting in the reclassification of $11.6 million from IPRD to developed technology.

Amortization expense for intangible assets is expected to be as follows for the remainder of 2022, each of the next four years and thereafter (in millions):


Period	Amortization Expense
Remainder of 2022	$	17.7
2023	56.8
2024	58.1
2025	47.9
2026	41.6
Thereafter	151.7
Total	$	373.8

Table of Contents

ON SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

Note 6: 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 September 30, 2022
QCS wind down	$	12.7	$	18.6	$	25.9	(3)	$	57.2

Other (1)	$	(0.1)	$	—	$	(16.8)		$	(16.9)
Total	$	12.6	$	18.6	$	9.1		$	40.3

	Restructuring		Asset Impairments		Other			Total
Nine months ended September 30, 2022
QCS wind down	$	12.7	$	18.6	$	25.9	(3)	$	57.2


Other (2)	$	(1.3)	$	4.0	$	(34.3)		$	(31.6)
Total	$	11.4	$	22.6	$	(8.4)		$	25.6

(1)Primarily includes a gain of approximately $17.3 million from the sale of the Company headquarters location in Phoenix, Arizona (the "Corporate Headquarters") completed during the third quarter of 2022 offset by approximately $0.5 million related to litigation charges.

(2)Primarily includes a gain of approximately $34.8 million related to the sale of two office buildings and the sale of the Corporate Headquarters, and a $1.3 million reduction in workforce restructuring expense offset by a $4.0 million asset impairment of the GTAT Sapphire business, and approximately $0.5 million related to litigation charges.

(3)Primarily relates to contract cancellation charges of approximately $15.4 million and legal charges of $10.5 million.

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


	As of						As of
	December 31, 2021		Charges		Usage		September 30, 2022
Employee separation charges	$	10.8	$	11.4	$	(10.6)	$	11.6

Total	$	10.8	$	11.4	$	(10.6)	$	11.6

QCS wind down

On September 16, 2022, the Company's Board of Directors approved an exit plan to wind down the QCS division as part of its ongoing efforts to focus on growth drivers and key markets, and to streamline its operations. As part of the exit plan, during the third quarter of 2022, the Company notified approximately 330 employees of their employment termination and incurred severance costs and other benefits of approximately $12.7 million. Substantially all the employees will leave the Company during the fourth quarter of 2022.

As of September 30, 2022, $10.4 million of severance costs and other benefits remained accrued and, based on the exit dates of the notified employees, is expected to be paid during the fourth quarter of 2022.

In connection with the exit plan, the Company recorded $25.9 million of exit costs, which primarily relates to litigation and contract cancellation charges. The Company impaired $8.0 million of Property, Plant and Equipment as well as $10.6 million of other miscellaneous assets. The Company recorded inventory reserves associated with the QCS wind down of $28.0 million.

Other

The additional activity during the quarter and nine months ended September 30, 2022 represented payments to employees whose employment was terminated during 2021. The Company expects to pay the remaining accrued expense during the fourth quarter of 2022.

Table of Contents

ON SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

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

Note 7: Balance Sheet Information and Other

Inventory

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


	As of
	September 30, 2022		December 31, 2021
Inventories:
Raw materials	$	203.1	$	174.2
Work in process	962.2		888.9
Finished goods	410.1		316.4
	$	1,575.4	$	1,379.5

Defined Benefit Plans

The Company recognizes the aggregate amount of all over-funded plans as assets and the aggregate amount of all underfunded plans as liabilities in its financial statements. As of September 30, 2022, the net assets for the over-funded plans totaled $12.8 million of which, approximately $3.7 million was reclassified to Assets held-for-sale related to the divestiture of the wafer manufacturing facility in Niigata, Japan. The total accrued pension liability for underfunded plans was $100.4 million, of which the current portion of $0.3 million was classified as accrued expenses and other current liabilities and approximately $20.8 million was reclassified to Liabilities held-for-sale related to the divestiture of the wafer manufacturing facility in Niigata, Japan. As of December 31, 2021, the net funded status for all the plans was a liability of $103.9 million, of which the current portion of $0.2 million was classified as accrued expenses and other current liabilities.

The components of the net periodic pension expense were as follows (in millions):


	Quarters Ended				Nine Months Ended
	September 30, 2022		October 1, 2021		September 30, 2022		October 1, 2021
Service cost	$	2.2	$	2.8	$	6.6	$	8.9
Interest cost	1.0		1.1		3.1		3.3
Expected return on plan assets	(1.1)		(1.6)		(3.4)		(4.9)

Curtailment gain	—		(2.3)		—		(0.4)

Total net periodic pension cost	$	2.1	$	—	$	6.3	$	6.9

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
	September 30, 2022		October 1, 2021		September 30, 2022		October 1, 2021
Operating lease	$	12.4	$	9.8	$	35.3	$	29.6
Variable lease	1.8		0.9		7.5		2.9
Short-term lease	0.9		0.4		2.1		1.6
Total lease expense	$	15.1	$	11.1	$	44.9	$	34.1

Table of Contents

ON SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

The ROU assets and lease liabilities recognized in the Consolidated Balance Sheets are as follows (in millions):


	As of
	September 30, 2022		December 31, 2021
Operating lease liabilities included in:
Accrued expenses and other current liabilities	$	33.1	$	32.5
Other long-term liabilities	203.0		142.4
Total	$	236.1	$	174.9

Operating ROU assets included in:
Other assets	$	222.3	$	170.1

Financing lease liabilities included in:
Accrued expenses and other current liabilities	$	11.6	$	12.7
Other long-term liabilities	20.6		10.2
Total	$	32.2	$	22.9
Financing ROU assets included in:
Other assets	$	46.4	$	22.3

As of September 30, 2022, the weighted-average remaining lease-terms were 10.6 years and 19.3 years, and the weighted-average discount rates were 4.7% and 6.0% for operating and financing leases, respectively.

New Leases

During the second quarter of 2022, the Company entered into leases and related agreements to lease space for a new corporate headquarters in Arizona and new office space in California. The Company recorded cumulative ROU assets and liabilities of $70.7 million.

Supplemental Disclosure of Cash Flow Information

Certain of the Company's cash and non-cash activities were as follows (in millions):


	Nine Months Ended
	September 30, 2022		October 1, 2021
Non-cash investing activities:
Capital expenditures in accounts payable and other long-term liabilities	$	253.5	$	153.3
Divestiture/Sale of property in exchange of receivable	—		9.1
Operating ROU assets obtained in exchange of lease liabilities	90.6		14.2






Cash paid for:

Interest expense	$	62.8	$	80.7
Income taxes	329.5		65.1
Operating lease payments in operating cash flows	31.8		30.6

Table of Contents

ON SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

Reconciliation of the captions in the Consolidated Balance Sheets to the Consolidated Statements of Cash Flows (in millions):


	As of
	September 30, 2022		December 31, 2021		October 1, 2021		December 31, 2020
Consolidated Balance Sheets:
Cash and cash equivalents	$	2,450.2	$	1,352.6	$	1,389.2	$	1,080.7
Restricted cash (included in other current assets)	17.2		20.1		1.4		0.8
Restricted cash (included in other non-current assets)	5.0		5.0		—		—
Cash, cash equivalents and restricted cash in Consolidated Statements of Cash Flows	$	2,472.4	$	1,377.7	$	1,390.6	$	1,081.5

As of September 30, 2022, $15.0 million of the restricted cash balance was held in escrow relating to the acquisition of GTAT and will be released to the former stockholders of GTAT upon satisfaction of certain outstanding items contained in the acquisition agreement.

Note 8: Long-Term Debt

The Company's long-term debt consists of the following (annualized interest rates, dollars in millions):


	As of
	September 30, 2022		December 31, 2021
Amended Credit Agreement:
Revolving Credit Facility due 2024, interest payable monthly at 4.37% and —%, respectively	$	500.0	$	—
Term Loan "B" Facility due 2026, interest payable monthly at 5.12% and 2.10%, respectively	1,088.7		1,598.2
0% Notes due 2027	805.0		805.0
3.875% Notes due 2028 (1)	700.0		700.0

1.625% Notes due 2023 (2)	155.1		155.1
Gross long-term debt, including current maturities	$	3,248.8	$	3,258.3
Less: Debt discount (3)	(9.5)		(149.0)
Less: Debt issuance costs (4)	(27.5)		(34.7)
Net long-term debt, including current maturities	$	3,211.8	$	3,074.6
Less: Current maturities	(165.3)		(160.7)
Net long-term debt	$	3,046.5	$	2,913.9

(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 $4.4 million and $7.5 million for the Term Loan "B" Facility and $5.1 million and $5.8 million for the 3.875% Notes, in each case as of September 30, 2022 and December 31, 2021, respectively. Debt discount of $126.1 million for the 0% Notes and $9.6 million for the 1.625% Notes, in each case as of December 31, 2021. No debt discount as of September 30, 2022 for the 0% Notes and the 1.625% Notes due to the adoption of ASU 2020-06.

(4)Debt issuance costs of $10.3 million and $17.7 million for the Term Loan "B" Facility, $14.7 million and $14.1 million for the 0% Notes, $1.8 million and $2.0 million for the 3.875% Notes and $0.6 million and $0.9 million for the 1.625% Notes, in each case as of September 30, 2022 and December 31, 2021, respectively.

Table of Contents

ON SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

Expected maturities of gross long-term debt (including current portion - see section regarding 1.625% Notes below) as of September 30, 2022 were as follows (in millions):


Period	Expected Maturities
Remainder of 2022	$	157.9
2023	10.9
2024	511.0
2025	10.9
2026	1,053.1
Thereafter	1,505.0
Total	$	3,248.8

The Company was in compliance with its covenants under all debt agreements as of September 30, 2022.

Borrowings and Repayments under the Amended Credit Agreement

During the second quarter of 2022, the Company borrowed $500.0 million under the Revolving Credit Facility. These proceeds were used to prepay $500.0 million of borrowings under the Term Loan “B” Facility. The Company expensed $7.3 million of unamortized debt discount and issuance costs attributed to the partial pay-down as loss on debt refinancing and prepayment. As of September 30, 2022, the Company had approximately $1.5 billion available under the Revolving Credit Facility for future borrowings.

Adoption of ASU 2020-06

As described in Note 3: ''Recent Accounting Pronouncements and Other Developments,'' the Company adopted ASU 2020-06 using a modified retrospective method and increased long-term debt by eliminating debt discount of $135.7 million, reduced additional paid-in capital by $129.1 million and increased opening retained earnings by $27.1 million to reflect the cumulative effect of adoption as of January 1, 2022. The application of the if-converted method to determine the net income for diluted earnings and diluted weighted-average shares of common stock outstanding did not have a meaningful impact on the diluted net income per share of common stock under the treasury stock method previously applied.

1.625% Notes due 2023

The remaining outstanding principal amount of the 1.625% Notes, amounting to $155.1 million, net of unamortized issuance costs, continued to be classified as a current portion of long-term debt as of September 30, 2022. 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, 2022 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, 2022, and only during such calendar quarter.

Table of Contents

ON SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

Note 9: Earnings Per Share and Equity

Earnings Per Share

Net income per share of common stock for calculating basic and diluted earnings per share is calculated as follows (in millions, except per share data):


	Quarters Ended				Nine Months Ended
	September 30, 2022		October 1, 2021		September 30, 2022		October 1, 2021
Net income for basic earnings per share of common stock	$	311.9	$	309.7	$	1,297.9	$	583.7
Add: Interest on 1.625% Notes	0.5		—		1.5		—
Net income for diluted earnings per share of common stock	$	312.4	$	309.7	$	1,299.4	$	583.7

Basic weighted-average shares of common stock outstanding	432.9		430.6		433.5		423.8
Dilutive effect of share-based awards	1.6		2.3		1.8		2.3
Dilutive effect of convertible notes and warrants	14.2		7.8		13.0		17.0
Diluted weighted-average shares of common stock outstanding	448.7		440.7		448.3		443.1

Net income per share of common stock:
Basic	$	0.72	$	0.72	$	2.99	$	1.38
Diluted	$	0.70	$	0.70	$	2.90	$	1.32

Basic income per share of common stock is computed by dividing net income for basic earnings 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 zero and 0.2 million for the quarters ended September 30, 2022 and October 1, 2021, respectively, and 0.4 million for the nine months ended September 30, 2022 and October 1, 2021, respectively.

The dilutive impacts related to the 0% Notes and 1.625% Notes have been calculated using the if-converted method for the quarter and nine months ended September 30, 2022 and using the treasury stock method for the quarter and nine months ended October 1, 2021. While the 0% Notes are repayable in cash up to the par value and in cash or shares of common stock for the excess over par value, the 1.625% Notes are repayable in cash or shares of common stock for their entire value. 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 and 1.625% Notes with exercise prices of $74.34 and $30.70, respectively, has been included in the calculation of diluted weighted-average common shares outstanding, if applicable.

Equity

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.

The Company repurchased approximately 1.2 million and 2.7 million shares of common stock for an aggregate purchase price of $80.1 million and $169.8 million, respectively, during the quarter and nine months ended September 30, 2022. There were no repurchases during the quarter and nine months ended October 1, 2021 under the Share Repurchase Program. As of September 30, 2022, the authorized amount remaining under the Share Repurchase Program was $1,126.1 million.

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ON SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

Shares for Restricted Stock Units Tax Withholding

The amounts remitted for employee withholding taxes during the quarter and nine months ended September 30, 2022 were $4.1 million and $67.4 million, respectively, for which the Company withheld approximately 0.1 million and 1.1 million shares of common stock, respectively, that were underlying the RSUs that vested. The amounts remitted 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. None of these shares had been reissued or retired as of September 30, 2022 but may be reissued or retired in the future. These deemed repurchases in connection with tax withholding upon vesting were not made under the Share Repurchase Program, and the amounts spent in connection with such deemed repurchases did not reduce the authorized amount remaining under the Share Repurchase Program.

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, 2021, the non-controlling interest balance was $19.0 million and, along with the $1.6 million share of the earnings for the nine months ended September 30, 2022, increased to $20.6 million as of September 30, 2022.

Note 10: 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
	September 30, 2022		October 1, 2021		September 30, 2022		October 1, 2021
Cost of revenue	$	3.2	$	3.6	$	8.9	$	11.8
Research and development	4.9		5.4		14.5		18.4
Selling and marketing	4.1		3.7		12.2		12.5
General and administrative	14.7		10.0		40.9		31.4
Share-based compensation expense	$	26.9	$	22.7	$	76.5	$	74.1
Income tax benefit	(5.6)		(4.8)		(16.1)		(15.6)
Share-based compensation expense, net of taxes	$	21.3	$	17.9	$	60.4	$	58.5

As of September 30, 2022, total unrecognized expected share-based compensation expense, net of estimated forfeitures, related to non-vested RSUs with service, performance and market conditions was $122.7 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 8% for the quarter and nine months ended September 30, 2022 and 6% for the quarter and nine months ended October 1, 2021.

Shares Available

As of September 30, 2022 and December 31, 2021, there was an aggregate of 39.9 million and 42.2 million shares of common stock, respectively, available for grant under the Amended and Restated SIP.

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 September 30, 2022 is as follows (in millions, except per share data):

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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, 2021	6.2	$	28.60
Granted	1.8	60.41
Achieved	0.2	41.35
Released	(3.4)	25.27
Forfeited	(0.5)	38.57
Non-vested RSUs at September 30, 2022	4.3	43.87

Note 11: Commitments and Contingencies

Environmental Contingencies

There are no new material environmental contingencies subsequent to the filing of the 2021 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 September 30, 2022, 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 September 30, 2022, which reduced the Company's borrowing capacity. As of September 30, 2022, the Company also had outstanding guarantees and letters of credit outside of its Revolving Credit Facility totaling $17.0 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 September 30, 2022. 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 2021 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, and/or request other remedies.

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ON SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

Note 12: Fair Value Measurements

Fair Value of Financial Instruments

The Company invests 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 September 30, 2022									Fair Value Level
Description	Amortized Cost		Unrealized gains		Unrealized losses		Fair value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents:
Demand and time deposits	$	168.4	$	—	$	—	$	168.4	$	168.4	$	—	$	—
Money market funds	4.0		—		—		4.0		4.0		—		—



Other current assets:
Corporate bonds	$	23.2	$	—	$	—	$	23.2	$	—	$	23.2	$	—
Certificate of deposit	3.4		—		—		3.4		—		3.4		—
Commercial paper	5.4		—		—		5.4		1.5		3.9		—
US Treasury bonds	2.1		—		—		2.1		—		2.1		—

Other assets:
Corporate bonds	$	3.6	$	—	$	—	$	3.6	$	—	$	3.6	$	—

US Treasury bonds	—		—		—		—		—		—		—

The investments included in other assets have maturity dates ranging between one and five years.

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ON SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)


As of December 31, 2021									Fair Value Level
Description	Amortized Cost		Unrealized gains		Unrealized losses		Fair value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents:
Demand and time deposits	$	19.5	$	—	$	—	$	19.5	$	19.5	$	—	$	—
Money market funds	0.7		—		—		0.7		0.7		—		—
Corporate bonds	1.6		—		—		1.6		—		1.6		—
Commercial paper	2.0		—		—		2.0		—		2.0		—

Other current assets:
Corporate bonds	$	16.0	$	—	$	—	$	16.0	$	—	$	16.0	$	—
Certificate of deposit	1.9		—		—		1.9		—		1.9		—
Commercial paper	5.0		—		—		5.0		3.0		2.0		—
US Treasury bonds	0.4		—		—		0.4		—		0.4		—

Other assets:
Corporate bonds	$	19.7	$	—	$	—	$	19.7	$	—	$	19.7	$	—

US Treasury bonds	1.6		—		—		1.6		—		1.6		—

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.

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
	September 30, 2022				December 31, 2021
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt, including current portion (1)
0% Notes	$	790.3	$	1,099.8	$	664.8	$	1,183.1
1.625% Notes	154.5		466.1		144.6		513.6
Other long-term debt	2,267.0		2,082.9		2,265.2		2,245.5

(1) Carrying amounts shown are net of debt discount, if applicable, 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).

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ON SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

Note 13: 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. The Company is exposed to credit-related losses if counterparties to hedge contracts fail to perform their obligations. As of September 30, 2022, 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.

As of September 30, 2022 and December 31, 2021, the Company had net outstanding foreign exchange contracts with notional amounts of $326.2 million and $288.3 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
	September 30, 2022				December 31, 2021
	Buy (Sell)		Notional Amount		Buy (Sell)		Notional Amount
Japanese Yen	66.6		66.6		33.2		33.2
Philippine Peso	59.1		59.1		67.1		67.1
Euro	41.1		41.1		65.9		65.9
Czech Koruna	39.1		39.1		15.0		15.0
Korean Won	35.1		35.1		44.1		44.1




Other Currencies - Buy	74.7		74.7		58.7		58.7
Other Currencies - Sell	(10.5)		10.5		(4.3)		4.3
	$	305.2	$	326.2	$	279.7	$	288.3

Amounts receivable or payable under the contracts were not material as of September 30, 2022 or December 31, 2021. During the quarters ended September 30, 2022 and October 1, 2021, realized and unrealized foreign currency transactions totaled a gain of $0.7 million and a loss of $0.8 million, respectively. During the nine months ended September 30, 2022 and October 1, 2021, realized and unrealized foreign currency transactions totaled a gain of $9.0 million and $1.5 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 affected by changes in exchange rates. The Company enters into forward contracts that are designated as a foreign currency cash flow hedge of a forecasted payment denominated in a currency other than U.S. Dollars. For the quarters ended September 30, 2022 and October 1, 2021, the Company did not have outstanding derivatives for its foreign currency exposure designated as cash flow hedges.

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ON SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

Interest Rate Risk

The Company uses interest rate swap contracts to mitigate its exposure to interest rate fluctuations. As of September 30, 2022, the Company had interest rate swap agreements for notional amounts of $750.0 million, $500 million and $500 million for fiscal years 2022, 2023 and 2024, respectively. The fair value of the interest rate swaps totaled $39.1 million as of September 30, 2022, of which approximately $20.2 million was included in other current assets and approximately $18.9 million was included in other non-current assets. The fair value of interest rate swaps totaled $5.7 million as of December 31, 2021, which was included in other non-current assets. The Company did not identify any ineffectiveness with respect to the notional amounts of the interest rate swap contracts effective as of September 30, 2022 and December 31, 2021.

Other

As of September 30, 2022, the Company had no outstanding commodity derivatives, currency swaps, options, or equity investments held at subsidiaries or affiliated companies.

Note 14: 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 $1.3 million of net interest and penalties accrued as of September 30, 2022 and December 31, 2021, respectively. It is reasonably possible that $62.5 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 and Hong Kong net operating losses, which are projected to expire prior to utilization.

The Company is currently under IRS examination for the 2017 and 2018 tax years. Tax years prior to 2017 are generally not subject to examination by the IRS. For state tax returns, the Company is generally not subject to income tax examinations for tax years prior to 2017. 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 2012. 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.

Note 15: 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 and Other Adjustments		Total
Balance as of December 31, 2021	$	(44.4)	$	3.8	$	(40.6)
Other comprehensive income (loss) prior to reclassifications	(8.4)		22.6		14.2
Amounts reclassified from accumulated other comprehensive loss	—		3.0		3.0
Net current period other comprehensive income (loss) (1)	(8.4)		25.6		17.2
Balance as of September 30, 2022	$	(52.8)	$	29.4	$	(23.4)

(1) Effects of cash flow hedges are net of tax expense of $7.8 million for the nine months ended September 30, 2022.

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ON SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

Amounts reclassified from accumulated other comprehensive loss to the specific caption within Consolidated Statements of Operations and Comprehensive Income were as follows:



	Quarters Ended				Nine Months Ended
	September 30, 2022		October 1, 2021		September 30, 2022		October 1, 2021		To caption


Interest rate swaps	$	(3.2)	$	4.9	$	(3.0)	$	14.3	Interest expense
Total reclassifications	$	(3.2)	$	4.9	$	(3.0)	$	14.3

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