on-20230331

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

(Commission File Number) 001-39317

ON SEMICONDUCTOR CORPORATION

(Exact name of registrant as specified in its charter)


Delaware						36-3840979
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

5701 N. Pima Road

Scottsdale, AZ 85250

(602) 244-6600

(Address, zip code and telephone number, including area code, of principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	ON	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act


Large Accelerated Filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

The number of shares outstanding of the issuer's class of common stock as of the close of business on April 26, 2023:


Title of Each Class						Number of Shares
Common Stock, par value $0.01 per share						431,872,829

Table of Contents

ON SEMICONDUCTOR CORPORATION FORM 10-Q

TABLE OF CONTENTS


Part I: Financial Information
	Item 1. Financial Statements (unaudited)	4
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	27
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	32
	Item 4. Controls and Procedures	32
Part II: Other Information
	Item 1. Legal Proceedings	34
	Item 1A. Risk Factors	34
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	35
	Item 3. Defaults Upon Senior Securities	35
	Item 4. Mine Safety Disclosures	35
	Item 5. Other Information	35
	Item 6. Exhibits	36
	Signatures	37

(See the glossary of selected terms immediately following this table of contents for definitions of certain abbreviated terms)

Table of Contents

ON SEMICONDUCTOR CORPORATION

FORM 10-Q

GLOSSARY OF SELECTED ABBREVIATED TERMS*


Abbreviated Term						Defined Term
0% Notes						0% Convertible Senior Notes due 2027
0.50% Notes						0.50% Convertible Senior Notes due 2029
1.625% Notes						1.625% Convertible Senior Notes due 2023

3.875% Notes						3.875% Senior Notes due 2028
ADAS						Advanced driver-assistance systems
Amended Credit Agreement						Credit Agreement, dated as of April 15, 2016, as subsequently amended, by and among the Company, as borrower, the several lenders party thereto, Deutsche Bank AG, New York Branch, as administrative agent and collateral agent, and certain other parties, providing for the Revolving Credit Facility and the Term Loan “B” Facility
Amended and Restated SIP						ON Semiconductor Corporation Amended and Restated Stock Incentive Plan, as amended




ASU						Accounting Standards Update









Commission or SEC						Securities and Exchange Commission
EFK						East Fishkill, New York fabrication facility
ESPP						ON Semiconductor Corporation 2000 Employee Stock Purchase Plan, as amended
Exchange Act						Securities Exchange Act of 1934, as amended

FASB						Financial Accounting Standards Board
GTAT						GT Advanced Technologies Inc.



IP						Intellectual property



















IRS						United States Internal Revenue Service
IT						Information Technology
OEM						Original Equipment Manufacturer
QCS						Division within ASG, primarily associated with the legacy Quantenna division
Revolving Credit Facility						A $1.97 billion revolving credit facility created pursuant to the Amended Credit Agreement
ROU						Right-of-use
RSU						Restricted stock unit
SiC						Silicon carbide




Securities Act						Securities Act of 1933, as amended



Term Loan "B" Facility						A $2.4 billion term loan "B" facility created pursuant to the Amended Credit Agreement
U.S. or United States						United States of America

* Terms used, but not defined, within the body of the Form 10-Q are defined in this Glossary.

Table of Contents

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

ON SEMICONDUCTOR CORPORATION

CONSOLIDATED BALANCE SHEETS

(in millions, except share and per share data)

(unaudited)


	March 31, 2023		December 31, 2022
Assets
Cash and cash equivalents	$	2,702.4	$	2,919.0

Receivables, net	880.9		842.3
Inventories	1,814.9		1,616.8
Other current assets	318.1		351.3

Total current assets	5,716.3		5,729.4

Property, plant and equipment, net	3,692.9		3,450.7
Goodwill	1,577.6		1,577.6
Intangible assets, net	339.8		359.7
Deferred tax assets	473.1		376.7
Right-of-use financing lease	45.2		45.8
Other assets	429.4		438.6
Total assets	$	12,274.3	$	11,978.5
Liabilities and Stockholders’ Equity
Accounts payable	$	976.2	$	852.1
Accrued expenses and other current liabilities	666.0		1,047.3
Current portion of financing lease liabilities	11.6		14.2
Current portion of long-term debt	926.2		147.8
Total current liabilities	2,580.0		2,061.4
Long-term debt	2,538.0		3,045.7
Deferred tax liabilities	36.6		34.1
Long-term financing lease liabilities	24.0		23.0
Other long-term liabilities	628.7		607.3
Total liabilities	5,807.3		5,771.5
Commitments and contingencies (Note 9)
ON Semiconductor Corporation stockholders’ equity:
Common stock ($0.01 par value, 1,250,000,000 shares authorized, 610,278,043 and 608,367,713 issued, 431,851,090 and 431,936,415 outstanding, respectively)	6.1		6.1
Additional paid-in capital	4,633.6		4,670.9
Accumulated other comprehensive loss	(29.6)		(23.2)
Accumulated earnings	4,826.1		4,364.4
Less: Treasury stock, at cost: 178,426,953 and 176,431,298 shares, respectively	(2,988.2)		(2,829.7)
Total ON Semiconductor Corporation stockholders’ equity	6,448.0		6,188.5
Non-controlling interest	19.0		18.5
Total stockholders’ equity	6,467.0		6,207.0
Total liabilities and stockholders’ equity	$	12,274.3	$	11,978.5

See accompanying notes to consolidated financial statements

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ON SEMICONDUCTOR CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(in millions, except per share data)

(unaudited)


	Quarters Ended
	March 31, 2023		April 1, 2022
Revenue	$	1,959.7	$	1,945.0
Cost of revenue	1,042.2		983.7
Gross profit	917.5		961.3
Operating expenses:
Research and development	138.4		156.8
Selling and marketing	71.8		71.1
General and administrative	75.9		77.9

Amortization of acquisition-related intangible assets	15.0		21.3
Restructuring, asset impairments and other charges, net	51.5		(13.0)

Total operating expenses	352.6		314.1
Operating income	564.9		647.2
Other income (expense), net:
Interest expense	(26.4)		(21.6)
Interest income	17.1		0.4
Loss on debt prepayment	(13.3)		—

Loss on divestiture of business	(1.1)		—

Other income	4.7		2.1
Other income (expense), net	(19.0)		(19.1)
Income before income taxes	545.9		628.1
Income tax provision	(83.7)		(97.1)
Net income	462.2		531.0
Less: Net income attributable to non-controlling interest	(0.5)		(0.8)
Net income attributable to ON Semiconductor Corporation	$	461.7	$	530.2

Net income for diluted earnings per share of common stock (Note 7)	462.1		530.7
Net income per share of common stock attributable to ON Semiconductor Corporation:
Basic	$	1.07	$	1.22
Diluted	$	1.03	$	1.18
Weighted-average shares of common stock outstanding:
Basic	431.9		433.3
Diluted	448.5		448.9

Comprehensive income (loss), net of tax:
Net income	$	462.2	$	531.0
Foreign currency translation adjustments	0.3		(2.4)
Effects of cash flow hedges and other adjustments	(6.7)		16.6

Other comprehensive income (loss), net of tax	(6.4)		14.2
Comprehensive income	455.8		545.2
Comprehensive income attributable to non-controlling interest	(0.5)		(0.8)
Comprehensive income attributable to ON Semiconductor Corporation	$	455.3	$	544.4

See accompanying notes to consolidated financial statements

Table of Contents

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 December 31, 2022	608,367,713	$	6.1	$	4,670.9	$	(23.2)	$	4,364.4	(176,431,298)	$	(2,829.7)	$	18.5	$	6,207.0



Shares issued pursuant to the ESPP	136,856	—		7.3		—		—		—	—		—		7.3
RSUs released and stock grant awards issued	1,680,376	—		—		—		—		—	—		—		—

Partial settlement - 1.625% Notes	93,098	—		—		—		—		—	—		—		—

Partial settlement of bond hedges - 1.625% Notes	—	—		6.9		—		—		(93,098)	(6.9)		—		—

Warrants and bond hedges, net - 0.50% Notes	—	—		(171.5)		—		—		—	—		—		(171.5)
Tax impact of warrants and bond hedges, net	—	—		92.3		—		—		—	—		—		92.3
Payment of tax withholding for RSUs	—	—		—		—		—		(578,406)	(47.6)		—		(47.6)
Share-based compensation	—	—		27.7		—		—		—	—		—		27.7
Repurchase of common stock	—	—		—		—		—		(1,324,151)	(104.0)		—		(104.0)


Comprehensive income (loss)	—	—		—		(6.4)		461.7		—	—		0.5		455.8
Balance at March 31, 2023	610,278,043	$	6.1	$	4,633.6	$	(29.6)	$	4,826.1	(178,426,953)	$	(2,988.2)	$	19.0	$	6,467.0


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	126,388	—		6.7		—		—		—	—		—		6.7
RSUs released and stock grant awards issued	2,851,188	0.1		(0.1)		—		—		—	—		—		—







Payment of tax withholding for RSUs	—	—		—		—		—		(955,641)	(58.8)		—		(58.8)
Share-based compensation	—	—		22.5		—		—		—	—		—		22.5



Comprehensive income	—	—		—		14.2		530.2		—	—		0.8		545.2
Balance at April 1, 2022	606,021,655	$	6.1	$	4,533.3	$	(26.4)	$	2,992.4	(171,526,902)	$	(2,507.2)	$	19.8	$	5,018.0

See accompanying notes to consolidated financial statements

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ON SEMICONDUCTOR CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)


	Quarters Ended
	March 31, 2023		April 1, 2022
Cash flows from operating activities:
Net income	$	462.2	$	531.0
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	145.0		140.6
Loss (gain) on sale or disposal of fixed assets	1.2		(16.6)
Loss on divestiture of business	1.1		—
Loss on debt prepayment	13.3		—

Amortization of debt discount and issuance costs	2.9		3.2


Share-based compensation	27.7		22.5

Non-cash asset impairment charges	12.7		6.7

Change in deferred tax balances	(1.5)		38.3

Other	(7.0)		0.5
Changes in assets and liabilities (exclusive of divestitures):
Receivables	(37.7)		(107.2)
Inventories	(198.1)		(116.7)
Other assets	54.8		(0.8)
Accounts payable	53.5		35.7
Accrued expenses and other current liabilities	(154.6)		(83.2)
Other long-term liabilities	33.4		24.6
Net cash provided by operating activities	$	408.9	$	478.6
Cash flows from investing activities:
Purchase of property, plant and equipment	$	(321.5)	$	(173.8)
Proceeds from sale of property, plant and equipment	1.7		36.7
Deposits utilized (made) for purchase of property, plant and equipment	(16.7)		1.6
Divestiture of business, net of cash transferred and deposits received	—		12.9




Purchase of available-for-sale securities	—		(7.8)
Proceeds from sale or maturity of available-for-sale securities	10.8		3.4


Payments related to acquisition of business, net of cash acquired	(236.3)		(2.4)


Net cash used in investing activities	$	(562.0)	$	(129.4)
Cash flows from financing activities:
Proceeds for the issuance of common stock under the ESPP	$	7.3	$	7.8

Payment of tax withholding for RSUs	(47.6)		(58.8)
Repurchase of common stock	(104.0)		—
Issuance and borrowings under debt agreements	1,470.0		—
Reimbursement of debt issuance and other financing costs	4.5		—
Payment of debt issuance and other financing costs	(4.8)		—
Repayment of borrowings under debt agreements	(1,213.7)		(4.1)
Payment for purchase of bond hedges	(414.0)		—
Proceeds from issuance of warrants	242.5		—

Payment of financing lease obligations	(3.6)		—

Dividend to non-controlling shareholder	—		(2.2)
Net cash used in financing activities	$	(63.4)	$	(57.3)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	0.1		(0.7)
Net (decrease) increase in cash, cash equivalents and restricted cash	(216.4)		291.2
Cash, cash equivalents and restricted cash, beginning of period (Note 5)	2,933.0		1,377.7
Cash, cash equivalents and restricted cash, end of period (Note 5)	$	2,716.6	$	1,668.9

See accompanying notes to consolidated financial statements

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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 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 March 31, 2023 and April 1, 2022 contained 90 days and 91 days, respectively.

The accompanying unaudited financial statements as of and for the quarter ended March 31, 2023 have been prepared following generally accepted accounting principles in the United States of America ("GAAP") for interim financial reporting and the rules and regulations of the SEC for interim reporting. 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, 2022 was derived from the Company's audited financial statements but does not include all disclosures required by GAAP for annual 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, 2022, included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on February 6, 2023 (the "2022 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 in connection with business combinations. Actual results may differ from the estimates and assumptions used in the consolidated financial statements.

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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.

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 committed amounts ("Long-term Supply Agreements" or "LTSA's").

The estimated remaining performance obligations as of March 31, 2023, are approximately $17.6 billion (excluding the remaining performance obligations for contracts having an original duration of one year or less). This amount is subject to contractual increases based on negotiated contract prices and volumes, defined product mix flexibility, and the timing of new part introductions, among other contractual provisions. The Company expects to recognize approximately 33% of the remaining purchase obligation as revenue during the next twelve months upon shipment of products under these contracts. Total revenue estimates could be influenced by risks and uncertainties including manufacturing or supply chain constraints, modifications to customer agreements, and regulatory changes, among other factors. Accordingly, our actual revenue recognized for the remaining performance obligation in future periods may fluctuate from estimates.

Certain of the Company’s LTSA’s include non-cancellable capacity payments from the customer, which are generally due within 30 days of the agreement. These payments reserve production availability or are prepayments to secure production availability and are not recognized as revenue until the performance obligations are satisfied. For the periods ending March 31, 2023, and April 1, 2022, the Company recognized revenue of $14.8 million and $4.5 million, respectively, for the portion of performance obligations fulfilled during those periods.

As of March 31, 2023, and December 31, 2022, the remaining capacity payments were $225.5 million and $190.4 million, respectively, of which $69.0 million and $60.5 million were recorded as current liabilities, with the remainder recorded as other long-term liabilities.

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 March 31, 2023:
Revenue from external customers	$	1,012.8	$	592.8	$	354.1	$	1,959.7
Gross profit	$	480.3	$	260.1	$	177.1	$	917.5
For the quarter ended April 1, 2022:
Revenue from external customers	$	986.7	$	689.3	$	269.0	$	1,945.0
Gross profit	$	474.7	$	366.7	$	119.9	$	961.3

The Company had one customer, a distributor, whose revenue accounted for approximately 10.1% and 12.4% of the Company's total revenue for the quarters ended March 31, 2023 and April 1, 2022, respectively.

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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 March 31, 2023
	PSG		ASG		ISG		Total
Geographic Location
Hong Kong	$	286.9	$	139.7	$	63.8	490.4
Singapore	276.4		116.1		58.2		450.7
United Kingdom	204.1		128.1		81.1		413.3
United States	166.3		121.3		101.5		389.1
Other	79.1		87.6		49.5		216.2
Total	$	1,012.8	$	592.8	$	354.1	$	1,959.7

Sales Channel
Distributors	$	629.3	$	222.8	$	187.1	$	1,039.2
Direct Customers	383.5		370.0		167.0		920.5

Total	$	1,012.8	$	592.8	$	354.1	$	1,959.7


	Quarter Ended April 1, 2022
	PSG		ASG		ISG		Total
Geographic Location
Singapore	$	280.5	$	233.8	$	41.4	$	555.7
Hong Kong	303.1		173.9		52.6		529.6
United Kingdom	186.9		106.6		52.0		345.5
United States	144.9		92.3		74.5		311.7
Other	71.3		82.7		48.5		202.5
Total	$	986.7	$	689.3	$	269.0	$	1,945.0

Sales Channel
Distributors	$	633.9	$	356.9	$	150.6	$	1,141.4
Direct Customers	352.8		332.4		118.4		803.6

Total	$	986.7	$	689.3	$	269.0	$	1,945.0

The Company operates in various geographic locations. Sales to external customers have little correlation with the location of the Company's manufacturing or the location of the 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.

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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
	March 31, 2023		December 31, 2022
United States	$	1,360.8	$	1,329.2
South Korea	990.9		871.0
Czech Republic	335.3		279.3
Philippines	287.1		296.8
China	227.4		215.3
Malaysia	199.0		190.2
Japan	128.1		133.2
Other	164.3		135.7
Total	$	3,692.9	$	3,450.7

Note 3: Acquisition and Divestitures

Acquisition:

During the year ended December 31, 2022, the Company closed the acquisition of EFK. The preliminary allocation of the purchase price of EFK to the assets acquired and liabilities assumed based on their relative fair values is as follows (in millions):


	Purchase Price Allocation
Inventory	$	3.3
Other current assets	4.4
Property, plant and equipment	396.5
Other non-current assets	11.4



Total assets acquired	415.6
Current liabilities	3.0
Other long-term liabilities	6.3
Total liabilities assumed	9.3
Net assets acquired/purchase price	$	406.3

The preliminary allocation, assumptions and disclosures are materially consistent with the amounts included in the 2022 Form 10-K.

The Company paid the remaining acquisition consideration of $236.3 million on January 3, 2023, which is disclosed under investing activities in the Consolidated statement of cash flows.

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ON SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

Note 4: 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 March 31, 2023
2023 Business Realignment	$	36.1	$	2.5	(1)	$	2.8	$	41.4
QCS wind down	—		—			(2.3)		(2.3)
Other	—		10.2		(2)	2.2		12.4
Total	$	36.1	$	12.7		$	2.7	$	51.5

(1)Includes $1.7 million property, plant and equipment asset impairments charges and $0.8 million of ROU asset impairment charges associated with the 2023 Business Realignment efforts.

(2)Includes $10.2 million of property, plant and equipment and ROU lease asset impairment charges associated with site consolidation efforts in the United States.

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


	As of						As of
	December 31, 2022		Charges		Usage		March 31, 2023
Employee separation charges	$	4.4	$	36.1	$	(4.9)	$	35.6

Total	$	4.4	$	36.1	$	(4.9)	$	35.6

2023 Business Realignment

During the first quarter of 2023, the Company announced the elimination of approximately 400 jobs in an effort to realign its operating models, drive organizational effectiveness and efficiencies, and increase collaboration primarily within its ASG business unit and IT support organizations. As a result, ASG ceased its design and test operations in certain Asia and U.S.-based locations and initiated a plan to exit its Toulouse, France design center location. The announcement also included changes in the Company's IT operating model by transferring selected IT functions to strategic service providers.

In connection with these actions, the Company recognized severance costs, related benefit expenses and other ancillary charges of $36.1 million and expects to record an additional $1.5 million during the remainder of 2023. The Company paid approximately $2.5 million of the aggregate expense and had $33.6 million accrued as of March 31, 2023, which is expected to be paid during the remainder of 2023. As of March 31, 2023, 137 employees have been terminated.

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

QCS wind down

On September 16, 2022, the Company's Board of Directors approved an exit plan to wind down QCS 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.

As of March 31, 2023, $1.5 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 2023.

Table of Contents

ON SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

Note 5: Balance Sheet Information and Other Supplemental Disclosures

Goodwill

There was no change in the balance of goodwill from December 31, 2022 to March 31, 2023. 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 fair value of a reporting unit below its carrying value. Management did not identify any triggering events during the quarter ended March 31, 2023 that would require an interim impairment analysis.

Inventory

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


	As of
	March 31, 2023		December 31, 2022
Inventories:
Raw materials	$	271.3	$	236.8
Work in process	1,053.5		951.0
Finished goods	490.1		429.0
	$	1,814.9	$	1,616.8

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 March 31, 2023, the net assets for the over-funded plans totaled $13.5 million. The total accrued pension liability for underfunded plans was $69.1 million, of which the current portion of $1.5 million was classified as accrued expenses and other current liabilities. As of December 31, 2022, the net funded status for all the plans was a liability of $53.8 million, of which the current portion of $0.4 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
	March 31, 2023		April 1, 2022
Service cost	$	1.2	$	2.2
Interest cost	1.6		1.1
Expected return on plan assets	(1.2)		(1.2)



Total net periodic pension cost	$	1.6	$	2.1

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
	March 31, 2023		April 1, 2022
Operating lease	$	12.4	$	11.2
Variable lease	1.8		1.6
Short-term lease	0.5		0.4
Total lease expense	$	14.7	$	13.2

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
	March 31, 2023		December 31, 2022
Operating lease liabilities included in:
Accrued expenses and other current liabilities	$	33.5	$	35.2
Other long-term liabilities	244.8		246.5
Total	$	278.3	$	281.7

Operating ROU assets included in:
Other assets	$	251.9	$	262.1


Current portion of financing lease liabilities	$	11.6	$	14.2
Long-term financing lease liabilities	24.0		23.0
Total	$	35.6	$	37.2

Right-of-use financing lease	$	45.2	$	45.8

As of March 31, 2023, the weighted-average remaining lease-terms were 10.8 years and 18.8 years, and the weighted-average discount rates were 4.8% and 6.0%, for operating and financing leases, respectively.

Supplemental Disclosure of Cash Flow Information

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


	Quarters Ended
	March 31, 2023		April 1, 2022
Non-cash investing activities:
Capital expenditures in accounts payable and other long-term liabilities	$	388.8	$	225.4

Operating ROU assets obtained in exchange of lease liabilities	4.6		10.7







Cash paid for:

Interest expense	$	29.1	$	24.0
Income taxes	35.2		15.7
Operating lease payments in operating cash flows	11.2		11.0

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


	As of
	March 31, 2023		December 31, 2022		April 1, 2022		December 31, 2021
Consolidated Balance Sheets:
Cash and cash equivalents	$	2,702.4	$	2,919.0	$	1,645.1	$	1,352.6
Restricted cash (included in other current assets)	14.2		14.0		18.8