Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion in conjunction with our audited historical consolidated financial statements, which are included in the 2022 Form 10-K and our unaudited consolidated financial statements for the fiscal quarter ended September 29, 2023, which are included elsewhere in this Form 10-Q. This Management's Discussion and Analysis of Financial Condition and Results of Operations contains statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risks, uncertainties and other factors. Actual results could differ materially because of the factors discussed below or elsewhere in this Form 10-Q. See Part II, Item 1A. "Risk Factors" of this Form 10-Q and Part I, Item 1A. "Risk Factors" of the 2022 Form 10-K.

Executive Overview

onsemi Overview

onsemi provides intelligent power and intelligent sensing solutions with a primary focus towards automotive and industrial markets to help our customers solve challenging problems and create cutting-edge products for a better future. Our intelligent power technologies enable the electrification of the automotive industry that allows for lighter and longer-range electric vehicles, empowers efficient fast-charging systems and propels sustainable energy for the highest efficiency solar strings, industrial power and storage systems. Our intelligent power solutions for automotive allow customers to exceed range targets with lower weight and reduce system cost through efficiency. Our intelligent sensing technologies support the next generation industry, allowing for smarter factories and buildings while also enhancing the automotive mobility experience with imaging and depth sensing that make advanced vehicle safety and automated driving systems possible.

We believe the evolution of the automotive industry, with advancements in autonomous driving, ADAS, vehicle electrification, and the increase in electronics content for vehicle platforms, is reshaping the boundaries of transportation. Through sensing integration, we believe our intelligent power solutions achieve superior efficiencies compared to our peers. This integration allows lower temperature operation and reduced cooling requirements while saving costs and minimizing weight. In addition, our power solutions deliver power with less die per module, achieving higher range for a given battery capacity. As of September 29, 2023, we were organized into the three operating and reportable segments of PSG, ASG and ISG.

Business Strategy Developments

Our primary focus continues to be on profitable revenue and operating income growth by capturing high-growth megatrends in our focused end-markets of automotive and industrial infrastructure, as well as obtaining LTSAs with strategic end-customers. We are designing products in highly differentiated markets focused on customer needs while optimizing our manufacturing footprint to support growth and expanding gross margins through efficiencies and new product ramps. We continue to rationalize our product portfolio by moving away from non-differentiated, non-strategic products, which in most cases had lower gross margins.

2023 Business Realignment

During the first and second quarters, we realigned our operating models in ASG and the Corporate IT organization in order to streamline our operations and achieve organizational efficiencies. Under this business realignment, approximately 460 employees were notified of their employment termination.

During the third quarter, in order to right-size our workforce to consolidate resources into fewer, common sites across the world, we announced the elimination of approximately 900 positions, primarily in our manufacturing locations. We incurred severance and related charges of $54.5 million related to all these actions.

2023 Financing activities

0.50% Convertible Senior Notes due 2029

During the first quarter of 2023, we completed the offering of $1.5 billion aggregate principal amount of our 0.50% Notes and utilized the net proceeds along with cash generated from operations to (i) repay $1,086.0 million of the outstanding indebtedness under the Term Loan “B” Facility and the related transaction fees and expenses, (ii) pay $171.5 million net cost of the related convertible note hedges after such costs were offset by the proceeds from the sale of warrants, and (iii) for general corporate purposes.

New Credit Agreement

During the second quarter of 2023, we entered into the New Credit Agreement to replace the Revolver due 2024 which was maturing on June 28, 2024. We drew $375.0 million against the Revolving Credit Facility and repaid the entire outstanding balance under the Revolver due 2024. We repaid $125.0 million of the outstanding balance under the Revolver due 2024 during the first quarter of 2023. As of September 29, 2023, we had approximately $1.1 billion available under the Revolving Credit Facility for future borrowings.

1.625% Notes maturity and repayment

On October 16, 2023, we repaid $119.6 million of the remaining outstanding principal amount of the 1.625% Notes in cash and settled the excess over the principal amount by issuing 4.5 million shares of our common stock. Under the previously executed bond hedge agreements, we also repurchased an equivalent number of shares of our common stock for no additional consideration, to effectively offset the issuance of shares.

For additional information on these financing activities, see Note 6: ''Long-Term Debt'' in the notes to our unaudited consolidated financial statements included elsewhere in this Form 10-Q.

Results of Operations

Quarter Ended September 29, 2023 compared to the Quarter Ended September 30, 2022

The following table summarizes certain information relating to our operating results that has been derived from our unaudited consolidated financial statements (in millions):

			Quarters Ended
			September 29, 2023						September 30, 2022						Dollar Change
Revenue			$	2,180.8					$	2,192.6					$	(11.8)
Cost of revenue			1,150.1						1,134.3						15.8
Gross profit			1,030.7						1,058.3						(27.6)
Operating expenses:
Research and development			143.4						145.4						(2.0)
Selling and marketing			68.2						69.5						(1.3)
General and administrative			110.7						84.9						25.8
Amortization of acquisition-related intangible assets			12.0						21.9						(9.9)
Restructuring, asset impairments and other charges, net			9.4						40.3						(30.9)
Goodwill and intangible asset impairment charges			—						271.8						(271.8)
Total operating expenses			343.7						633.8						(290.1)
Operating income			687.0						424.5						262.5
Other income (expense), net:
Interest expense			(16.2)						(23.7)						7.5
Interest income			25.7						4.9						20.8
Gain (loss) on divestiture of business			(0.1)						0.2						(0.3)
Other income			1.1						0.9						0.2
Other income (expense), net			10.5						(17.7)						28.2
Income before income taxes			697.5						406.8						290.7
Income tax provision			(114.6)						(94.9)						(19.7)
Net income			582.9						311.9						271.0
Less: Net income attributable to non-controlling interest			(0.2)						—						(0.2)
Net income attributable to ON Semiconductor Corporation			$	582.7					$	311.9					$	270.8

Revenue

Revenue remained flat at $2,180.8 million compared to $2,192.6 million for the quarters ended September 29, 2023 and September 30, 2022, respectively. We had one customer, a distributor, whose revenue accounted for approximately 11% and

12% of our total revenue for the quarters ended September 29, 2023 and September 30, 2022, respectively. Revenue by operating and reportable segments was as follows (dollars in millions):

			Quarter Ended September 29, 2023						As a % of Total Revenue (1)						Quarter Ended September 30, 2022						As a % of Total Revenue (1)
PSG			$	1,230.6					56.4		%				$	1,116.1					50.9		%
ASG			621.6						28.5		%				734.3						33.5		%
ISG			328.6						15.1		%				342.2						15.6		%
Total revenue			$	2,180.8											$	2,192.6

(1) Certain amounts may not total due to rounding of individual amounts.

Revenue from PSG increased by $114.5 million, or approximately 10%, for the quarter ended September 29, 2023 compared to the quarter ended September 30, 2022. Revenue from our Advanced Power Division increased by $172.5 million, primarily driven by our continued ramp in SiC and other power automotive solutions. This was partially offset by a decrease of $58.1 million in our Integrated Circuits, Protection and Signal Division driven by planned customer product exits and reduced demand driven by lower end-market requirements for these products.

Revenue from ASG decreased by $112.7 million, or approximately 15%, for the quarter ended September 29, 2023 compared to the quarter ended September 30, 2022. This was primarily due to the decrease in revenue from our Power Management Division driven by planned end of life for targeted products, as well as a general drop in demand for these products.

Revenue from ISG decreased by $13.6 million, or approximately 4%, for the quarter ended September 29, 2023 compared to the quarter ended September 30, 2022, largely driven by a decrease in revenue from our Industrial and Consumer Solutions Division of $27.0 million, partially offset by an increase of $13.3 million in our Automotive Sensing Division. The decrease was due to a decrease in demand for these products.

Revenue by geographic location, based on sales billed from the respective country or region, was as follows (dollars in millions):

			Quarter Ended September 29, 2023						As a % of Total Revenue (1)						Quarter Ended September 30, 2022						As a % of Total Revenue (1)
Hong Kong			$	581.9					26.7		%				$	617.9					28.2		%
Singapore			506.8						23.2		%				544.0						24.8		%
United Kingdom			464.2						21.3		%				372.5						17.0		%
United States			424.5						19.5		%				415.4						18.9		%
Other			203.4						9.3		%				242.8						11.1		%
Total revenue			$	2,180.8											$	2,192.6

(1) Certain amounts may not total due to rounding of individual amounts.

Gross Profit and Gross Margin

Gross profit was $1,030.7 million for the quarter ended September 29, 2023 compared to $1,058.3 million for the quarter ended September 30, 2022. Our gross profit decreased by $27.6 million primarily due to the decline in existing product revenue which negatively impacted gross profit by approximately $130 million, and higher manufacturing costs at our EFK location of approximately $30 million, which includes start up and ramp up costs, along with an unfavorable impact from our foundry business. This decrease was partially offset by new product sales which improved gross profit by approximately $110 million and the inventory reserves on exited product lines recorded during the previous year which did not recur.

Our gross margin decreased by 1% quarter over quarter, primarily due to the impact of the decline in gross margin in ASG and ISG, partially offset by the increase in PSG, which are explained below.

Our gross profit by operating and reportable segments was as follows (dollars in millions):

			Quarter Ended September 29, 2023						As a % of Segment Revenue (1)						Quarter Ended September 30, 2022						As a % of Segment Revenue (1)
PSG			$	591.0					48.0		%				$	508.5					45.6		%
ASG			283.6						45.6		%				381.7						52.0		%
ISG			156.1						47.5		%				168.1						49.1		%
Total gross profit			$	1,030.7					47.3		%				$	1,058.3					48.3		%

(1)Certain amounts may not total due to rounding of individual amounts.

Explanation for the increase or decrease in gross profit amounts and gross margin percentages for the quarter ended September 29, 2023 compared to the quarter ended September 30, 2022 is provided below:

PSG gross profit increased by $82.5 million, primarily driven by new product sales which contributed approximately $110 million, and was partially offset by a decline in existing products revenue which negatively impacted gross profit by approximately $40 million. Additionally, we had recorded inventory reserves for certain exited product lines during the prior year which did not recur. PSG gross margin increased by 2.4% to 48.0% from 45.6% due to the above factors.

ASG gross profit decreased by $98.1 million primarily driven by the impact of a decline in product revenue amounting to approximately $80 million and higher manufacturing costs at our EFK location which includes an unfavorable impact of our foundry business of approximately $20 million. ASG gross margin decreased by 6.4% to 45.6% from 52.0%, primarily due to the decline in revenue and impact of the foundry business.

ISG gross profit and gross margin decreased by $12.0 million and 1.6%, respectively, primarily driven by an increase in manufacturing costs to qualify new suppliers.

Operating Expenses

Research and development expenses were $143.4 million for the quarter ended September 29, 2023, as compared to $145.4 million for the quarter ended September 30, 2022, representing a decrease of $2.0 million, or approximately 1%. The decrease in variable compensation expense was offset by an increase in new product development costs.

Selling and marketing expenses were $68.2 million for the quarter ended September 29, 2023, as compared to $69.5 million for the quarter ended September 30, 2022, representing a decrease of $1.3 million, or approximately 2%.

General and administrative expenses were $110.7 million for the quarter ended September 29, 2023, as compared to $84.9 million for the quarter ended September 30, 2022, representing an increase of $25.8 million, or approximately 30%. There was an increase in expenses associated with information technology initiatives and a bad debt provision on outstanding receivable balances generated under an agreement with a business partner. This was partially offset by a decrease in variable compensation expense.

Other Operating Expenses

Amortization of Acquisition-Related Intangible Assets

Amortization of acquisition-related intangible assets was $12.0 million for the quarter ended September 29, 2023, as compared to $21.9 million for the quarter ended September 30, 2022, representing a decrease of $9.9 million, or approximately 45%. The decrease was due to the impairment of intangible assets due to the QCS wind down during the third quarter of 2022 and a reduction in amortization expense as certain intangible assets became fully amortized.

Restructuring, Asset Impairments and Other, Net

Restructuring, asset impairments and other, net was $9.4 million for the quarter ended September 29, 2023, as compared to $40.3 million for the quarter ended September 30, 2022. Amounts incurred for the quarter ended September 29, 2023 related primarily to the business realignment efforts in the third quarter of 2023. Amounts incurred during the quarter ended September 30, 2022 related primarily to severance charges, contract termination costs and litigation expenses related to the QCS wind down.

Goodwill and Intangible Asset Impairment

Goodwill and intangible asset impairment was zero for the quarter ended September 29, 2023, as compared to $271.8 million for the quarter ended September 30, 2022. During the third quarter of 2022, we approved an exit plan to wind down QCS and and impaired the remaining goodwill and unamortized intangible assets of $215.0 million and $56.8 million, respectively.

Interest Expense

Interest expense decreased by $7.5 million to $16.2 million during the quarter ended September 29, 2023, as compared to $23.7 million during the quarter ended September 30, 2022. The decrease was primarily due to the repayment of the balances under the Term Loan "B" Facility and replacement by the issuance of the 0.50% Notes. Our average gross long-term debt for the quarter ended September 29, 2023 was $3,499.5 million at a weighted-average interest rate of 1.8%, as compared to $3,250.1 million at a weighted-average interest rate of 2.9% for the quarter ended September 30, 2022. The calculation of our weighted-average interest rates includes the effect of our interest rate swap agreements.

Other Income (Expense)

During the quarter ended September 29, 2023, other income (expense) was an expense of $1.1 million compared to an income of $0.9 million during the quarter ended September 30, 2022.

Income Tax Provision

We recorded an income tax provision of $114.6 million and $94.9 million for the quarters ended September 29, 2023 and September 30, 2022, respectively, representing effective tax rates of 16.4% and 23.3%. The decrease in our effective tax rate is due to the goodwill impairments in the prior year, which were not deductible for tax purposes.

For additional information, see Note 12: ''Income Taxes'' and Note 5: ''Balance Sheet Information and Other Supplemental Disclosures'' in the notes to the unaudited consolidated financial statements included elsewhere in this Form 10-Q.

Results of Operations

Nine Months Ended September 29, 2023 compared to the Nine Months Ended September 30, 2022

The following table summarizes certain information relating to our operating results that has been derived from our unaudited consolidated financial statements (in millions):

			Nine Months Ended
			September 29, 2023						September 30, 2022						Dollar Change
Revenue			$	6,234.9					$	6,222.6					$	12.3
Cost of revenue			3,293.3						3,165.9						127.4
Gross profit			2,941.6						3,056.7						(115.1)
Operating expenses:
Research and development			427.1						463.8						(36.7)
Selling and marketing			211.6						213.7						(2.1)
General and administrative			273.8						246.0						27.8
Amortization of acquisition-related intangible assets			39.0						65.1						(26.1)
Restructuring, asset impairments and other charges, net			63.5						25.6						37.9
Goodwill and intangible asset impairment charges			—						386.8						(386.8)
Total operating expenses			1,015.0						1,401.0						(386.0)
Operating income			1,926.6						1,655.7						270.9
Other income (expense), net:
Interest expense			(59.0)						(67.4)						8.4
Interest income			66.8						6.4						60.4
Loss on debt prepayment			(13.3)						(7.3)						(6.0)
Gain (loss) on divestiture of business			(0.7)						2.1						(2.8)
Other income			4.5						9.4						(4.9)
Other income (expense), net			(1.7)						(56.8)						55.1
Income before income taxes			1,924.9						1,598.9						326.0
Income tax provision			(302.7)						(299.4)						(3.3)
Net income			1,622.2						1,299.5						322.7
Less: Net income attributable to non-controlling interest			(1.2)						(1.6)						0.4
Net income attributable to ON Semiconductor Corporation			$	1,621.0					$	1,297.9					$	323.1

Revenue

Revenue was relatively flat at $6,234.9 million compared to $6,222.6 million for the nine months ended September 29, 2023 and September 30, 2022, respectively. We had one customer, a distributor, whose revenue accounted for approximately 10.0% of our total revenue for the nine months ended September 29, 2023 and 12% of our total revenue for the nine months ended September 30, 2022.

Revenue by operating and reportable segments was as follows (dollars in millions):

			Nine Months Ended September 29, 2023						As a % of Total Revenue (1)						Nine Months Ended September 30, 2022						As a % of Total Revenue (1)
PSG			$	3,363.2					53.9		%				$	3,159.8					50.8		%
ASG			1,863.9						29.9		%				2,140.3						34.4		%
ISG			1,007.8						16.2		%				922.5						14.8		%
Total revenue			$	6,234.9											$	6,222.6

(1) Certain amounts may not total due to rounding of individual amounts.

Revenue from PSG increased by $203.4 million, or approximately 6%, for the nine months ended September 29, 2023 compared to the nine months ended September 30, 2022. The revenue from our Advanced Power Division increased by $407.5 million, offset by a decrease of $204.3 million in our Integrated Circuits, Protection and Signal Division. The increase was primarily driven by our continued ramp in SiC and other power automotive solutions, while the decrease was primarily driven by planned customer product exits and reduced demand driven by lower end-market requirements for these products.

Revenue from ASG decreased by $276.4 million, or approximately 13%, for the nine months ended September 29, 2023 compared to the nine months ended September 30, 2022. The revenue from our Power Management Division decreased by $298.6 million, primarily driven by the QCS wind down, planned end of life for targeted products as well as a general drop in end-market demand for these products. This was partially offset by an increase of $22.3 million in our Sensor Interface Division driven by foundry business through our EFK location.

Revenue from ISG increased by $85.3 million, or approximately 9%, for the nine months ended September 29, 2023 compared to the nine months ended September 30, 2022, which was largely driven by an increase in revenue from our Automotive Sensing Division of $134.9 million primarily due to an increase in average selling prices for some of our products. This was partially offset by a decrease of $49.4 million in our Industrial and Consumer Solutions Division due to lower demand.

Revenue by geographic location, including local sales made by operations within each area, based on sales billed from the respective region, was as follows (dollars in millions):

			Nine Months Ended September 29, 2023						As a % of Total Revenue (1)						Nine Months Ended September 30, 2022						As a % of Total Revenue (1)
Hong Kong			$	1,602.5					25.7		%				$	1,731.9					27.8		%
Singapore			1,476.8						23.7		%				1,655.5						26.6		%
United Kingdom			1,326.8						21.3		%				1,077.7						17.3		%
United States			1,194.5						19.2		%				1,088.3						17.5		%
Other			634.3						10.2		%				669.2						10.8		%
Total revenue			$	6,234.9											$	6,222.6

(1) Certain amounts may not total due to rounding of individual amounts.

Gross Profit and Gross Margin

Gross profit was $2,941.6 million for the nine months ended September 29, 2023 compared to $3,056.7 million for the nine months ended September 30, 2022, representing a decrease of $115.1 million, primarily driven by the decline in existing product revenue which negatively impacted gross profit by approximately $200 million, and higher manufacturing costs at our EFK location of approximately $110 million, which includes start up and ramp up costs, along with an unfavorable impact of our foundry business. This decrease was partially offset by new product sales which improved gross profit by approximately $200 million.

Our gross margin decreased by 1.9% from 49.1% for the nine months ended September 30, 2022 to 47.2% for the nine months ended September 29, 2023, due to the impact of the factors explained above.

Our gross profit by operating and reportable segments was as follows (dollars in millions):

			Nine Months Ended September 29, 2023						As a % of Segment Revenue (1)						Nine Months Ended September 30, 2022						As a % of Segment Revenue (1)
PSG			$	1,608.0					47.8		%				$	1,494.4					47.3		%
ASG			845.2						45.3		%				1,128.7						52.7		%
ISG			488.4						48.5		%				433.6						47.0		%
Total gross profit			$	2,941.6					47.2		%				$	3,056.7					49.1		%

(1)Certain amounts may not total due to rounding of individual amounts.

Explanation for the increase or decrease in gross profit amounts and gross margin percentages for the nine months ended September 29, 2023 compared to the nine months ended September 30, 2022 is provided below:

PSG gross profit increased by $113.6 million primarily driven by increased revenue from new product sales which contributed approximately $200 million, and was partially offset by the impact of the decrease in revenue in existing products amounting to approximately $90 million. PSG gross margin increased by 0.5% from 47.3% to 47.8% primarily due to the new product sales which have lower margins compared to the PSG segment.

ASG gross profit decreased by $283.5 million primarily driven by the decline in existing product revenue which impacted gross profit by approximately $200 million, as well as the higher manufacturing costs at our EFK location which includes the unfavorable impact of our foundry business of approximately $100 million. ASG gross margin decreased by 7.4% from 52.7% to 45.3%, primarily driven by the decline in sales and mix related to our foundry business.

ISG gross profit and gross margin increased by $54.8 million and 1.5%, respectively, primarily driven by favorable pricing and product mix.

Operating Expenses

Research and development expenses were $427.1 million for the nine months ended September 29, 2023, as compared to $463.8 million for the nine months ended September 30, 2022, representing a decrease of $36.7 million, or approximately 8%. The decrease was primarily due to a reduction in expenses relating to variable compensation and consulting and outside services, partially offset by an increase in new product development costs.

Selling and marketing expenses were $211.6 million for the nine months ended September 29, 2023, as compared to $213.7 million for the nine months ended September 30, 2022, representing a decrease of $2.1 million, or approximately 1%. The decrease in variable compensation expense was partially offset by increases in commissions and travel expenses.

General and administrative expenses were $273.8 million for the nine months ended September 29, 2023, as compared to $246.0 million for the nine months ended September 30, 2022, representing an increase of $27.8 million, or approximately 11%. There was an increase in expenses associated with information technology initiatives and a bad debt provision on outstanding receivable balances generated under an agreement with a business partner. This was partially offset by a decrease in variable compensation expense.

Other Operating Expenses

Amortization of Acquisition-Related Intangible Assets

Amortization of acquisition-related intangible assets was $39.0 million and $65.1 million for the nine months ended September 29, 2023 and September 30, 2022, respectively, representing a decrease of $26.1 million, or approximately 40%. The decrease was due to the impairment of intangible assets associated with the QCS wind down and a reduction in amortization expense as certain intangible assets became fully amortized.

Restructuring, Asset Impairments and Other, Net

Restructuring, asset impairments and other, net was $63.5 million for the nine months ended September 29, 2023, as compared to a credit of $25.6 million for the nine months ended September 30, 2022, representing an increase of $37.9 million. Amounts incurred for the nine months ended September 29, 2023 related primarily to the business realignment efforts in the first and third quarters of 2023. Amounts incurred for the nine months ended September 30, 2022 related to severance charges, contract termination costs and litigation expenses related to the QCS wind down.

Goodwill and Intangible Asset Impairment

Goodwill and intangible asset impairment was zero for the nine months ended September 29, 2023, as compared to $386.8 million for the nine months ended September 30, 2022. During the second quarter of 2022, we recorded a goodwill impairment charge of $115.0 million as a result of a shift in our focus on long-term product mix in our strategic markets. During the third quarter of 2022, we approved an exit plan to wind down QCS and recorded goodwill and intangible asset impairment charges of $215.0 million and $56.8 million, respectively.

Interest Expense

Interest expense decreased by $8.4 million to $59.0 million during the nine months ended September 29, 2023, as compared to $67.4 million during the nine months ended September 30, 2022. The decrease was primarily due to the repayment of the

balances under the Term Loan "B" Facility and replacement by the issuance of the 0.50% Notes. Our average gross long-term debt balance for the nine months ended September 29, 2023 was $3,363.9 million at a weighted-average interest rate of 2.3%, as compared to $3,253.5 million at a weighted-average interest rate of 2.8% for the nine months ended September 30, 2022. The calculation of our weighted-average interest rates includes the effect of our interest rate swap agreements.

Loss on Debt Prepayment

Loss on debt prepayment was $13.3 million for the nine months ended September 29, 2023 due to the write-off relating to the repayment of the Term Loan "B" Facility, as compared to $7.3 million for the nine months ended September 30, 2022 due to the write-off relating to the partial repayment of the Term Loan "B" Facility. See Note 6: ''Long-Term Debt'' in the notes to our unaudited consolidated financial statements included elsewhere in this Form 10-Q for additional information.

Other Income (Expense)

Other income (expense) was income of $4.5 million for the nine months ended September 29, 2023 as compared to income of $9.4 million for the nine months ended September 30, 2022. The decrease was primarily due to an increase in transaction losses resulting from fluctuations in foreign currencies, partially offset by a gain resulting from the termination of interest rate swaps.

Income Tax Provision

We recorded an income tax provision of $302.7 million and $299.4 million during the nine months ended September 29, 2023 and September 30, 2022, respectively, representing effective tax rates of 15.7% and 18.7%. The decrease in our effective tax rate is due to the goodwill impairments during the prior year, which were not deductible for tax purposes.

For additional information, see Note 12: ''Income Taxes'' and Note 5: ''Balance Sheet Information and Other Supplemental Disclosures'' in the notes to the unaudited consolidated financial statements included elsewhere in this Form 10-Q.

Liquidity and Capital Resources

Overview

Our principal sources of liquidity are cash on hand, cash generated from operations, available borrowings under our Revolving Credit Facility as well as new debt and/or equity issuances. In the near term, we expect to fund our cash requirements by utilizing any or a combination of these principal sources, including any amounts required to satisfy our current portion of long-term debt. Our cash and cash equivalents was approximately $2.7 billion as of September 29, 2023, and the Revolving Credit Facility has approximately $1.1 billion available for future borrowings.

We require cash to: (i) fund our operating expenses, working capital requirements, outlays for strategic acquisitions and investments; (ii) service our debt, including principal and interest; (iii) incur capital expenditures; and (iv) repurchase our common stock. During the ordinary course of business, we evaluate our cash requirements and, if necessary, adjust our expenditures to reflect the current market conditions and our projected sales and demand. Our capital expenditures are primarily directed towards manufacturing equipment and can materially influence our available cash for other initiatives. Future capital expenditures may be impacted by events and transactions that are not currently forecasted.

We believe that our cash on hand, cash generated from our operations and the amounts available under the Revolving Credit Facility are adequate to meet our working capital requirements and other business needs for at least the next 12 months.

Operating Activities

Our cash flows from operating activities were $1,366.3 million and $1,901.8 million for the nine months ended September 29, 2023 and September 30, 2022, respectively. The decrease of $535.5 million was primarily attributable to increased working capital requirements in light of our strategic investments in SiC products and LTSA commitments.

Our ability to maintain positive operating cash flows is dependent on, among other factors, our success in achieving our revenue goals, and in meeting LTSA commitments and manufacturing and operating cost targets. Management of our assets and liabilities, including both working capital and long-term assets and liabilities, also influences our operating cash flows.

Investing Activities

Our cash flows used in investing activities were $1,352.7 million and $563.6 million for the nine months ended September 29, 2023 and September 30, 2022, respectively. The increase of $789.1 million was primarily attributable to capital expenditures and the remaining payment of $236.3 million related to the acquisition of our EFK location. During the nine months ended September 29, 2023 and September 30, 2022, we paid $1,185.1 million and $663.0 million, respectively, for capital expenditures. Our capital expenditures as a percent of revenue during the nine months ended September 29, 2023 increased to approximately 19%, primarily as a result of investments to expand SiC manufacturing capacity. For the remainder of 2023, we expect capital expenditures to remain at approximately 19% of revenue.

Financing Activities

Our cash flows used in financing activities were $254.3 million and $240.3 million for the nine months ended September 29, 2023 and September 30, 2022, respectively. The increase of $14.0 million was primarily attributable to proceeds and payments related to long-term borrowings and share repurchase activity. During the second quarter of 2023, we replaced the Revolver due 2024 maturing on June 28, 2024 with the Revolving Credit Facility. Other than the 1.625% Notes, we do not have any meaningful debt maturing during the next 12 months. Our 0% Notes are also classified as a current liability based on share price trigger provisions. We expect to continue our Share Repurchase Program subject to market conditions, the price of our shares and other factors (including liquidity needs). However, the Share Repurchase Program may be modified, suspended or terminated by the Board of Directors at any time without prior notice.

See Note 6: ''Long-Term Debt'' and Note 7: ''Earnings Per Share and Equity'' in the notes to our unaudited consolidated financial statements included elsewhere in this Form 10-Q for additional information.

Key Factors Potentially Affecting Liquidity

We believe that the key factors that could adversely affect our internal and external sources of cash include, among other considerations:

• changes in demand for our products, competitive pricing pressures, supply chain constraints, effective management of our manufacturing capacity, our ability to achieve further reductions in operating expenses, our ability to make progress on the achievement of our business strategy and sustainability goals, the impact of our restructuring programs on our production and cost efficiency, and our ability to make the research and development expenditures required to remain competitive in our business; and

• the debt and equity capital markets could impact our ability to obtain needed financing on acceptable terms or to respond to business opportunities and developments as they arise, including interest rate fluctuations, macroeconomic conditions, sudden reductions in the general availability of lending from banks or the related increase in cost to obtain bank financing and our ability to maintain compliance with covenants under our debt agreements in effect from time to time.

Debt Guarantees and Related Covenants

As of September 29, 2023, we were in compliance with the indentures relating to our 0% Notes, 0.50% Notes, 3.875% Notes and 1.625% Notes and with covenants included in the New Credit Agreement. The 0% Notes, 0.50% Notes, 3.875% Notes and 1.625% Notes are senior to the existing and future subordinated indebtedness of onsemi and its guarantor subsidiaries, rank equally in right of payment to all of our existing and future senior debt and, as unsecured obligations, are subordinated to all of our existing and future secured debt to the extent of the assets securing such debt.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, see our 2022 Form 10-K.