ON Semiconductor Annual Report 2017

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-K(Mark One) ☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934For the fiscal year ended December 31, 2017Or ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934For the transition period from to (Commission File Number) 000-30419ON SEMICONDUCTOR CORPORATION(Exact name of registrant as specified in its charter) Delaware 36-3840979(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification No.)5005 E. McDowell RoadPhoenix, AZ 85008(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 Name of Each Exchange on Which Registered Common Stock, par value $0.01 per share The NASDAQ Stock Market LLC (NASDAQ Global Select Market)Securities Registered Pursuant to Section 12(g) of the Act:NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒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 preceding12 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 90days. Yes ☒ No ☐Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted andposted 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 submitand post such files). Yes ☒ No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained,to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form10-K. ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of“large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☒ Accelerated filer ☐Non-accelerated filer ☐ (Do not check if a smaller reporting company) Smaller reporting company ☐Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 ofthe Securities Exchange Act of 1934 (§240.12b-2 of this chapter).Emerging growth company ☐If 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 financialaccounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was $5,851,728,750 as of July 3, 2017, based on the closingsales price of such stock on the NASDAQ Global Select Market. Shares held by executive officers, directors and persons owning directly or indirectly more than 10% of theoutstanding common stock (as applicable) have been excluded from the preceding number because such persons may be deemed to be affiliates of the registrant.The number of shares of the registrant’s common stock outstanding at February 16, 2018 was 425,440,679.Documents Incorporated by ReferencePortions of the registrant’s Definitive Proxy Statement relating to its 2018 Annual Meeting of Stockholders, which is expected to be filed pursuant to Regulation 14A within 120days after the registrant’s fiscal year ended December 31, 2017, are incorporated by reference into Part III of this Form 10-K. Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESFORM 10-KTABLE OF CONTENTS Part I Item 1. Business 5 Business Overview 5 Products and Technology 7 Customers 9 End-Markets for Our Products 11 Manufacturing Operations 12 Raw Materials 14 Sales, Marketing and Distribution 14 Patents, Trademarks, Copyrights and Other Intellectual Property Rights 14 Seasonality 14 Backlog and Inventory 15 Competition 15 Research and Development 16 Government Regulation 17 Employees 18 Executive Officers of the Registrant 19 Geographical Information 22 Available Information 22 Item 1A. Risk Factors 22 Item 1B. Unresolved Staff Comments 45 Item 2. Properties 45 Item 3. Legal Proceedings 46 Item 4. Mine Safety Disclosures 46 Part II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 47 Item 6. Selected Financial Data 49 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 49 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 76 Item 8. Financial Statements and Supplementary Data 77 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 77 Item 9A. Controls and Procedures 78 Item 9B. Other Information 79 Part III Item 10. Directors, Executive Officers and Corporate Governance 80 Item 11. Executive Compensation 80 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 80 Item 13. Certain Relationships and Related Transactions, and Director Independence 80 Item 14. Principal Accountant Fees and Services 80 Part IV Item 15. Exhibits and Financial Statement Schedules 81 Item 16. Form 10-K Summary 92 Signatures 93 (See the glossary immediately following this table of contents for definitions of certain abbreviated terms)Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESFORM 10-KGLOSSARY OF SELECTED ABBREVIATED TERMS* Abbreviated Term Defined Term1.00% Notes 1.00% Convertible Senior Notes due 20201.625% Notes 1.625% Convertible Senior Notes due 20232.625% Notes, Series B 2.625% Convertible Senior Subordinated Notes due 2026, Series BADAS Advanced driver assistance systemsAEC Automotive Electronics CouncilAFS Adaptive front lighting systemsAI Artificial intelligenceAptina Aptina, Inc.Amended and Restated SIP ON Semiconductor Corporation Amended and Restated Stock Incentive Plan, as amendedAMIS AMIS Holdings, Inc.AR/VR Augmented Reality/Virtual RealityASC Accounting Standards CodificationASIC Application specific integrated circuitsASSP Application specific standard productASU Accounting Standards UpdateAXSEM AXSEM A.G.Catalyst Catalyst Semiconductor, Inc.CCD Charge-coupled deviceCMD California Micro Devices CorporationCMOS Complementary metal oxide semiconductorCSP Chip scale packageDFN Dual-flat no-leadsDSP Digital signal processingECL Emitter coupled logicEE Electrically erasableEEPROM Electrically erasable programmable read-only memoryERISA Employee Retirement Income Security ActESD Electrostatic dischargeESPP ON Semiconductor Corporation 2000 Employee Stock Purchase Plan, as amendedEV/HEV Electric Vehicles/Hybrid Electric VehiclesExchange Act Securities Exchange Act of 1934, as amendedFairchild Fairchild Semiconductor International Inc.FASB Financial Accounting Standards BoardFDA U.S. Food and Drug AdministrationFreescale Freescale Semiconductor, Inc.GaN Gallium nitrideGFCI Ground Fault Circuit InterrupterHD Hyper DeviceHV High voltageIC Integrated circuitIGBT Insulated-gate bipolar transistorIoT Internet-of-Things 3Table of ContentsAbbreviated Term Defined TermIP Intellectual propertyIPD Integrated passive devicesIPRD In-process research and developmentIPM Intelligent power moduleIR InfraredKSS Back-end manufacturing facility in Hanyu, JapanLDOs Low drop out regulator controllersLED Light-emitting diodeLIBO Rate A base rate per annum equal to the London Interbank Offered Rate as administered by ICE Benchmark AdministrationLSI Large scale integrationMCU Microcontroller UnitMOSFET Metal oxide semiconductor field effect transistorMotorola Motorola Inc.OEM Original equipment manufacturersPC Personal computerPIMs Power integrated modulesRF Radio frequencyRSU Restricted Stock UnitSANYO Electric SANYO Electric Co., Ltd.SCI LLC Semiconductor Components Industries, LLC, a wholly-owned subsidiary of ON Semiconductor CorporationSEC Securities and Exchange CommissionSecurities Act Securities Act of 1933, as amendedSMBC Sumitomo Mitsui Banking CorporationSoC System on chipTMOS T-metal oxide semiconductorTruesense Truesense Imaging, Inc.UPS Uninterruptible power suppliesVCORE Voltage coreVREG Voltage regulatorWSTS World Semiconductor Trade Statistics* Terms used, but not defined, within the body of the Form 10-K are defined in this Glossary. 4Table of ContentsPART IItem 1. BusinessBusiness OverviewON Semiconductor Corporation, which was incorporated under the laws of the state of Delaware in 1999, together with its subsidiaries (“we,” “us,”“our,” “ON Semiconductor,” or the “Company”), is driving innovation in energy-efficient electronics. Our extensive portfolio of sensors, powermanagement, connectivity, custom and SoC, analog, logic, timing, and discrete devices helps customers efficiently solve their design challenges inadvanced electronic systems and products. Our power management and motor driver semiconductor components control, convert, protect and monitorthe supply of power to the different elements within a wide variety of electronic devices. Our custom ASICs and SoC devices use analog, MCU, DSP,mixed-signal and advanced logic capabilities to enable the application and uses of many of our automotive, medical, aerospace/defense, consumer andindustrial customers’ products. Our signal management semiconductor components provide high-performance clock management and data flowmanagement for precision computing, communications and industrial systems. Our growing portfolio of sensors, including image sensors, opticalimage stabilization and auto focus devices, provide advanced solutions for automotive, wireless, industrial and consumer applications. Our standardsemiconductor components serve as “building blocks” within virtually all types of electronic devices. These various products fall into the logic,analog, discrete, image sensors, IoT and memory categories used by the WSTS group.We serve a broad base of end-user markets, including automotive, communications, computing, consumer, medical, industrial, networking, telecomand aerospace/defense. Our devices are found in a wide variety of end products including automobiles, smartphones, media tablets, wearableelectronics, personal computers, servers, industrial building and home automation systems, factory automation, consumer white goods, security andsurveillance systems, machine vision, LED lighting, power supplies, networking and telecom equipment, medical diagnostics, imaging and hearinghealth, sensor networks and robotics.Our portfolio of devices enables us to offer advanced ICs and the “building block” components that deliver system level functionality and designsolutions. We shipped approximately 72.8 billion units in 2017, as compared to 59.4 billion units in 2016. We offer micro packages, which provideincreased performance characteristics while reducing the critical board space inside today’s ever shrinking electronic devices and power modules,delivering improved energy efficiency and reliability for a wide variety of medium and high power applications. We believe that our ability to offer abroad range of products, combined with our applications and global manufacturing and logistics network, provides our customers with single sourcepurchasing on a cost-effective and timely basis. 5Table of ContentsFrom time to time, we reassess the alignment of our product families and devices to our operating segments and may move product families orindividual devices from one operating segment to another. During the third quarter of 2016, we realigned our segments into three operating segments,which also represent our three reporting segments, to optimize efficiencies resulting from the acquisition of Fairchild: Power Solutions Group, AnalogSolutions Group, and Image Sensor Group. Each of our major product lines has been assigned to a segment, as illustrated in the table below, based onour operating strategy: Power Solutions Group Analog Solutions Group Image Sensor GroupBipolar Power (8) Automotive ASSPs (1) CCD Image Sensors (7)Thyristor (8) Analog Automotive (2) CMOS Image Sensors (7)Small Signal (8) Automotive Power Switching (3) Proximity Sensors (13)Zener (8) Automotive Mixed-Signal Solutions (1) Linear Light Sensors (7)Protection (3) Medical ASICs & ASSPs (1) Image Stabilizer ICs (12)Rectifier (8) Mixed-Signal ASICs (1) Auto Focus ICs (12)Filters (3) Industrial ASSPs (1) MOSFETs (3) High Frequency / Timing (4) Signal & Interface (2) IPDs (5) Standard Logic (6) Foundry and Manufacturing Services (5) LDO’s & VREGs (2) Hearing Components (1) EE Memory and Programmable Analog (9) DC-DC Conversion (2) IGBTs (3) Analog Switches (6) Power MOSFETs (10) AC-DC Conversion (2) Power and Signal Discretes (10) Low Voltage Power Management (2) Intelligent Power Modules (11) Power Switching (2) Smart Passive Sensors (13) RF Antenna Tuning Solutions (1) PIM (14) Motor Driver ICs (12) Display Drivers (12) ASICs (12) Microcontrollers (12) Flash Memory (12) Touch Sensor (12) Power Supply IC (12) Audio DSP (12) Audio Tuners (12) (1) ASIC products (8) Discrete products (2) Analog products (9) Memory products (3) TMOS products (10) HD products (4) ECL products (11) IPM products (5) Foundry products / services (12) LSI products (6) Standard logic products (13) Other sensor products (7) Image sensor / ASIC products (14) PIM Products 6Table of ContentsWe currently have domestic design operations in Arizona, California, Idaho, New York, Oregon, Pennsylvania, Rhode Island, Texas and Utah. We alsohave foreign design operations in Belgium, Canada, China, the Czech Republic, France, Germany, India, Ireland, Israel, Japan, Korea, Philippines,Romania, Singapore, Slovakia, Slovenia, Switzerland, Taiwan and the United Kingdom. Additionally, we currently operate domestic manufacturingfacilities in Idaho, Maine, Pennsylvania, New York and Oregon and have foreign manufacturing facilities in Belgium, Canada, China, Czech Republic,Japan, Korea, Malaysia, the Philippines and Vietnam. We also have global distribution centers in China, the Philippines and Singapore.Company Highlights for the year ended December 31, 2017 • Total revenues of $5,543.1 million • Gross margin of 36.7% • Net income of $1.89 per diluted share • Cash and cash equivalents of $949.2 millionCompleted AcquisitionsOn September 19, 2016, we completed our acquisition of Fairchild pursuant to the Agreement and Plan of Merger with each of Fairchild and FalconOperations Sub, Inc., a Delaware corporation and our wholly-owned subsidiary, pursuant to which Fairchild became our wholly-owned subsidiary (the“Fairchild Transaction”). The aggregate purchase price of the Fairchild Transaction was approximately $2,532.2 million and was funded with cash onhand and by borrowings under a Credit Agreement, dated as of April 15, 2016, by and among the Company, as borrower, the several lenders partythereto, Deutsche Bank AG, New York Branch , as administrative agent and collateral agent, and certain other parties (as subsequently amended, the“Amended Credit Agreement”) which provided for a $600 million revolving credit facility (the “Revolving Credit Facility”) and a $2.4 billion termloan “B” facility (the “Term Loan “B” Facility”). See Note 4: “Acquisitions, Divestitures and Licensing Transactions” in the notes to our auditedconsolidated financial statements included elsewhere in this Form 10-K for additional information.Products and TechnologyThe following provides certain information regarding the products and technologies by each of our operating segments. See “Business Overview”above and Note 18: “Segment Information” in the notes to our audited consolidated financial statements included elsewhere in this Form 10-K forother information regarding our segments and their revenues and property, plant and equipment and the income derived from each segment.Power Solutions GroupThe Power Solutions Group offers a wide array of discrete, module and integrated semiconductor products that perform multiple application functions,including power switching, power conversion, signal conditioning, circuit protection, signal amplification and voltage reference functions. The trendsdriving growth within our end-user markets are primarily higher power efficiency and power density in power applications, the demand for greaterfunctionality in small handheld devices, and faster data transmission rates in all communications. The advancement of existing volt electricalinfrastructure, electrification of power train in the form of EV/HEV, higher trench density enabling lower losses in power efficient packages and lowercapacitance and integrated signal conditioning products to support faster data transmission rates significantly increase the use of high power 7Table of Contentssemiconductor solutions. Certain of the Power Solutions Group’s broad portfolio of products and solutions are summarized below: • Automotive ElectronicsAEC qualified products, covering the spectrum from discrete to integrated, as well as automotive modules and known good die to supportautomotive modules. • Industrial ElectronicsAdvanced power technologies to support high performance power conversion for high-end power supply/UPS, alternative energy, andindustrial motors. • ComputingMOSFETs and protection devices supporting latest chipsets. Multichip power solutions and advanced LDOs to support power efficiencyrequirements in new computing platforms. GaN technology enables drastic reduction in power adaptor size. • CommunicationsWorld’s smallest packages: DFN MOSFETs, CSP (MOSFET/EEPROMs), EEPROMs and LDOs, X4DFN 01005 for small signal devices andprotection. Low capacitance ESD and common mode filters for high speed serial interface protection.Analog Solutions GroupThe Analog Solutions Group designs and develops analog, mixed-signal and advanced logic ASICs and ASSPs, and power solutions for a broad base ofend-users in the automotive, consumer, computing, industrial, communications, medical and aerospace/defense markets. Our product solutions enableindustry leading active mode and standby mode efficiency now being demanded by regulatory agencies around the world. Additionally, the AnalogSolutions Group offers trusted foundry and design services for certain of our government customers, as well as, manufacturing services, and IPDproducts technology, which leverage the Company’s broad range of manufacturing, IC design, packaging, and silicon technology offerings to provideturn-key solutions for our customers. Certain of the Analog Solutions Group’s broad portfolio of products and solutions are summarized below: • Automotive ElectronicsEnergy efficient solutions that reduce emissions, improve fuel economy and safety, enhance lighting and make possible an improveddriving experience. • CommunicationsHigh efficiency mixed-signal, power management and RF products that enable our customers to maximize the performance of their productswhile preserving critical battery life. RF Tuning solutions to enhance radio performance. Fast charging (wall-to-battery including wirelesscharging), multi-media and ambient awareness system solutions to address increasing customer desire for innovation. 8Table of Contents • ComputingSolutions for a wide range of voltage and current options ranging from multi-phase 30 volt power for VCORE processors, power stage andsingle cell battery point of load. Thermal and battery charging solutions as well as high density power conversion solutions are alsosupported. • Industrial ElectronicsPower efficient communication and sensor interface products and motor control products. Wired and low power RF wireless connectivity forIoT applications. Residential and commercial grade circuit breaking products for GFCI & AFCI applications. FDA-compliant assembly andpackaging manufacturing services.Image Sensor GroupThe Image Sensor Group designs and develops CMOS and CCD image sensors, as well as proximity sensors, image signal processors and actuatordrivers for autofocus and image stabilization for a broad base of end-users in the automotive, industrial, consumer, wireless, medical andaerospace/defense markets. Our broad range of product offerings delivers excellent pixel performance, sensor functionality and camera systemscapabilities to a world in which high quality visual imagery is becoming increasingly important to our customers and their end-users. With our high-quality imaging portfolio, camera system and applications expertise, our customers can deliver new and differentiated imaging solutions to theirend-markets. Certain of the Image Sensor Group’s broad portfolio of products and solutions are summarized below: • Automotive ImagingHigh dynamic range, low-light, fast video frame rates with near-IR sensitivity for scene viewing to improve safety, and scene understandingfor ADAS and automated driving to improve safety and enhance the overall driving experience. • Industrial ImagingA broad range of both CMOS and CCD image sensors for aerial surveillance, intelligent traffic systems, one dimensional light and proximitysensor modules, smart home, lighting, industrial automation, smart cities and aerospace/defense applications. • Wireless and Consumer ElectronicsA broad range of CMOS sensors and driver actuators for high performance AR/VR, drones, mobile phones, PCs, tablets, high-speed videocameras, and various unique consumer applications. Our solutions offer superior image quality, fast frame rates, high definition and low lightsensitivity to provide customers with a compelling visual experience, especially in emerging applications in IoT markets for security,surveillance and Internet Protocol cameras.CustomersIn general, we have maintained long-term relationships with our key customers. Sales agreements with customers are renewable periodically andcontain certain terms and conditions with respect to payment, delivery, warranty 9Table of Contentsand supply, but typically do not require minimum purchase commitments. Most of our OEM customers negotiate pricing terms with us on an annualbasis near the end of the calendar year, while our other customers, including electronic manufacturer service providers and distributors, generallynegotiate pricing terms with us on a quarterly basis. Our products are ultimately purchased for use in a variety of end-markets, including computing,automotive, consumer, industrial, communications, networking, aerospace/defense and medical. For the years ended December 31, 2017, 2016 and2015, we had no sales to individual customers, including distributors, that accounted for 10% or more of our total consolidated revenues.For the year ended December 31, 2017, aggregate revenue from our five largest customers per segment for our Power Solutions Group, AnalogSolutions Group, and Image Sensor Group, comprised approximately 43%, 35% and 48%, respectively, of our total consolidated revenue. The loss ofcertain of these customers may have a material adverse effect on the operations of the respective segment.We generally warrant that products sold to our customers will, at the time of shipment, be free from defects in workmanship and materials and conformto our approved specifications. Our standard warranty extends for a period of two years from the date of delivery, except in the case of Image Sensorproducts, which are warrantied for one year from the date of delivery. Generally, our customers may cancel orders 30 days prior to shipment for standardproducts and 90 days prior to shipment for custom products without incurring a significant penalty. For additional information regarding agreementswith our customers, see “Backlog and Inventory” below. 10Table of ContentsEnd-Markets for Our ProductsThe following table sets forth our principal end-markets, the estimated percentage (based in part on information provided by our distributors andelectronic manufacturing service providers) of our revenues generated from each end-market during 2017, sample applications for our products andrepresentative OEM customers and end-users. We include the data relating to the Medical, Aerospace and Defense end-markets as part of our Industrialend-market and the data relating to the Networking and Wireless end-markets as part of our Communications end-market. Automotive Industrial Communications Consumer ComputingApproximate percentageof 2017 Revenue 31% 25% 20% 14% 10%Sample applications EV/HEV Hearing Health Tablets Gaming, HomeEntertainment Systems, &Set Top Boxes Notebooks, Ultrabooks, &2-in-1s Power Management Smart Cities & Buildings Smart phones White Goods Desktop PCs &All-in-Ones Powertrain Security & Surveillance RF Tuning USB Type C USB Type C In-Vehicle Networking Machine Vision Switches Power Supplies Graphics Body & Interior Motor Control Routers Drones Power Supplies Lighting Robotics Base Stations AR/VR AI Automated Driving Power Solutions Power Supplies Wearable Devices Cloud Computing Sensor Fusion Industrial Automation AI AR/VR Robotics AI Diagnostic, Therapy, &Monitoring RepresentativeOEM customers andend-users Bosch GMBH Bosch GMBH BBK Electronics Amazon Asus Continental AutomotiveSystems Boston Scientific Cisco Facebook Dell Computer Delphi Delta Electronics Ericsson Google Delta Electronics, Inc. Denso Corporation Emerson Electric Co Huawei Tech Co., Ltd. Gree, Inc. Foxconn Hella General Electric Co Lenovo Microsoft Google Hyundai Mobis Co., Ltd. Hikvision DigitalTechnology Co., Ltd. Nokia Solutions andNetworks Midea Hewlett Packard Co Magna International Honeywell Inc. Samsung Electronics Philips Nvidia Magneti Marelli Medtronic Sony Mobile Samsung Electronics Microsoft Tesla Philips ZTE Hong Kong Ltd Sony Corp Quanta Valeo Schneider Electric Seagate Technology Visteon Siemens Industrial 11Table of ContentsOEMs Direct sales to OEMs accounted for approximately 34% of our revenues in 2017, 38% of our revenues in 2016 and 39% of our revenues in2015. OEM customers include a variety of companies in the electronics industry such as Bosch GmbH, Continental Automotive Systems, Delphi,Hella, Huawei Technologies Co. Ltd., Magna International, Panasonic Corporation and Samsung Electronics Co., Ltd. (“Samsung”). We focus on threetypes of OEMs: multi-nationals; selected regional accounts; and target market customers. Large multi-nationals and selected regional accounts, whichare significant in specific markets, are our core OEM customers. The target market customers for our end-markets are OEMs that are on the leading edgeof specific technologies and provide direction for technology and new product development. Generally, our OEM customers do not have the right toreturn our products following a sale other than pursuant to our standard warranty.Distributors Sales to distributors accounted for approximately 60% of our revenues in 2017, 56% of our revenues in 2016 and 54% of our revenues in2015, the year-over-year increase being attributed to our acquisition of Fairchild, which had a greater distribution mix than our historical business. Ourdistributors, which include Arrow, Avnet, Macnica, OS Electronics, World Peace and WT Microelectronics, resell to mid-sized and smaller OEMs andto electronic manufacturing service providers and other companies. Sales to certain distributors are made pursuant to agreements that provide returnrights with respect to discontinued or slow-moving products. Under certain agreements, distributors are allowed to return any product that we haveremoved from our price book. In addition, agreements with certain of our distributors contain stock rotation provisions permitting limited levels ofproduct returns. We developed our new internal processes and systems, which have enabled us to reliably estimate upfront the effects of returns andallowances and thus began recognizing revenue at the time of sales to the distributors beginning in the first quarter of 2017. Prior to 2017, for productssold to distributors who are entitled to returns and allowances (generally referred to as “ship and credit rights”), we recognized related revenues andcost of revenues when we were informed by the distributors that they had resold the products to the end-user.Electronic Manufacturing Service Providers Direct sales to electronic manufacturing service providers accounted for approximately 6% of ourrevenues in 2017, 6% of our revenues in 2016 and 7% of our revenues in 2015. Among our largest electronic manufacturing service customers areBenchmark Electronic, Flextronics, Jabil and Sanmina. These customers are manufacturers who typically provide contract manufacturing services forOEMs. Originally, these companies were involved primarily in the assembly of printed circuit boards, but they now typically provide design, supplymanagement and manufacturing solutions as well. Many OEMs now outsource a large part of their manufacturing to electronic manufacturing serviceproviders in order to focus on their core competencies. We are pursuing a number of strategies to penetrate this increasingly important marketplace.Generally, our electronic manufacturing service customers do not have the right to return our products following a sale other than pursuant to ourstandard warranty.See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 18: “Segment Information” in the notes toour audited consolidated financial statements included elsewhere in this Form 10-K for revenues by geographic locations.Manufacturing OperationsWe operate front-end wafer fabrication facilities in Belgium, Czech Republic, Japan, Korea, Malaysia and the United States and back-end assembly andtest site facilities in Canada, China, Japan, Malaysia, Philippines, Vietnam and the United States. In addition to these front-end and back-endmanufacturing operations, our facility in Roznov, Czech Republic manufactures silicon wafers that are used by a number of our facilities. 12Table of ContentsThe table below sets forth information with respect to the manufacturing facilities we operate either directly or through our joint venture with Leshan-Phoenix Semiconductor Company Limited, a joint venture company in which we own a majority of the outstanding equity interests (“Leshan”), as wellas the reporting segments that use these facilities, along with the approximate gross square footage of each site’s building, which includes, among otherthings, manufacturing, laboratory, warehousing, office, utility, support and unused areas. Location Reporting Segment Size (sq. ft.)Front-end Facilities: Gresham, Oregon Analog Solutions Group, Image Sensor Group and Power Solutions Group 558,457Pocatello, Idaho Analog Solutions Group, Image Sensor Group and Power Solutions Group 582,384Roznov, Czech Republic Analog Solutions Group and Power Solutions Group 438,882Oudenaarde, Belgium Analog Solutions Group, Image Sensor Group and Power Solutions Group 422,605Seremban, Malaysia (Site 2) (3) Analog Solutions Group and Power Solutions Group 133,061Niigata, Japan Analog Solutions Group, Image Sensor Group and Power Solutions Group 1,106,779Rochester, New York (2) (4) Image Sensor Group 275,642Bucheon, South Korea Analog Solutions Group and Power Solutions Group 861,081South Portland, Maine Analog Solutions Group and Power Solutions Group 344,588Mountaintop, Pennsylvania Analog Solutions Group and Power Solutions Group 437,000Back-end Facilities: Burlington, Canada (1) Analog Solutions Group 95,440Leshan, China (3) Analog Solutions Group and Power Solutions Group 416,339Seremban, Malaysia (Site 1) (3) Analog Solutions Group and Power Solutions Group 328,275Carmona, Philippines (3) Analog Solutions Group, Image Sensor Group and Power Solutions Group 926,367Tarlac City, Philippines (3) Analog Solutions Group, Image Sensor Group and Power Solutions Group 381,764Shenzhen, China (1) Analog Solutions Group, Image Sensor Group and Power Solutions Group 275,463Bien Hoa, Vietnam (3) Analog Solutions Group and Power Solutions Group 294,418Nampa, Idaho (1) (2) Image Sensor Group 166,268Cebu, Philippines (3) Analog Solutions Group and Power Solutions Group 228,460Suzhou, China (3) Analog Solutions Group and Power Solutions Group 452,639Other Facilities: Roznov, Czech Republic Analog Solutions Group, Image Sensor Group and Power Solutions Group 11,873Thuan An District, Vietnam (3) Power Solutions Group 30,494 (1) These facilities are leased.(2) This facility is used for both front-end and back-end operations.(3) These facilities are located on leased land.(4) One building owned and a portion of another leased.We operate all of our manufacturing facilities directly, with the exception of our assembly and test operations facility located in Leshan, China, whichis owned by Leshan. Our investment in Leshan has been consolidated in our financial statements. Our joint venture partner, Leshan Radio CompanyLtd., is formerly a state-owned enterprise. Pursuant to the joint venture agreement, requests for production capacity are made to the board of directors ofLeshan by each shareholder of the joint venture. Each request represents a purchase commitment by the requesting shareholder, provided that theshareholder may elect to pay the cost associated with the unused capacity (which is generally equal to the fixed cost of the capacity) in lieu ofsatisfying the commitment. We committed to purchase 80% of Leshan’s production capacity in each of 2017, 2016 and 2015 and are currentlycommitted to purchase approximately 80% of Leshan’s expected production capacity in 2018.We use third-party contractors for some of our manufacturing activities, primarily for wafer fabrication and the assembly and testing of finished goods.Our agreements with these contract manufacturers typically require us to 13Table of Contentsforecast product needs and commit to purchase services consistent with these forecasts. In some cases, longer-term commitments are required in theearly stages of the relationship. These contract manufacturers, including Amkor, ASE, Kingpak, SMIC, TPSCo and TSMC, collectively accounted forapproximately 36%, 36% and 39% of our manufacturing costs in 2017, 2016 and 2015, respectively.For information regarding risks associated with our foreign operations, see “Risk Factors - Trends, Risks and Uncertainties Related to Our Business”included elsewhere in this Form 10-K.Raw MaterialsOur manufacturing processes use many raw materials, including silicon wafers, gold, copper, lead frames, mold compound, ceramic packages andvarious chemicals and gases as well as other production supplies used in our manufacturing processes. We obtain our raw materials and supplies from alarge number of sources, generally on a just-in-time basis, and material agreements with our suppliers that impose minimum or continuing supplyobligations are reflected in our contractual obligations table in “Management’s Discussion and Analysis of Financial Condition and Results ofOperations - Liquidity and Capital Resources - Contractual Obligations” included elsewhere in this Form 10-K. From time to time, suppliers mayextend lead times, limit supplies or increase prices due to capacity constraints or other factors. Although we believe that supplies of the raw materialswe use are currently and will continue to be available, shortages could occur in various essential materials due to interruption of supply, increaseddemand in the industry or other factors.Sales, Marketing and DistributionAs of December 31, 2017, our sales and marketing organization consisted of approximately 1,700 professionals servicing customers globally. Wesupport our customers through logistics organizations and just-in-time warehouses. Global and regional distribution channels further support ourcustomers’ needs for quick response and service. We offer efficient, cost-effective global applications support from our Technical Information Centersand Solution Engineering Centers, allowing for applications which are developed in one region of the world to be instantaneously availablethroughout all other regions.Patents, Trademarks, Copyrights and Other Intellectual Property RightsWe market our products primarily under our registered trademark ON Semiconductor® and our ON logo, and, in the United States and internationally,we rely primarily on a combination of patents, trademarks, copyrights, trade secrets, employee and non-disclosure agreements and licensing agreementsto protect our intellectual property. We acquired or were licensed or sublicensed to a significant amount of IP, including patents and patentapplications, in connection with our acquisitions, and we have numerous U.S. and foreign patents issued, allowed and pending. As of December 31,2017, we held patents with expiration dates ranging from 2018 to 2038, and none of the patents that expire in the next three years materially affect ourbusiness. Our policy is to protect our products and processes by asserting our IP rights where appropriate and prudent and by obtaining patents,copyrights and other IP rights used in connection with our business when practicable and appropriate.SeasonalityWe believe our business today is driven more by secular growth drivers and not solely by macroeconomic and industry cyclicality, as was the casehistorically. However, in the future, we could again experience period-to-period fluctuations in operating results due to general industry or economicconditions. For information regarding risks associated with the cyclicality and seasonality of our business, see “Risk Factors - Trends, Risks andUncertainties Related to Our Business” included elsewhere in this Form 10-K. 14Table of ContentsBacklog and InventoryOur trade sales are made primarily pursuant to orders that are predominantly booked as far as 26 weeks in advance of delivery. Generally, prices andquantities are fixed at the time of booking. Backlog as of a given date consists of existing orders and forecasted demand from our Electronic DataInterface customers, in each case scheduled to be shipped over the 13-week period following such date. Backlog is influenced by several factors,including market demand, pricing and customer order patterns in reaction to product lead times. During 2017, our backlog at the beginning of eachquarter represented between 83% and 89% of actual revenues during such quarter, which is consistent with backlog levels in recent prior periods. Asmanufacturing capacity utilization in the industry increases, customers tend to order products further in advance and, as a result, backlog at thebeginning of a period as a percentage of revenues during such period is likely to increase.In the semiconductor industry, backlog quantities and shipment schedules under outstanding purchase orders are frequently revised to reflect changesin customer needs. Agreements calling for the sale of specific quantities are either contractually subject to quantity revisions or, as a matter of industrypractice, are often not enforced. Therefore, a significant portion of our order backlog may be cancelable. For these reasons, the amount of backlog as ofany particular date may not be an accurate indicator of future results.We sell products to key customers pursuant to contracts that allow us to schedule production capacity in advance and allow the customers to managetheir inventory levels consistent with just-in-time principles while shortening the cycle times required for producing ordered products. However, thesecontracts are typically amended to reflect changes in customer demands and periodic price renegotiations. We routinely generate inventory based oncustomers’ estimates of end-user demand for their products, which is difficult to predict. See “Risk Factors - Trends, Risks and Uncertainties Related toOur Business” located elsewhere in this Form 10-K for additional information regarding the inventory practices within the semiconductor industry.CompetitionThe semiconductor industry, particularly the market for general-purpose semiconductor products like ours, is highly competitive. We face significantcompetition within each of our product lines from major international semiconductor companies, as well as smaller companies focused on specificmarket niches. Because some of our components are often building block semiconductors that, in some cases, can be integrated into more complex ICs,we also face competition from manufacturers of ICs, ASICs and fully-customized ICs, as well as customers who develop their own IC products. See“Risk Factors - Trends, Risks and Uncertainties Related to Our Business” included elsewhere in this Form 10-K for additional information.In comparison, several competitors noted below are larger in scale and size, have substantially greater financial and other resources with which topursue development, engineering, manufacturing, marketing and distribution of their products and may generally be better situated to withstandadverse economic or market conditions. The semiconductor industry has experienced, and may continue to experience, significant consolidationamong companies and vertical integration among customers. The following discusses the effects of competition on our three operating segments:Power Solutions GroupThe Power Solutions Group is a leading provider of power semiconductors to the automotive, industrial, wireless and mass markets. Our competitivestrengths include our core competencies of leading edge fabrication 15Table of Contentstechnologies, micro packaging expertise, breadth of product line and IP portfolio, high quality cost effective manufacturing and supply chainmanagement which ensures supply to our customers. Our commitment to continual innovation allows us to provide an ever broader range ofsemiconductor solutions to our customers who differentiate in power density and power efficiency, the key performance characteristics driving ourmarkets.The principal methods of competition in our discrete, module and integrated semiconductor products are through new products and packageinnovations enabling enhanced performance over existing products. Of particular importance are our power MOSFETs, IGBTs, rectifiers and powermodule portfolio for power conversion applications and ESD portfolio for hi-speed serial interface protection products where we believe we havesignificant performance advantages over our competition. Certain of the Power Solutions Group’s competitors include: Broadcom Limited, DiodesIncorporated, Infineon Technologies AG, KEC Corporation, NXP Semiconductors N.V., Rohm Semiconductor, Semtech Corporation,STMicroelectronics N.V., Texas Instruments Inc., Toshiba Corporation and Vishay Intertechnology, Inc.Analog Solutions GroupThe principal bases for competition in the Analog Solutions Group are design experience, manufacturing capability, depth and quality of IP, ability toservice customer needs from the design phase to the shipping of a completed product, length of design cycle, longevity of technology support andexperience of sales and technical support personnel. Our competitive position is also enhanced by long-standing relationships with leading OEMcustomers.Our ability to compete successfully depends on internal and external variables, both inside and outside of our control. These variables include, but arenot limited to, the timeliness with which we can develop new products and technologies, product performance and quality, manufacturing yields andavailability of supply, customer service, pricing, industry trends and general economic trends. Competitors for certain of the Analog Solutions Group’sproducts and solutions include: Infineon Technologies AG, Maxim Integrated Products, Inc., NXP Semiconductors N.V., Renesas ElectronicsCorporation, STMicroelectronics N.V. and Texas Instruments Inc.Image Sensor GroupThe Image Sensor Group differentiates itself from the competition by leveraging deep technical knowledge and close customer relationships to drivethe most compelling imaging experience for end users. The Image Sensor Group has over four decades of CCD imaging experience and was the first tocommercialize CMOS active pixel sensors. The Image Sensor Group was also the first to introduce CMOS technology into many of our markets,leveraging this expertise into market leading positions in automotive and industrial applications, bringing a wealth of technical and end-userapplications knowledge to help customers develop innovative imaging solutions across a broad range of end-user needs. Competitors for certain of theImage Sensor Group’s products and solutions include: Sony Semiconductor, Samsung, Omnivision, STMicroelectronics N.V. and Toshiba Corporationfor image sensors, and Rohm Semiconductor, Renesas Electronics Corporation and Dongwoon Anatech for actuator drivers.Research and DevelopmentResearch and development costs in 2017, 2016 and 2015 were $594.4 million, $452.3 million and $396.7 million, representing 11%, 12% and 11% ofrevenue, respectively. We seek to maximize the investment of our people and capital in research and development by targeting innovative productsand solutions for high 16Table of Contentsgrowth applications that position the Company to outperform the industry. Our design expertise in analog, digital, mixed signal and imaging ICs,combined with our extensive portfolio of standard products, enable the company to offer comprehensive, value added solutions to our globalcustomers for their electronics systems.Government RegulationOur manufacturing operations are subject to environmental and worker health and safety laws and regulations. These laws and regulations includethose relating to emissions and discharges into the air and water, the management and disposal of hazardous substances, the release of hazardoussubstances into the environment at or from our facilities and at other sites and the investigation and remediation of contamination. As with othercompanies engaged in like businesses, the nature of our operations exposes us to the risk of liabilities and claims, regardless of fault, with respect tosuch matters, including personal injury claims and civil and criminal fines.Our headquarters in Phoenix, Arizona are located on property that is a “Superfund” site, which is a property listed on the National Priorities List andsubject to clean-up activities under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). Motorola andFreescale have been involved in the cleanup of on-site solvent-contaminated soil and groundwater and off-site contaminated groundwater pursuant toconsent decrees with the State of Arizona. As part of our separation from Motorola in 1999, Motorola retained responsibility for this contamination,and Motorola and Freescale have agreed to indemnify us with respect to remediation costs and other costs or liabilities related to this matter.Our former front-end manufacturing location in Aizu, Japan is located on property where soil and ground water contamination was detected. Webelieve that the contamination originally occurred during a time when the facility was operated by a prior owner. We worked with local authorities toimplement a remediation plan and have completed remediation construction. The majority of the cost of remediation was covered by insurance. Semi-annual groundwater monitoring has continued to indicate that the treatment was effective. Any costs to us in connection with this matter have notbeen, and, based on the information available, are not expected to be, material.Our manufacturing facility in the Czech Republic has ongoing remediation projects to respond to releases of hazardous substances that occurredduring the years that this facility was operated by government-owned entities. The remediation projects consist primarily of monitoring groundwaterwells located on-site and off-site, with additional action plans developed to respond in the event activity levels are exceeded. The government of theCzech Republic has agreed to indemnify us and our respective subsidiaries, subject to specified limitations, for remediation costs associated with thishistorical contamination. Based upon the information available, we do not believe that total future remediation costs to us will be material.Our design center in East Greenwich, Rhode Island is located on property that has localized soil contamination. When we purchased the EastGreenwich facility, we entered into a Settlement Agreement and Covenant Not To Sue with the State of Rhode Island. This agreement requires thatremedial actions be undertaken and a quarterly groundwater monitoring program be initiated by the former owners of the property. Any costs to us inconnection with this matter have not been, and, based on the information available, are not expected to be, material.As a result of the acquisition of AMIS in 2008, we are a “primary responsible party” to an environmental remediation and cleanup at AMIS’s formercorporate headquarters in Santa Clara, California. Costs incurred by AMIS include implementation of the clean-up plan, operations and maintenance ofremediation systems and other project management costs. However, AMIS’s former parent company, a subsidiary of Nippon Mining, 17Table of Contentscontractually agreed to indemnify AMIS and us for any obligations relating to environmental remediation and clean-up at this location. Any costs tous in connection with this matter have not been, and, based on the information available, are not expected to be, material.Through the acquisition of Fairchild, we acquired a facility in South Portland, Maine. The facility has ongoing environmental remediation projects torespond to certain releases of hazardous substances that occurred prior to the leveraged recapitalization of Fairchild from its former parent company,National Semiconductor Corporation, which is now owned by Texas Instruments, Inc. Although we may incur certain liabilities with respect to theabove remediation projects, pursuant to the asset purchase agreement entered into in connection with the Fairchild recapitalization, NationalSemiconductor Corporation agreed to indemnify Fairchild, without limitation and for an indefinite period of time, for all future costs related to theseprojects. Under a 1999 asset purchase agreement pursuant to which Fairchild purchased the power device business of Samsung, Samsung agreed toindemnify Fairchild in an amount up to $150.0 million for remediation costs and other liabilities related to historical contamination at Samsung’sBucheon, South Korea operations. The costs incurred to respond to the above conditions and projects have not been, and are not expected to be,material, and any future payments we make in connection with such liabilities are not expected to be material.Under a 2001 asset purchase agreement pursuant to which Fairchild purchased a manufacturing facility in Mountain Top, Pennsylvania, Intersil Corp.agreed to indemnify Fairchild for remediation costs and other liabilities related to historical contamination at the facility. The costs incurred to respondto these conditions have not been, and are not expected to be, material, and any future payments we make in connection with such liabilities are notexpected to be material.We were notified by the United States Environmental Protection Agency (the “EPA”) that we have been identified as a “potentially responsible party”(“PRP”) under CERCLA in the Chemetco Superfund matter. Chemetco, a defunct reclamation services supplier that operated in Illinois at what is now aSuperfund site, has performed reclamation services for us in the past. The EPA is pursuing Chemetco customers for contribution to the site cleanupactivities. We have joined a PRP group which is cooperating with the EPA in the evaluation and funding of the cleanup. Based on the informationavailable, any costs to us in connection with this matter have not been, and are not expected to be, material.We believe that our operations are in material compliance with applicable environmental and health and safety laws and regulations. The costs weincurred in complying with applicable environmental regulations for fiscal year ended December 31, 2017 were not material, and we do not expect thecost of complying with existing environmental and health and safety laws and regulations, together with any liabilities for currently knownenvironmental conditions, to have a material adverse effect on the capital expenditures, earnings or competitive position of the Company or itssubsidiaries. It is possible, however, that future developments, including changes in laws and regulations, government policies, customer specification,personnel and physical property conditions, including currently undiscovered contamination, could lead to material costs, and such costs may have amaterial adverse effect on our future business or prospects. See Note 12: “Commitments and Contingencies” in the notes to our audited consolidatedfinancial statements included elsewhere in this Form 10-K for information on certain environmental matters.EmployeesAs of December 31, 2017, we had approximately 34,000 employees worldwide, of which approximately 4,500 employees were in the United States.None of our employees in the United States are covered by collective bargaining agreements, except for approximately 90 of our employees (orapproximately 2% of our U.S. based 18Table of Contentsemployees) at the Mountain Top, Pennsylvania manufacturing facility. Certain of our foreign employees are covered by collective bargainingarrangements (e.g., those in China, Korea, Japan and Belgium) or similar arrangements or are represented by workers councils. For informationregarding employee risk associated with our international operations, see “Risk Factors - Trends, Risks and Uncertainties Related to Our Business”included elsewhere in this Form 10-K. Of the total number of our employees as of December 31, 2017, approximately 28,100 were engaged inmanufacturing, approximately 3,100 were engaged in research and development, approximately 1,700 were engaged in our sales and marketingorganization, which includes customer service and approximately 1,100 were engaged in administration.Executive Officers of the RegistrantCertain information concerning our executive officers as of February 14, 2018 is set forth below. Name Age PositionKeith D. Jackson 62 President, Chief Executive Officer and Director*Bernard Gutmann 58 Executive Vice President, Chief Financial Officer and Treasurer*George H. Cave 60 Executive Vice President, General Counsel, Chief Compliance & Ethics Officer, Chief Risk Officer andCorporate Secretary*William M. Hall 62 Executive Vice President and General Manager, Power Solutions Group*Robert A. Klosterboer 57 Executive Vice President and General Manager, Analog Solutions Group*Paul E. Rolls 55 Executive Vice President, Sales and Marketing*William A. Schromm 59 Executive Vice President and Chief Operating Officer*Taner Ozcelik 50 Senior Vice President and General Manager, Image Sensor Group*Bernard R. Colpitts, Jr. 43 Chief Accounting Officer and Vice President of Finance and Treasury* Executive Officers of both ON Semiconductor and SCI LLC.The present term of office for the officers named above will generally expire on the earliest of their retirement, resignation or removal. There is nofamily relationship among our executive officers.Keith D. Jackson. Mr. Jackson was elected as a Director of ON Semiconductor and appointed as President and Chief Executive Officer of ONSemiconductor and SCI LLC in November 2002. Mr. Jackson has more than 30 years of semiconductor industry experience. Before joining ONSemiconductor, he was with Fairchild, serving as Executive Vice President and General Manager, Analog, Mixed Signal, and Configurable ProductsGroups, beginning in 1998, and, more recently, was head of its Integrated Circuits Group. From 1996 to 1998, he served as President and a member ofthe board of directors of Tritech Microelectronics in Singapore, a manufacturer of analog and mixed signal products. From 1986 to 1996, Mr. Jacksonworked for National Semiconductor Corporation, most recently as Vice President and General Manager of the Analog and Mixed Signal division. Healso held various positions at Texas Instruments Incorporated, including engineering and management positions, from 1973 to 1986. Mr. Jacksonjoined the board of directors of Veeco Instruments, Inc. in February 2012 and has served on the board of directors of the Semiconductor IndustryAssociation since 2008. In February of 2014, Mr. Jackson became a National Association of Corporate Directors Board Leadership Fellow, the highestlevel of credentialing for corporate directors and corporate governance professionals.Bernard Gutmann. Mr. Gutmann was promoted and appointed Executive Vice President and Chief Financial Officer of ON Semiconductor and SCILLC in September 2012 and has served as ON Semiconductor’s and SCI LLC’s Treasurer since January 2013. Before his promotion, he worked with theCompany as Vice President, 19Table of ContentsCorporate Analysis & Strategy of SCI LLC, serving in that position from April 2006 to September 2012. In these roles, his responsibilities haveincluded finance integration, financial reporting, restructuring, tax, treasury and financial planning and analysis. From November 2002 to April 2006,Mr. Gutmann served as Vice President, Financial Planning & Analysis and Treasury of SCI LLC. From September 1999 to November 2002, he held theposition of Director, Financial Planning & Analysis of SCI LLC. Prior to joining ON Semiconductor, Mr. Gutmann served in various financial positionswith Motorola from 1982 to 1999, including controller of various divisions and an off-shore wafer and backend factory, finance and accountingmanager, financial planning manager and financial analyst. He holds a Bachelor of Science in Management Engineering from Worcester PolytechnicInstitute in Massachusetts (U.S.). Additionally, he is fluent in English, French and Spanish, and is conversant in German.George H. “Sonny” Cave. Mr. Cave is the founding General Counsel and Corporate Secretary of ON Semiconductor, positions he has held since the1999 spin-out from Motorola. He is also Executive Vice President, Chief Compliance & Ethics Officer and Chief Risk Officer of ON Semiconductorand SCI LLC. His extensive legal and business experience spans over 30 years, including seven years with Motorola. For two years prior to ONSemiconductor’s spin-out, he was an ex-patriate stationed in Geneva, Switzerland as Regulatory Affairs Director for Motorola’s SemiconductorComponents Group. Before that assignment, he spent five years with Motorola’s Corporate Law Department in Phoenix, Arizona where he was SeniorCounsel for global Environmental Health and Safety. Mr. Cave also practiced law for six years with two large law firms in Denver and Phoenix. He hasextensive experience in corporate and commercial law, governance, enterprise risk management and compliance and ethics. He holds a Juris DoctorateDegree from the University of Colorado School of Law, a Master of Science Degree from Arizona State University and a Bachelor of Science Degreecum laude from Duke University.William M. Hall. Mr. Hall joined the Company in May 2006 and is currently the Executive Vice President and General Manager of the PowerSolutions Group of ON Semiconductor and SCI LLC. During his career, Mr. Hall has held various marketing and product line management positions.Before joining the Company, he served as Vice President and General Manager of the Standard Products Group at Fairchild. Between March 1997 andMay 2006, Mr. Hall served at different times as Vice President of Business Development, Analog Products Group, Standard Products Group, andInterface and Logic Group, as well as serving as Vice President of Corporate Marketing at Fairchild. He has also held management positions withNational Semiconductor Corp. and was a RADAR design engineer with RCA.Robert A. Klosterboer. Mr. Klosterboer joined the Company in March 2008 and currently serves as Executive Vice President and General Manager ofthe Analog Solutions Group for ON Semiconductor and SCI LLC. From March 2008 to September 2012, he was Senior Vice President and GeneralManager of the business unit then known as the Automotive, Industrial, Medical, & Mil/Aero Group. He has more than three decades of experience inthe electronics industry. During his career, Mr. Klosterboer has held various engineering, marketing and product line management positions andresponsibilities. Prior to joining ON Semiconductor in 2008, Mr. Klosterboer was Senior Vice President, Automotive & Industrial Group for AMISemiconductor, Inc. Mr. Klosterboer joined AMIS in 1982 as a test engineer, and during his tenure there, he also was a design engineer, fieldapplications engineer, design section manager, program development manager and product marketing manager. Mr. Klosterboer holds a Bachelor’sdegree in electrical engineering technology from Montana State University.Paul E. Rolls. Mr. Rolls was promoted and appointed Executive Vice President, Sales and Marketing of ON Semiconductor and SCI LLC in July2013. Before his promotion, he served as Senior Vice President, Japan Sales and Marketing and Senior Vice President of Global Sales Operations,serving in that position from October 2012 20Table of Contentsto July 2013. Mr. Rolls has more than 26 years of technology sales, sales management and operations experience, with more than 19 years of sales andsales management experience in the semiconductor industry. Before joining the Company, Mr. Rolls was the Senior Vice President, Worldwide Salesand Marketing at Integrated Device Technology, Inc. from January 2010 to April 2012. From August 1996 to December 2009, he held multiple salespositions at International Rectifier Corp., most recently as Senior Vice President, Global Sales. During his career, he has also held management roles atCompaq Computer Corporation.William A. Schromm. Mr. Schromm has more than 30 years of semiconductor industry experience, has been with the Company since August 1999 andhas served as Executive Vice President and Chief Operating Officer of ON Semiconductor and SCI LLC since August 2014. Prior to becoming ChiefOperating Officer, he was a Senior Vice President responsible for quality, external manufacturing, manufacturing under our former System SolutionsGroup segment, global supply chain, information technology, corporate program management. Prior to this role, Mr. Schromm served as Senior VicePresident and General Manager of the Company’s former Computing and Consumer Products Group from June 2006 through September 2012. Duringhis tenure with the Company, he has held various positions. From August 2004 through May 2006, he served as the Vice President and GeneralManager of the Company’s former High Performance Analog Division and also led the Company’s former Analog Products Group. Beginning inJanuary 2003, he served as Vice President of the Clock and Data Management business and continued in that role with additional productresponsibilities when this business became the High Performance Analog Division in August 2004. Prior to that, he served as the Vice President ofTactical Marketing from July 2001 through December 2002, after leading the Company’s Standard Logic Division since August 1999. Since April2015, Mr. Schromm has served on the board of directors of II-VI, Inc. Mr. Schromm earned a BS degree from Boston College and an MBA from theUniversity of Phoenix.Taner Ozcelik. Mr. Ozcelik joined ON Semiconductor in August 2014 as the Senior Vice President of the Aptina Imaging Business, and onFebruary 20, 2015, he was named the Senior Vice President and General Manager of the Image Sensor Group of ON Semiconductor and SCI LLC.Mr. Ozcelik has served at the intersection of semiconductors, consumer electronics, computing and automotive industries for more than two decades.Before joining ON Semiconductor in August 2014, he served as Senior Vice President of Aptina’s Automotive and Embedded business. Prior to this,Mr. Ozcelik served as Vice President and General Manager of NVIDIA’s automotive business from 2012 to 2014, and as General Manager of theAvionics, Automotive and Embedded Business of NVIDIA from 2006 to 2012. While at NVIDIA, he developed several award winning firsts inautomotive, which spanned a variety of applications including infotainment systems, digital instrument clusters, automotive tablets and ADAS, whichare now featured in cars worldwide. During his career, Mr. Ozcelik has also held positions as President and CEO at MobileSmarts and as Vice Presidentand General Manager at Sony Semiconductor for its Digital Home Platform Division. Mr. Ozcelik holds an MBA from the Wharton School of theUniversity of Pennsylvania, a PhD in Electrical Engineering from Northwestern University and a BS in Electrical Engineering from BogaziciUniversity, Turkey. He is listed as an inventor on 23 U.S. patents.Bernard R. Colpitts, Jr. Mr. Colpitts was promoted to the position of Chief Accounting Officer of SCI LLC in February 2017 and continues to serveas Vice President of Finance and Treasury, positions he has held since June 2013. In connection with the promotion to Chief Accounting Officer, theCorporation designated Mr. Colpitts as its Principal Accounting Officer. From August 2011 to June 2017, Mr. Colpitts served as the Controller of SCILLC. From August 2011 to February 2013, Mr. Colpitts served as Senior Director, Controller of SCI LLC. He was Vice President, Controller and ChiefAccounting Officer of Harry & David Holdings, Inc., a premium food and gift producer and retailer, from January 2007 to December 2010. Mr. Colpittsheld various positions with SCI LLC related to accounting, finance and financial reporting from 2000 to 2006. Mr. Colpitts is a Certified PublicAccountant. 21Table of ContentsGeographical InformationFor certain geographic operating information, see Note 15: “Income Taxes” and Note 18: “Segment Information” in the notes to our auditedconsolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in each case asincluded elsewhere in this Form 10-K. For information regarding other risks associated with our foreign operations, see “Risk Factors - Trends, Risksand Uncertainties Related to Our Business” included elsewhere in this Form 10-K.Available InformationWe make our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports available,free of charge, in the “Investor Relations” section of our Internet website as soon as reasonably practicable after we electronically file these materialswith, or furnish these materials to, the SEC. Our website is www.onsemi.com. Information on or connected to our website is neither part of, norincorporated by reference into, this Form 10-K or any other report filed with or furnished to the SEC.You may also read or copy any materials that we file with the SEC at its Public Reference Room at 100 F Street, N.E., Washington, DC 20549. You mayobtain additional information about the Public Reference Room by calling the SEC at 1-800-SEC-0330. Additionally, you will find these materials onthe SEC Internet site at www.sec.gov that contains reports, proxy statements and other information regarding issuers that file electronically with theSEC.Item 1A. Risk FactorsForward-Looking StatementsThis Annual Report on Form 10-K includes “forward-looking statements,” as that term is defined in Section 27A of the Securities Act and Section 21Eof the Exchange Act. All statements, other than statements of historical facts, included or incorporated in this Form 10-K could be deemed forward-looking statements, particularly statements about our plans, strategies and prospects under the headings “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” and “Business.” Forward-looking statements are often characterized by the use of words such as“believes,” “estimates,” “expects,” “projects,” “may,” “will,” “intends,” “plans,” or “anticipates,” or by discussions of strategy, plans or intentions. Allforward-looking statements in this Form 10-K are made based on our current expectations, forecasts, estimates and assumptions, and involve risks,uncertainties and other factors that could cause results or events to differ materially from those expressed in the forward-looking statements. Thesefactors include, among others: our revenues and operating performance; economic conditions and markets (including current financial conditions);risks related to our ability to meet our assumptions regarding outlook for revenues and gross margin as a percentage of revenue; effects of exchangerate fluctuations; the cyclical nature of the semiconductor industry; changes in demand for our products; changes in inventories at our customers anddistributors; technological and product development risks; enforcement and protection of our IP rights and related risks; risks related to the security ofour information systems and secured network; availability of raw materials, electricity, gas, water and other supply chain uncertainties; our ability toeffectively shift production to other facilities when required in order to maintain supply continuity for our customers; variable demand and theaggressive pricing environment for semiconductor products; our ability to successfully manufacture in increasing volumes on a cost-effective basis andwith acceptable quality for our current products; risks associated with acquisitions and dispositions including our acquisition of Fairchild (includingour ability to realize the anticipated benefits of our acquisitions and 22Table of Contentsdispositions; risks that acquisitions or dispositions disrupt our current plans and operations, the risk of unexpected costs, charges or expenses resultingfrom acquisitions or dispositions and difficulties encountered from integrating and consolidating and timely filing financial information with the SECfor acquired businesses and accurately predicting the future financial performance of acquired businesses); competitor actions, including the adverseimpact of competitor product announcements; pricing and gross profit pressures; loss of key customers; order cancellations or reduced bookings;changes in manufacturing yields; control of costs and expenses and realization of cost savings and synergies from restructurings; significant litigation;risks associated with decisions to expend cash reserves for various uses in accordance with our capital allocation policy such as debt prepayment, stockrepurchases, or acquisitions rather than to retain such cash for future needs; risks associated with our substantial leverage and restrictive covenants inour debt agreements that may be in place from time to time; risks associated with our worldwide operations including foreign employment and labormatters associated with unions and collective bargaining arrangements as well as man-made and/or natural disasters affecting our operations, orfinancial results; the threat or occurrence of international armed conflict and terrorist activities both in the United States and internationally; risks ofchanges in U.S. or international tax rates or legislation, including the impact of the new U.S. tax legislation; risks and costs associated with increasedand new regulation of corporate governance and disclosure standards; risks related to new legal requirements; and risks involving environmental orother governmental regulation. Additional factors that could affect our future results or events are described from time to time in our SEC reports.Readers are cautioned not to place undue reliance on forward-looking statements. We assume no obligation to update such information, except as maybe required by law.You should carefully consider the trends, risks and uncertainties described below and other information in this Form 10-K and subsequent reports filedwith or furnished to the SEC before making any investment decision with respect to our securities. If any of the following trends, risks or uncertaintiesactually occurs or continues, our business, financial condition or operating results could be materially adversely affected, the trading prices of oursecurities could decline, and you could lose all or part of your investment. All forward-looking statements attributable to us or persons acting on ourbehalf are expressly qualified in their entirety by this cautionary statement.Trends, Risks and Uncertainties Related to Our BusinessThe semiconductor industry is highly cyclical, and significant downturns or upturns in customer demand can materially adversely affect our businessand results of operations.The semiconductor industry is highly cyclical and, as a result, is subject to significant downturns and upturns in customer demand for semiconductorsand related products. We cannot accurately predict the timing of future downturns and upturns in the semiconductor industry or how severe andprolonged these conditions might be. Significant downturns often occur in connection with, or in anticipation of, maturing product cycles (forsemiconductors and for the end-user products in which they are used) or declines in general economic conditions and can result in reduced productdemand, production overcapacity, high inventory levels and accelerated erosion of average selling prices, any of which could materially adverselyaffect our operating results as a result of increased operating expenses outpacing decreased revenue, reduced margins, underutilization of ourmanufacturing capacity and/or asset impairment charges. On the other hand, significant upturns can cause us to be unable to satisfy demand in a timelyand cost efficient manner. In the event of such an upturn, we may not be able to expand our workforce and operations in a sufficiently timely manner,procure adequate resources and raw materials, or locate suitable third-party suppliers to respond effectively to changes in demand for our existingproducts or to the demand for new products requested by our customers, and our business and results of operations could be materially and adverselyaffected. 23Table of ContentsRapid innovation and short product life cycles in the semiconductor industry can result in price erosion of older products, which may materiallyadversely affect our business and results of operations.The semiconductor industry is characterized by rapid innovation and short product life cycles, which often results in price erosion, especially withrespect to products containing older technology. Products are frequently replaced by more technologically advanced substitutes and, as demand forolder technology falls, the price at which such products can be sold drops, in some cases precipitously. In addition, our and our competitors’ excessinventory levels can accelerate general price erosion.In order to continue to profitably supply older products, we must offset lower prices by reducing production costs, typically through improvements inprocess technology and production efficiencies. If we cannot advance our process technologies or improve our production efficiencies to a degreesufficient to maintain required margins, we will no longer be able to make a profit from the sale of older products. Moreover, we may not be able tocease production of older products, either due to contractual obligations or for customer relationship reasons and, as a result, may be required to bear aloss on such products for a sustained period of time. If reductions in our production costs fail to keep pace with reductions in market prices for theproducts we sell, our business and results of operations could be materially adversely affected.We may be unable to successfully integrate new strategic acquisitions, which could materially adversely affect our business, results of operationsand financial condition.We have made, and may continue to make, strategic acquisitions and alliances that involve significant risks and uncertainties. Successful acquisitionsand alliances in the semiconductor industry are difficult to accomplish because they require, among other things, efficient integration and aligning ofproduct offerings and manufacturing operations and coordination of sales and marketing and research and development efforts, often in markets orregions in which we have less experience than others. Our decision to pursue an acquisition is based on, among other factors, our estimates of expectedfuture earnings growth and potential cost savings. For example, we may anticipate rationalization of a combined infrastructure and savings throughintegration of a newly acquired business into our business, and our estimates could turn out to be incorrect. Risks related to successful integration of anacquisition include, but are not limited to: (1) the ability to integrate information technology and other systems; (2) unidentified issues not discoveredin our due diligence; (3) customers responding by changing their existing business relationships with us or the acquired company; (4) diversion ofmanagement’s attention from our day to day operations; and (5) loss of key employees due to uncertainty about positions post-integration. In addition,we may incur unexpected costs, such as operating or restructuring costs (including severance payments to departing employees) or taxes resulting fromthe acquisition or integration of the newly acquired business. In the past, we have recorded goodwill impairment charges related to certain of ouracquisitions as a result of such factors as significant underperformance relative to historical or projected future operating results. Missteps or delays inintegrating our acquisitions, which could be caused by factors outside of our control, or our failure to realize the expected benefits of the acquisitionson the timeline we anticipate or at all, could materially adversely affect our results of operations and financial condition.Depending on the level of our ownership interest in and the extent to which we can exercise control over the acquired business, we may be required byU.S. generally accepted accounting principles (“GAAP”) and SEC rules and regulations to consolidate newly acquired businesses into our consolidatedfinancial statements. The acquired businesses may not have independent audited financial statements, such statements may not be prepared inaccordance with GAAP or the acquired businesses may have financial controls and systems that are not compatible with our financial controls andsystems, any of which could materially impair our ability to properly integrate such businesses into our consolidated financial statements on a timelybasis. Any revisions to, 24Table of Contentsinaccuracies in or restatements of our consolidated financial statements due to accounting for our acquisitions could have a material adverse effect ourfinancial condition and results of operations.We may be unable to maintain manufacturing efficiency, which could have a material adverse effect on our results of operations.We believe that our success materially depends on our ability to maintain or improve our current margin levels related to our manufacturing.Semiconductor manufacturing requires advanced equipment and significant capital investment, leading to high fixed costs which include depreciationexpense. Manufacturing semiconductor components also involves highly complex processes that we and our competitors are continuously modifyingto improve yields and product performance. In addition, impurities, waste or other difficulties in the manufacturing process can lower productionyields. Our manufacturing efficiency is and will continue to be an important factor in our future profitability, and we cannot assure you that we will beable to maintain our manufacturing efficiency, increase manufacturing efficiency to the same extent as our competitors, or be successful in ourmanufacturing rationalization plans. If we are unable to utilize our manufacturing and testing facilities at expected levels, or if production capacityincreases while revenues do not, the fixed costs and other operating expenses associated with these facilities will not be fully absorbed, resulting inhigher average unit costs and lower gross profits, which could have a material adverse effect on our results of operations.Downturns or volatility in general economic conditions could have a material adverse effect on our business and results of operations.In recent years, worldwide semiconductor industry sales have tracked the impact of the financial crisis, subsequent recovery and persistent economicuncertainty. We believe that the state of economic conditions in the United States is particularly uncertain due to likely shifts in legislative andregulatory conditions concerning, among other matters, international trade and taxation, and that an uneven recovery or a renewed global downturnmay put pressure on our sales due to reductions in customer demand as well as customers deferring purchases. Volatile and/or uncertain economicconditions can adversely impact sales and profitability and make it difficult for us and our competitors to accurately forecast and plan our futurebusiness activities. To the extent we incorrectly plan for favorable economic conditions that do not materialize or take longer to materialize thanexpected, we may face oversupply of our products relative to customer demand. In the past, reduced customer spending has driven us, and may in thefuture drive us and our competitors, to reduce product pricing, which results in a negative effect on gross profit. Moreover, volatility in revenues as aresult of unpredictable economic conditions may alter our anticipated working capital needs and interfere with our short-term and long-term strategies.To the extent that our sales, profitability and strategies are negatively affected by downturns or volatility in general economic conditions, our businessand results of operations may be materially adversely affected.If our technologies are subject to claims of infringement on the IP rights of third parties, efforts to address such claims could have a material adverseeffect on our results of operations.We may from time to time be subject to claims that we may be infringing third-party IP rights. If necessary or desirable, we may seek licenses undersuch IP rights. However, we cannot assure you that we will obtain such licenses or that the terms of any offered licenses will be acceptable to us. Thefailure to obtain a license from a third party for IP we use could cause us to incur substantial liabilities or to suspend the manufacture or shipment ofproducts or our use of processes requiring such technologies. Further, we may be subject to IP litigation, which could cause us to incur significantexpense, materially adversely affect sales of the challenged product or 25Table of Contentstechnologies and divert the efforts of our technical and management personnel, whether or not such litigation is resolved in our favor. In the event ofan adverse outcome in any such litigation, we may be required to: • pay substantial damages; • indemnify customers or distributors; • cease the manufacture, use, sale or importation of infringing products; • expend significant resources to develop or acquire non-infringing technologies; • discontinue the use of processes; or • obtain licenses, which may not be available on reasonable terms, to the infringing technologies.There are several civil litigation proceedings with Power Integrations, Inc. (“PI”), many of which were pending prior to the Fairchild Transaction, andthere are also over two dozen outstanding administrative proceedings between the parties at the United States Patent and Trademark Office (the“USPTO”) in which each party is challenging the validity of the other party’s patents. Please see Note 12: “Commitments and Contingencies” in thenotes to our audited consolidated financial statements included elsewhere in this Form 10-K for a more detailed description of the litigation and relatedadministrative matters with PI and other legal matters we are currently engaged in.The outcome of IP litigation is inherently uncertain and, if not resolved in our favor, could materially and adversely affect our business, financialcondition and results of operations.Many of our facilities and processes are interdependent and an operational disruption at any particular facility could have a material adverse effecton our ability to produce many of our products, which could materially adversely affect our business and results of operations.We utilize an integrated manufacturing platform in which multiple facilities may each produce one or more components necessary for the assembly of asingle product. As a result of the necessary interdependence within our network of manufacturing facilities, an operational disruption at a facilitytoward the front-end of our manufacturing process may have a disproportionate impact on our ability to produce many of our products. For example,our facility in Roznov, Czech Republic, manufactures silicon wafers used by a number of our facilities, and any operational disruption, natural orman-made disaster or other extraordinary event that impacted the Roznov facility would have a material adverse effect on our ability to produce anumber of our products worldwide. In the event of a disruption at any such facility, we may be unable to effectively source replacement components onacceptable terms from qualified third parties, in which case our ability to produce many of our products could be materially disrupted or delayed.Conversely, many of our facilities are single source facilities that only produce one of our end-products, and a disruption at any such facility wouldmaterially delay or cease production of the related product. In the event of any such operational disruption, we may experience difficulty in beginningproduction of replacement components or products at new facilities (for example, due to construction delays) or transferring production to otherexisting facilities (for example, due to capacity constraints or difficulty in transitioning to new manufacturing processes), any of which could result in aloss of future revenues and materially adversely affect our business and results of operations.The failure to successfully implement cost reduction initiatives, including through restructuring activities, could materially adversely affect ourbusiness and results of operations.From time to time, we have implemented cost reduction initiatives in response to significant downturns in our industry, including relocatingmanufacturing to lower cost regions, transitioning higher-cost external supply to 26Table of Contentsinternal manufacturing, working with our material suppliers to lower costs, implementing personnel reductions and voluntary retirement programs,reducing employee compensation, temporary shutdowns of facilities with mandatory vacation and aggressively streamlining our overhead. In the past,we have recorded net restructuring charges to cover costs associated with our cost reduction initiatives. These costs have been primarily composed ofemployee separation costs (including severance payments) and asset impairments. We also often undertake restructuring activities and programs toimprove our cost structure in connection with our business acquisitions, which can result in significant charges, including charges for severancepayments to terminated employees and asset impairment charges.We cannot assure you that our cost reduction and restructuring initiatives will be successfully or timely implemented or that they will materially andpositively impact our profitability. Because our restructuring activities involve changes to many aspects of our business, the associated cost reductionscould materially adversely impact productivity and sales to an extent we have not anticipated. Even if we fully execute and implement these activitiesand they generate the anticipated cost savings, there may be other unforeseeable and unintended consequences that could materially adversely impactour profitability and business, including unintended employee attrition or harm to our competitive position. To the extent that we do not achieve theprofitability enhancement or other benefits of our cost reduction and restructuring initiatives that we anticipate, our results of operations may bematerially adversely effected.If we are unable to identify and make the substantial research and development investments required to remain competitive in our business, ourbusiness, financial condition and results of operations may be materially adversely affected.The semiconductor industry requires substantial investment in research and development in order to develop and bring to market new and enhancedtechnologies and products. The development of new products is a complex and time-consuming process and often requires significant capitalinvestment and lead time for development and testing. We cannot assure you that we will have sufficient resources to maintain the level of investmentin research and development that is required to remain competitive. In addition, the lengthy development cycle for our products limits our ability toadapt quickly to changes affecting the product markets and requirements of our customers and end-users. There can be no assurance that we will wincompetitive bid selection processes, known as “design wins,” for new products. In addition, design wins do not guarantee that we will make customersales or that we will generate sufficient revenue to recover design and development investments, as expenditures for technology and productdevelopment are generally made before the commercial viability for such developments can be assured. There is no assurance that we will realize areturn on the capital expended to develop new products, that a significant investment in new products will be profitable or that we will have margins ashigh as we anticipate at the time of investment or have experienced historically. To the extent that we underinvest in our research and developmentefforts, or that our investments and capital expenditures in research and development do not lead to sales of new products, we may be unable to bringto market technologies and products that are attractive to our customers, and as a result our business, financial condition and results of operations maybe materially adversely affected.We may be unable to develop new products to satisfy changing customer demands or regulatory requirements, which may materially adversely affectour business and results of operations.The semiconductor industry is characterized by rapidly changing technologies, evolving regulatory and industry standards and certifications,changing customer needs and frequent new product introductions. Our success is largely dependent on our ability to accurately predict, identify andadapt to changes affecting the requirements of our customers in a timely and cost-effective manner. Additionally, the emergence of new industry orregulatory 27Table of Contentsstandards and certification requirements may adversely affect the demand for our products. We focus our independent new product development effortson market segments and applications that we anticipate will experience growth, but there can be no assurance that we will be successful in identifyinghigh-growth areas or develop products that meet industry standards or certification requirements in a timely manner. A fundamental shift intechnologies, the regulatory climate or consumption patterns and preferences in our existing product markets or the product markets of our customersor end-users could make our current products obsolete, prevent or delay the introduction of new products that we planned to make or render our currentor new products irrelevant to our customers’ needs. If our new product development efforts fail to align with the needs of our customers, including dueto circumstances outside of our control like a fundamental shift in the product markets of our customers and end users or regulatory changes, ourbusiness and results of operations could be materially adversely affected.Uncertainties regarding the timing and amount of customer orders could lead to excess inventory and write-downs of inventory that could materiallyadversely affect our financial condition and results of operations.Our sales are typically made pursuant to individual purchase orders or customer agreements, and we generally do not have long-term supplyarrangements with our customers requiring a commitment to purchase. Generally, our customers may cancel orders 30 days prior to shipment forstandard products and 90 days for custom products without incurring a significant penalty. We routinely generate inventory based on customers’estimates of end-user demand for their products, which is difficult to predict. This difficulty may be compounded when we sell to OEMs indirectlythrough distributors or contract manufacturers, or both, as our forecasts for demand are then based on estimates provided by multiple parties, whichmay vary significantly. In addition, our customers may change their inventory practices on short notice for any reason. Furthermore, short customerlead times are standard in the industry due to overcapacity. The cancellation or deferral of product orders, the return of previously sold products, oroverproduction of products due to the failure of anticipated orders to materialize could result in excess obsolete inventory, which could result in write-downs of inventory or the incurrence of significant cancellation penalties under our arrangements with our raw materials and equipment suppliers.Unsold inventory, canceled orders and cancellation penalties may materially adversely affect our results of operations, and inventory write-downs maymaterially adversely affect our financial condition.If we do not have access to capital on favorable terms, on the timeline we anticipate, or at all, our financial condition and results of operations couldbe materially adversely affected.We require a substantial amount of capital to meet our operating requirements and remain competitive. We routinely incur significant costs toimplement new manufacturing and information technologies, to increase our productivity and efficiency, to upgrade equipment and to expandproduction capacity, and there can be no assurance that we will realize a return on the capital expended. We have incurred and may continue to incurmaterial amounts of debt to fund these requirements. Significant volatility or disruption in the global financial markets may result in us not being ableto obtain additional financing on favorable terms, on the timeline we anticipate, or at all, and we may not be able to refinance, if necessary, anyoutstanding debt when due, all of which could have a material adverse effect on our financial condition. Any inability to obtain additional funding onfavorable terms, on the timeline we anticipate, or at all, may cause us to curtail our operations significantly, reduce planned capital expenditures andresearch and development, or obtain funds through arrangements that management does not currently anticipate, including disposing of our assets andrelinquishing rights to certain technologies, the occurrence of any of which may significantly impair our ability to remain competitive. If our operatingresults falter, our cash flow or capital resources prove inadequate, or if interest rates increase significantly, we could face liquidity problems that couldmaterially and adversely affect our results of operations and financial condition. 28Table of ContentsThe semiconductor industry is highly competitive, and our inability to compete effectively could materially adversely affect our business and resultsof operations.The semiconductor industry is highly competitive, and our ability to compete successfully depends on elements both within and outside of ourcontrol. We face significant competition within each of our product lines from major global semiconductor companies as well as smaller companiesfocused on specific market niches. Because our components are often building block semiconductors that, in some cases, are integrated into morecomplex ICs, we also face competition from manufacturers of ICs, ASICs and fully customized ICs, as well as from customers who develop their own ICproducts. In addition, companies not currently in direct competition with us may introduce competing products in the future.Our inability to compete effectively could materially adversely affect our business and results of operations. Products or technologies developed bycompetitors that are larger and have more substantial research and development budgets, or that are smaller and more targeted in their developmentefforts, may render our products or technologies obsolete or noncompetitive. We also may be unable to market and sell our products if they are notcompetitive on the basis of price, quality, technical performance, features, system compatibility, customized design, innovation, availability, deliverytiming and reliability. If we fail to compete effectively on developing strategic relationships with customers and customer sales and technical support,our sales and revenues may be materially adversely affected. Competitive pressures may limit our ability to raise prices, and any inability to maintainrevenues or raise prices to offset increases in costs could have a significant adverse effect on our gross margin. Reduced sales and lower gross marginswould materially adversely affect our business and results of operations.The semiconductor industry has experienced rapid consolidation and our inability to compete with large competitors or failure to identify attractiveopportunities to consolidate may materially adversely affect our business.The semiconductor industry is characterized by the high costs associated with developing marketable products and manufacturing technologies as wellas high levels of investment in production capabilities. As a result, the semiconductor industry has experienced, and may continue to experience,significant consolidation among companies and vertical integration among customers. Larger competitors resulting from consolidations may havecertain advantages over us, including, but not limited to: substantially greater financial and other resources with which to withstand adverse economicor market conditions and pursue development, engineering, manufacturing, marketing and distribution of their products; longer independent operatinghistories; presence in key markets; patent protection; and greater name recognition. In addition, we may be at a competitive disadvantage to our peersif we fail to identify attractive opportunities to acquire companies to expand our business. Consolidation among our competitors and integrationamong our customers could erode our market share, negatively impact our capacity to compete and require us to restructure our operations, any ofwhich would have a material adverse effect on our business.Natural disasters and other business disruptions could cause significant harm to our business operations and facilities and could adversely affectour supply chain and our customer base, any of which may materially adversely affect our business, results of operation, and financial condition.Our U.S. and international manufacturing facilities and distribution centers, as well as the operations of our third-party suppliers, are susceptible tolosses and interruptions caused by floods, hurricanes, earthquakes, typhoons, and similar natural disasters, as well as power outages,telecommunications failures, industrial accidents, and similar events. The occurrence of natural disasters in any of the regions in which we operatecould severely 29Table of Contentsdisrupt the operations of our businesses by negatively impacting our supply chain, our ability to deliver products, and the cost of our products. Suchevents can negatively impact revenues and earnings and can significantly impact cash flow, both from decreased revenue and from increased costsassociated with the event. In addition, these events could cause consumer confidence and spending to decrease or result in increased volatility to theU.S. and worldwide economies. Although we carry insurance to generally compensate for losses of the type noted above, such insurance may not beadequate to cover all losses that may be incurred or continue to be available in the affected area at commercially reasonable rates and terms. To theextent any losses from natural disasters or other business disruptions are not covered by insurance, any costs, write-downs, impairments and decreasedrevenues can materially adversely affect our business, our results of operations and our financial condition.The loss of one of our largest customers, or a significant reduction in the revenue we generate from these customers, could materially adversely affectour revenues, profitability, and results of operations.Product sales to our ten largest customers have historically accounted for a significant amount of our business. For instance, for the years endedDecember 31, 2017 and 2016, revenue from our 10 largest end-customers collectively represented approximately 24% and 24%, respectively, of ourtotal revenues for those years. Many of our customers operate in cyclical industries, and, in the past, we have experienced significant fluctuations fromperiod to period in the volume of our products ordered. Generally, our agreements with our customers impose no minimum or continuing obligations topurchase our products. We cannot assure you that our largest customers will not cease purchasing products from us in favor of products produced byother suppliers, significantly reduce orders or seek price reductions in the future, and any such event could have a material adverse effect on ourrevenues, profitability, and results of operations.Because a significant portion of our revenue is derived from customers in the automotive, industrial and communications industries, a downturn orlower sales to customers in either industry could materially adversely affect our business and results of operations.A significant portion of our sales are to customers within the automotive, industrial (including medical, aerospace and defense) and communicationsindustries (including networking). Sales into these industries represented approximately 31%, 25%, and 20% of our revenue, respectively, for the yearended December 31, 2017, and those percentages will vary from quarter to quarter. Each of the automotive, industrial and communications industries iscyclical, and, as a result, our customers in these industries are sensitive to changes in general economic conditions, disruptive innovation andend-market preferences, which can adversely affect sales of our products and, correspondingly, our results of operations. Additionally, the quantity andprice of our products sold to customers in these industries could decline despite continued growth in their respective end markets. Lower sales tocustomers in the automotive, industrial or communications industry may have a material adverse effect on our business and results of operations.Shortages or increased prices of raw materials could materially adversely affect our results of operations.Our manufacturing processes rely on many raw materials, including various chemicals and gases, polysilicon, silicon wafers, aluminum, gold, silver,copper, lead frames, mold compound and ceramic packages. Generally, our agreements with suppliers of raw materials impose no minimum orcontinuing supply obligations, and we obtain our raw materials and supplies from a large number of sources on a just-in-time basis. From time to time,suppliers of raw materials may extend lead times, limit supplies or increase prices due to capacity constraints or other factors beyond our control.Shortages could occur in various essential raw materials due to interruption of supply or increased demand. If we are unable to obtain adequatesupplies of raw materials in a timely manner, 30Table of Contentsthe costs of our raw materials increases significantly, their quality deteriorates or they give rise to compatibility or performance issues in our products,our results of operations could be materially adversely affected.We are dependent on the services of third-party suppliers and contract manufacturers, and any disruption in or deterioration of the quality of theservices delivered by such third parties could materially adversely affect our business and results of operations.We use third-party contractors for certain of our manufacturing activities, primarily wafer fabrication and the assembly and testing of final goods. Ouragreements with these manufacturers typically require us to commit to purchase services based on forecasted product needs, which may be inaccurate,and, in some cases, require longer-term commitments. We are also dependent upon a limited number of highly specialized third-party suppliers forrequired components and materials for certain of our key technologies. Arranging for replacement manufacturers and suppliers can be time consumingand costly, and the number of qualified alternative providers can be extremely limited. Our business operations, productivity and customer relationscould be materially adversely affected if these contractual relationships were disrupted or terminated, the cost of such services increased significantly,the quality of the services provided deteriorated or our forecasted needs proved to be materially incorrect.Our international operations subject us to risks inherent in doing business on an international level that could adversely impact our business,financial condition and results of operations.A significant amount of our total revenue outside of the U.S. is derived from the Asia/Pacific region and Europe, and we maintain significant operationsin these regions. In addition, we rely on a number of contract manufacturers whose operations are primarily located in the Asia/Pacific region. Risksinherent in doing business on an international level include, among others, the following: • economic and geopolitical instability (including as a result of the threat or occurrence of armed international conflict or terrorist attacks); • changes in regulatory requirements, international trade agreements, tariffs, customs, duties and other trade barriers; • licensing requirements for the import or export of certain products; • exposure to different legal standards, customs, business practices, tariffs, duties and other trade barriers, including changes with respect toprice protection, competition practices, IP, anti-corruption and environmental compliance, trade and travel restrictions, pandemics, importand export license requirements and restrictions, and accounts receivable collections; • transportation and other supply chain delays and disruptions; • power supply shortages and shutdowns; • fluctuations in raw material costs and energy costs; • difficulties in staffing and managing foreign operations, including collective bargaining agreements and workers councils, exposure toforeign labor laws and other employment and labor issues; • currency fluctuations; • currency convertibility and repatriation; • taxation of our earnings and the earnings of our personnel; • limitations on the repatriation of earnings and potential taxation of foreign profits in the U.S.; • potential violations by our international employees or third party agents of international or U.S. laws relevant to foreign operations (e.g., theForeign Corrupt Practices Act (“FCPA”)); • difficulty in enforcing intellectual property rights; and 31Table of Contents • other risks relating to the administration of or changes in, or new interpretations of, the laws, regulations and policies of the jurisdictions inwhich we conduct our business.We cannot assure you that we will be successful in overcoming the risks that relate to or arise from operating in international markets, thematerialization of any of which could materially adversely affect our business, financial condition and results of operations.We could be subject to changes in tax rates or the adoption of new U.S. or international tax legislation or have exposure to additional tax liabilities,which could adversely affect our results of operations or financial condition.Changes to income tax regulations in the United States and the jurisdictions in which we operate, or in the interpretation of such laws, could, under ourexisting tax structure, significantly increase our effective tax rate and ultimately reduce our cash flow from operating activities and otherwise have amaterial adverse effect on our financial condition. In addition, other factors or events, including business combinations and investment transactions,changes in the valuation of our deferred tax assets and liabilities, adjustments to income taxes upon finalization of various tax returns or as a result ofdeficiencies asserted by taxing authorities, increases in expenses not deductible for tax purposes, changes in available tax credits, increasingoperations in high tax jurisdictions, and changes in tax rates, could also increase our future effective tax rate.Our tax filings are subject to review or audit by the Internal Revenue Service (the “IRS”) and state, local and foreign taxing authorities. We exercisesignificant judgment in determining our worldwide provision for income taxes and, in the ordinary course of our business, there may be transactionsand calculations where the ultimate tax determination is uncertain. We are also liable for potential tax liabilities of businesses we acquire. The finaldetermination in an audit may be materially different than the treatment reflected in our historical income tax provisions and accruals. An assessmentof additional taxes because of an audit could have a material adverse effect on our business, financial condition, results of operations and cash flows.Further changes in the tax laws of foreign jurisdictions could arise as a result of the base erosion and profit shifting project that was undertaken by theOrganization for Economic Co-operation and Development (“OECD”). The OECD, which represents a coalition of member countries, recommendedchanges to numerous long-standing tax principles. These changes, if adopted by countries, could increase tax uncertainty and may adversely affect ourprovision for income taxes.The impact of new U.S. tax legislation is uncertain and could have a material adverse impact on our cash flows and results of operations.On December 22, 2017, the U.S. enacted comprehensive tax legislation, H.R.1, commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). TheTax Act makes broad and complex changes to the U.S. tax code, and it will take time for additional clarifying guidance and legislation to be issued,and this guidance will be required for the interpretation of these comprehensive changes. Based on our current understanding of the law following apreliminary review, we estimated significant impacts to our fourth quarter and full year 2017 earnings. The impact of the Tax Act may differ from thisestimate, possibly materially, due to, among other things, changes in interpretations and assumptions the Company has made, guidance that may beissued and actions the Company may take as a result of the Tax Act.The Tax Act could have a material benefit or material adverse impact and could result in volatility in our effective tax rate, tax expense and cash flow.We are in the process of analyzing the potential aggregate current 32Table of Contentsand future impacts of the Tax Act relative to how we do business, cash flows and results of operations. Any benefit associated with the lower U.S.corporate tax rate could be reduced or outweighed by other adverse changes enacted in the Tax Act or by the cost of compliance.We operate a global business through numerous foreign subsidiaries, and there is a risk that tax authorities will challenge our transfer pricingmethodologies and/or legal entity structures, which could adversely affect our operating results and financial condition.We conduct operations worldwide through our foreign subsidiaries and are, therefore, subject to complex transfer pricing regulations in thejurisdictions in which we operate. Transfer pricing regulations generally require that, for tax purposes, transactions between related parties be priced ona basis that would be comparable to an arm’s length transaction between unrelated parties. There is uncertainty and inherent subjectivity in complyingwith these rules. To the extent that any foreign tax authorities disagree with our transfer pricing policies, we could become subject to significant taxliabilities and penalties. The ultimate outcome of a tax examination could differ materially from our provisions and could have a material adverseeffect on our business, financial condition, results or operations and cash flows.Our legal organizational structure could result in unanticipated unfavorable tax or other consequences which could have a material adverse effect onour financial condition and results of operations. Changes in tax laws, regulations, future jurisdictional profitability of us and our subsidiaries, andrelated regulatory interpretations in the countries in which we operate may impact the taxes we pay or tax provision we record, which could have amaterial adverse effect on our results of operations. In addition, any challenges to how our entities are structured or realigned or their business purposeby taxing authorities could result in us becoming subject to significant tax liabilities and penalties which could have a material adverse effect on ourbusiness, financial condition, results of operations and cash flows.Currency fluctuations, changes in foreign exchange regulations and repatriation delays and costs could have a material adverse effect on our resultsof operations and financial condition.We have sizeable sales and operations in the Asia/Pacific region and Europe and a significant amount of this business is transacted in currency otherthan U.S. dollars. In addition, while a significant percentage of our cash and cash equivalents is held outside the U.S., many of our liabilities, includingour outstanding indebtedness, and certain other cash payments, such as share repurchases, are payable in U.S. dollars. As a result, currency fluctuationsand changes in foreign exchange regulations can have a material adverse effect on our liquidity and financial condition.In addition, repatriation of funds held outside the U.S. could have adverse tax consequences and could be subject to delay due to required localcountry approvals or local obligations. From time to time, we are required to make cash deposits outside of the U.S. to support bank guarantees of ourobligations under certain office leases or amounts we owe to certain vendors and such cash deposits are not available for other uses as long as therelated bank guarantees are outstanding. Foreign exchange regulations may also limit our ability to convert or repatriate foreign currency. As a result ofhaving a lower amount of cash and cash equivalents in the U.S., our financial flexibility may be reduced, which could have a material adverse effect onour ability to make interest and principal payments due under our various debt obligations. Restrictions on repatriation or the inability to use cash heldabroad to fund our operations in the U.S. may have a material adverse effect on our liquidity and financial condition. 33Table of ContentsWe may be unable to attract and retain highly skilled personnel.Our success depends on our ability to attract, motivate and retain highly skilled personnel, including technical, marketing, management and staffpersonnel, both in the U.S. and internationally. In the semiconductor industry, the competition for qualified personnel, particularly experienced designengineers and other technical employees, is intense, particularly when the business cycle is improving. During such periods, competitors may try torecruit our most valuable technical employees. While we devote a great deal of our attention to designing competitive compensation programs aimedat attracting and retaining personnel, specific elements of our compensation programs may not be competitive with those of our competitors, and therecan be no assurance that we will be able to retain our current personnel or recruit the key personnel we require. Loss of the services of, or failure toeffectively recruit, qualified personnel, including senior managers, could have a material adverse effect on our competitive position and on ourbusiness.If we must reduce our use of equity awards to compensate our employees, our competitiveness in the employee marketplace could be adverselyaffected and our results of operations could vary as a result of changes in our stock-based compensation programs.We have issued in the past, and expect to continue to issue, RSUs with time-based vesting, performance-based awards and common stock options thatgenerally have exercise prices at the market value at the time of the grant and that are subject to vesting over time as compensation tools. While this isa routine practice in many parts of the world, foreign exchange and income tax regulations in some countries make this practice more and moredifficult. Such regulations tend to diminish the value of equity compensation to our employees in those countries. Our current practice is to seekstockholder approval of new, or amendments to existing, equity compensation plans. If these proposals do not receive stockholder approval, we maynot be able to grant equity awards to employees at the same levels as in the past, which could materially adversely affect our ability to attract, retainand motivate qualified personnel, thereby materially adversely affecting our business. In addition, changes in forecasted stock-based compensationexpense could cause our results of operations to vary by impacting our gross margin percentage, research and development expenses, marketing,general and administrative expenses and our tax rate.Disruptions caused by labor disputes or organized labor activities could materially harm our business and reputation.Currently, certain of our U.S. employees in Pennsylvania are represented by labor unions. In addition, we may from time to time experience unionorganizing activities in our non-union facilities. Disputes with the current labor union or new union organizing activities could lead to productionslowdowns or stoppages and make it difficult or impossible for us to meet scheduled delivery times for product shipments to our customers, whichcould result in a loss of business and material damage to our reputation. In addition, union activity and compliance with international labor standardscould result in higher labor costs, which could have a material adverse effect on our financial position and results of operations.If we are unable to protect the intellectual property we use, our business, results of operations and financial condition could be materially adverselyaffected.The enforceability of our patents, trademarks, copyrights, software licenses and other IP is uncertain in certain circumstances. Effective IP protectionmay be unavailable, limited or not applied for in the U.S. and internationally. The various laws and regulations governing our registered andunregistered IP assets, patents, 34Table of Contentstrade secrets, trademarks, mask works and copyrights to protect our products and technologies are subject to legislative and regulatory change andinterpretation by courts. With respect to our IP generally, we cannot assure you that: • any of the substantial number of U.S. or foreign patents and pending patent applications that we employ in our business will not lapse or beinvalidated, circumvented, challenged, abandoned or licensed to others; • any of our pending or future patent applications will be issued or have the coverage originally sought; • any of the trademarks, copyrights, trade secrets, know-how or mask works that we employ in our business will not lapse or be invalidated,circumvented, challenged, abandoned or licensed to others; or • any of our pending or future trademark, copyright, or mask work applications will be issued or have the coverage originally sought.When we seek to enforce our rights, we are often subject to claims that the IP right is invalid, is otherwise not enforceable or is licensed to the partyagainst whom we are asserting a claim. In addition, our assertion of IP rights often results in the other party seeking to assert alleged IP rights of its ownagainst us, which may materially adversely impact our business. An unfavorable ruling in these sorts of matters could include money damages or aninjunction prohibiting us from manufacturing or selling one or more products, which could in turn negatively affect our business, results of operationsor cash flows.In addition, some of our products and technologies are not covered by any patents or pending patent applications. We seek to protect our proprietarytechnologies, including technologies that may not be patented or patentable, in part by confidentiality agreements and, if applicable, inventors’ rightsagreements with our collaborators, advisors, employees and consultants. We cannot assure you that these agreements will not be breached, that we willhave adequate remedies for any breach or that persons or institutions will not assert rights to IP arising out of our research. Should we be unable toprotect our IP, competitors may develop products or technologies that duplicate our products or technologies, benefit financially from innovations forwhich we bore the costs of development and undercut the sales and marketing of our products, all of which could have a material adverse effect on ourbusiness, results of operations and financial condition.Environmental and health and safety liabilities and expenditures could materially adversely affect our results of operations and financial condition.Our manufacturing operations are subject to various environmental laws and regulations relating to the management, disposal and remediation ofhazardous substances and the emission and discharge of pollutants into the air, water and ground, and we have been identified as either a primaryresponsible party or a potentially responsible party at sites where we or our predecessors operated or disposed of waste in the past. Our operations arealso subject to laws and regulations relating to workplace safety and worker health, which, among other requirements, regulate employee exposure tohazardous substances. We have indemnities from third parties for certain environmental and health and safety liabilities for periods prior to ouroperations at some of our current and past sites, and we have also purchased environmental insurance to cover certain claims related to historicalcontamination and future releases of hazardous substances. However, we cannot assure you that such indemnification arrangements and insurance willcover any or all of our material environmental costs. In addition, the nature of our operations exposes us to the continuing risk of environmental andhealth and safety liabilities including: • changes in U.S. and international environmental or health and safety laws or regulations, including, but not limited to, future laws orregulations imposed in response to climate change concerns; 35Table of Contents • the manner in which environmental or health and safety laws or regulations will be enforced, administered or interpreted; • our ability to enforce and collect under indemnity agreements and insurance policies relating to environmental liabilities; • the cost of compliance with future environmental or health and safety laws or regulations or the costs associated with any futureenvironmental claims, including the cost of clean-up of currently unknown environmental conditions; or • the cost of fines, penalties or other legal liability, should we fail to comply with environmental or health and safety laws or regulations.To the extent that we face unforeseen environmental or health and safety compliance costs or remediation expenses or liabilities that are not coveredby indemnities or insurance, we may bear the full effect of such costs, expense and liabilities, which could materially adversely affect our results ofoperations and financial condition.We are exposed to increased costs and risks associated with complying with increasing and new regulation of corporate governance and disclosurestandards.Like most publicly traded companies, we incur significant cost and spend a significant amount of management time and internal resources to complywith changing laws, regulations and standards relating to corporate governance and public disclosure, which requires management’s annual review andevaluation of our internal control over financial reporting and attestations of the effectiveness of these systems by our management and by ourindependent registered public accounting firm. As we continue to make strategic acquisitions, mergers and alliances, the integration of thesebusinesses increases the complexity of our systems of controls. While we devote significant resources and time to comply with the internal control overfinancial reporting requirements under Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX”), we cannot be certain that these measures will ensurethat we design, implement and maintain adequate control over our financial process and reporting in the future.There can be no assurance that we or our independent registered public accounting firm will not identify a material weakness in the combinedcompany’s internal control over financial reporting in the future. Failure to comply with SOX, including delaying or failing to successfully integrateour acquisitions into our internal control over financial reporting or the identification and reporting of a material weakness, may cause investors to loseconfidence in our consolidated financial statements or even in our ability to recognize the anticipated synergies and benefits of such transactions, andthe trading price of our common stock or other securities may decline. In addition, if we fail to remedy any material weakness, our investors and othersmay lose confidence in our financial statements, our financial statements may be materially inaccurate, our access to capital markets may be restrictedand the trading price of our common stock may decline.Warranty claims, product liability claims and product recalls could harm our business, results of operations and financial condition.Manufacturing semiconductors is a highly complex and precise process, requiring production in a tightly controlled, clean environment. Minuteimpurities in our manufacturing materials, contaminants in the manufacturing environment, manufacturing equipment failures, and other defects cancause our products to be non-compliant with customer requirements or otherwise nonfunctional. We face an inherent business risk of exposure towarranty and product liability claims in the event that our products fail to perform as expected or such failure of our products results, or is alleged toresult, in bodily injury or property damage (or both). In addition, if any of our designed products are or are alleged to be defective, we may be requiredto participate in 36Table of Contentstheir recall. As suppliers become more integrally involved in electrical design, OEMs are increasingly expecting them to warrant their products and areincreasingly looking to them for contributions when faced with product liability claims or recalls. A successful warranty or product liability claimagainst us in excess of our available insurance coverage, if any, and established reserves, or a requirement that we participate in a product recall, couldhave material adverse effects on our business, results of operations and financial condition. Additionally, in the event that our products fail to performas expected or such failure of our products results in a recall, our reputation may be damaged, which could make it more difficult for us to sell ourproducts to existing and prospective customers and could materially adversely affect our business, results of operations and financial condition.Since a defect or failure in our product could give rise to failures in the goods that incorporate them (and claims for consequential damages against ourcustomers from their customers), we may face claims for damages that are disproportionate to the revenues and profits we receive from the productsinvolved. In certain instances, we attempt to limit our liability through our standard terms and conditions of sale and other customer contracts. There isno assurance that such limitations will be effective, and to the extent that we are liable for damages in excess of the revenues and profits we receivedfrom the products involved, our results of operations and financial condition could be materially adversely affected.We may be subject to disruptions or breaches of our secured network that could irreparably damage our reputation and our business, expose us toliability and materially adversely affect our results of operations.We routinely collect and store sensitive data, including IP and other proprietary information about our business and our customers, suppliers andbusiness partners. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. We maybe subject to disruptions or breaches of our secured network caused by computer viruses, illegal hacking, criminal fraud or impersonation, acts ofvandalism or terrorism or employee error. Our security measures and/or those of our third party service providers and/or customers may not detect orprevent such security breaches. The costs to us to reduce the risk of or alleviate cyber security breaches and vulnerabilities could be significant, andour efforts to address these problems may not be successful and could result in interruptions and delays that may materially impede our sales,manufacturing, distribution or other critical functions. Any such compromise of our information security could result in the misappropriation orunauthorized publication of our confidential business or proprietary information or that of other parties with which we do business, an interruption inour operations, the unauthorized transfer of cash or other of our assets, the unauthorized release of customer or employee data or a violation of privacyor other laws. In addition, computer programmers and hackers also may be able to develop and deploy viruses, worms and other malicious softwareprograms that attack our products, or that otherwise exploit any security vulnerabilities, and any such attack, if successful, could expose us to liabilityto customer claims. Any of the foregoing could irreparably damage our reputation and business, which could have a material adverse effect on ourresults of operations.Sales through distributors and other third parties expose us to risks that, if realized, could have a material adverse effect on our results of operations.We face risks related to our sale of a significant, and increasing, portion of our products through distributors. Distributors may sell products thatcompete with our products, and we may need to provide financial and other incentives to focus distributors on the sale of our products. We may rely onone or more key distributors for a product, and the loss of these distributors could reduce our revenue. Distributors may face financial difficulties,including bankruptcy, which could harm our collection of accounts receivable and financial results. Violations of the FCPA or similar laws bydistributors or other third-party intermediaries could have a material impact on our 37Table of Contentsbusiness. Failure to manage risks related to our use of distributors may reduce sales, increase expenses, and weaken our competitive position, any ofwhich could have a material adverse effect on our results of operations.The failure to comply with the terms and conditions of our contracts could result in, among other things, damages, fines or other liabilities.We have a diverse customer base consisting of both private sector clients and public sector clients, including the U.S. government. Sales to our privatesector clients are generally based on stated contractual terms, the terms and conditions on our website or terms contained in purchase orders on atransaction-by-transaction basis. Sales to our public sector clients are generally derived from sales to federal, state and local governmental departmentsand agencies through various contracts and programs which may require compliance with regulations covering many areas of our operations,including, but not limited to, accounting practices, IP rights, information handling, and security. Noncompliance with contract terms, particularly withrespect to highly-regulated public sector clients, or with government procurement regulations could result in fines or penalties against us, terminationof such contracts or civil, criminal and administrative liability to the Company. With respect to public sector clients, the government’s remedies mayalso include suspension or debarment from future government business. In addition, almost all of our contracts have default provisions, and certain ofour contracts in the public sector are terminable at any time for convenience of the contracting agency. The effect of any of these possible actions orthe adoption of new or modified procurement regulations or practices could materially adversely affect our business, financial position and results ofoperations.The Company is subject to governmental laws, regulations and other legal obligations related to privacy and data protection.The legislative and regulatory framework for privacy and data protection issues worldwide is rapidly evolving and is likely to remain uncertain for theforeseeable future. The Company collects personally identifiable information (“PII”) and other data as part of its business processes and activities. Thisdata is subject to a variety of U.S. and international laws and regulations, including oversight by various regulatory or other governmental bodies.Many foreign countries and governmental bodies, including the European Union and other relevant jurisdictions where the Company conductsbusiness, have laws and regulations concerning the collection and use of PII and other data obtained from their residents or by businesses operatingwithin their jurisdictions that are currently more restrictive than those in the U.S. Additionally, in May 2016, the European Union adopted the GeneralData Protection Regulation that will impose more stringent data protection requirements and will provide for greater penalties for noncompliancebeginning in May 2018. While the Company has developed and is executing plans to meet these requirements, these plans are subject to manyvariables that could delay or otherwise affect implementation. Any inability, or perceived inability, to adequately address privacy and data protectionconcerns, even if unfounded, or to comply with applicable laws, regulations, policies, industry standards, contractual obligations or other legalobligations, could result in additional cost and liability to the Company or company officials, damage our reputation, inhibit sales and adversely affectour business.Trends, Risks and Uncertainties Relating to Our IndebtednessOur substantial debt could materially adversely affect our financial condition and results of operations.As of December 31, 2017, we had $3,175.0 million of outstanding indebtedness. We may need to incur additional indebtedness in the future to repayor refinance other outstanding debt, to make acquisitions or for 38Table of Contentsother purposes, and if we incur additional debt, the related risks that we now face could intensify. The degree to which we are leveraged could haveimportant consequences to our potential and current investors, including: • our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes orother purposes may be impaired; • the timing, amount and execution of our capital allocation policy, including our share repurchase program, could be affected by the degreeto which we are leveraged; • a significant portion of our cash flow from operating activities must be dedicated to the payment of interest and principal on our debt, whichreduces the funds available to us for our operations and may limit our ability to engage in acts that may be in our long-term best interests; • some of our debt is and will continue to be at variable rates of interest, which may result in higher interest expense in the event of increasesin market interest rates; • our debt agreements may contain, and any agreements to refinance our debt likely will contain, financial and restrictive covenants, and ourfailure to comply with them may result in an event of default which if not cured or waived, could have a material adverse effect on us; • our level of indebtedness will increase our vulnerability to, and reduce our flexibility to respond to, general economic downturns andadverse industry and business conditions; • as our long-term debt ages, we must repay, and may need to renegotiate, such debt or seek additional financing; • to the extent the debt we incur requires collateral to secure such indebtedness, our assets could be at risk and our flexibility related to suchassets could be limited; • our debt service obligations could limit our flexibility in planning for, or reacting to, changes in our business and the semiconductorindustry; • our substantial leverage could place us at a competitive disadvantage vis-à-vis our competitors who may have less leverage relative to theiroverall capital structures; and • our level of indebtedness may place us at a competitive disadvantage relative to less leveraged competitors.To the extent that we continue to maintain or expand our significant indebtedness, our financial condition and results of operations may be materiallyadversely affected.Indebtedness incurred in connection with the Fairchild Transaction could materially and adversely affect us by, among other things, limiting ourability to conduct our operations and reducing our flexibility to respond to changing business and economic conditions.In connection with our acquisition of Fairchild, we entered into the Amended Credit Agreement providing for our $1.0 billion Revolving CreditFacility, which provides liquidity to us, and the $2.4 billion Term Loan “B” Facility, which was used to fund the acquisition of Fairchild. Theobligations under the Amended Credit Agreement are collateralized by a lien on substantially all of the personal property and material real propertyassets of the Company and most of the Company’s domestic subsidiaries. As a result, if we are unable to satisfy our obligations under the AmendedCredit Agreement, the lenders could take possession of and foreclose on the pledged collateral securing the indebtedness, in which case we would be atrisk of losing the related collateral, which would have a material adverse effect on our business and operations. In addition, subject to customaryexceptions, the Amended Credit Agreement requires mandatory prepayment under certain circumstances, which may result in prepaying outstandingamounts under the Revolving Credit Facility and the Term Loan “B” Facility rather than using funds for other business purposes. Our acquisition-related financing could have a material adverse effect on our business and financial condition, including, among other things, our ability to obtain 39Table of Contentsadditional financing for working capital, capital expenditures, acquisitions, and other general corporate purposes and could reduce our flexibility torespond to changing business and economic conditions.The agreements relating to our indebtedness, including the Amended Credit Agreement, may restrict our ability to operate our business, and as aresult may materially adversely affect our results of operations.Our debt agreements, including the Amended Credit Agreement, contain, and any future debt agreements may include, a number of restrictivecovenants that impose significant operating and financial restrictions on us and our subsidiaries. Such restrictive covenants may significantly limit ourability to: • incur additional debt, including issuing guarantees; • incur liens; • make certain investments; • settle a conversion of our 1.00% and 1.625% Notes in whole or in part with cash; • sell or otherwise dispose of assets; • make some acquisitions; • engage in mergers or consolidations or certain other “change of control” transactions; • make distributions to our stockholders; • engage in restructuring activities; • engage in certain sale and leaseback transactions; and • issue or repurchase stock or other securities.Such agreements may also require us to satisfy other requirements, including maintaining certain financial ratios and condition tests. Our ability tomeet these requirements can be affected by events beyond our control, and we may be unable to meet them. To the extent we fail to meet any suchrequirements and are in default under our debt obligations, our financial condition may be materially adversely affected. These restrictions may limitour ability to engage in activities that could otherwise benefit us. To the extent that we are unable to engage in activities that support the growth,profitability and competitiveness of our business, our results of operations may be materially adversely affected.We may not be able to generate sufficient cash flow to meet our debt service obligations, and any inability to repay our debt when due would have amaterial adverse effect on our business, financial condition and results of operations.Our ability to generate sufficient cash flow from operating activities to make scheduled payments on our debt obligations will depend on our futurefinancial performance, which will be affected by a range of economic, competitive and business factors, many of which are outside of our control. If wedo not generate sufficient cash flow from operating activities and proceeds from sales of assets in the ordinary course of business to satisfy our debtobligations as they come due, we may have to undertake alternative financing plans, such as refinancing or restructuring our debt, selling additionalassets, reducing or delaying capital investments or seeking to raise additional capital. We cannot assure you that any refinancing would be possible,that any assets could be sold, or, if sold, of the timing of the sales and the amount of proceeds realized from those sales, or that additional financingcould be obtained on acceptable terms, if at all, or would be permitted under the terms of our various debt instruments then in effect. Furthermore, wecannot assure you that, if we were required to repurchase any of our debt securities upon a change of control or other specified event, our assets or cashflow would be sufficient to fully repay borrowings under our outstanding debt instruments or that we would be able to refinance or restructure thepayments on those debt securities. If we are unable to repay, refinance or restructure our indebtedness under our collateralized debt, the holders of suchdebt could proceed against the collateral securing 40Table of Contentsthat indebtedness, which could materially negatively impact our results of operations and financial condition. A default under our committed creditfacilities, including our Amended Credit Agreement, could also limit our ability to make further borrowings under those facilities, which couldmaterially adversely affect our business and results of operations. In addition, to the extent we are not able to borrow or refinance debt obligations, wemay have to issue additional shares of our common stock, which would have a dilutive effect to the current stockholders.An event of default under any agreement relating to our outstanding indebtedness could cross default other indebtedness, which could have amaterial adverse effect on our business, financial condition and results of operations.If there were an event of default under any of the agreements relating to our outstanding indebtedness, the holders of the defaulted debt could cause allamounts outstanding with respect to that debt to be due and payable immediately, which default or acceleration of debt could cross default otherindebtedness. Any such cross default would put immediate pressure on our liquidity and financial condition and would amplify the risks describedabove with regards to being unable to repay our indebtedness when due and payable. We cannot assure you that our assets or cash flow would besufficient to fully repay borrowings under our outstanding debt instruments if accelerated upon an event of default, and, as described above, anyinability to repay our debt when due would have a material adverse effect on our business, financial condition and results of operations.If our operating subsidiaries, which may have no independent obligation to repay our debt, are not able to make cash available to us for suchrepayment, our business, financial condition and results of operations may be adversely affected.We conduct our operations through our subsidiaries. Repayment of our indebtedness is dependent on the generation of cash flow by our subsidiariesand their ability to make such cash available to us, by dividend, debt repayment or otherwise. Unless they are guarantors of our indebtedness, oursubsidiaries have no obligation to pay amounts due on such indebtedness or to make funds available for that purpose. Our subsidiaries may not be ableto, or may not be permitted to, make distributions to enable us to make payments in respect of our indebtedness. Each subsidiary is a distinct legalentity, and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. In the event thatwe do not receive distributions or payments from our subsidiaries, we may be unable to make required principal and interest payments on ourindebtedness and, as described above, any inability to repay our debt when due would have a material adverse effect on our business, financialcondition and results of operations.If interest rates increase, our debt service obligations under our variable rate indebtedness could increase significantly, which would have a materialadverse effect on our results of operations.Borrowings under certain of our facilities from time to time, including under our Amended Credit Agreement, are at variable rates of interest and as aresult expose us to interest rate risk. If interest rates were to increase, our debt service obligations on the variable rate indebtedness would increase eventhough the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, willcorrespondingly decrease. During the first quarter of 2017, we entered into interest rate swaps that involved the exchange of floating for fixed rateinterest payments in order to reduce interest rate volatility for a portion of our Term Loan “B” Facility. However, we may not maintain interest rateswaps with respect to all of our variable rate indebtedness, and any swaps we enter into may not fully mitigate our interest rate risk. To the extent therisk materializes and is not fully mitigated, the resulting increase in interest expense could have a material adverse effect on our results of operations. 41Table of ContentsServicing the 1.00% Notes and 1.625% Notes may require a significant amount of cash, and we may not have sufficient cash flow or the ability toraise the funds necessary to satisfy our obligations under the 1.00% Notes and 1.625% Notes in a timely manner.In June 2015, we issued $690.0 million aggregate principal amount of our 1.00% Notes, and in March 2017, we issued $575.0 million aggregateprincipal amount of our 1.625% Notes. Holders of the 1.00% Notes and the 1.625% Notes will have the right to require us to repurchase all or a portionof their notes upon the occurrence of a fundamental change (as defined under the respective indentures governing such notes) at a repurchase priceequal to 100% of their principal amount, plus accrued and unpaid interest, if any, to, but not including, the fundamental change repurchase date. Inaddition, upon conversion of the 1.00% Notes and/or the 1.625% Notes to be repurchased, unless we elect to deliver solely shares of our common stockto settle such conversion (other than paying cash in lieu of delivering any fractional shares), we will be required to make cash payments in respect ofsuch 1.00% Notes and/or 1.625% Notes being converted. Moreover, we will be required to repay the 1.00% Notes and the 1.625% Notes in cash at theirmaturity, unless earlier converted or repurchased. Servicing the 1.00% Notes and the1.625% Notes may require a significant amount of cash, and wemay not have sufficient cash flow or the ability to raise the funds necessary to satisfy our obligations under the 1.00% Notes and the 1.625% Notes. Ourability to make cash payments in connection with conversions of the 1.00% Notes and/or the 1.625% Notes, repurchase the 1.00% Notes and/or the1.625% Notes in the event of a fundamental change or repay such notes at maturity will depend on market conditions and our future performance,which is subject to economic, financial, competitive and other factors beyond our control. If we are unable to make cash payments upon conversion ofthe 1.00% Notes and/or the 1.625% Notes, we would be required to issue significant amounts of our common stock, which would dilute existingstockholders. In addition, if we do not have sufficient cash to repurchase the 1.00% Notes and/or the 1.625% Notes following a fundamental change,we would be in default under the terms of such notes, which could cross default other debt and materially, adversely harm our business. The terms ofthe Amended Credit Agreement limit the amount of future indebtedness we may incur, but the terms of the 1.00% Notes and the 1.625% Notes do notlimit the amount of future indebtedness we may incur. If we incur significantly more debt, this could intensify the risks described above. Our decisionto use our cash for other purposes, such as to make acquisitions or to repurchase our common stock, could also intensify these risks.The conditional conversion feature of the 1.00% Notes or the 1.625% Notes, if triggered, may adversely affect our financial condition and results ofoperations and, if we elect to settle the conversion of the 1.00% Notes or the 1.625% Notes in common stock, any such settlement could materiallydilute the ownership interests of existing stockholders.If specified conditions are met, holders of the 1.00% Notes may convert their notes prior to the close of business on the business day immediatelypreceding September 1, 2020 and holders of the 1.625% Notes may convert their notes prior to the close of business on the business day immediatelypreceding July 15, 2023. Unless we elect to satisfy our conversion obligations by delivering solely shares of our common stock (other than paying cashin lieu of delivering any fractional shares), in the event the conditional conversion feature under either the 1.00% Notes or the 1.625% Notes istriggered, holders electing to convert their notes could require us to settle a portion or all of our conversion obligations through the payment of cash,which could materially adversely affect our liquidity. Alternatively, if the conditional conversion feature under either the 1.00% Notes or the 1.625%Notes is triggered, and holders do not elect to convert their notes, we could be required under applicable accounting rules to reclassify all or a portionof the outstanding principal of such notes as a current rather than long-term liability, which would result in a material reduction of our net workingcapital. Any material decrease in our liquidity or reduction in our net working capital could have a material adverse effect on our financial conditionand results of operations. In addition, we may elect to settle a conversion of the 1.00% Notes or the 1.625% Notes solely in common stock to avoid anevent of default under our Amended Credit Agreement, and 42Table of Contentsany such issuance of common stock could materially dilute the ownership interests of existing stockholders, including stockholders who previouslyconverted such notes to shares of our common stock.The fundamental change repurchase feature of our 1.00% Notes and 1.625% Notes may delay or prevent an otherwise beneficial attempt to take overour Company.The terms of our 1.00% Notes and 1.625% Notes require us to repurchase such notes in the event of a fundamental change (as defined under therespective indentures governing such notes). In certain circumstances, a takeover of our Company could trigger an option of the holders of the 1.00%Notes and the 1.625% Notes to require us to repurchase such notes. This may have the effect of delaying or preventing a takeover of our Company thatwould otherwise be beneficial to investors in the 1.00% Notes and the 1.625% Notes and our common stock, which could materially decrease the valueof such notes and of our common stock.Note hedge and warrant transactions we have entered into may materially adversely affect the value of our common stock.Concurrently with the issuance of the 1.00% Notes and the 1.625% Notes, we entered into note hedge transactions with certain financial institutions,which we refer to as the option counterparties. The convertible note hedges are expected to reduce the potential dilution upon any conversion of therespective series of notes and/or offset any cash payments we are required to make in excess of the principal amount of converted notes of such series,as the case may be. We also entered into warrant transactions with the option counterparties. However, the warrant transactions could separately have adilutive effect on our common stock to the extent that the market price per share of our common stock exceeds $25.96, with respect to the 1.00% Notes,and $30.70, with respect to the 1.625% Notes.In connection with establishing their initial hedge of the convertible note hedges and warrant transactions, the option counterparties or their respectiveaffiliates have purchased shares of our common stock and/or entered into various derivative transactions with respect to our common stock followingthe pricing of the 1.00% Notes and the 1.625% Notes, respectively. The option counterparties or their respective affiliates may modify their hedgepositions by entering into or unwinding various derivatives contracts with respect to our common stock and/or purchasing or selling our commonstock or other securities of ours in secondary market transactions prior to the maturity of the 1.00% Notes and the 1.625% Notes, respectively (and arelikely to do so during any observation period related to a conversion of 1.00% Notes or 1.625% Notes following any repurchase of the 1.00% Notes or1.625% Notes by us on any fundamental change repurchase date or otherwise). The potential effect, if any, of these transactions and activities on themarket price of our common stock will depend in part on market conditions and cannot be ascertained at this time. Any of these activities couldmaterially adversely affect the value of our common stock.Counterparty risk with respect to the note hedge transactions, if realized, could have a material adverse impact on our results of operations.The option counterparties are financial institutions or affiliates of financial institutions, and we are subject to the risk that these option counterpartiesmay default under the note hedge transactions. We can provide no assurances as to the financial stability or viability of any of the optioncounterparties. Our exposure to the credit risk of the option counterparties is not secured by any collateral. If one or more of the option counterpartiesto one or more of our note hedge transactions becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedingswith a claim equal to our exposure at the time under those transactions. 43Table of ContentsTo the extent the option counterparties do not honor their contractual commitments with us pursuant to the note hedge transactions, we could face amaterial increase in our exposure to potential dilution upon any conversion of the 1.00% Notes or the 1.625% Notes and/or cash payments we arerequired to make in excess of the principal amount of converted 1.00% Notes or 1.625% Notes, as the case may be. Our exposure will depend on manyfactors but, generally, the increase in our exposure will be correlated to the increase in the market price of our common stock and in the volatility of themarket price of our common stock. In addition, upon a default by one of the option counterparties, we may suffer adverse tax consequences withrespect to our common stock. Any such adverse tax consequences or increased cash payments could have a material adverse effect on our results ofoperations.Trends, Risks and Uncertainties Relating to Our Common StockFluctuations in our quarterly operating results may cause the market price of our common stock to decline.Given the nature of the markets in which we participate, we cannot reliably predict future revenues and profitability, and unexpected changes mayimpact the value of our common stock. A large portion of our costs are fixed, due in part to our significant sales, research and development andmanufacturing costs. Thus, small declines in revenues could negatively affect our operating results in any given quarter. In addition to the other factorsdescribed above, factors that could affect our quarterly operating results include: • the timing and size of orders from our customers, including cancellations and reschedulings; • the timing of introduction of new products; • the gain or loss of significant customers, including as a result of industry consolidation or as a result of our acquisitions; • seasonality in some of our target markets; • changes in the mix of products we sell; • changes in demand by the end-users of our customers’ products; • market acceptance of our current and future products; • variability of our customers’ product life cycles; • availability of supplies and manufacturing services; • changes in manufacturing yields or other factors affecting the cost of goods sold, such as the cost and availability of raw materials and theextent of utilization of manufacturing capacity; • changes in the prices of our products, which can be affected by the level of our customers’ and end-users’ demand, technological change,product obsolescence, competition or other factors; • cancellations, changes or delays of deliveries to us by our third-party manufacturers, including as a result of the availability ofmanufacturing capacity and the proposed terms of manufacturing arrangements; • our liquidity and access to capital; and • our research and development activities and the funding thereof.An adverse change or development in any of the above factors could cause the market price of common stock to materially decline.The market price of our common stock may be volatile, which could result in substantial losses for investors.The stock markets in general, and the markets for high technology stocks in particular, have experienced extreme volatility that has often beenunrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our commonstock. 44Table of ContentsThe market price of the common stock may also fluctuate significantly in response to the following factors, among others, some of which are beyondour control: • variations in our quarterly operating results; • the issuance or repurchase of shares of our common stock; • changes in securities analysts’ estimates of our financial performance; • changes in market valuations of similar companies; • announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures, capital commitments,new products or product enhancements; • loss of a major customer or failure to complete significant transactions; and • additions or departures of key personnel.The trading price of our common stock in the past has had significant variance, and we cannot accurately predict every potential risk that maymaterially and adversely affect our stock price.Provisions in our charter documents may delay or prevent the acquisition of our Company, which could materially adversely affect the value of ourcommon stock.Our certificate of incorporation and by-laws contain provisions that could make it harder for a third party to acquire us without the consent of our boardof directors. These provisions: • establish advance notice requirements for submitting nominations for election to the board of directors and for proposing matters that can beacted upon by stockholders at a meeting; • authorize the issuance of “blank check” preferred stock, which is preferred stock that our board of directors can create and issue without priorstockholder approval and that could be issued with voting or other rights or preferences that could impede a takeover attempt; and • require the approval by holders of at least 66 2/3% of our outstanding common stock to amend any of these provisions in our certificate ofincorporation or by-laws.Although we believe these provisions make a higher third-party bid more likely by requiring potential acquirers to negotiate with our board ofdirectors, these provisions apply even if an initial offer may be considered beneficial by some stockholders. Any delay or prevention of an acquisitionof our Company that would have been beneficial to our stockholders could materially decrease the value of our common stock.Item 1B. Unresolved Staff CommentsNone. Item 2. PropertiesOur corporate headquarters as well as certain design center and research and development operations are located in approximately 600,000 square feetof building space on property that we own in Phoenix, Arizona. We also own and lease properties around the world for use as sales offices, designcenters, research and development labs, warehouses, logistic centers, trading offices and manufacturing support. The size and/or location of theseproperties change from time to time based on business requirements. We operate distribution centers, which are leased or contracted through a thirdparty, in locations throughout Asia, Europe and the Americas. See “Business - Manufacturing Operations” included elsewhere in this Form 10-K forinformation on properties used in our 45Table of Contentsmanufacturing operations. While these facilities are primarily used in manufacturing operations, they also include office, utility, laboratory, warehouseand unused space. Additionally, we own research and development facilities located in Belgium, Canada, China, the Czech Republic, France,Germany, Hong Kong, India, Japan, Singapore, South Korea, Romania, the Slovak Republic, Switzerland, Taiwan and the United States. Our jointventure in Leshan, China also owns manufacturing, warehouse, laboratory, office and other unused space. We believe that our facilities around theworld, whether owned or leased, are well maintained.Certain of our properties are subject to encumbrances such as mortgages and liens. See Note 8: “Long-Term Debt” in the notes to our auditedconsolidated financial statements included elsewhere in this Form 10-K for further information. In addition, due to local law restrictions, the land uponwhich our facilities are located in certain foreign locations is subject to varying long-term leases.See “Business - Manufacturing Operations” and “Sales, Marketing and Distribution” included elsewhere in this Form 10-K for further details on ourproperties and “Business-Governmental Regulation” for further details on environmental regulation of our properties.Item 3. Legal ProceedingsSee Note 12: “Commitments and Contingencies” under the heading “Legal Matters” in the notes to our audited consolidated financial statementsincluded elsewhere in this Form 10-K for a description of legal proceedings and related matters.Item 4. Mine Safety DisclosureNone. 46Table of ContentsPART IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesOur common stock is traded under the symbol “ON” on the NASDAQ Global Select Market. The following table sets forth the high and low sales pricesfor our common stock for the fiscal periods indicated as reported by the NASDAQ Global Select Market. Range of Sales Price High Low 2016 First Quarter $ 9.92 $ 6.97 Second Quarter $10.15 $8.21 Third Quarter $12.55 $8.11 Fourth Quarter $13.32 $10.74 2017 First Quarter $16.06 $12.37 Second Quarter $16.93 $13.77 Third Quarter $18.49 $13.65 Fourth Quarter $22.15 $18.52 As of February 16, 2018, there were approximately 246 holders of record of our common stock and 425,440,679 shares of common stock outstanding.We have neither declared nor paid any cash dividends on our common stock since our initial public offering. Our future dividend policy with respectto our common stock will depend upon our earnings, capital requirements, financial condition, debt restrictions and other factors deemed relevant byour Board of Directors in its sole discretion.Our outstanding debt facilities may limit the amount of dividends we are permitted to pay. So long as no default has occurred and is continuing orresults therefrom, our Amended Credit Agreement permits us to pay cash dividends to our common stockholders of up to $100.0 million. Additionally,we may pay dividends in an unlimited amount so long as, after giving effect thereto, the consolidated total net leverage ratio (calculated in accordancewith our Amended Credit Agreement) does not exceed 2.50 to 1.00. As of December 31, 2017, we were permitted to pay an unlimited amount in cashdividends based on the current consolidated total net leverage ratio. See Note 8: “Long-Term Debt” in the notes to the audited consolidated financialstatements included elsewhere in this Form 10-K for further discussion of our Amended Credit Agreement. 47Table of ContentsIssuer Purchases of Equity SecuritiesThe following table provides information regarding repurchases of our common stock during the quarter ended December 31, 2017. Period (1) Total Number ofShares Purchased (2) Average Price Paidper Share (3) September 30, 2017 - October 27, 2017 67,748 $ 18.94 October 28, 2017 - November 24, 2017 12,095 21.48 November 25, 2017 - December 31, 2017 83,018 19.63 Total 162,861 19.48 (1)These time periods represent our fiscal month start and end dates for the fourth quarter of 2017. (2)The number of shares purchased represents shares of common stock held by employees who tendered owned shares of common stock to theCompany to satisfy the employee withholding taxes due upon the vesting of RSUs. (3)The price per share is based on the fair market value at the time of tender.Share Repurchase ProgramThe Company did not repurchase any of our common stock under our share repurchase program during the quarter ended December 31, 2017.Under the share repurchase program we announced in December 2014 (the “2014 Share Repurchase Program”), we may repurchase up to $1.0 billion(exclusive of fees, commissions and other expenses) of our common stock over a period of four years from December 1, 2014, subject to certaincontingencies. We may repurchase our common stock from time to time in privately negotiated transactions or open market transactions, includingpursuant to a trading plan in accordance with Rule 10b5-1 and Rule 10b-18 of the Exchange Act, or by any combination of such methods or othermethods. The timing of any repurchases and the actual number of shares repurchased will depend on a variety of factors, including our stock price,corporate and regulatory requirements, restrictions under our debt obligations, other market and economic conditions. The 2014 Share RepurchaseProgram does not require us to purchase any particular amount of common stock and is subject to a variety of factors including the Board’s discretion.As of December 31, 2017, $603.2 million remained of the total authorized amount to purchase common stock pursuant to the 2014 Share RepurchaseProgram.See Note 9: “Earnings Per Share and Equity” of the notes to our audited consolidated financial statements included elsewhere in this Form 10-K forfurther information on shares of common stock tendered to the Company by employees to satisfy applicable employee withholding taxes due uponvesting of RSUs and the 2014 Share Repurchase Program. 48Table of ContentsItem 6. Selected Financial DataThe following table sets forth certain of our selected financial data for the periods indicated. The statement of operations and balance sheet data setforth below for the years ended and as of December 31, 2017, 2016, 2015, 2014 and 2013 are derived from our audited consolidated financialstatements. The table below includes consolidated results, including our recent acquisitions, thus comparability will be materially affected.You should read this information in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” andour audited consolidated financial statements, including the notes thereto, included elsewhere in this Form 10-K. Year ended December 31, 2017 2016 2015 2014 2013 (in millions, except per share data) Statement of Operations data: Revenues $ 5,543.1 $ 3,906.9 $ 3,495.8 $ 3,161.8 $ 2,782.7 Restructuring, asset impairments and other, net 20.8 33.2 9.3 30.5 33.2 Goodwill and intangible asset impairment charges 13.1 2.2 3.8 9.6 — Net income 813.0 184.5 209.0 192.1 153.6 Diluted net income per common share attributable to ON SemiconductorCorporation 1.89 0.43 0.48 0.43 0.33 Balance Sheet data: Total assets (1) $7,195.1 $6,924.4 $3,869.6 $3,822.1 $3,292.5 Net long-term debt, including current maturities, less capital leaseobligations (1) 2,947.6 3,609.3 1,365.7 1,150.9 887.5 Capital lease obligations 4.2 13.0 28.2 40.8 53.4 Total stockholders’ equity 2,801.0 1,845.0 1,631.9 1,647.4 1,523.6 (1)Increased in 2016 primarily due to the Fairchild transaction. See Note 4: “Acquisitions, Divestitures and Licensing Transactions” and Note 8:“Long-Term Debt” in the notes to our audited consolidated financial statements included elsewhere in this Form 10-K for additional information.Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsYou should read the following discussion in conjunction with our audited historical consolidated financial statements, including the notes thereto,which are included elsewhere in this Form 10-K. Management’s Discussion and Analysis of Financial Condition and Results of Operations containsstatements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risk, uncertainties, andother factors. Actual results could differ materially because of the factors discussed in “Risk Factors” included elsewhere in this Form 10-K.Executive OverviewThis executive overview presents summarized information regarding our industry, markets, business and operating trends only. For further informationrelating to the information summarized herein, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in itsentirety. 49Table of ContentsIndustry OverviewAccording to WSTS (an industry research firm), worldwide semiconductor industry sales were $412.2 billion in 2017, an increase of approximately21.6% from $338.9 billion in 2016. We participate in unit and revenue surveys and use data summarized by WSTS to evaluate overall semiconductormarket trends and also to track our progress against the market in the areas we provide semiconductor components. The following table sets forth totalworldwide semiconductor industry revenues and revenues in our Serviceable Addressable Market (“SAM”) since 2013: Year EndedDecember 31, WorldwideSemiconductorIndustry Sales (1) PercentageChange ServiceableAddressableMarket Sales (1)(2) PercentageChange (in billions) (in billions) 2017 $412.2 21.6 % $133.7 12.4 % 2016 $338.9 1.1 % $118.9 2.6 % 2015 $335.2 (0.2)% $115.9 (0.2)% 2014 $335.8 9.9 % $116.1 11.3 % 2013 $305.6 4.8 % $104.3 0.6 % (1)Based on shipment information published by WSTS. We believe the data provided by WSTS is reliable, but we have not independently verifiedit. WSTS periodically revises its information. We assume no obligation to update such information. (2)Our SAM comprises the following specific WSTS product categories: (a) discrete products (all discrete semiconductors other than sensors,microwave power transistors/modules, microwave diodes, microwave transistors, power modules, logic and optoelectronics); (b) standardanalog products (amplifiers, VREGs and references, comparators, ASSP consumer, ASSP communications, ASSP computer, ASSP automotiveand ASSP industrial and others); (c) standard logic products (general purpose logic); (d) standard product logic (consumer other, computer otherperipherals, wired / wireless communications, automotive, industrial and multipurpose); (e) CMOS and CCD image sensors; (f) memory; (g)microcontrollers and (h) motor control modules. Our SAM is derived using the most recent information available, excluding foundry exposure,at the time of the filing of each respective period’s annual report and is revised in subsequent periods to reflect final results.As indicated above, worldwide semiconductor sales increased from $305.6 billion in 2013 to $412.2 billion in 2017. The increase of 21.6% from 2016to 2017 reflected improving macroeconomic conditions in the second half of 2017. Sales in our SAM increased from $104.3 billion in 2013 to$133.7 billion in 2017. The increase of 12.4% from 2016 to 2017 is consistent with the trend in the worldwide semiconductor market. The mostrecently published estimates of WSTS project a compound annual growth rate in our SAM of approximately 5.0% for the next three years. Theseprojections are not ours and may not be indicative of actual results.Historically, the semiconductor industry has been highly cyclical. During a down cycle, unit demand and pricing have tended to fall in tandem,resulting in revenue declines. In response to such declines, manufacturers have reduced or shut down production capacity. When new applications orother factors have caused demand to strengthen, production volumes have historically stabilized and then grown again. As market unit demand reacheslevels above capacity production capabilities, shortages begin to occur, which typically causes pricing power to swing back from customers tomanufacturers, thus prompting further capacity expansion. Such expansion has typically resulted in overcapacity following a decrease in demand,which has triggered another similar cycle. 50Table of ContentsON Semiconductor OverviewWe are driving innovation in energy-efficient electronics. Our extensive portfolio of sensors, power management, connectivity, custom and SoC,analog, logic, timing, and discrete devices helps customers efficiently solve their design challenges in advanced electronic systems and products. Ourpower management and motor driver semiconductor components control, convert, protect and monitor the supply of power to the different elementswithin a wide variety of electronic devices. Our custom ASICs and SOC devises use analog, MCU, DSP, mixed-signal and advanced logic capabilitiesto act as the brain behind many of our automotive, medical, aerospace/defense, consumer and industrial customers’ products. Our signal managementsemiconductor components provide high-performance clock management and data flow management for precision computing, communications andindustrial systems. Our growing portfolio of sensors, including image sensors, optical image stabilization and auto focus devices provide advancedsolutions for automotive, wireless, industrial and consumer applications. Our standard semiconductor components serve as “building blocks” withinvirtually all types of electronic devices. These various products fall into the logic, analog, discrete, image sensors and memory categories used by theWSTS group.Our new product development efforts continue to be focused on building solutions in product areas that appeal to customers in focused marketsegments and across multiple high-growth applications. We collaborate with our customers to identify desired innovations in electronic systems ineach end-market that we serve. This enables us to participate in the fastest growing sectors of the market. We also innovate in advanced packagingtechnologies to support ongoing size reduction in electronic systems and in advanced thermal packaging to support high performance powerconversion applications. It is our practice to regularly re-evaluate our research and development spending, to assess the deployment of resources and toreview the funding of high-growth technologies. We deploy people and capital with the goal of maximizing our investment in research anddevelopment in order to facilitate continued growth by targeting innovative products and solutions for high growth applications that position us tooutperform the industry. Our design expertise in analog, digital, mixed signal and imaging ICs, combined with our extensive portfolio of standardproducts enable the company to offer comprehensive, value-added solutions to our global customers for their electronics systems.We believe that some of the key factors and trends affecting our results of operations include, but not limited to: • Our acquisition of Fairchild and our integration of Fairchild’s business into our operations; • Macroeconomic conditions affecting the semiconductor industry; • The cyclicality and seasonality of the semiconductor industry; • The global economic climate; • Our significant indebtedness, including the indebtedness incurred in connection with our acquisition of Fairchild; • The impact of U.S. corporate tax reform and an uncertain corporate tax environment abroad; • An uncertain political climate and related impacts on global trade; • The effects of trends in the automotive and industrial end-markets on our revenues; and • Competitive conditions, and in particular consolidation, within our industry.Fairchild AcquisitionOn September 19, 2016, we completed the Fairchild Transaction. The purchase price totaled $2,532.2 million and was funded by the borrowingsagainst our Term Loan “B” Facility and a partial draw of our revolving Revolving Credit Facility and with cash on hand. 51Table of ContentsWe believe that this acquisition has created a power semiconductor leader with strong capabilities in a rapidly consolidating semiconductor industry.The combination of Fairchild operations with our own has provided complementary product lines to offer customers the full spectrum of high, mediumand low voltage products, and we will continue to pioneer technology and design innovation in efficient energy consumption to help our customersachieve success and drive value for our partners and employees around the world. The acquisition also expanded our footprint in wirelesscommunication products, particularly in high efficiency power conversions and USB Type C communication and power delivery. See “Business - 2016Acquisition Activity,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additionalinformation. See Note 4: “Acquisitions, Divestitures and Licensing Transactions” in the notes to our audited consolidated financial statementsincluded elsewhere in this Form 10-K for additional information.Recent ON Semiconductor ResultsOur total revenues for the year ended December 31, 2017 were $5,543.1 million, an increase of approximately 41.9% from $3,906.9 million from theyear ended December 31, 2016. The increase was primarily attributable to the acquisition of Fairchild. During 2017, we reported net incomeattributable to ON Semiconductor of $810.7 million compared to $182.1 million in 2016. The increase was attributable to the impact of the U.S. taxreform, as well as improved results and contributions from the acquired Fairchild business. Our gross margin increased by approximately 350 basispoints to 36.7% in 2017 from 33.2% in 2016. The increase in gross margin was primarily due to higher factory utilization, product mix andcontributions from the acquired Fairchild business.ON Semiconductor Q1 2018 OutlookBased upon product booking trends, backlog levels, and estimated turns levels, we estimate that our revenues will be approximately $1,340.0 to$1,390.0 million, gross margin as a percentage of revenues will be approximately 36.4% to 38.4%, operating expenses will be approximately $318.0 to$336.0 million, other income and expense (including interest expense), net will be approximately $33.0 to $36.0 million and diluted share count willbe approximately 445.0 to 447.0 million in the first quarter of 2018.Statements related to our outlook for the first quarter of 2018 are based on our current expectations, forecasts, estimates and assumptions. Suchstatements involve risks, uncertainties and other factors that could cause results or events to differ materially from those expressed in the forward-looking statements. See “Risk Factors” for additional information.Business and Macroeconomic Environment Influence on Cost Savings and Restructuring ActivitiesIn 2017 our initiatives were focused on synergy-related cost reductions from the Fairchild acquisition. Additionally, we have historically pursued, andexpect to continue to pursue, other cost-saving initiatives to align our overall cost structure, capital investments and other expenditures with ourexpected revenue, spending and capacity levels based on our current sales and manufacturing projections. We have recognized efficiencies frompreviously implemented restructuring activities and programs and continue to implement profitability enhancement programs to improve our coststructure. The semiconductor industry has traditionally been highly cyclical and has often experienced significant downturns in connection with, or inanticipation of, declines in general economic conditions. We have historically taken significant actions to align our overall cost structure with ourexpectations of market conditions and by focusing on synergies-related cost reductions arising from each of our acquisitions. However, there can be noassurances that we will adequately forecast economic conditions or that we will effectively align our cost structure, capital investments and otherexpenditures with our revenue, spending and capacity levels in the future. 52Table of ContentsSee “Results of Operations - Restructuring, asset impairments and other, net” below, along with Note 6: “Restructuring, Asset Impairments and Other,Net” in the notes to our audited consolidated financial statements included elsewhere in this Form 10-K for information relating to our most recentcost-saving initiatives.Anticipated Impact of U.S. Tax ReformOn December 22, 2017, the U.S. enacted the Tax Act. The Tax Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies topay a one- time mandatory repatriation tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certainfuture foreign earnings. Our income tax benefit for the year ended December 31, 2017 includes a provisional income tax benefit of $449.9 million as aresult of the Tax Act. This benefit includes charges related to the mandatory repatriation tax and the remeasurement of deferred tax assets for the new,lower U.S. statutory rate of 21%, offset by a reduction of our deferred tax liability for undistributed current and prior years’ earnings of our foreignsubsidiaries. Our provisional estimate of the mandatory repatriation tax is $219.4 million, which we believe can be offset, in part, by $191.1 million ofexisting U.S. tax credit carryforwards. After utilization of our tax credits, the remaining cash tax payable is expected to be $28.3 million, which wouldbe payable over eight years with $2.3 million due in 2018.We expect our future effective tax rate to more approximate the new U.S. federal statutory rate of 21%. The change in our future effective tax rate is notanticipated to have an effect on our cash tax until all of our U.S. federal net operating losses and credits have been utilized.Results of OperationsOur results of operations for the year ended December 31, 2017 include the full year results of operations from our acquisition of Fairchild onSeptember 19, 2016. 53Table of ContentsOperating ResultsThe following table summarizes certain information relating to our operating results that has been derived from our audited consolidated financialstatements for the years ended December 31, 2017, 2016 and 2015 (in millions): Year ended December 31, Dollar Change 2017 2016 2015 2016 to 2017 2015 to 2016 Revenues $ 5,543.1 $ 3,906.9 $ 3,495.8 $1,636.2 $411.1 Cost of revenues (exclusive of amortization shown below) 3,509.3 2,610.0 2,302.6 899.3 307.4 Gross profit 2,033.8 1,296.9 1,193.2 736.9 103.7 Operating expenses: Research and development 594.4 452.3 396.7 142.1 55.6 Selling and marketing 315.9 238.0 204.3 77.9 33.7 General and administrative 284.9 230.3 182.3 54.6 48.0 Amortization of acquisition-related intangible assets 123.8 104.8 135.7 19.0 (30.9) Restructuring, asset impairments and other, net 20.8 33.2 9.3 (12.4) 23.9 Intangible asset impairment 13.1 2.2 3.8 10.9 (1.6) Total operating expenses 1,352.9 1,060.8 932.1 292.1 128.7 Operating income 680.9 236.1 261.1 444.8 (25.0) Other (expense) income, net: Interest expense (141.2) (145.3) (49.7) 4.1 (95.6) Interest income 3.0 4.5 1.1 (1.5) 3.4 Gain on divestiture of business 12.5 92.2 — (79.7) 92.2 Loss on debt refinancing and prepayment (47.2) (6.3) (0.4) (40.9) (5.9) Other (expense) income (8.1) (0.6) 7.7 (7.5) (8.3) Licensing income 47.6 — — 47.6 — Other (expense) income, net (133.4) (55.5) (41.3) (77.9) (14.2) Income before income taxes 547.5 180.6 219.8 366.9 (39.2) Income tax (provision) benefit 265.5 3.9 (10.8) 261.6 14.7 Net income 813.0 184.5 209.0 628.5 (24.5) Less: Net income attributable to non-controlling interest (2.3) (2.4) (2.8) 0.1 0.4 Net income attributable to ON Semiconductor Corporation $810.7 $182.1 $206.2 $628.6 $(24.1) RevenuesRevenues were $5,543.1 million, $3,906.9 million and $3,495.8 million for 2017, 2016 and 2015, respectively. The increase of $1,636.2 million, orapproximately 42%, in 2017 compared to 2016 was primarily attributable to approximately 65% and 32% increases in revenue in our Power SolutionsGroup and Analog Solutions Group, respectively, which included an entire twelve-month period of Fairchild revenues in 2017 and $155.1 million inrevenues due to the change in revenue recognition on distributor sales during the first quarter of 2017. 54Table of ContentsThe increase in revenues from 2016 compared to 2015 of $411.1 million, or approximately 12%, was primarily attributable to approximately 21% and11% increases in revenue in our Power Solutions Group and Analog Solutions Group, respectively, which included Fairchild revenues of$411.5 million between September 19, 2016 and December 31, 2016. This increase was partially offset by lower revenues in our Image Sensor Group.Revenues by reportable segment for each of 2017, 2016 and 2015 were as follows (dollars in millions): 2017 As a % of Revenue (1) 2016 As a % of Revenue (1) 2015 As a % of Revenue (1) Power Solutions Group $ 2,819.3 50.9% $ 1,708.6 43.7% $1,409.9 40.3% Analog Solutions Group 1,950.9 35.2% 1,481.5 37.9% 1,338.6 38.3% Image Sensor Group 772.9 13.9% 716.8 18.3% 747.3 21.4% Total revenues $5,543.1 $3,906.9 $ 3,495.8 (1) Certain of the amounts may not total due to rounding of individual amounts.Revenues from the Power Solutions GroupRevenues from the Power Solutions Group increased by $1,110.7 million, or approximately 65%, during 2017 compared to 2016, and increased by$298.7 million, or approximately 21%, during 2016 compared to 2015.The 2017 increase is primarily attributable to the acquisition of Fairchild, which had a full year contribution in 2017, as well as a $107.8 millionimpact due to the change in revenue recognition on distributor sales during the first quarter of 2017. These two factors contributed to increases insubstantially all of the divisions within this segment, which resulted in a $417.8 million increase in revenues in our Power MOSFET division, a$327.8 million increase in revenues in our High Power division, and, to a lesser extent, $132.9 million increase in revenues in our Integrated Circuitsdivision and $120.7 million increase in revenues in our Protection and Signal division.The 2016 increase was primarily attributable to the acquisition of Fairchild, which had $277.5 million in revenue across various products within thissegment. This was due to a $149.5 million increase in revenues in our Power MOSFET division, a $79.5 million increase in revenues in our High Powerdivision, and to a lesser extent, a $47.7 million increase in revenues in our Integrated Circuits division and an $18.5 million increase in revenues in ourProtection and Signal division.Revenues from the Analog Solutions GroupRevenues from the Analog Solutions Group increased by $469.4 million, or approximately 32%, during 2017 compared to 2016 and increased by$142.9 million, or approximately 11%, during 2016 compared to 2015.The 2017 increase is primarily attributable to the acquisition of Fairchild, which had a full year contribution in 2017, as well as a $42.1 million impactdue to the change in revenue recognition on distributor sales during the first quarter of 2017. These two factors contributed to increases in substantiallyall of the divisions within this segment, which resulted in a $150.6 million increase in revenues in our Mobile Solutions division, a $100.3 millionincrease in revenues in our Automotive division, a $97.5 million increase in revenues in our Digital and DC/DC division and a $81.3 million increasein revenues in our Industrial and Offline Power division. 55Table of ContentsThe 2016 increase was primarily attributable to the acquisition of Fairchild, which had $134.0 million in revenue across various products within thissegment. This was due to a $72.7 million increase in revenues in our Mobile Solutions division, and to a lesser extent, $33.1 million increase inrevenues in our Digital and DC/DC division and $29.8 million increase in revenues in our Automotive division.Revenues from the Image Sensor GroupRevenues from the Image Sensor Group increased by $56.1 million, or approximately 8%, during 2017 compared to 2016 and decreased by$30.5 million, or approximately 4%, during 2016 compared to 2015.The 2017 increase is primarily attributable to a $84.9 million, or 29% increase in revenues in our Automotive Solutions division, which was partiallyoffset by a $39.6 million, or approximately 13% decrease in revenues in our Consumer Solutions division as a result of the exit of the Mobile CISbusiness which occurred during the fourth quarter of 2016. For further information on the Mobile CIS business exit see Note 4: “Acquisitions,Divestitures and Licensing Transactions”.The 2016 decrease was primarily attributable to a $100.1 million, or 24% decrease in revenues in our Consumer Solutions division due to the exit ofthe Mobile CIS business, offset by a $57.7 million, or 24% increase in revenues in our Automotive Solutions division, and a $11.8 million, or 12%increase in revenues in our Industrial Solutions division.Revenues by Geographic LocationRevenues by geographic location, including local sales made by operations within each area, based on sales billed from the respective country, aresummarized as follows (dollars in millions): 2017 As a % of Revenue (1) 2016 As a % of Revenue (1) 2015 As a % of Revenue (1) United States $748.8 13.5% $588.4 15.1% $544.3 15.6% United Kingdom 668.8 12.1% 541.1 13.8% 503.2 14.4% Hong Kong 1,785.0 32.2% 1,086.8 27.8% 874.4 25.0% Japan 429.0 7.7% 334.5 8.6% 281.7 8.1% Singapore 1,466.9 26.5% 1,110.4 28.4% 1,120.7 32.1% Other 444.6 8.0% 245.7 6.3% 171.5 4.9% Total $ 5,543.1 $ 3,906.9 $ 3,495.8 (1)Certain of the amounts may not total due to rounding of individual amounts. 56Table of ContentsGross Profit and Gross Margin (exclusive of amortization of acquisition-related intangible assets described below)Our gross profit by reportable segment for each of 2017, 2016 and 2015 was as follows (dollars in millions): 2017 As a % ofSegmentRevenue (2) 2016 As a % ofSegmentRevenue (2) 2015 As a % ofSegmentRevenue (2) Power Solutions Group $959.2 34.0 % $566.3 33.1 % $ 428.7 30.4 % Analog Solutions Group 817.2 41.9 % 589.0 39.8 % 537.9 40.2 % Image Sensor Group 302.0 39.1 % 236.5 33.0 % 242.4 32.4 % Gross profit for all segments $2,078.4 $1,391.8 $1,209.0 Unallocated manufacturing (1) (44.6) (0.8)% (94.9) (2.4)% (15.8) (0.5)% Total gross profit $ 2,033.8 36.7 % $ 1,296.9 33.2 % 1,193.2 34.1 % (1) Unallocated manufacturing costs are being shown as a percentage of total revenue (includes expensing of the fair market value step-up ofinventory of $67.5 million during 2016 and $13.6 million during 2017).(2) Certain of the amounts may not total due to rounding of individual amounts.Our gross profit was $2,033.8 million, $1,296.9 million and $1,193.2 million for 2017, 2016 and 2015, respectively. The gross profit increase of$736.9 million, or approximately 57%, for 2017 compared to 2016 was primarily due to an increase in gross profit in our Power Solutions Group andAnalog Solutions group, which included a full-year of contributions from the acquired Fairchild business. ISG gross profit improvement of$65.5 million was due to increased revenue in higher margin automotive and industrial markets offsetting decreased revenue on the exit of the MobileCIS business.The gross profit increase of $103.7 million, or approximately 9%, for 2016 compared to 2015 was primarily due to the contributions from Fairchild,which generated approximately $87.0 million of gross profit for 2016.Gross margin increased to approximately 36.7% during 2017 compared to approximately 33.2% during 2016. Excluding the expensing of the fairmarket value of inventory step-up from the Fairchild acquisition, gross margin increased to approximately 36.9% during 2017 compared toapproximately 34.9% during 2016. The increase was primarily due to higher factory utilization, product mix, which included the mix shift in imagingproducts to higher margin automotive and industrial imaging products, and the exit of the lower margin Mobile CIS business.Gross margin decreased to approximately 33.2% during 2016 compared to approximately 34.1% during 2015. Excluding the expensing of the fairmarket value of inventory step-up from the Fairchild acquisition of $67.5 million, gross margin increased to 34.9%, primarily due to higher factoryutilization and product mix, which included the growth in ISG of higher margin automotive and industrial imaging products and the exit of the lowermargin Mobile CIS business.Operating ExpensesResearch and DevelopmentResearch and development expenses were $594.4 million, $452.3 million and $396.7 million, representing approximately 11%, 12% and 11% ofrevenues, for 2017, 2016 and 2015, respectively. 57Table of ContentsThe increase in research and development expenses of $142.1 million, or approximately 31%, during 2017 compared to 2016 was primarily associatedwith the acquisition of Fairchild, which added several categories of research and development expenses. Research and development expenses unrelatedto Fairchild increased primarily in the area of payroll, including incentive compensation and payroll related costs as well as an overall increase invariable compensation for the combined company.The increase in research and development expenses of $55.6 million, or approximately 14%, during 2016 compared to 2015 was primarily associatedwith the acquisition of Fairchild, which added to several categories of research and development expenses totaling $28.8 million. Research anddevelopment expenses unrelated to the Fairchild Transaction increased by $26.8 million, primarily in the area of payroll, including incentivecompensation and payroll related costs, pension losses and IP related activities.Selling and MarketingSelling and marketing expenses were $315.9 million, $238.0 million and $204.3 million, representing approximately 6% of revenues in each yearperiod, for 2017, 2016 and 2015, respectively.The increase in selling and marketing expenses of $77.9 million, or approximately 33%, during 2017 compared to 2016 was primarily associated withthe acquisition of Fairchild, primarily in the area of payroll, including incentive compensation and payroll related costs as well as an overall increasein variable compensation for the combined company. There were also increases in expenses related to commissions and advertising.The increase in selling and marketing expenses of $33.7 million, or approximately 16%, during 2016 compared to 2015 was primarily associated withthe acquisition of Fairchild, which had selling and marketing expenses of $26.7 million, primarily in the area of payroll, including incentivecompensation and payroll-related costs. There were also increases in expenses related to outside services and travel.General and AdministrativeGeneral and administrative expenses were $284.9 million, $230.3 million and $182.3 million, representing approximately 5%, 6% and 5% of revenues,for 2017, 2016 and 2015, respectively.The increase in general and administrative expenses of $54.6 million, or approximately 24%, during 2017 compared to 2016 was primarily associatedwith the acquisition of Fairchild, primarily in the area of payroll, including incentive compensation and payroll related costs, as well as an overallincrease in variable compensation for the combined company.The increase in general and administrative expenses of $48.0 million, or approximately 26%, during 2016 compared to 2015 was primarily associatedwith the acquisition of Fairchild, which had general and administrative expenses of $36.9 million, primarily in the area of payroll, including incentivecompensation and payroll related costs, outside services, travel related expenses, as well as acquisition related expenses.Amortization of Acquisition—Related Intangible AssetsAmortization of acquisition-related intangible assets was $123.8 million, $104.8 million and $135.7 million for 2017, 2016 and 2015, respectively.The increase of $19.0 million during 2017 compared to 2016 was primarily associated with the amortization of our intangible assets acquired from theFairchild acquisition, partially offset by the declining amortization of our Aptina intangible assets. 58Table of ContentsThe decrease in amortization of acquisition-related intangible assets during 2016 compared to 2015 was attributable to the declining amortization ofour Aptina and Truesense intangible assets, partially offset by the amortization of our intangible assets acquired from the Fairchild acquisition.See Note 4: “Acquisitions, Divestitures and Licensing Transactions” and Note 5: “Goodwill and Intangible Assets” in the notes to our auditedconsolidated financial statements included elsewhere in this Form 10-K for additional information with respect to intangible assets.Restructuring, asset impairments and other, netRestructuring, asset impairments and other, net was $20.8 million, $33.2 million and $9.3 million for 2017, 2016 and 2015, respectively. Theinformation below summarizes the major activities in each year.2017During 2017, we recorded approximately $20.8 million of net charges related to our restructuring programs, consisting primarily of $9.7 million ofpost-Fairchild acquisition restructuring costs, $2.2 million of the former System Solutions Group voluntary workforce reduction program costs,$7.3 million of asset impairment charges primarily for assets held-for-sale and $3.7 million of other costs, partially offset by a reversal of $2.1 millionrelating to manufacturing relocation program costs.2016During 2016, we recorded approximately $33.2 million of net charges related to our restructuring programs, consisting primarily of $25.7 million ofpost-Fairchild acquisition restructuring costs, $5.3 million of the former System Solutions Group segment voluntary workforce reduction programcosts, and $2.1 million of manufacturing relocation program costs.2015During 2015, we recorded approximately $9.3 million of net charges related to our restructuring programs, consisting primarily of $3.5 million ofemployee separation charges from our European marketing organization relocation plan and $4.8 million of general workforce reductions, partiallyoffset by a $3.4 million gain from the sale of assets.For additional information, see Note 6: “Restructuring, Asset Impairments and Other, Net” in the notes to our audited consolidated financial statementsincluded elsewhere in this Form 10-K.Intangible Asset Impairment2017During 2017, we recorded $13.1 million of intangible asset impairment charges consisting of $7.7 million of charges relating to abandoned IPRDprojects and $5.4 million relating to the impairment in the value of certain IPRD projects as a result of the annual impairment test performed during thefourth quarter of 2017. 59Table of Contents2016During 2016, we canceled certain of our previously capitalized IPRD projects and recorded intangible asset impairment charges of $2.2 million.2015During 2015, we canceled certain of our previously capitalized IPRD projects and recorded intangible asset impairment charges of $3.8 million.See Note 5: “Goodwill and Intangible Assets” in the notes to our audited consolidated financial statements included elsewhere in this Form 10-K foradditional information.Other Income and ExpensesInterest ExpenseInterest expense decreased by $4.1 million, or approximately 2.8%, to $141.2 million during 2017 compared to $145.3 million in 2016, primarily dueto the interest rate reduction under our Amended Credit Agreement. Interest expense increased by $95.6 million, or approximately 192%, to$145.3 million during 2016, up from $49.7 million in 2015, primarily due to the substantial indebtedness incurred in order to acquire Fairchild. Weexpect interest expense to remain substantial in future periods as we service the debt we incurred in connection with the Fairchild Transaction. Werecorded amortization of debt discount to interest expense of $30.8 million, $26.0 million and $17.5 million for 2017, 2016 and 2015, respectively.Our average gross amount of long-term debt balance (including current maturities) during 2017, 2016 and 2015 was $3,490.9 million, $2,661.3 millionand $1,361.6 million, respectively. Our weighted average interest rate on our gross amount of long-term debt (including current maturities) wasapproximately 4.0%, 5.5% and 3.7% per annum in 2017, 2016 and 2015, respectively. See “Liquidity and Capital Resources - Key Financing andCapital Events” below and Note 8: “Long-Term Debt” in the notes to our audited consolidated financial statements included elsewhere in thisForm 10-K for a description of the indebtedness incurred for the Fairchild Transaction and our refinancing activities.Gain on Divestiture of BusinessGain on divestiture of business was $12.5 million, $92.2 million and zero for 2017, 2016 and 2015, respectively. The information below summarizesthe major activities in each year.2017Gain on divestiture of business was $12.5 million during 2017. On September 29, 2017, we sold Xsens Holding B.V. to mCube Hong Kong Limited(“mCube”) for cash consideration of $26.0 million and recorded a gain of $12.5 million after writing off the carrying value of the assets and liabilitiessold of $7.0 million and goodwill of $6.5 million.2016Gain on divestiture of business was $92.2 million during 2016. On August 29, 2016, we sold two lines of business for $104.0 million to Littelfuse, Inc.,(“Littelfuse”). In connection with the sale, we recorded a gain of $92.2 million after, among other things, transferring inventory of $4.1 million toLittelfuse, writing off goodwill of $3.4 million, and deferring $4.3 million of the proceeds to be recognized in the future. 60Table of ContentsFor additional information, see Note 4: “Acquisitions, Divestitures and Licensing Transactions” in the notes to our audited consolidated financialstatements included elsewhere in this Form 10-K.Loss on Debt Refinancing and Prepayment2017Loss on debt refinancing and prepayment increased by $40.9 million from $6.3 million in 2016 to $47.2 million to 2017. The loss relates to the:(1) expensing of $26.2 million of unamortized debt discount and issuance costs attributed to the partial pay down of $575.0 million and the repricingof the Term Loan “B” Facility for the Second Amendment (as defined below); (2) expensing of $6.7 million of unamortized debt discount costsattributed to the partial pay down of $200.0 million of Term Loan “B” Facility; and (3) expensing of $14.3 million of unamortized debt discount andunamortized issuance costs attributed to the partial pay down of $400.0 million and the repricing of Term Loan “B” Facility for the Third Amendmentto the Amended Credit Agreement (the “Third Amendment”). See Note 8: “Long-Term Debt” in the notes to our audited consolidated financialstatements included elsewhere in this Form 10-K.2016Loss on debt refinancing and prepayment increased by $5.9 million from $0.4 million in 2015 to $6.3 million in 2016, due to the execution of the FirstAmendment (as defined below), which resulted in a debt extinguishment charge of $4.7 million, and the termination and replacement of our seniorrevolving credit facility by the Revolving Credit Facility, which resulted in a debt modification and write-off of $1.6 million in unamortized debtissuance costs.2015During 2015, we amended our senior revolving credit facility to, among other things, increase the borrowing capacity to $1.0 billion and reset thefacility’s five year maturity. As a result of the amendment, we wrote-off $0.4 million of existing debt issuance costs associated with the facility.Other (expense) incomeOther income decreased by $7.5 million, from expense of $0.6 million in 2016 to $8.1 million in 2017. Other income decreased by $8.3 million, fromincome of $7.7 million in 2015 to an expense of $0.6 million in 2016. The change from year to year is attributable to fluctuations in foreign currenciesagainst the U.S. dollar for the periods presented, net of the impact from our hedging activity and an adjustment to contingent consideration.Licensing IncomeLicensing income was $47.6 million for 2017 compared to zero for 2016. Approximately $45.1 million was attributable to payments received under anasset purchase agreement with HSET Electronic Tech (Hong Kong) Limited in connection with our licensing of certain patents related to the MobileCIS business. The remaining $2.5 million was received from various other licensing agreements. See Note 4: “Acquisitions, Divestitures and LicensingTransactions” in the notes to our audited consolidated financial statements included elsewhere in this Form 10-K. 61Table of ContentsIncome Tax (Provision) BenefitWe recorded an income tax benefit of $265.5 million, an income tax benefit of $3.9 million and an income tax provision of $10.8 million in 2017,2016 and 2015, respectively.This income tax benefit for the year ended December 31, 2017 consisted primarily of the provisional benefit of $449.9 million related to the estimatedimpact of U.S. tax reform and related effects and a discrete benefit of $13.2 million relating to equity award excess tax benefits. These benefits are offsetby $186.8 million for income and withholding taxes of certain of our foreign and domestic current year operations and $10.8 million relating to theestablishment of additional valuation allowance on certain foreign deferred tax assets.The income tax benefit for 2016 consisted primarily of the reversal of $359.8 million of our previously established valuation allowance against part ofour U.S. federal and foreign deferred tax assets and the release of $1.9 million for reserves and interest for uncertain tax positions in foreign taxingjurisdictions which were effectively settled or for which the statute lapsed during 2016. This was partially offset by $310.8 million related to thereversal of the prior years’ indefinite reinvestment assertion, $43.5 million for income and withholding taxes of certain of our foreign and domesticoperations and $3.5 million of new reserves and interest on existing reserves for uncertain tax positions in foreign taxing jurisdictions.The income tax provision for 2015 consisted of the reversal of $12.1 million of our previously established valuation allowance against our foreigndeferred tax assets, the release of $4.3 million for reserves and interest for uncertain tax positions in foreign taxing jurisdictions that were effectivelysettled or for which the statute lapsed during 2015, and a change in tax rate that favorably impacted deferred balances by $1.6 million. This is partiallyoffset by $24.4 million for income and withholding taxes of certain of our foreign and domestic operations and $4.4 million of new reserves andinterest on existing reserves for uncertain tax positions in foreign taxing jurisdictions.Our effective tax rate for 2017 was a benefit of 48.5%, which differs from the U.S. federal statutory income tax rate of 35% primarily due to U.S. taxreform codified under the Tax Act. Our effective tax rate for 2016 was a benefit of 2.2%, which differs from the U.S. federal statutory income tax rate of35% primarily due to the release of our U.S. and Japan valuation allowances, partially offset by the reversal of the prior years’ indefinite reinvestmentassertion. Our effective tax rate for 2015 was a provision of 4.9%, which differs from the U.S. federal statutory income tax rate of 35% primarily due toour change in valuation allowance, deemed dividend income from foreign subsidiaries and tax rate differential in our foreign subsidiaries.We expect our future effective tax rate to more approximate the new U.S. federal statutory rate of 21%. The change in our future effective tax rate is notanticipated to have an effect on our cash tax until all of our U.S. federal net operating losses and credits have been utilized.We continue to maintain a valuation allowance on a portion of our tax credits in foreign jurisdictions and foreign net operating losses, a substantialportion of which relate to Japan net operating losses which are projected to expire prior to utilization. In addition, we also maintain a full valuationallowance on our U.S. state deferred tax assets.For additional information, see Note 15: “Income Taxes” in the notes to the audited consolidated financial statements included elsewhere in this Form10-K. 62Table of ContentsLiquidity and Capital ResourcesThis section includes a discussion and analysis of our cash requirements, off-balance sheet arrangements, contingencies, sources and uses of cash,operations, working capital and long-term assets and liabilities.Contractual ObligationsOur principal outstanding contractual obligations relate to our long-term debt, capital leases, operating leases and purchase obligations. The followingtable summarizes our contractual obligations at December 31, 2017 and the effect such obligations are expected to have on our liquidity and cash flowin the future (in millions): Payments Due by Period Contractual obligations (1) Total 2018 2019 2020 2021 2022 Thereafter Long-term debt, excluding capital leases (2) $3,532.9 $325.0 $121.8 $770.3 $463.0 $52.8 $1,800.0 Capital leases (2) 4.3 3.5 0.8 — — — — Operating leases (3) 160.5 33.4 28.6 20.6 16.5 12.4 49.0 Purchase obligations (3): Capital purchase obligations 143.0 126.3 16.7 — — — — Inventory and external manufacturing purchase obligations 339.0 246.1 28.7 19.8 19.4 10.5 14.5 Information technology, communication and mainframe support services 20.0 7.4 7.9 2.5 1.8 0.4 — Other 41.4 37.3 2.1 1.1 0.9 — — Total contractual obligations $4,241.1 $779.0 $206.6 $814.3 $501.6 $76.1 $1,863.5 (1)The table above excludes approximately $16.6 million of liabilities related to unrecognized tax benefits because we are unable toreasonably estimate the timing of the settlement of such liabilities.(2)Includes interest payments at applicable rates as of December 31, 2017.(3)These represent our off-balance sheet arrangements (See “Liquidity and Capital Resources—Off-Balance Sheet Arrangements” for adescription of our off-balance sheet arrangements).The table also excludes our pension obligations. We expect to make cash contributions to comply with local funding requirements and requiredbenefit payments of approximately $16.4 million in 2018. This future payment estimate assumes we continue to meet our statutory fundingrequirements. The timing and amount of contributions may be impacted by a number of factors, including the funded status of the plans. Beyond 2018,the actual amounts required to be contributed are dependent upon, among other things, interest rates, underlying asset returns and the impact oflegislative or regulatory actions related to pension funding obligations. See Note 11: “Employee Benefit Plans” in the notes to our auditedconsolidated financial statements included elsewhere in this Form 10-K for more information on our pension obligations.Our balance of cash and cash equivalents was $949.2 million as of December 31, 2017. We believe that our cash flows from operations, coupled withour existing cash and cash equivalents, will be adequate to fund our operating and capital needs for at least the next 12 months. Total cash and cashequivalents at December 31, 2017 include approximately $422.4 million available in the United States. We require a substantial amount of cash in theUnited States for operating requirements, debt service, debt repayments and acquisitions. While we hold a significant amount of cash, cash equivalentsand short-term investments outside the United States in various foreign subsidiaries, we have the ability to obtain cash in the United States throughdistributions from our foreign subsidiaries in order to cover our domestic needs, by utilizing existing credit facilities, or through new bank loans ordebt obligations. 63Table of ContentsSee Note 8: “Long-Term Debt,” in the notes to our audited consolidated financial statements included elsewhere in this Form 10-K for a discussion ofour long-term debt. See “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” includedelsewhere in this Form 10-K for a discussion of restrictions on our ability to pay dividends and our stock repurchase activities.Off-Balance Sheet ArrangementsIn the ordinary course of business, we enter into various operating leases for buildings and equipment including our mainframe computer system,desktop computers, communications, foundry equipment and service agreements relating to this equipment.In the ordinary course of business, we provide standby letters of credit or other guarantee instruments to certain parties initiated by either oursubsidiaries or us, as required for transactions including, but not limited to: material purchase commitments, agreements to mitigate collection risk,leases, utilities or customs guarantees. Our Revolving Credit Facility includes $15.0 million of availability for the issuance of letters of credit. Therewere $0.4 million letters of credit outstanding under our Revolving Credit Facility as of December 31, 2017, which reduces our borrowing capacity.We also had outstanding guarantees and letters of credit outside of our Revolving Credit Facility of $5.7 million at December 31, 2017.As part of securing financing in the ordinary course of business, we issued guarantees related to certain of our capital lease obligations, equipmentfinancing, lines of credit and real estate mortgages, which totaled $120.6 million as of December 31, 2017. We are also a guarantor of SCI LLC’snon-collateralized loan with SMBC, which had a balance of $122.7 million as of December 31, 2017, and which was fully repaid on January 2, 2018.See Note 8: “Long-Term Debt” and Note 12: “Commitments and Contingencies” in the notes to our audited consolidated financial statements foundelsewhere in this Form 10-K for additional information.Based on historical experience and information currently available, we believe that we will not be required to make payments under the standby lettersof credit or guarantee arrangements for the foreseeable future.For our operating leases, we expect to make cash payments and similarly incur expenses totaling $160.5 million as payments come due. We have notrecorded any liability in connection with these operating leases, letters of credit and guarantee arrangements. See Note 12: “Commitments andContingencies” in the notes to our audited consolidated financial statements found elsewhere in this Form 10-K for additional information.ContingenciesWe are a party to a variety of agreements entered into in the ordinary course of business pursuant to which we may be obligated to indemnify otherparties for certain liabilities that arise out of or relate to the subject matter of the agreements. Some of the agreements entered into by us require us toindemnify the other party against losses due to IP infringement, property damage including environmental contamination, personal injury, failure tocomply with applicable laws, our negligence or willful misconduct, or breach of representations and warranties and covenants related to such matters astitle to sold assets.We face risk of exposure to warranty and product liability claims in the event that our products fail to perform as expected or such failure of ourproducts results, or is alleged to result, in economic damage, bodily injury or property damage. In addition, if any of our designed products are allegedto be defective, we may be required to participate in their recall. Depending on the significance of any particular customer and other relevant factors,we may agree to provide more favorable rights to such customer for valid defective product claims. 64Table of ContentsWe maintain directors’ and officers’ insurance policies that indemnify our directors and officers against various liabilities, including certain liabilitiesunder the Exchange Act, that might be incurred by any director or officer in his or her capacity as such.The Fairchild Agreement provides for indemnification and insurance rights in favor of Fairchild’s then current and former directors, officers andemployees. Specifically, the Company has agreed that, for no fewer than six years following the Fairchild acquisition, the Company will: (a) indemnifyand hold harmless each such indemnitee against losses and expenses (including advancement of attorneys’ fees and expenses) in connection with anyproceeding asserted against the indemnified party in connection with such person’s servings as a director, officer, employee or other fiduciary ofFairchild or its subsidiaries prior to the effective time of the acquisition; (b) maintain in effect all provisions of the certificate of incorporation orbylaws of Fairchild or any of its subsidiaries or any other agreements of Fairchild or any of its subsidiaries with any indemnified party regardingelimination of liability, indemnification of officers, directors and employees and advancement of expenses in existence on the date of the FairchildAgreement for acts or omissions occurring prior to the effective time of the acquisition and; (c) subject to certain qualifications, provide to Fairchild’sthen current directors and officers an insurance and indemnification policy that provides coverage for events occurring prior to the effective time of theacquisition that is no less favorable than Fairchild’s then-existing policy, or, if insurance coverage that is no less favorable is unavailable, the bestavailable coverage.While our future obligations under certain agreements may contain limitations on liability for indemnification, other agreements do not contain suchlimitations and under such agreements it is not possible to predict the maximum potential amount of future payments due to the conditional nature ofour obligations and the unique facts and circumstances involved in each particular agreement. Historically, payments made by us under any of theseindemnities have not had a material effect on our business, financial condition, results of operations or cash flows, and we do not believe that anyamounts that we may be required to pay under these indemnities in the future will be material to our business, financial condition, results of operationsor cash flows.See “Legal Proceedings” and Note 12: “Commitments and Contingencies” in the notes to our audited consolidated financial statements includedelsewhere in this Form 10-K for possible contingencies related to legal matters. See also “Business—Government Regulation” for information oncertain environmental matters.Sources and Uses of CashWe require cash to fund our operating expenses and working capital requirements, including outlays for strategic acquisitions and investments,research and development, to make capital expenditures, to repurchase our common stock and other Company securities, and to pay debt service,including principal and interest and capital lease payments. Our principal sources of liquidity are cash on hand, cash generated from operations andfunds from external borrowings and equity issuances. In the near term, we expect to fund our primary cash requirements through cash generated fromoperations and cash and cash equivalents on hand. We also have the ability to utilize our Revolving Credit Facility.As part of our business strategy, we review acquisition and divestiture opportunities and proposals on a regular basis. See Note 4: “Acquisitions,Divestitures and Licensing Transactions” in the notes to our audited consolidated financial statements included elsewhere in this Form 10-K foradditional information.We believe that the key factors that could affect our internal and external sources of cash include: • Factors that affect our results of operations and cash flows, including the impact on our business and operations as a result ofchanges in demand for our products, competitive pricing 65Table of Contents pressures, effective management of our manufacturing capacity, our ability to achieve further reductions in operating expenses,the impact of our restructuring programs on our production and cost efficiency and our ability to make the research anddevelopment expenditures required to remain competitive in our business; and • Factors that affect our access to bank financing and the debt and equity capital markets that could impair our ability to obtainneeded financing on acceptable terms or to respond to business opportunities and developments as they arise, including interestrate fluctuations, macroeconomic conditions, sudden reductions in the general availability of lending from banks or the relatedincrease in cost to obtain bank financing, and our ability to maintain compliance with covenants under our debt agreements ineffect from time to time.Our ability to service our long-term debt, including our 1.625% Notes, 1.00% Notes, Revolving Credit Facility and Term Loan “B” Facility, to remainin compliance with the various covenants contained in our debt agreements and to fund working capital, capital expenditures and businessdevelopment efforts will depend on our ability to generate cash from operating activities, which is subject to, among other things, our future operatingperformance, as well as to general economic, financial, competitive, legislative, regulatory and other conditions, some of which may be beyond ourcontrol.If we fail to generate sufficient cash from operations, we may need to raise additional equity or borrow additional funds to achieve our longer termobjectives. There can be no assurance that such equity or borrowings will be available or, if available, will be at rates or prices acceptable to us. Webelieve that cash flow from operating activities coupled with existing cash and cash equivalents, short-term investments and existing credit facilitieswill be adequate to fund our operating and capital needs, as well as enable us to maintain compliance with our various debt agreements, through atleast the next 12 months. To the extent that results or events differ from our financial projections or business plans, our liquidity may be adverselyimpacted.During the ordinary course of business, we evaluate our cash requirements and, if necessary, adjust our expenditures for inventory, operatingexpenditures and capital expenditures to reflect the current market conditions and our projected sales and demand. Our capital expenditures areprimarily directed toward production equipment and capacity expansion. Our capital expenditure levels can materially influence our available cash forother initiatives. During 2017, we paid $387.5 million for capital expenditures, while in 2016 we paid $210.7 million. Capital expenditure levels canmaterially influence our available cash for other initiatives. Our capital expenditures have historically been approximately 6% to 7% of annualrevenues and we expect to continue to incur capital expenditures to support our business activities. Future capital expenditures may be impacted byevents and transactions that are not currently forecasted.On November 30, 2017, we, certain of our domestic subsidiaries (the “Guarantors”), the several lenders party thereto and the Agent entered into theThird Amendment. The Third Amendment provides for, among other things, modifications to the Amended Credit Agreement to reduce the interest ratepayable under the Term Loan “B” Facility and to increase the amount that may be borrowed pursuant to the Revolving Credit Facility to $1.0 billion.In connection with the Third Amendment, the Company prepaid $400.0 million of borrowings under the Term Loan “B” Facility, bringing theoutstanding borrowings under the Term Loan “B” Facility to approximately $1.2 billion as of the date of the Third Amendment. We had $400 millionof borrowings outstanding under the Revolving Credit Facility as of the date of the Third Amendment.On March 31, 2017, we and the Guarantors entered into the Second Amendment (the “Second Amendment”) to the Amended Credit Agreement. TheSecond Amendment provides for, among other things, modifications to the 66Table of ContentsAmended Credit Agreement to allow the Notes to rank pari passu with borrowings under the Amended Credit Agreement and to reduce the interest ratespayable under the Term Loan “B” Facility and the Revolving Credit Facility.On March 31, 2017, we completed the private unregistered offering of $575.0 million aggregate principal amount of the 1.625% Notes, which amountincludes the full exercise of the initial purchasers’ option to purchase additional 1.625% Notes. The net proceeds from the offering of the 1.625% Noteswere used to repay $562.1 million of borrowings outstanding under the Term Loan “B” Facility.On April 15, 2016, we entered into two new financing arrangements to secure funds for the purchase consideration of Fairchild among certain otheritems, including a $2.2 billion Term Loan “B” Facility, with the proceeds deposited into escrow accounts and used to finance the transaction, whichoccurred on September 19, 2016. On September 30, 2016, we amended the financing arrangements and increased the Term Loan “B” Facility by$200.0 million. The associated interest expense related to our Term Loan “B” Facility has had, and will continue to have, a material impact on ourresults of operations throughout the term of the Amended Credit Agreement.During the year ended December 31, 2015, we issued $690.0 million of our 1.00% Notes and used a portion of the proceeds to pay down amountspreviously drawn on our senior revolving credit facility. We also increased the borrowing capacity of our senior revolving credit facility from$800.0 million to $1.0 billion and reset the five-year maturity. See Note 8: “Long-Term Debt” in the notes to our audited consolidated financialstatements included elsewhere in this Form 10-K for additional information.Cash ManagementOur ability to manage cash is limited, as our primary cash inflows and outflows are dictated by the terms of our sales and supply agreements,contractual obligations, debt instruments and legal and regulatory requirements. While we have some flexibility with respect to the timing of capitalequipment purchases, we must invest in capital equipment on a timely basis to allow us to maintain our manufacturing efficiency and support ourplatforms of new products.Primary Cash Flow SourcesOur long-term cash generation is dependent on the ability of our operations to generate cash. Our cash flows from operating activities were$1,094.2 million, $581.2 million, and $470.6 million for the years ended December 31, 2017, 2016 and 2015, respectively.Our cash flows provided by operating activities for the year ended December 31, 2017, which includes a full year of Fairchild, increased byapproximately $513.0 million, or approximately 88.3%, compared to the year ended December 31, 2016. The increase was primarily attributable tobetter results of operations. Our ability to maintain positive operating cash flows is dependent on, among other factors, our success in achieving ourrevenue goals and manufacturing and operating cost targets.Our management of our assets and liabilities, including both working capital and long-term assets and liabilities, also influences our operating cashflows, and each of these components is discussed below. 67Table of ContentsWorking CapitalWorking capital, calculated as total current assets less total current liabilities, fluctuates depending on end-market demand and our effectivemanagement of certain items such as receivables, inventory and payables. In times of escalating demand, our working capital requirements may beaffected as we purchase additional manufacturing materials and increase production. Our working capital may also be affected by restructuringprograms, which may require us to use cash for severance payments, asset transfers and contract termination costs. In addition, our working capital maybe affected by acquisitions and transactions involving our convertible notes and other debt instruments. Our working capital, excluding cash and cashequivalents and short-term investments, was $575.1 million as of December 31, 2017 and has fluctuated between $338.1 million and $668.2 million atthe end of each of our last six fiscal quarters. Our working capital, including cash and cash equivalents and short-term investments, was$1,524.3 million as of December 31, 2017 and has fluctuated between $1,304.5 million and $1,524.3 million at the end of each of our last six fiscalquarters.Although investments made to fund working capital will reduce our cash balances, these investments are necessary to support business and operatinginitiatives. For the year ended December 31, 2017, our working capital was most significantly impacted by our capital expenditures and our repaymentof long-term debt, including capital leases. See Note 8: “Long-Term Debt” and Note 9: “Earnings Per Share and Equity” in the notes to our auditedconsolidated financial statements included elsewhere in this Form 10-K for additional information.Long-Term Assets and LiabilitiesOur long-term assets consist primarily of property, plant and equipment, intangible assets, deferred taxes and goodwill.Our manufacturing rationalization plans have included efforts to utilize our existing manufacturing assets and supply arrangements more efficiently.We believe that near-term access to additional manufacturing capacity, should it be required, could be readily obtained on reasonable terms throughmanufacturing agreements with third parties. We will continue to look for opportunities to make strategic purchases in the future for additionalcapacity.Our long-term liabilities, excluding long-term debt and deferred taxes, consist of liabilities under our foreign defined benefit pension plans andcontingent tax reserves. In regard to our foreign defined benefit pension plans, generally, our annual funding of these obligations is equal to theminimum amount legally required in each jurisdiction in which the plans operate. This annual amount is dependent upon numerous actuarialassumptions. For additional information, see Note 11: “Employee Benefit Plans” and Note 15: “Income Taxes” in the notes to our audited consolidatedfinancial statements included elsewhere in this Form 10-K.Key Financing and Capital EventsOverviewFor the past several years, we have undertaken various measures to secure liquidity to pursue acquisitions, repurchase shares of our common stock,reduce interest costs, amend existing key financing arrangements and, in some cases, extend a portion of our debt maturities to continue to provide usadditional operating flexibility. Certain of these measures continued in 2017. Set forth below is a summary of certain key financing events 68Table of Contentsaffecting our capital structure during the last three years. For further discussion of our debt instruments, see Note 8: “Long-Term Debt” and for furtherdiscussion on share repurchase program, see Note 9: “Earnings Per Share and Equity” in the notes to our audited consolidated financial statementsincluded elsewhere in this Form 10-K.Recent Events2017 Financing EventsAmendments to the Credit AgreementOn April 15, 2016, we entered into the Amended Credit Agreement. On March 31, 2017, we entered into the Second Amendment to the AmendedCredit Agreement. The Second Amendment provided for, among other things, modifications to the Amended Credit Agreement to allow the 1.625%Notes to rank pari passu with borrowings under the Amended Credit Agreement and to reduce the interest rates payable under the Term Loan “B”Facility and the Revolving Credit Facility. For any interest period ending after the date of the Second Amendment, the Second Amendment reducedthe applicable margins on borrowings under the Amended Credit Agreement incurred as eurocurrency loans (“Eurocurrency Loans”) to 1.75% and2.25% for borrowings under the Revolving Credit Facility and the Term Loan “B” Facility, respectively, and reduced applicable margins onborrowings under the Amended Credit Agreement incurred as alternate base rate loans (“ABR Loans”) to 0.75% and 1.25% for borrowings under theRevolving Credit Facility and the Term Loan “B” Facility, respectively. For further discussion of the Amended Credit Agreement, see “2016 FinancingEvents—Amended Credit Agreement.”During the quarter ended June 30, 2017, we repaid in full the $120.0 million outstanding under the Revolving Credit Facility. During the quarterended September 29, 2017, we prepaid $200.0 million of borrowings under the Term Loan “B” Facility.On November 30, 2017, we entered into the Third Amendment to the Amended Credit Agreement. The Third Amendment provided for, among otherthings, modifications to the Amended Credit Agreement to reduce the interest rate payable under the Term Loan “B” Facility and to increase theamount that may be borrowed pursuant to the Revolving Credit Facility to $1.0 billion. For any interest period ending after the date of the ThirdAmendment, the Third Amendment reduced the applicable margins on Eurocurrency Loans to 2.00% for borrowings under the Term Loan “B” Facility,and reduced applicable margins on ABR Loans to 1.00% for borrowings under the Term Loan “B” Facility. In connection with the Third Amendment,we prepaid $400.0 million of borrowings under the Term Loan “B” Facility, bringing the outstanding borrowings under the Term Loan “B” Facility toapproximately $1.2 billion as of the date of the Third Amendment. We had $400.0 million of borrowings outstanding under the Revolving CreditFacility as of the date of the Third Amendment.Issuance of 1.625% NotesOn March 31, 2017, we completed a private placement of $575.0 million of our 1.625% Notes to qualified institutional buyers pursuant to Rule 144Aunder the Securities Act. The 1.625% Notes are governed by an indenture (the “1.625% Indenture”) between the Company, the guarantors partythereto, and Wells Fargo Bank, National Association, as trustee. The net proceeds from the offering of the 1.625% Notes were used to repay$562.1 million of borrowings outstanding under the Term Loan “B” Facility. The 1.625% Notes bear interest at the rate of 1.625% per year from thedate of issuance, payable semiannually in arrears on April 15 and 69Table of ContentsOctober 15 of each year, beginning on October 15, 2017. The 1.625% Notes are fully and unconditionally guaranteed, on a joint and several basis, byeach of our subsidiaries that is a borrower or guarantor under our Amended Credit Agreement.Share Repurchase ProgramWe repurchased approximately 1.6 million shares of our common stock for an aggregate purchase price of $25.0 million in connection with theoffering of the 1.625% Notes during the year ended December 31, 2017.2016 Financing EventsRedemption of 2.625% Notes, Series BOn November 17, 2016, we announced that we would be exercising our option to redeem the entire $356.9 million outstanding principal amount of the2.625% Notes, Series B, on December 20, 2016 pursuant to the terms of the indenture governing the 2.625% Notes, Series B (the “2.625% Notes, SeriesB Indenture”). The holders of the 2.625% Notes, Series B, had the right to convert their 2.625% Notes, Series B, into shares of common stock of theCompany at a conversion rate of 95.2381 shares per $1,000 principal amount until the close of business on December 19, 2016. We satisfied ourconversion obligation with respect to the 2.625% Notes, Series B, tendered for conversion with cash. The final conversion was settled on January 26,2017, resulting in an aggregate payment of approximately $445.0 million for the redemption and conversion of the 2.625% Notes, Series B.Amended Credit AgreementOn April 15, 2016, we entered into: (1) the Amended Credit Agreement; and (2) a Guarantee and Collateral Agreement (the “Guarantee and CollateralAgreement”) with the Guarantors, pursuant to which the Amended Credit Agreement are guaranteed by the Guarantors and secured by a pledge ofsubstantially all of the assets of the Company and the Guarantors, including a pledge of the equity interests in certain of the Company’s domestic andfirst-tier foreign subsidiaries, subject to customary exceptions. The obligations under the Amended Credit Agreement are also secured by mortgages oncertain real property assets of the Company and its domestic subsidiaries. Subject to the terms and conditions of the Amended Credit Agreement, onApril 15, 2016, we borrowed an aggregate of $2.2 billion under the Term Loan “B” Facility (the “Gross Proceeds”).On April 15, 2016, the Gross Proceeds, along with certain other amounts funded by the Company, were deposited into escrow accounts pursuant to theterms of an escrow agreement and, upon release from escrow, in accordance with the terms of the escrow agreement, were available primarily to pay,directly or indirectly, the purchase price of the Fairchild Transaction pursuant to the terms of the Fairchild Agreement and certain other items, subjectto the terms and conditions of the Amended Credit Agreement.On September 19, 2016, the Company completed the acquisition and acquired 100% of Fairchild, whereby Fairchild became a wholly-ownedsubsidiary of the Company. The Company funded the acquisition with the Term Loan “B” Facility proceeds and Company funded amounts previouslydeposited into escrow accounts, proceeds from a $200.0 million draw against the Company’s Revolving Credit Facility, and existing cash onhand. Proceeds from the Term Loan “B” Facility were also used to pay for debt issuance costs, transaction fees and expenses.On September 30, 2016, the Company entered into the First Amendment to the Amended Credit Agreement. The First Amendment reduced theapplicable margins on Eurocurrency Loans to 2.75% and 3.25% for borrowings 70Table of Contentsunder the Revolving Credit Facility and the Term Loan “B” Facility, respectively, and reduced applicable margins on ABR Loans to 1.75% and 2.25%for borrowings under the Revolving Credit Facility and the Term Loan “B” Facility, respectively. Additionally, the First Amendment included thefollowing: (i) the Term Loan “B” Facility was increased to $2.4 billion; (ii) certain restructuring transactions and intercompany intellectual propertytransfers are permitted in order to achieve efficient integration of the Company, its subsidiaries and acquired entities; and (iii) certain changes weremade to the provisions regarding hedge agreements to allow the Company and each of the guarantors to enter into certain hedge arrangements. TheCompany used the additional $200.0 million proceeds under the Term Loan “B” Facility to pay off the Company’s $200.0 million outstandingbalance under the Revolving Credit Facility.Share Repurchase ProgramWe did not repurchase shares pursuant to our share repurchase program during the year ended December 31, 2016, as we focused on the fundingrequired for the Fairchild Transaction.2015 Financing EventsIssuance of 1.00% NotesDuring the second quarter of 2015, we completed a private unregistered offering for an aggregate principal amount of $690.0 million of our 1.00%Notes. The 1.00% Notes mature on December 1, 2020, unless earlier purchased or converted. We concurrently entered into convertible note hedge andwarrant transactions with certain institutional counterparties. A portion of the proceeds from the offering were used to finance the hedge and warranttransactions associated with the issuance of the 1.00% Notes, to pay down the senior revolving credit facility and to repurchase $70.0 million of ourcommon stock. The issuance was a private placement made pursuant to Rule 144A under the Securities Act.Amended Senior Revolving Credit FacilityDuring the second quarter of 2015, we amended our $800.0 million senior revolving credit facility to, among other things, increase the borrowingcapacity to $1.0 billion and reset the five year maturity. We also amended the terms of the related Amended and Restated Credit Agreement. Thefacility includes $15.0 million of availability for the issuance of letters of credit, $15.0 million of availability for swingline loans for short-termborrowings and a foreign currency sublimit of $75.0 million. The facility may be used for general corporate purposes, including working capital, stockrepurchase, and/or acquisitions.Share Repurchase ProgramDuring the year ended December 31, 2015, we purchased approximately 30.4 million shares of our common stock pursuant to our share repurchaseprogram for an aggregate purchase price of approximately $347.8 million, exclusive of fees, commissions and other expenses, at a weighted-averageexecution price of $11.46 per share. See “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities” for additional information.Debt Guarantees and Related CovenantsAs of December 31, 2017, we were in compliance with the indentures relating to our 1.00% Notes and 1.625% Notes and with covenants relating to ourTerm Loan “B” Facility, Revolving Credit Facility and our other debt 71Table of Contentsagreements. Our 1.00% Notes are senior to the existing and future subordinated indebtedness of ON Semiconductor and its guarantor subsidiaries. Our1.625% Notes rank equally in right of payment to all of our existing and future senior debt and are subordinated to all of our existing and futuresecured debt. See Note 8: “Long-Term Debt” in the notes to our audited consolidated financial statements included elsewhere in this Form 10-K foradditional information.Critical Accounting Policies and EstimatesThe accompanying discussion and analysis of our financial condition and results of operations is based upon our audited consolidated financialstatements, which have been prepared in accordance with accounting principles generally accepted in the United States. We believe certain of ouraccounting policies are critical to understanding our financial position and results of operations. We utilize the following critical accounting policiesin the preparation of our financial statements.Use of Estimates. The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect thereported amount of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reportingperiod. We evaluate these estimates and judgments on an ongoing basis and base our estimates on experience, current and expected future conditions,third-party evaluations and various other assumptions that we believe are reasonable under the circumstances. Significant estimates have been used bymanagement in conjunction with the following: (i) estimates of future payouts for customer incentives and estimates of amounts subject to allowances,returns and warranties; (ii) measurement of valuation allowances relating to inventories and trade receivables; (iii) future cash flows used to assess andtest for impairment of goodwill and indefinite-lived intangible assets and long-lived assets, if applicable; (iv) assumptions surrounding future pensionobligations; (v) fair values of share-based compensation and of financial instruments (including derivative financial instruments); (vi) measurement ofvaluation allowances against deferred tax assets, evaluations of uncertain tax positions, and the impact of the U.S. tax reform; and (vii) estimates andassumptions used in connection with business combinations. Actual results may differ from these estimates.Revenue. We generate revenues from sales of our semiconductor products to OEMs, electronic manufacturing service providers and distributors. Wealso generate revenue, to a much lesser extent, from manufacturing and design services provided to customers. Revenue is recognized when persuasiveevidence of an arrangement exists, title and risk of loss pass to the customer (generally upon shipment), the price is fixed or determinable andcollectability is reasonably assured. Revenues are recorded net of provisions for related sales returns and allowances.Prior to the first quarter of 2017, for products sold to distributors who are entitled to ship and credit rights, we recognized the related revenues and costof revenues when we were informed by the distributor that it had resold the products to the end-user. This was due to our inability to reliably estimateup front the effects of the returns and allowances with these distributors for sales originating through the ON Semiconductor systems and processes.Legacy systems and processes of Fairchild enable us to estimate up front the effects of returns and allowances provided to these distributors andthereby record the net revenues at the time of sale related to a legacy Fairchild system and process. We acquired Fairchild on September 19, 2016.When we adopt ASU 2014-09, ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 (see Note 3: “Recent AccountingPronouncements”), one of the more significant impacts would be that we would not be permitted to defer revenue until sale by the distributor to theend customer, but rather, would be required to estimate the effects of returns and allowances provided to certain distributors and record revenue at thetime of 72Table of Contentssale to the distributor. In anticipation of the adoption of the new standards, we had developed our internal systems, processes and controls for makingthe required estimates on the sales to these distributors. As a result of these process changes, during the first quarter of 2017, we were able to reliablyestimate upfront the effects of returns and allowances and record revenues at the time of sales to these distributors. As a result of this change, werecognized $155.1 million in revenue during the first quarter of 2017. The impact of this change resulted in an increase of $59.0 million to incomebefore income taxes, or $0.09 per basic and diluted share, for the year ended December 31, 2017. Additionally, we recorded accruals for the estimatedreturns from the distributors, which decreased revenues by $8.1 million and income before income taxes by $5.3 million for the year endedDecember 31, 2017.Although payment terms vary, most distributor agreements require payment within 30 days. Sales returns and allowances are estimated based onhistorical experience. Our OEM customers do not have the right to return products, other than pursuant to the provisions of our standard warranty. Salesto distributors, however, are typically made pursuant to agreements that provide return rights with respect to discontinued or slow-moving products.Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period therelated revenues are recognized, and are netted against revenues. We review warranty and related claims activities and records provisions, as necessary.Freight and handling costs are included in cost of revenues and are recognized as period expense when incurred. Taxes assessed by governmentauthorities on revenue-producing transactions, including value-added and excise taxes, are presented on a net basis (excluded from revenues) in thestatement of operations.Inventories. We carry our inventories at the lower of standard cost (which approximates actual cost on a first-in, first-out basis) or net realizable valueand record provisions for potential excess and obsolete inventories based upon a regular analysis of inventory on hand compared to historical andprojected end-user demand. These provisions can influence our results from operations. For example, when demand falls for a given part, all or aportion of the related inventory that is considered to be in excess of anticipated demand is reserved, impacting our cost of revenues and gross profit. Ifdemand recovers and the parts previously reserved are sold, we will generally recognize a higher than normal margin. However, the majority of productinventory that has been previously reserved is ultimately discarded. Although we do sell some products that have previously been written down, suchsales have historically been relatively consistent on a quarterly basis and the related impact on our margins has not been material.Impairment of Long-Lived Assets. We evaluate the recoverability of the carrying amount of our property, plant and equipment and intangible assets(excluding IPRD), whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be fully recoverable.Impairment is first assessed when the undiscounted expected cash flows derived for an asset group are less than its carrying amount. Impairment losses,if applicable, are measured as the amount by which the carrying value of an asset group exceeds its fair value and are recognized in operating results.We continually apply our best judgment when applying these impairment rules to determine the timing of the impairment test, the undiscounted cashflows used to assess impairments and the fair value of an impaired asset group. The dynamic economic environment in which we operate and theresulting assumptions used to estimate future cash flows impact the outcome of our impairment tests. In recent years, most of our asset groups that havebeen impaired consist of assets that were ultimately abandoned, sold or otherwise disposed of due to cost reduction activities and the consolidation ofour manufacturing facilities. In some instances, these assets have subsequently been sold for amounts higher than their impaired value with relatedgains recorded in the restructuring, asset impairment and other, net line item in our consolidated statement of operations and disclosed in the footnotesto the financial statements. 73Table of ContentsIPRD. We are required to test our IPRD assets for impairment annually using the guidance for indefinite-lived intangible assets. An IPRD asset isconsidered to be impaired when the asset’s carrying amount is greater than its fair value. Our impairment evaluation consists of first assessingqualitative factors to determine whether events and circumstances indicate that it is more likely than not that the IPRD asset is impaired. If it is morelikely than not that the asset is impaired, we calculate the fair value of the IPRD asset and record an impairment charge if the carrying amount exceedsfair value. We determine the fair value based on an income approach, which is calculated as the present value of the estimated future cash flows of theIPRD asset. The assumptions about estimated cash flows include factors such as future revenues, gross profits, operating expenses, and industry trends.We can bypass the qualitative assessment for any asset in any period and proceed directly to the quantitative impairment test.Goodwill. We evaluate our goodwill for potential impairment annually during the fourth quarter and whenever events or changes in circumstancesindicate the carrying value of goodwill may not be recoverable. Our divisions, which are components of our operating segments, constitute reportingunits for purposes of allocating and testing goodwill. Our divisions are one level below the operating segments, constituting individual businesses, atwhich level our segment management conducts regular reviews of the operating results. Our impairment evaluation of goodwill consists of aqualitative assessment to determine if it is more likely than not that the fair value of a reporting unit exceeds its carrying amount. If this qualitativeassessment indicates it is more likely than not the estimated fair value of a reporting unit exceeds its carrying value, no further analysis is required andgoodwill is not impaired. Otherwise, we perform a quantitative goodwill impairment test to determine if goodwill is impaired. The quantitative testcompares the fair value of a reporting unit with its carrying amount, including goodwill.If the fair value of the reporting unit exceeds the carrying value of the net assets associated with that unit, goodwill is not considered impaired. If thecarrying value of the net assets associated with the reporting unit exceeds the fair value of the reporting unit, goodwill is considered impaired and willbe determined as the amount by which the reporting units carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.Determining the fair value of our reporting units is subjective in nature and involves the use of significant estimates and assumptions, includingprojected net cash flows, discount and long-term growth rates. We determine the fair value of our reporting units based on an income approach,whereby the fair value of the reporting unit is derived from the present value of estimated future cash flows. The assumptions about estimated cashflows include factors such as future revenues, gross profits, operating expenses, and industry trends. We consider historical rates and current marketconditions when determining the discount and long-term growth rates to use in its analysis. We consider other valuation methods, such as the costapproach or market approach, if it is determined that these methods provide a more representative approximation of fair value. Changes in theseestimates based on evolving economic conditions or business strategies could result in material impairment charges in future periods. We base our fairvalue estimates on assumptions we believe to be reasonable. Actual results may differ from those estimates.Our next annual test for impairment is expected to be performed on the first day of the fourth quarter of 2018; however, identification of a triggeringevent may result in the need for earlier reassessments of the recoverability of our goodwill and may result in material impairment charges in futureperiods.Defined Benefit Pension Plans and Related Benefits. We maintain defined benefit pension plans covering certain of our non-U.S. employees. Forfinancial reporting purposes, net periodic pension costs and pension obligations are determined based upon a number of actuarial assumptions,including discount rates for plan obligations, assumed rates of return on pension plan assets and assumed rates of compensation increase for employeesparticipating in the plans. These assumptions are based upon management’s judgment and 74Table of Contentsconsultation with actuaries, considering all known trends and uncertainties. Actual results that differ from these assumptions impact the expenserecognition and cash funding requirements of our pension plans. As of December 31, 2017, a 20 basis point change in the discount rates utilized todetermine our continuing foreign pension liabilities and expenses would have impacted our results by approximately $8.3 million.Contingencies. We are involved in a variety of legal matters that arise in the normal course of business. Based on the available information, weevaluate the relevant range and likelihood of potential outcomes and we record the appropriate liability when the amount is deemed probable andreasonably estimable.Income Taxes. Income taxes are accounted for using the asset and liability method. Under this method, deferred income tax assets and liabilities arerecognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assetsand liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply totaxable income in the years in which these temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilitiesof a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for those deferred taxassets for which we cannot conclude that it is more likely than not that such deferred tax assets will be realized.In determining the amount of the valuation allowance, estimated future taxable income, as well as feasible tax planning strategies for each taxingjurisdiction, are considered. If we determine it is more likely than not that all or a portion of the remaining deferred tax assets will not be realized, thevaluation allowance will be increased with a charge to income tax expense. Conversely, if we determine it is more likely than not to be able to utilizeall or a portion of the deferred tax assets for which a valuation allowance has been provided, the related portion of the valuation allowance will berecorded as a reduction to income tax expense.We recognize and measure benefits for uncertain tax positions using a two-step approach. The first step is to evaluate the tax position taken orexpected to be taken in a tax return by determining if the weight of available evidence indicates that is it more likely than not that the tax positionswill be sustained upon audit, including resolution of any related appeals or litigation processes. For tax positions that are more likely than not to besustained upon audit, the second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon settlement.Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense. Significant judgment is required to evaluateuncertain tax positions. Evaluations are based upon a number of factors, including changes in facts or circumstances, changes in tax law,correspondence with tax authorities during the course of tax audits and effective settlement of audit issues. Changes in the recognition or measurementof uncertain tax positions could result in material increases or decreases in income tax expense in the period in which the change is made, which couldhave a material impact to our effective tax rate. See Note 15: “Income Taxes” in the notes to our audited consolidated financial statements includedelsewhere in this Form 10-K for additional information. See also “Management’s Discussion and Analysis - Results of Operations - Income TaxProvision (Benefit)” for additional information.For a further listing and discussion of our accounting policies, see Note 2: “Significant Accounting Policies” in the notes to our audited consolidatedfinancial statements included elsewhere in this Form 10-K.Recent Accounting PronouncementsFor a discussion of recent accounting pronouncements, see Note 3: “Recent Accounting Pronouncements” in the notes to our audited consolidatedfinancial statements included elsewhere in this Form 10-K. 75Table of ContentsItem 7A. Quantitative and Qualitative Disclosures About Market RiskWe are exposed to financial market risks, including changes in interest rates and foreign currency exchange rates. To mitigate these risks, we utilizederivative financial instruments. We do not use derivative financial instruments for speculative or trading purposes.As of December 31, 2017, our long-term debt (including current maturities) totaled $3,175.0 million. We have no interest rate exposure to rate changeson our fixed rate debt, which totaled $2,053.5 million (excluding the SMBC note of $122.7 million which was paid on January 2, 2018). We do haveinterest rate exposure with respect to the $998.8 million balance of our variable interest rate debt outstanding as of December 31, 2017. A 50 basispoint increase in interest rates would impact our expected annual interest expense for the next 12 months by approximately $5.0 million. However,some of this impact would be offset by additional interest earned on our cash and cash equivalents should rates on deposits and investments alsoincrease. We entered into interest rate swaps to hedge some of the risk of variability in cash flows resulting from future interest payments on ourvariable interest rate debt under the Term Loan “B” Facility.To ensure the adequacy and effectiveness of our foreign exchange hedge positions, we continually monitor our foreign exchange forward positions,both on a stand-alone basis and in conjunction with their underlying foreign currency exposures, from an accounting and economic perspective.However, given the inherent limitations of forecasting and the anticipatory nature of exposures intended to be hedged, we cannot provide anyassurances that such programs will offset more than a portion of the adverse financial impact resulting from unfavorable movements in foreignexchange rates.We are subject to risks associated with transactions that are denominated in currencies other than our functional currencies, as well as the effects oftranslating amounts denominated in a foreign currency to the United States Dollar as a normal part of the reporting process. Our Japanese operationsutilize Japanese Yen as the functional currency, which results in a translation adjustment that is included as a component of accumulated othercomprehensive income.We enter into forward foreign currency contracts that economically hedge the gains and losses generated by the re-measurement of certain recordedassets and liabilities in a non-functional currency. Changes in the fair value of these undesignated hedges are recognized in other income and expenseimmediately as an offset to the changes in the fair value of the assets or liabilities being hedged. The notional amount of foreign currency contracts atDecember 31, 2017 and 2016 was $130.5 million and $95.9 million, respectively. Our policies prohibit speculation on financial instruments, trading incurrencies for which there are no underlying exposures, or entering into trades for any currency to intentionally increase the underlying exposure.Substantially all of our revenue is transacted in U.S. dollars. However, a significant amount of our operating expenditures and capital purchases aretransacted in local currencies, including Japanese Yen, Euros, Korean Won, Malaysian Ringgit, Philippines Peso, Singapore Dollars, Swiss Francs,Chinese Renminbi, and Czech Koruna. Due to the materiality of our transactions in these local currencies, our results are impacted by changes incurrency exchange rates measured against the U.S. dollar. For example, we determined that based on a hypothetical weighted-average change of 10%in currency exchange rates, our results would have impacted our income before taxes by approximately $101.2 million for the year endedDecember 31, 2017, assuming no offsetting hedge positions.See Note 14: “Financial Instruments” in the notes to the audited consolidated financial statements included elsewhere in this Form 10-K for furtherinformation with respect to our hedging activity. 76Table of ContentsItem 8. Financial Statements and Supplementary DataOur consolidated Financial Statements listed in the index appearing under Part IV, Item 15(a)(1) of this Form 10-K and the Financial StatementSchedule listed in the index appearing under Part IV, Item 15(a)(2) of this Form 10-K are filed as part of this Form 10-K and are incorporated herein byreference in this Item 8.Item 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone. 77Table of ContentsItem 9A. Controls and ProceduresEvaluation of Disclosure Controls and Procedures.We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and ChiefFinancial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act).Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered in this Form10-K, our disclosure controls and procedures were effective to ensure that information required to be disclosed in reports filed or submitted under theExchange Act is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to ourmanagement, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding requireddisclosure.Changes in Internal Control Over Financial Reporting.We also carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer andChief Financial Officer, of changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act)that occurred during the fiscal quarter ended December 31, 2017.On September 19, 2016, we acquired Fairchild, which operated under its own set of systems and internal controls. Fairchild’s systems and controlenvironment have been integrated into the Company’s systems and control environment as of October 30, 2017.Other than as described above, there have been no other changes to our internal control over financial reporting (as defined in Exchange Act Rules13a-15(f) and 15d-15(f)) that occurred during the fiscal quarter ended December 31, 2017 which have materially affected, or are reasonably likely tomaterially affect, our internal control over financial reporting.Management’s Report on Internal Control Over Financial Reporting.Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules13a-15(f) and 15d-15(f)). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes inconditions, or that the degree of compliance with the policies and procedures may deteriorate.Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2017. In making this assessment, weused the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework2013. Based on this assessment, management has concluded that our internal control over financial reporting was effective as of December 31, 2017.The effectiveness of our internal control over financial reporting as of December 31, 2017 has been audited by PricewaterhouseCoopers LLP, anindependent registered public accounting firm, as stated in their report which appears in “Exhibits and Financial Statement Schedules” of this Form10-K. 78Table of ContentsItem 9B. Other InformationNone. 79Table of ContentsPART IIIItem 10. Directors, Executive Officers and Corporate GovernanceThe information under the heading “Executive Officers of the Registrant” in this Form 10-K is incorporated by reference into this section. Informationconcerning directors and persons nominated to become directors and executive officers is incorporated by reference from the text under the captions“Management Proposals - Proposal No. 1: Election of Directors,” “The Board of Directors and Corporate Governance,” “Section 16(a) ReportingCompliance” and “Miscellaneous Information - Stockholder Nominations and Proposals” in our Proxy Statement to be filed pursuant to Regulation14A within 120 days after our year ended December 31, 2017 in connection with our 2018 Annual Meeting of Stockholders (“Proxy Statement”).Code of Business ConductInformation concerning our Code of Business Conduct is incorporated by reference from the text under the caption “The Board of Directors andCorporate Governance - Code of Business Conduct” in our Proxy Statement.Item 11. Executive CompensationInformation concerning executive compensation is incorporated by reference from the text under the captions “The Board of Directors and CorporateGovernance - 2017 Compensation of Directors,” “Compensation of Executive Officers,” “Compensation Committee Report,” “CompensationDiscussion and Analysis” and “Compensation Committee Interlocks and Insider Participation” in our Proxy Statement.The information incorporated by reference under the caption “Compensation Committee Report” in our Proxy Statement shall be deemed furnished,and not filed, in this Form 10-K and shall not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act as aresult of this furnishing, except to the extent that we specifically incorporate it by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersInformation concerning security ownership of certain beneficial owners and management is incorporated by reference from the text under the captions“Principal Stockholders,” “Share Ownership of Directors and Officers” and “Share-Based Compensation Plan Information” in our Proxy Statement.Item 13. Certain Relationships and Related Transactions, and Director IndependenceInformation concerning certain relationships and related transactions involving us and certain others is incorporated by reference from the text underthe captions “Management Proposals - Proposal No. 1: Election of Directors,” “The Board of Directors and Corporate Governance,” “Compensation ofExecutive Officers” and “Relationships and Related Transactions” in our Proxy Statement.Item 14. Principal Accountant Fees and ServicesInformation concerning principal accounting fees and services is incorporated by reference from the text under the caption “Management Proposals -Proposal No. 3: Ratification of Appointment of Independent Registered Public Accounting Firm - Audit and Related Fees” in our Proxy Statement. 80Table of ContentsPART IVItem 15. Exhibits and Financial Statement Schedules (a)The following documents are filed as part of this Annual Report on Form 10-K: (1)Consolidated Financial Statements: ON Semiconductor Corporation and Subsidiaries Consolidated Financial Statements: Report of Independent Registered Public Accounting Firm 94 Consolidated Balance Sheets as of December 31, 2017 and December 31, 2016 96 Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2017, 2016 and 2015 97 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2017, 2016 and 2015 98 Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015 99 Notes to Consolidated Financial Statements 100 (2) Consolidated Financial Statement Schedule: Schedule II - Valuation and Qualifying Accounts 170 All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or related notes(3) Exhibits: 81Table of ContentsEXHIBIT INDEX* Exhibit No. Exhibit Description2.1 Reorganization Agreement, dated as of May 11, 1999, among Motorola, Inc., SCG Holding Corporationand Semiconductor Components Industries, LLC (incorporated by reference to Exhibit 2.1 to theCompany’s Registration Statement filed with the Commission on November 5, 1999 (FileNo. 333-90359))†2.2(a) Agreement and Plan of Recapitalization and Merger, as amended, dated as of May 11, 1999, among SCGHolding Corporation, Semiconductor Components Industries, LLC, Motorola, Inc., TPG SemiconductorHoldings LLC, and TPG Semiconductor Acquisition Corp. (incorporated by reference to Exhibit 2.2 to theCompany’s Registration Statement filed with the Commission on November 5, 1999 (FileNo. 333-90359))†2.2(b) Amendment No. 1 to Agreement and Plan of Recapitalization and Merger, dated as of July 28, 1999,among SCG Holding Corporation, Semiconductor Components Industries, LLC, Motorola, Inc., TPGSemiconductor Holdings LLC, and TPG Semiconductor Acquisition Corp. (incorporated by reference toExhibit 2.3 to the Company’s Registration Statement filed with the Commission on November 5, 1999(File No. 333-90359))†2.3(a) Purchase Agreement by and among ON Semiconductor Corporation, Semiconductor ComponentsIndustries, LLC and SANYO Electric Co., Ltd. dated July 15, 2010 (incorporated by reference to Exhibit2.1 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on November 4, 2010)†2.3(b) Amendment No. 1 to Purchase Agreement by and among ON Semiconductor Corporation, SemiconductorComponents Industries, LLC and SANYO Electric Co., Ltd. dated November 30, 2010 (incorporated byreference to Exhibit 2.2 to the Company’s Current Report on Form 8-K filed with the Commission onJanuary 6, 2011)†2.4 Agreement and Plan of Merger by and among ON Semiconductor Benelux B.V., Alpine Acquisition Sub,Aptina, Inc. and Fortis Advisors LLC, as Equityholder Representative, dated as of June 9, 2014(incorporated by reference to Exhibit 2.1 to the Company’s Quarterly Report on Form 10-Q filed with theCommission on August 1, 2014)†2.5 Agreement and Plan of Merger, dated November 18, 2015, by and among Fairchild SemiconductorInternational, Inc., ON Semiconductor Corporation and Falcon Operations Sub, Inc. (incorporated byreference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the Commission onNovember 18, 2015)†2.6 Asset Purchase Agreement, dated as of March 11, 1997, between Fairchild Semiconductor Corporation andNational Semiconductor Corporation (incorporated by reference to Exhibit 2.02 to FairchildSemiconductor Corporation’s Registration Statement filed with the Commission on May 12, 1997 (FileNo. 333-26897))† 82Table of ContentsExhibit No. Exhibit Description3.1(a) Certificate of Incorporation of ON Semiconductor Corporation, as further amended through March 26,2008 (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q filed withthe Commission on May 7, 2008)3.1(b) Certificate of Amendment to the Amended and Restated Certificate of Incorporation (incorporated byreference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Commission onJune 3, 2014)3.1(c) Certificate of Amendment to the Amended and Restated Certificate of Incorporation, dated May 17, 2017(incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 10-Q filed with theCommission on August 7, 2017)3.2 By-Laws of ON Semiconductor Corporation as Amended and Restated on November 21, 2013(incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with theCommission on November 25, 2013)4.1 Specimen of share certificate of Common Stock, par value $0.01, ON Semiconductor Corporation(incorporated by reference to Exhibit 4.1 to the Company’s Form 10-K filed with the Commission onMarch 10, 2004)4.2(a) Indenture regarding the 1.00% Convertible Senior Notes due 2020, dated June 8, 2015, among ONSemiconductor Corporation, the guarantors party thereto and Wells Fargo Bank, National Association, astrustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed withthe Commission on June 8, 2015)4.2(b) Form of Global 1.00% Convertible Senior Note due 2020 (included in Exhibit 4.2(a))4.2(c) Supplemental Indenture to the Indenture regarding the 1.00% Convertible Senior Notes due 2020, datedMarch 11, 2016, among ON Semiconductor Corporation, the guarantors party thereto and Wells FargoBank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s CurrentReport on Form 8-K filed with the Commission on March 17, 2016)4.2(d) Second Supplemental Indenture to the Indenture regarding the 1.00% Convertible Senior Notes 2020,dated April 14, 2016, among ON Semiconductor Corporation, , the guarantors party thereto and WellsFargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’sCurrent Report on Form 8-K filed with the Commission on April 15, 2016)4.2(e) Third Supplemental Indenture to the Indenture regarding the 1.00% Convertible Senior Notes due 2020,dated November 21, 2016, among ON Semiconductor Corporation, the guarantors party thereto and WellsFargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’sCurrent Report on Form 8-K filed with the Commission on November 21, 2016) 83Table of ContentsExhibit No. Exhibit Description4.3(a) Indenture regarding the 1.625% Convertible Senior Notes due 2023, dated as of March 31, 2017 amongON Semiconductor Corporation, the guarantors party thereto and Wells Fargo Bank, National Association,as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filedwith the Commission on April 3, 2017)4.3(b) Form of Global 1.625% Convertible Senior Note due 2023 (included in Exhibit 4.3(a))10.1 Amended and Restated Intellectual Property Agreement, dated August 4, 1999, among SemiconductorComponents Industries, LLC and Motorola, Inc. (incorporated by reference to Exhibit 10.5 to AmendmentNo. 1 to the Company’s Registration Statement filed with the Commission on January 11, 2000 (FileNo. 333-90359))10.2 Lease for 52nd Street property, dated July 31, 1999, among Semiconductor Components Industries, LLCas Lessor, and Motorola, Inc. as Lessee (incorporated by reference to Exhibit 10.16 to the Company’sRegistration Statement filed with the Commission on November 5, 1999 (File No. 333-90359))10.3 Declaration of Covenants, Easement of Restrictions and Options to Purchase and Lease, dated July 31,1999, among Semiconductor Components Industries, LLC and Motorola, Inc. (incorporated by reference toExhibit 10.17 to the Company’s Registration Statement filed with the Commission on November 5, 1999(File No. 333-90359))10.4(a) Joint Venture Contract for Leshan-Phoenix Semiconductor Company Limited, amended and restated onApril 20, 2006 between SCG (China) Holding Corporation (a subsidiary of ON SemiconductorCorporation) and Leshan Radio Company Ltd. (incorporated by reference to Exhibit 10.3 to theCompany’s Quarterly Report on Form 10-Q filed with the Commission on July 28, 2006)10.4(b) Amendment Agreement, dated September 29, 2014, to Joint Venture Contract for Leshan-PhoenixSemiconductor Company Limited between ON Semiconductor (China) Holding, LLC (a subsidiary of ONSemiconductor Corporation) and Leshan Radio Company Ltd. (incorporated by reference to Exhibit 10.5(b) to the Company’s Annual Report on Form 10-K filed with the Commission on February 27, 2015)10.5(a) Credit Agreement, dated April 15, 2016, among ON Semiconductor Corporation, as borrower, the severallenders party thereto, Deutsche Bank AG New York Branch, as administrative agent and collateral agent,Deutsche Bank Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, BMO Capital MarketsCorp., HSBC Securities (USA) Inc. and Sumitomo Mitsui Banking Corporation, as joint lead arrangers andjoint bookrunners, Barclays Bank PLC, Compass Bank, The Bank of Tokyo-Mitsubishi UFJ, Ltd., MorganStanley Senior Funding, Inc., BOKF, NA and KBC Bank N.V., as co-managers, and HSBC Bank USA, N.A.and Sumitomo Mitsui Banking Corporation, as co-documentation agents (incorporated by reference toExhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on April 15, 2016). 84Table of ContentsExhibit No. Exhibit Description10.5(b) Guarantee and Collateral Agreement, dated April 15, 2016, made by ON Semiconductor Corporation andthe other signatories thereto in favor of Deutsche Bank AG New York Branch, as administrative agent andcollateral agent (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on form 8-Kfiled with the Commission on April 15, 2016)10.5(c) Escrow Agreement, dated April 15, 2016, among ON Semiconductor Corporation, MUFG Union Bank,N.A., as escrow agent, and Deutsche Bank AG New York Branch, as administrative agent and collateralagent (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed withthe Commission on April 15, 2016)10.5(d) Joinder to Amended and Restated Guaranty, dated March 15, 2016, among the guarantors party thereto(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with theCommission on March 17, 2016)10.5(e) Joinder to Amended and Restated Guaranty, dated April 14, 2016, among the guarantors party thereto(incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with theCommission on April 15, 2016)10.5(f) Assumption Agreement, dated September 19, 2016, by and between ON Semiconductor (China) Holdings,LLC and Deutsche Bank AG New York Branch (incorporated by reference to Exhibit 10.1 to theCompany’s Current Report on Form 8-K filed with the Commission on September 23, 2016)10.5(g) Pledge Supplement, dated September 19, 2016, by ON Semiconductor (China) Holdings, LLC(incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with theCommission on September 23, 2016)10.5(h) Assumption Agreement, dated September 19, 2016, by and among Fairchild Semiconductor International,Inc., Fairchild Semiconductor Corporation, Fairchild Semiconductor Corporation of California, GiantHoldings, Inc., Fairchild Semiconductor West Corporation, Kota Microcircuits, Inc., Silicon PatentHoldings, Giant Semiconductor Corporation, Micro-Ohm Corporation, Fairchild Energy, LLC andDeutsche Bank AG New York Branch (incorporated by reference to Exhibit 10.3 to the Company’s CurrentReport on Form 8-K filed with the Commission on September 23, 2016)10.5(i) Pledge Supplement, dated September 19, 2016, by Fairchild Semiconductor International, Inc., FairchildSemiconductor Corporation, Fairchild Semiconductor Corporation of California, Giant Holdings, Inc.,Fairchild Semiconductor West Corporation, Kota Microcircuits, Inc., Silicon Patent Holdings, GiantSemiconductor Corporation, Micro-Ohm Corporation and Fairchild Energy, LLC (incorporated byreference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the Commission onSeptember 23, 2016) 85Table of ContentsExhibit No. Exhibit Description10.5(j) First Amendment to Credit Agreement, dated September 30, 2016, among ON Semiconductor Corporation,as borrower, certain subsidiaries thereof, as guarantors, the several lenders party thereto, and Deutsche BankAG New York Branch, as administrative agent and collateral agent (incorporated by reference to Exhibit10.1 to the Company’s Current Report on Form 8-K filed with the Commission on September 30, 2016)10.5(k) Second Amendment to Credit Agreement, dated March 31, 2017, among ON Semiconductor Corporation,as borrower, certain subsidiaries thereof, as guarantors, the several lenders party thereto, and Deutsche BankAG New York Branch, as administrative agent and collateral agent (incorporated by reference to Exhibit10.1 to the Company’s Current Report on Form 8-K filed with the Commission on April 3, 2017)10.5(l) Third Amendment to Credit Agreement, dated November 30, 2017, among ON SemiconductorCorporation, as borrower, certain subsidiaries thereof, as guarantors, the several lenders party thereto, andDeutsche Bank AG New York Branch, as administrative agent and collateral agent (incorporated byreference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission onDecember 4, 2017)10.6(a) Form of Convertible Note Hedge and Warrant Transactions (incorporated by reference to Exhibit 10.1 tothe Company’s Current Report on Form 8-K filed with the Commission on June 8, 2015)10.6(b) Form of Warrant Confirmation (incorporated by reference to Exhibit 10.2 to the Company’s Current Reporton Form 8-K filed with the Commission on June 8, 2015)10.7(a) ON Semiconductor Corporation 2000 Stock Incentive Plan, as amended and restated May 19, 2004(incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q filed with theCommission on August 6, 2004)(2)10.7(b) Amendment to the ON Semiconductor Corporation 2000 Stock Incentive Plan, dated May 16, 2007(incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with theCommission on August 1, 2007)(2)10.7(c) Non-qualified Stock Option Agreement for the ON Semiconductor Corporation 2000 Stock Incentive Plan(incorporated by reference to Exhibit 10.35(d) to Amendment No. 1 to the Company’s RegistrationStatement filed with the Commission on March 24, 2000 (File No. 333-30670))(2)10.7(d) Non-qualified Stock Option Agreement for Senior Vice Presidents and Above for the ON SemiconductorCorporation 2000 Stock Incentive Plan (form of standard agreement) (incorporated by reference to Exhibit10.5 to the Company’s Current Report on Form 8-K filed with the Commission on February 16, 2005)(2)10.7(e) Non-qualified Stock Option Agreement for Directors for the ON Semiconductor Corporation 2000 StockIncentive Plan (form of standard agreement) (incorporated by reference to Exhibit 10.2 to the Company’sCurrent Report on Form 8-K filed with the Commission on February 16, 2005)(2) 86Table of ContentsExhibit No. Exhibit Description10.7(f) ON Semiconductor Corporation Amended and Restated Stock Incentive Plan (incorporated by reference toExhibit 4.1 to the Company’s Registration Statement filed with the Commission on May 19, 2010 (FileNo. 333-166958))(2)10.7(g) First Amendment to the ON Semiconductor Corporation Amended and Restated Stock Incentive Plan(incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with theCommission on August 3, 2012)(2)10.7(h) Second Amendment to the ON Semiconductor Corporation Amended and Restated Stock Incentive Plan,effective May 20, 2015 (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report onForm 10-Q filed with the Commission on August 3, 2015)(2)10.7(i) Non-qualified Stock Option Agreement for Directors for the ON Semiconductor Corporation Amended andRestated Stock Incentive Plan (form of standard agreement) (incorporated by reference to Exhibit 10.2 tothe Company’s Quarterly Report on Form 10-Q filed with the Commission on August 5, 2010)(2)10.7(j) Non-qualified Stock Option Agreement for Senior Vice Presidents and Above for the ON SemiconductorCorporation Amended and Restated Stock Incentive Plan (form of standard agreement) (incorporated byreference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed with the Commission onAugust 5, 2010)(2)10.7(k) Restricted Stock Units Award Agreement for Senior Vice Presidents and Above for the ON SemiconductorCorporation Amended and Restated Stock Incentive Plan (form of standard agreement) (incorporated byreference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed with the Commission onAugust 5, 2010)(2)10.7(l) Stock Grant Award Agreement for Directors under the ON Semiconductor Corporation Amended andRestated Stock Incentive Plan (form of standard Stock Grant Award for Non-employee Directors)(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with theCommission on May 6, 2011)(2)10.7(m) Performance Based Restricted Stock Units Award Agreement under the ON Semiconductor CorporationAmended and Restated Stock Incentive Plan (form of Performance Based Award for Senior Vice Presidentsand Above) (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Qfiled with the Commission on May 6, 2011)(2)10.7(n) Performance Based Restricted Stock Units Award Agreement under the ON Semiconductor CorporationAmended and Restated Stock Incentive Plan (2012 form of Performance Based Award for Senior VicePresidents and Above) (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report onForm 10-Q filed with the Commission on May 4, 2012)(2) 87Table of ContentsExhibit No. Exhibit Description10.7(o) Performance Based Restricted Stock Units Award Agreement under the ON Semiconductor CorporationAmended and Restated Stock Incentive Plan (2013 form of Performance Based Award for Senior VicePresidents and Above) (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report onForm 10-Q filed with the Commission on May 3, 2013)(2)10.7(p) Performance Based Restricted Stock Units Award Agreement under the ON Semiconductor CorporationAmended and Restated Stock Incentive Plan (2014 form of Performance Based Award for Senior VicePresidents and Above) (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report onForm 10-Q filed with the Commission on May 2, 2014)(2)10.7(q) Performance Based Restricted Stock Units Award Agreement under the ON Semiconductor CorporationAmended and Restated Stock Incentive Plan (2015 form of Performance Based Award for Senior VicePresidents and Above) (incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report onForm 10-Q filed with the Commission on August 3, 2015)(2)10.7(r) Performance Based Restricted Stock Units Award Agreement under the ON Semiconductor CorporationAmended and Restated Stock Incentive Plan (2016 form of Performance Based Award for Senior VicePresidents and Above) (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report onForm 10-Q filed with the Commission on August 8, 2016) (2)10.7(s) Performance Based Restricted Stock Units Award Agreement under the ON Semiconductor CorporationAmended and Restated Stock Incentive Plan (2017 form of Performance Based Award for Senior VicePresidents and Above) (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report onForm 10-Q filed with the Commission on August 7, 2017)(2)10.7(t) Third Amendment to the ON Semiconductor Corporation Amended and Restated Stock Incentive Plan,effective May 17, 2017 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report onForm 10-Q filed with the Commission on August 7, 2017)(2)10.8(a) ON Semiconductor Corporation 2000 Employee Stock Purchase Plan, as amended and restated as of May 20, 2009 (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-8No. 333-159381 filed with the Commission on May 21, 2009)(2)10.8(b) Amendment to the ON Semiconductor Corporation 2000 Employee Stock Purchase Plan, as amended as ofMay 15, 2013 (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form10-Q filed with the Commission on August 2, 2013)(2)10.8(c) Amendment to the ON Semiconductor Corporation 2000 Employee Stock Purchase Plan, as amended as ofMay 20, 2015 (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form10-Q filed with the Commission on August 3, 2015)(2)10.8(d) Amendment to the ON Semiconductor Corporation 2000 Employee Stock Purchase Plan, as amended as ofMay 17, 2017 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form10-Q filed with the Commission on August 7, 2017)(2) 88Table of ContentsExhibit No. Exhibit Description10.9(a) ON Semiconductor 2002 Executive Incentive Plan (incorporated by reference to Exhibit 10.1 of theCompany’s Form 10-Q filed with the Commission on August 9, 2002)(2)10.9(b) ON Semiconductor 2007 Executive Incentive Plan (incorporated by reference to Appendix B of Schedule14A filed with the Commission on April 11, 2006)(2)10.9(c) First Amendment to the ON Semiconductor 2007 Executive Incentive Plan (incorporated by reference toExhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on August 22,2007)(2)10.10(a) Employee Incentive Plan January 2002 (incorporated by reference to Exhibit 10.2 to the Company’s Form10-Q filed with the Commission on August 9, 2002)(2)10.10(b) First Amendment to the ON Semiconductor 2002 Employee Incentive Plan (incorporated by reference toExhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on August 22,2007)(2)10.11 Amended and Restated Employment Agreement, effective June 1, 2017, by and between SemiconductorComponents Industries, LLC and Keith Jackson (incorporated by reference to Exhibit 10.1 to theCompany’s Current Report on Form 8-K filed with the Commission on June 2, 2017)(2)10.12 Amended and Restated Employment Agreement, effective June 1, 2017, by and between SemiconductorComponents Industries, LLC and George H. Cave (1)(2)10.13(a) Employment Agreement by and between Semiconductor Components Industries, LLC and William M.Hall, dated as of April 23, 2006 (incorporated by reference to Exhibit 10.1 to the Company’s QuarterlyReport on Form 10-Q filed with the Commission on May 7, 2009)(2)10.13(b) Amendment No. 1 to Employment Agreement by and between Semiconductor Components Industries, LLCand William M. Hall, dated as of April 23, 2008 (incorporated by reference to Exhibit 10.2 to theCompany’s Quarterly Report on Form 10-Q filed with the Commission on May 7, 2009)(2)10.13(c) Amendment No. 2 to Employment Agreement by and between Semiconductor Components Industries,LLC and William M. Hall, dated as of June 1, 2017 (incorporated by reference to Exhibit 10.3 to theCompany’s Quarterly Report on Form 8-K filed with the Commission on June 2, 2017)(2)10.14(a) Employment Agreement by and between Semiconductor Components Industries, LLC and BernardGutmann, dated as of September 26, 2012 (incorporated by reference to Exhibit 10.1 to the Company’sCurrent Report on Form 8-K filed with the Commission on September 27, 2012)(2)10.14(b) Amendment No. 1 to Employment Agreement by and between Semiconductor Components Industries,LLC and Bernard Gutmann, dated as of June 1, 2017 (incorporated by reference to Exhibit 10.2 to theCompany’s Quarterly Report on Form 8-K filed with the Commission on June 2, 2017)(2)10.15(a) Employment Agreement by and between Semiconductor Components Industries, LLC and RobertKlosterboer, dated as of March 14, 2008 (incorporated by reference to Exhibit 10.16 to the Company’sForm 10-K filed with the Commission on February 21, 2014)(2) 89Table of ContentsExhibit No. Exhibit Description10.15(b) Amendment No. 1 to Employment Agreement by and between Semiconductor Components Industries, LLCand Robert Klosterboer, effective June 1, 2017 (1)(2)10.16 Employment Agreement, effective January 7, 2013, between Semiconductor Components Industries, LLCand Mamoon Rashid (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report onForm 10-Q filed with the Commission on May 2, 2014)(2)10.17 Key Officer Severance and Change of Control Agreement with Mamoon Rashid dated as of June 1, 2017(incorporated by reference to Exhibit 10.5 to the Company’s Form 8-K filed with the Commission onJune 2, 2017)(2)10.18 International Assignment Letter of Understanding, effective January 7, 2013, by and amongSemiconductor Components Industries, LLC, SANYO Semiconductor Co., Ltd. and Mamoon Rashid(incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed with theCommission on May 2, 2014)(2)10.19 Retention Bonus Agreement, effective January 7, 2013, by and among Semiconductor ComponentsIndustries, LLC, SANYO Semiconductor Co., Ltd. and Mamoon Rashid (incorporated by reference toExhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 2, 2014)(2)10.20(a) Employment Agreement between Semiconductor Components Industries, LLC and William Schrommdated as of August 25, 2014 (incorporated by reference to Exhibit 10.1 to the Company’s Current Reporton Form 8-K filed with the Commission on August 25, 2014)(2)10.20(b) Amendment No. 1 to Employment Agreement by and between Semiconductor Components Industries,LLC and William Schromm, dated as of June 1, 2017 (incorporated by reference to Exhibit 10.4 to theCompany’s Quarterly Report on Form 8-K filed with the Commission on June 2, 2017)(2)10.21(a) Employment Agreement between Semiconductor Components Industries, LLC and Paul Rolls dated as ofJuly 14, 2013 (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed with theCommission on May 4, 2015)(2)10.21(b) Amendment No. 1 to Employment Agreement by and between Semiconductor Components Industries, LLCand Paul Rolls, effective June 1, 2017 (1)(2)10.22 Key Officer Severance and Change of Control Agreement by and between Semiconductor ComponentsIndustries, LLC and Taner Ozcelik, dated as of June 1, 2017 (1)(2)10.23 Form of Indemnification Agreement with Directors and Officers (incorporated by reference to Exhibit 10.1to the Company’s Current Report on Form 8-K filed with the Commission on February 25, 2016)(2)10.24(a) Environmental Side Letter, dated March 11, 1997, between National Semiconductor Corporation andFairchild Semiconductor Corporation (incorporated by reference to Exhibit 10.19 to FairchildSemiconductor Corporation’s Registration Statement filed with the Commission on May 12, 1997 (FileNo. 333-26897)) 90Table of ContentsExhibit No. Exhibit Description10.24(b) Intellectual Property License Agreement, dated April 13, 1999, between Samsung Electronics Co., Ltd. andFairchild Korea Semiconductor, Ltd. (incorporated by reference to Exhibit 10.41 to FairchildSemiconductor International, Inc.’s Registration Statement filed with the Commission on June 30, 1999(File No. 333-78557))10.24(c) Fairchild Benefit Restoration Plan (incorporated by reference to Exhibit 10.23 to Fairchild SemiconductorCorporation’s Registration Statement filed with the Commission on May 12, 1997 (FileNo. 333-26897))(2)10.24(d) Technology Licensing and Transfer Agreement, dated March 11, 1997, between National SemiconductorCorporation and Fairchild Semiconductor Corporation (incorporated by reference to Amendment No. 3 toFairchild Semiconductor Corporation’s Registration Statement on Form S-4, filed July 9, 1997 (FileNo. 333-28697))10.24(e) Intellectual Property Assignment and License Agreement, dated December 29, 1997, between RaytheonSemiconductor, Inc. and Raytheon Company (incorporated by reference to Fairchild SemiconductorInternational, Inc.’s Current Report on Form 8-K, dated December 31, 1997, filed January 13, 1998. (FileNo. 333-26897))14.1 ON Semiconductor Corporation Code of Business Conduct effective as of August 16, 2016 (incorporatedby reference to Exhibit 14.1 to the Company’s Current Report on Form 8-K filed with the Commission onAugust 24, 2016)21.1 List of Significant Subsidiaries(1)23.1 Consent of Independent Registered Public Accounting Firm-PricewaterhouseCoopers LLP(1)24.1 Powers of Attorney(1)31.1 Certification by CEO pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, asadopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1)31.2 Certification by CFO pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, asadopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1)32 Certification by CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe Sarbanes-Oxley Act of 2002(3)101.INS XBRL Instance Document101.SCH XBRL Taxonomy Extension Schema Document101.CAL XBRL Taxonomy Extension Calculation Linkbase Document101.DEF XBRL Taxonomy Extension Definition Linkbase Document101.LAB XBRL Taxonomy Extension Label Linkbase Document101.PRE XBRL Taxonomy Extension Presentation Linkbase Document *Reports filed under the Securities Exchange Act (Form 10-K, Form 10-Q and Form 8-K) are filed under File No. 000-30419. 91Table of Contents(1)Filed herewith. (2)Management contract or compensatory plan, contract or arrangement. (3)Furnished herewith. †Schedules or other attachments to these exhibits not filed herewith shall be furnished to the Commission upon request.Item 16. Form 10-K SummaryNone. 92Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.February 21, 2018 ON Semiconductor CorporationBy: /s/ KEITH D. JACKSONName: Keith D. JacksonTitle: President and Chief Executive OfficerPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated. Signature Titles Date /s/ KEITH D. JACKSON President, Chief Executive Officer February 21, 2018 Keith D. Jackson and Director (Principal Executive Officer) /s/ BERNARD GUTMANN Executive Vice President, Chief February 21, 2018 Bernard Gutmann Financial Officer and Treasurer (Principal FinancialOfficer) /s/ BERNARD R. COLPITTS, JR. Chief Accounting Officer February 21, 2018 Bernard R. Colpitts, Jr. (Principal Accounting Officer) * Chair of the Board of Directors February 21, 2018 Alan Campbell * Director February 21, 2018 Atsushi Abe * Director February 21, 2018 Curtis J. Crawford * Director February 21, 2018 Gilles Delfassy * Director February 21, 2018 Emmanuel T. Hernandez * Director February 21, 2018 Paul A. Mascarenas * Director February 21, 2018 Daryl A. Ostrander * Director February 21, 2018 Teresa M. Ressel *By: /s/ BERNARD GUTMANN Attorney in Fact February 21, 2018 Bernard Gutmann 93Table of ContentsReport of Independent Registered Public Accounting FirmTo the Board of Directors and Stockholders ofON Semiconductor CorporationOpinions on the Financial Statements and Internal Control over Financial ReportingWe have audited the accompanying consolidated balance sheets of ON Semiconductor Corporation and its subsidiaries as of December 31, 2017 and2016, and the related consolidated statements of operations and comprehensive income, of stockholders’ equity and cash flows for each of the threeyears in the period ended December 31, 2017, including the related notes and schedule of valuation and qualifying accounts for each of the three yearsin the period ended December 31, 2017 appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We alsohave audited the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in InternalControl—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company asof December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended December 31,2017 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, inall material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in InternalControl—Integrated Framework (2013) issued by the COSO.Change in Accounting PrincipleAs discussed in Note 3: “Recent Accounting Pronouncements” to the consolidated financial statements, the Company changed the manner in which itaccounts for excess tax benefits from share-based compensation in 2017.Basis for OpinionsThe Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financialreporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Controlover Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements andon the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public CompanyAccounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtainreasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whethereffective internal control over financial reporting was maintained in all material respects.Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidatedfinancial statements, whether due to error or fraud, and performing procedures 94Table of Contentsthat respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidatedfinancial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well asevaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtainingan understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the designand operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considerednecessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.Definition and Limitations of Internal Control over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions arerecorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts andexpenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) providereasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could havea material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that thedegree of compliance with the policies or procedures may deteriorate./s/ PricewaterhouseCoopers LLPPhoenix, ArizonaFebruary 21, 2018We have served as the Company’s auditor since 1999. 95Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(in millions, except share and per share data) December 31,2017 December 31,2016 Assets Cash and cash equivalents $949.2 $1,028.1 Receivables, net 701.5 629.8 Inventories 1,089.5 1,030.2 Other current assets 193.0 181.0 Total current assets 2,933.2 2,869.1 Property, plant and equipment, net 2,279.1 2,159.1 Goodwill 916.9 924.7 Intangible assets, net 628.3 762.1 Deferred tax assets 339.1 138.9 Other assets 98.5 70.5 Total assets $7,195.1 $6,924.4 Liabilities, Non-Controlling Interest and Stockholders’ Equity Accounts payable $548.0 $434.0 Accrued expenses 612.8 405.0 Deferred income on sales to distributors — 109.8 Current portion of long-term debt 248.1 553.8 Total current liabilities 1,408.9 1,502.6 Long-term debt 2,703.7 3,068.5 Deferred tax liabilities 55.1 288.9 Other long-term liabilities 226.4 186.5 Total liabilities 4,394.1 5,046.5 Commitments and contingencies (Note 12) 2.625% Notes, Series B - Redeemable conversion feature — 32.9 ON Semiconductor Corporation stockholders’ equity: Common stock ($0.01 par value, 1,250,000,000 and 750,000,000 shares authorized, 551,873,115 and542,317,788 shares issued, 425,118,194 and 418,941,713 shares outstanding, respectively) 5.5 5.4 Additional paid-in capital 3,593.5 3,473.3 Accumulated other comprehensive loss (40.6) (50.2) Accumulated earnings (deficit) 351.5 (527.3) Less: Treasury stock, at cost; 126,754,921 and 123,376,075 shares, respectively (1,131.1) (1,078.0) Total ON Semiconductor Corporation stockholders’ equity 2,778.8 1,823.2 Non-controlling interest in consolidated subsidiary 22.2 21.8 Total stockholders’ equity 2,801.0 1,845.0 Total liabilities and stockholders’ equity $ 7,195.1 $ 6,924.4 See accompanying notes to consolidated financial statements 96Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME(in millions, except per share data) Year ended December 31, 2017 2016 2015 Revenues $5,543.1 $3,906.9 $3,495.8 Cost of revenues (exclusive of amortization shown below) 3,509.3 2,610.0 2,302.6 Gross profit 2,033.8 1,296.9 1,193.2 Operating expenses: Research and development 594.4 452.3 396.7 Selling and marketing 315.9 238.0 204.3 General and administrative 284.9 230.3 182.3 Amortization of acquisition-related intangible assets 123.8 104.8 135.7 Restructuring, asset impairments and other, net 20.8 33.2 9.3 Intangible asset impairment 13.1 2.2 3.8 Total operating expenses 1,352.9 1,060.8 932.1 Operating income 680.9 236.1 261.1 Other (expense) income, net: Interest expense (141.2) (145.3) (49.7) Interest income 3.0 4.5 1.1 Gain on divestiture of business 12.5 92.2 — Loss on debt refinancing and prepayment (47.2) (6.3) (0.4) Other (expense) income (8.1) (0.6) 7.7 Licensing income 47.6 — — Other (expense) income, net (133.4) (55.5) (41.3) Income before income taxes 547.5 180.6 219.8 Income tax (provision) benefit 265.5 3.9 (10.8) Net income 813.0 184.5 209.0 Less: Net income attributable to non-controlling interest (2.3) (2.4) (2.8) Net income attributable to ON Semiconductor Corporation $ 810.7 $ 182.1 $ 206.2 Comprehensive income, net of tax: Net income $813.0 $184.5 $209.0 Foreign currency translation adjustments 7.0 (8.0) 0.3 Effects of cash flow hedges 2.6 0.1 3.4 Effects of available-for-sale securities — — (4.5) Other comprehensive (loss) income, net of tax of $0.0, $0.2 and $0.0, respectively 9.6 (7.9) (0.8) Comprehensive income 822.6 176.6 208.2 Comprehensive income attributable to non-controlling interest (2.3) (2.4) (2.8) Comprehensive income attributable to ON Semiconductor Corporation $820.3 $174.2 $205.4 Net income per common share attributable to ON Semiconductor Corporation: Basic $1.92 $0.44 $0.49 Diluted $1.89 $0.43 $0.48 Weighted-average common shares outstanding: Basic 421.9 415.2 421.2 Diluted 428.3 420.0 427.8 See accompanying notes to consolidated financial statements 97Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(in millions, except share data) Common Stock AdditionalPaid-InCapital AccumulatedOtherComprehensiveLoss Accumulated(Deficit)Earnings Treasury Stock Non-ControllingInterest inConsolidatedSubsidiary TotalEquity Number ofshares At ParValue Number ofshares At Cost Balance at December 31, 2014 524,615,562 $5.2 $3,281.2 $(41.5) $(915.6) (90,515,545) $(702.8) $20.9 $1,647.4 Comprehensive (loss) income — — — (0.8) 206.2 — — 2.8 208.2 Stock option exercises 3,487,238 0.1 27.0 — — — — — 27.1 Shares issued pursuant to the employee stockpurchase plan 1,729,100 — 14.6 — — — — — 14.6 RSUs and stock grant awards issued 4,302,821 — — — — — — — — Shares withheld for employee taxes on RSUs — — — — — (1,226,764) (14.7) — (14.7) Share-based compensation expense — — 46.9 — — — — — 46.9 Repurchase of common stock — — — — — (30,352,607) (348.2) — (348.2) Warrants and bond hedge, net — — (56.9) — — — — — (56.9) Issuance of convertible notes — — 107.5 — — — — 107.5 Balance at December 31, 2015 534,134,721 5.3 3,420.3 (42.3) (709.4) (122,094,916) (1,065.7) 23.7 1,631.9 Comprehensive (loss) income — — — (7.9) 182.1 — — 2.4 176.6 Stock option exercises 1,849,777 0.1 14.8 — — — — — 14.9 Shares issued pursuant to the employee stockpurchase plan 1,813,789 — 15.0 — — — — — 15.0 RSUs and stock grant awards issued 4,519,501 — — — — — — — — Shares withheld for employee taxes on RSUs — — — — — (1,281,159) (12.3) — (12.3) Share-based compensation expense — — 56.1 — — — — — 56.1 Dividend to non-controlling shareholder — — — — — — — (4.3) (4.3) Reclassification of 2.625% Notes, Series B,equity component to mezzanine equity — — (32.9) — — — — — (32.9) Balance at December 31, 2016 542,317,788 5.4 3,473.3 (50.2) (527.3) (123,376,075) (1,078.0) 21.8 1,845.0 Comprehensive (loss) income — — — 9.6 810.7 — — 2.3 822.6 Stock option exercises 2,213,859 — 18.0 — — — — — 18.0 Shares issued pursuant to the employee stockpurchase plan 1,913,528 — 23.6 — — — — — 23.6 RSUs and stock grant awards issued 5,427,940 0.1 (0.1) — — — — — — Shares withheld for employee taxes on RSUs — — — — — (1,750,182) (28.1) — (28.1) Share-based compensation expense — — 69.8 — — — — — 69.8 Repurchase of common stock — — — — — (1,628,664) (25.0) — (25.0) Repayment of 2.625% Notes, Series B -Equity Portion — — (55.7) — — — — — (55.7) Dividend to non-controlling shareholder — — — — — — — (1.9) (1.9) Impact of the adoption of ASU 2016-09 — — — — 68.1 — — — 68.1 Warrants and bond hedge, net — — (59.5) — — — — — (59.5) Issuance of 2023 convertible notes — — 113.1 — — — — 113.1 Tax impact of 2023 convertible notes,warrants and bond hedge — — 11.0 — — — — — 11.0 Balance at December 31, 2017 551,873,115 $5.5 $3,593.5 $(40.6) $351.5 (126,754,921) $(1,131.1) $22.2 $2,801.0 See accompanying notes to consolidated financial statements. 98Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(in millions) Year ended December 31, 2017 2016 2015 Cash flows from operating activities: Net income $813.0 $184.5 $209.0 Adjustments to reconcile net income to net cash provided by operating activities and other adjustments: Depreciation and amortization 481.9 364.1 357.6 Loss (gain) on sale or disposal of fixed assets 3.9 1.5 (3.9) Gain on divestiture of business (12.5) (92.2) — Loss on debt refinancing and prepayment 47.2 6.3 0.4 Amortization of debt discount and issuance costs 16.0 12.0 2.8 Payments for term debt modification (3.8) (26.4) — Write-down of excess inventories 67.0 66.2 52.4 Non-cash share-based compensation expense 69.8 56.1 46.9 Non-cash interest on convertible notes 30.8 26.0 17.5 Non-cash asset impairment charges 7.9 0.5 0.2 Non-cash intangible asset impairment charges 13.1 2.2 3.8 Change in deferred taxes (348.3) (38.1) (9.2) Other 2.2 (4.6) (2.8) Changes in assets and liabilities (exclusive of the impact of acquisitions and divestitures): Receivables (57.9) 28.1 (11.3) Inventories (126.9) (7.9) (72.5) Other assets (86.0) (24.9) (10.2) Accounts payable 51.8 42.4 (32.2) Accrued expenses 211.1 (15.3) (16.3) Deferred income on sales to distributors (109.8) 0.1 (53.1) Other long-term liabilities 23.7 0.6 (8.5) Net cash provided by operating activities 1,094.2 581.2 470.6 Cash flows from investing activities: Purchases of property, plant and equipment (387.5) (210.7) (270.8) Proceeds from sales of property, plant and equipment 14.3 0.4 11.1 Deposits made for purchases of property, plant and equipment (8.2) (2.2) (1.4) Purchase of businesses, net of cash acquired (0.8) (2,284.0) (31.3) Proceeds from divestiture of business, net of cash transferred 20.0 104.0 — Cash placed in escrow — (67.7) — Cash received from escrow — 23.8 20.4 Proceeds from sale of available-for-sale securities — — 5.5 Proceeds from sale of held-to-maturity securities — — 2.8 Purchases of held-to-maturity securities (1.6) — (0.8) Other (0.7) 1.8 — Net cash used in investing activities (364.5) (2,434.6) (264.5) Cash flows from financing activities: Proceeds from issuance of common stock under the ESPP 23.6 15.0 14.6 Proceeds from exercise of stock options 18.0 14.9 27.1 Payments of tax withholding for restricted shares (28.1) (12.3) (14.7) Repurchase of common stock (25.0) — (348.2) Proceeds from debt issuance 1,106.2 2,586.9 816.5 Payments of debt issuance and other financing costs — (6.8) (20.4) Repayment of long-term debt (1,831.4) (313.8) (495.5) Purchase of convertible note hedges (144.7) — (108.9) Proceeds from issuance of warrants 85.2 — 52.0 Payment of capital lease obligations (8.9) (14.9) (22.3) Payment of contingent consideration (3.9) — — Dividend to non-controlling shareholder of consolidated subsidiary (1.9) (4.3) — Net cash (used in) provided by financing activities (810.9) 2,264.7 (99.8) Effect of exchange rate changes on cash and cash equivalents 2.3 (0.8) (0.4) Net (decrease) increase in cash and cash equivalents (78.9) 410.5 105.9 Cash and cash equivalents, beginning of period 1,028.1 617.6 511.7 Cash and cash equivalents, end of period $949.2 $1,028.1 $617.6 See accompanying notes to consolidated financial statements 99Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNote 1: Background and Basis of PresentationON Semiconductor Corporation (“ON Semiconductor”), together with its wholly and majority-owned subsidiaries (the “Company”), prepares itsconsolidated financial statements in accordance with generally accepted accounting principles in the United States of America. As of December 31,2017, the Company was organized into three operating segments, which also represent its three reporting segments: Power Solutions Group, AnalogSolutions Group and Image Sensor Group. Additional information about the Company’s operating and reporting segments is included in Note 18:“Segment Information”.All dollar amounts in tabular presentations are in millions, except per share amounts and unless otherwise noted.Note 2: Significant Accounting PoliciesPrinciples of ConsolidationThe accompanying consolidated financial statements include the assets, liabilities, revenues and expenses of all wholly-owned and majority-ownedsubsidiaries over which the Company exercises control and, when applicable, entities in which the Company has a controlling financial interest or isthe primary beneficiary. Investments in nonconsolidated affiliates that represent less than 20% of the related ownership interests and where theCompany does not have the ability to exert significant influence are accounted for as cost method investments. All material intercompany balancesand transactions have been eliminated.Use of EstimatesThe preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reportedamount of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period.Management evaluates these estimates and judgments on an ongoing basis and base its estimates on experience, current and expected futureconditions, third-party evaluations and various other assumptions that management believes are reasonable under the circumstances. Significantestimates have been used by management in conjunction with the following: (i) estimates of future payouts for customer incentives and estimates ofamounts subject to allowances, returns and warranties; (ii) measurement of valuation allowances relating to inventories and trade receivables;(iii) future cash flows used to assess and test for impairment of goodwill and indefinite-lived intangible assets and long-lived assets, if applicable;(iv) assumptions surrounding future pension obligations; (v) fair values of share-based compensation and of financial instruments (including derivativefinancial instruments); (vi) measurement of valuation allowances against deferred tax assets, evaluations of uncertain tax positions, and the impact ofthe U.S. tax reform; and (vii) estimates and assumptions used in connection with business combinations. Actual results may differ from the estimatesand assumptions used in the consolidated financial statements and related notes.Cash and Cash EquivalentsThe Company considers all highly liquid investments with an original maturity to the Company of three months or less to be cash equivalents. Cashand cash equivalents are maintained with reputable major financial 100Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued institutions. If, due to current economic conditions, one or more of the financial institutions with which the Company maintains deposits fails, theCompany’s cash and cash equivalents may be at risk. Deposits with these banks generally exceed the amount of insurance provided on such deposits;however, these deposits typically may be redeemed upon demand and, as a result of the quality of the respective financial institutions, managementbelieves these deposits bear minimal risk.Short-Term InvestmentsShort-term investments include held-to-maturity securities and available-for-sale securities. Held-to-maturity securities have an original maturity to theCompany between three months and one year and are carried at amortized cost as it is the intent of the Company to hold these securities until maturity.Available-for-sale securities are stated at fair value and the net unrealized gains or losses on available-for-sale securities are recorded as a component ofaccumulated other comprehensive loss or income, net of income taxes.Allowance for Doubtful AccountsIn the ordinary course of business, the Company provides non-collateralized credit terms to its customers. Accordingly, the Company maintains anallowance for doubtful accounts for probable losses on uncollectible accounts receivable. The Company routinely analyzes accounts receivable andconsiders history, customer creditworthiness, facts and circumstances specific to outstanding balances, current economic trends and payment termchanges when evaluating the adequacy of the allowance for doubtful accounts.InventoriesInventories are stated at the lower of standard cost (which approximates actual cost on a first-in, first-out basis) or net realizable value. General marketconditions, as well as the Company’s design activities, can cause certain of its products to become obsolete. The Company writes down excess andobsolete inventories based upon a regular analysis of inventory on hand compared to historical and projected end-user demand. These write downs caninfluence results from operations. For example, when demand for a given part falls, all or a portion of the related inventory that is considered to be inexcess of anticipated demand is written down, impacting cost of revenues and gross profit. If demand recovers and the parts previously written downare sold, a higher than normal margin will generally be recognized. However, the majority of product inventory that has been previously written downis ultimately discarded. Although the Company does sell some products that have previously been written down, such sales have historically beenconsistently immaterial and the related impact on the Company’s gross profit has also been immaterial.Property, Plant and EquipmentProperty, plant and equipment are recorded at cost and are depreciated over estimated useful lives of 30-50 years for buildings and 3-20 years formachinery and equipment using straight-line methods. Expenditures for maintenance and repairs are charged to operations in the period in which theexpense is incurred. When assets are retired or otherwise disposed of, the related costs and accumulated depreciation are removed from the balancesheet and any resulting gain or loss is reflected in operations in the period realized. 101Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued The Company evaluates the recoverability of the carrying amount of its property, plant and equipment whenever events or changes in circumstancesindicate that the carrying amount of an asset group may not be fully recoverable. A potential impairment charge is evaluated when the undiscountedexpected cash flows derived from an asset group are less than its carrying amount. Impairment losses, if applicable, are measured as the amount bywhich the carrying value of an asset group exceeds its fair value and are recognized in operating results. Judgment is used when applying theseimpairment rules to determine the timing of the impairment test, the undiscounted cash flows used to assess impairments and the fair value of the assetgroup.Business Combination Purchase Price AllocationThe allocation of the purchase price of business combinations is based on management estimates and assumptions, which utilize established valuationtechniques appropriate for the high-technology industry. These techniques include the income approach, cost approach or market approach, dependingupon which approach is the most appropriate based on the nature and reliability of available data. The income approach is predicated upon the valueof the future cash flows that an asset is expected to generate over its economic life. The cost approach takes into account the cost to replace (orreproduce) the asset and the effects on the asset’s value of physical, functional and/or economic obsolescence that has occurred with respect to theasset. The market approach is used to estimate value from an analysis of actual transactions or offerings for economically comparable assets availableas of the valuation date.GoodwillGoodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired in the Company’s acquisitions.The Company evaluates its goodwill for potential impairment annually during the fourth quarter and whenever events or changes in circumstancesindicate the carrying value of goodwill may not be recoverable. The Company’s divisions, which are components of its operating segments, constitutereporting units for purposes of allocating and testing goodwill. The Company’s divisions are one level below the operating segments, constitutingindividual businesses, at which level the Company’s segment management conducts regular reviews of the operating results. The Company’simpairment evaluation of goodwill consists of a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unitexceeds its carrying amount. If this qualitative assessment indicates it is more likely than not the estimated fair value of a reporting unit exceeds itscarrying value, no further analysis is required and goodwill is not impaired. Otherwise, the Company performs a quantitative goodwill impairment testto determine if goodwill is impaired. The quantitative test compares the fair value of a reporting unit with its carrying amount, including goodwill.If the fair value of the reporting unit exceeds the carrying value of the net assets associated with that unit, goodwill is not considered impaired. If thecarrying value of the net assets associated with the reporting unit exceeds the fair value of the reporting unit, goodwill is considered impaired and willbe determined as the amount by which the reporting units carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.Determining the fair value of the Company’s reporting units is subjective in nature and involves the use of significant estimates and assumptions,including projected net cash flows, discount and long-term growth rates. The Company determines the fair value of its reporting units based on anincome approach, whereby the fair value of the reporting unit is derived from the present value of estimated future cash flows. The assumptions 102Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued about estimated cash flows include factors such as future revenues, gross profits, operating expenses and industry trends. The Company considershistorical rates and current market conditions when determining the discount and long-term growth rates to use in its analysis. The Company considersother valuation methods, such as the cost approach or market approach, if it is determined that these methods provide a more representativeapproximation of fair value. Changes in these estimates based on evolving economic conditions or business strategies could result in materialimpairment charges in future periods. The Company bases its fair value estimates on assumptions it believes to be reasonable. Actual results may differfrom those estimates.Intangible AssetsThe Company’s acquisitions have resulted in intangible assets consisting of values assigned to customer relationships, patents, developed technology,IPRD and trademarks. IPRD is considered an indefinite-lived intangible asset until the abandonment or completion of the associated research anddevelopment efforts. If abandoned, the assets would be impaired. If the activities are completed, a determination is made regarding the useful lives ofsuch assets and methods of amortization.The Company is required to test its IPRD assets for impairment annually using the guidance for indefinite-lived intangible assets. An IPRD asset isconsidered to be impaired when the asset’s carrying amount is greater than its fair value. The Company’s impairment evaluation consists of firstassessing qualitative factors to determine whether events and circumstances indicate that it is more likely than not that the IPRD asset is impaired. If itis more likely than not that the asset is impaired, the Company calculates the fair value of the IPRD asset and records an impairment charge if thecarrying amount exceeds fair value. The Company determines the fair value based on an income approach, which is calculated as the present value ofthe estimated future cash flows of the IPRD asset. The assumptions about estimated cash flows include factors such as future revenues, gross profits,operating expenses and industry trends. The Company can bypass the qualitative assessment for any asset in any period and proceed directly to thequantitative impairment test.The remaining intangible assets are stated at cost less accumulated amortization, are amortized over their estimated useful lives, and are reviewed forimpairment when events or changes in circumstances indicate that the carrying amount of an asset group containing these assets may not berecoverable. A potential impairment charge is evaluated when the undiscounted expected cash flows derived from an asset group are less than itscarrying amount. Impairment losses are measured as the amount by which the carrying value of an asset group exceeds its fair value and are recognizedin operating results. Judgment is used when applying these impairment rules to determine the timing of the impairment test, the undiscounted cashflows used to assess impairments and the fair value of an asset group. The dynamic economic environment in which the Company operates and theresulting assumptions used to estimate future cash flows impact the outcome of these impairment tests.Treasury StockTreasury stock is recorded at cost, inclusive of fees, commissions and other expenses, when outstanding common shares are repurchased by theCompany, including when outstanding shares are withheld to satisfy tax withholding obligations in connection with certain shares pursuant to RSUsunder the Company’s share-based compensation plans. 103Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Debt Issuance CostsDebt issuance costs for line-of-credit agreements, including the Company’s Revolving Credit Facility, are capitalized and amortized over the term ofthe underlying agreements on a straight-line basis. Amortization of these debt issuance costs is included in interest expense while the unamortizedbalance is included in other assets.Debt issuance costs for the Company’s convertible notes are recorded as a direct deduction from the carrying amount of the convertible notes,consistent with debt discounts, and are amortized over the term of the convertible notes using the effective interest method. Amortization of these debtissuance costs is included in interest expense.Revenue RecognitionThe Company generates revenues from sales of its semiconductor products to OEMs, electronic manufacturing service providers and distributors. TheCompany also generates revenue, to a much lesser extent, from manufacturing and design services provided to customers. Revenue is recognized whenpersuasive evidence of an arrangement exists, title and risk of loss pass to the customer (generally upon shipment), the price is fixed or determinableand collectability is reasonably assured. Revenues are recorded net of provisions for related sales returns and allowances.Prior to the first quarter of 2017, for products sold to distributors who are entitled to ship and credit rights, the Company recognized the relatedrevenues and cost of revenues when it was informed by the distributor that it had resold the products to the end-user. This was due to the Company’sinability to reliably estimate up front the effects of the returns and allowances with these distributors for sales originating through the ONSemiconductor systems and processes. Legacy systems and processes of Fairchild enable the Company to estimate up front the effects of returns andallowances provided to these distributors and thereby record the net revenues at the time of sale related to a legacy Fairchild system and process. TheCompany acquired Fairchild on September 19, 2016.When the Company adopts ASU 2014-09, ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 (see Note 3: “RecentAccounting Pronouncements”), one of the more significant impacts would be that it would not have been permitted to defer revenue until sale by thedistributor to the end customer, but rather, would be required to estimate the effects of returns and allowances provided to certain distributors andrecord revenue at the time of sale to the distributor. In anticipation of the adoption of the new standards, the Company had developed its internalsystems, processes and controls for making the required estimates on the sales to these distributors. As a result of these process changes, during the firstquarter of 2017, the Company was able to reliably estimate upfront the effects of returns and allowances and record revenues at the time of sales tothese distributors. As a result of this change, the Company recognized $155.1 million in revenue during the first quarter of 2017. The impact of thischange resulted in an increase of $59.0 million to income before income taxes, or $0.09 per basic and diluted share, for the year ended December 31,2017. Additionally, the Company recorded accruals for the estimated returns from the distributors, which decreased revenues by $8.1 million andincome before income taxes by $5.3 million for the year ended December 31, 2017.Although payment terms vary, most distributor agreements require payment within 30 days. Sales returns and allowances are estimated based onhistorical experience. The Company’s OEM customers do not have the right to return products other than pursuant to the provisions of the Company’sstandard warranty. Sales to 104Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued distributors, however, are typically made pursuant to agreements that provide return rights with respect to discontinued or slow-moving products.Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period therelated revenues are recognized, and are netted against revenues. The Company reviews warranty and related claims activities and records provisions,as necessary.Freight and handling costs are included in cost of revenues and are recognized as period expense when incurred. Taxes assessed by governmentauthorities on revenue-producing transactions, including value-added and excise taxes, are presented on a net basis (excluded from revenues) in thestatement of operations.Warranty Reserves and DiscountsThe Company generally warrants that products sold to its customers will, at the time of shipment, be free from defects in workmanship and materialsand conform to specifications. The Company’s standard warranty extends for a period of two years from the date of delivery, except in the case ofImage Sensor products, which are warrantied for one year from the date of delivery. At the time revenue is recognized, the Company establishes anaccrual for estimated warranty expenses associated with its sales, recorded as a component of cost of revenues. In addition, the Company also offerscash discounts to certain customers for payments received within an agreed upon time, generally ten days after shipment. The Company records areserve for cash discounts as a reduction to accounts receivable and a reduction to revenues based on experience with each customer.Research and Development CostsResearch and development costs are expensed as incurred.Share-Based CompensationShare-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over theemployee’s requisite service period. The Company has outstanding awards with performance, time and service-based vesting provisions.Income TaxesIncome taxes are accounted for using the asset and liability method. Under this method, deferred income tax assets and liabilities are recognized for thefuture tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities andtheir respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in theyears in which these temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in taxrates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for those deferred tax assets for whichmanagement cannot conclude that it is more likely than not that such deferred tax assets will be realized.In determining the amount of the valuation allowance, estimated future taxable income, as well as feasible tax planning strategies for each taxingjurisdiction are considered. If the Company determines it is more likely than not that all or a portion of the remaining deferred tax assets will not berealized, the valuation allowance will be 105Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued increased with a charge to income tax expense. Conversely, if the Company determines it is more likely than not to be able to utilize all or a portion ofthe deferred tax assets for which a valuation allowance has been provided, the related portion of the valuation allowance will be recorded as areduction to income tax expense.The Company recognizes and measures benefits for uncertain tax positions using a two-step approach. The first step is to evaluate the tax positiontaken or expected to be taken in a tax return by determining if the weight of available evidence indicates that is it more likely than not that the taxpositions will be sustained upon audit, including resolution of any related appeals or litigation processes. For tax positions that are more likely thannot to be sustained upon audit, the second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized uponsettlement. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. Significant judgmentis required to evaluate uncertain tax positions. Evaluations are based upon a number of factors, including changes in facts or circumstances, changes intax law, correspondence with tax authorities during the course of tax audits and effective settlement of audit issues. Changes in the recognition ormeasurement of uncertain tax positions could result in material increases or decreases in income tax expense in the period in which the change is made,which could have a material impact to the Company’s effective tax rate.Foreign CurrenciesMost of the Company’s foreign subsidiaries conduct business primarily in U.S. dollars and, as a result, utilize the dollar as their functional currency.For the remeasurement of financial statements of these subsidiaries, assets and liabilities in foreign currencies that are receivable or payable in cash areremeasured at current exchange rates, while inventories and other non-monetary assets in foreign currencies are remeasured at historical rates. Gainsand losses resulting from the remeasurement of such financial statements are included in the operating results, as are gains and losses incurred onforeign currency transactions.The majority of the Company’s Japanese subsidiaries utilize Japanese Yen as their functional currency. The assets and liabilities of these subsidiariesare translated at current exchange rates, while revenues and expenses are translated at the average rates in effect for the period. The related translationgains and losses are included in other comprehensive income or loss within the Consolidated Statements of Operations and Comprehensive Income.Due to the changing profile of the operations of these subsidiaries, from time-to-time, the Company evaluates the economic indicators from a long-termperspective to determine if a change in functional currencies would be appropriate.Defined Benefit Pension PlansThe Company maintains defined benefit pension plans covering certain of its foreign employees. For financial reporting purposes, net periodic pensioncosts and pension obligations are determined based upon a number of actuarial assumptions, including discount rates for plan obligations, assumedrates of return on pension plan assets and assumed rates of compensation increases for employees participating in plans. These assumptions are basedupon management’s judgment and consultation with actuaries, considering all known trends and uncertainties. 106Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ContingenciesThe Company is involved in a variety of legal matters, intellectual property matters, environmental, financing and indemnification contingencies thatarise in the ordinary course of business. Based on the information available, management evaluates the relevant range and likelihood of potentialoutcomes and records the appropriate liability when the amount is deemed probable and reasonably estimable.Fair Value MeasurementThe Company measures certain of its financial and non-financial assets at fair value by using a fair value hierarchy that prioritizes certain inputs intoindividual fair value measurement approaches. Fair value is the exchange price that would be received for an asset or paid to transfer a liability in theprincipal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fairvalue hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used tomeasure fair value, as follows: • Level 1 - Quoted prices in active markets for identical assets or liabilities; • Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities;quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data forsubstantially the full term of the assets or liabilities; and • Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets orliabilities.Companies may choose to measure certain financial instruments and certain other items at fair value. Unrealized gains and losses on items for whichthe fair value option has been elected must be reported in earnings. The Company has elected not to carry any of its debt instruments at fair value.Note 3: Recent Accounting PronouncementsASUs Adopted:ASU No 2017-04 - Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (‘ASU 2017-04’)In January 2017, the FASB issued ASU 2017-04, which simplifies the accounting for goodwill impairment. The guidance removes Step 2 of thegoodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which areporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance willremain largely unchanged. The amendment is effective for calendar year-end SEC filers in 2020, and early adoption is permitted. The Company earlyadopted ASU 2017-04 during the first quarter of 2017. The adoption of this standard did not impact the Company’s financial statements. 107Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ASU No. 2016-09 - Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (‘ASU2016-09’)In March 2016, the FASB issued ASU 2016-09, which is intended to simplify several areas of accounting for share-based compensation arrangements,including the income tax impact, classification on the statement of cash flows and forfeitures. The amendments are effective for fiscal years beginningafter December 15, 2016, including interim periods within those fiscal years. Early adoption was permitted. ASU 2016-09, which the Company adoptedas of the first quarter of 2017, requires that excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based paymentawards) be recognized as income tax expense or benefit in the income statement. The tax effects of exercised or vested awards should be treated asdiscrete items in the reporting period in which they occur. Excess tax benefits should be recognized regardless of whether the benefit reduces taxespayable in the current period. Previously, the Company followed the guidance that the tax benefit and credit to additional paid in capital for a windfalltax benefit should not be recorded until the deduction reduces income taxes payable. The Company has been historically in a net taxable loss.Therefore, the windfall tax benefit has not reduced income taxes payable. The new guidance requires all excess tax benefits that were not previouslyrecognized because the related tax deduction had not reduced current taxes payable to be recorded on a modified retrospective basis through acumulative effect adjustment to retained earnings as of the beginning of the period in which the new guidance was adopted. The financial statementimpact of this change resulted in $68.1 million being recorded as a credit to retained earnings as of January 1, 2017. On a prospective basis, the impactof windfalls and shortfalls will be recorded to income tax expense on a discrete basis.The Company will continue to classify employee taxes paid on the statement of cash flows when ON Semiconductor withholds shares fortax-withholding purposes as a financing activity. The Company will continue to estimate forfeitures as part of share based compensation expenserecognition.ASU No. 2015-11 - Inventory (Topic 330): Simplifying the Measurement of Inventory (‘ASU 2015-11’)In July 2015, the FASB issued ASU 2015-11, which requires that an entity should measure in-scope inventory at the lower of cost and net realizablevalue. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposaland transportation. The amendments are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscalyears. Early adoption was permitted. The Company adopted ASU 2015-11 during the first quarter of 2017. The adoption of this standard did not have amaterial impact on the financial statements.ASUs Pending Adoption:ASU No. 2017-12 - Derivatives and Hedging (topic 815): Targeted Improvements to Accounting for Hedging Activities (‘ASU 2017-12’)In August 2017, the FASB issued ASU No. 2017-12 to better align hedge accounting with risk management strategies, and as a result, more hedgingstrategies will be eligible for hedge accounting. Public business entities will have until the end of the first quarter in which a hedge is designated toperform an initial assessment of a hedge’s effectiveness. After initial qualification, the new guidance permits a qualitative effectiveness assessment forcertain hedges instead of a quantitative test, if the Company can reasonably support an expectation of high 108Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued effectiveness throughout the term of the hedge. An initial quantitative test to establish that the hedge relationship is highly effective is still required.The amendments are effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluatingthe impact that the adoption of ASU 2017-12 may have on its consolidated financial statements.ASU No. 2017-09 - Scope of Modification Accounting (‘ASU 2017-09’)In May 2017, the FASB issued ASU No. 2017-09 to reduce diversity in practice and provide clarity regarding existing guidance in ASC 718, “StockCompensation.” The amendments clarify that an entity should apply modification accounting in response to a change in the terms and conditions of anentity’s share-based payment awards unless three newly specified criteria are met. The amendments are effective for fiscal years beginning afterDecember 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company does not anticipate the adoption ofASU 2017-09 will have a material impact on its consolidated financial statements.ASU No 2017-07 - Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net PeriodicPostretirement Benefit Cost (‘ASU 2017-07’)In March 2017, the FASB issued ASU 2017-07 primarily to improve the presentation of net periodic pension cost and net periodic postretirementbenefit cost. The guidance will require the net benefit cost to be split in the income statement. The service cost component will be included inoperating income. The other components, including amortization of past service costs or credits, and settlement and curtailments amounts, will bereported separately outside of operating income. The amendment is effective for fiscal years beginning after December 15, 2017. Early adoption ispermitted at the beginning of an annual period (in the first interim period) for which financial statements have not yet been issued. The Company doesnot anticipate the adoption of ASU 2017-07 will have a material impact on its consolidated financial statements.ASU No. 2016-18 - Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force) (‘ASU 2016-18’)In November 2016, the FASB issued ASU 2016-18, which requires entities to include in their cash and cash-equivalent balances in the statement ofcash flows those amounts that are deemed to be restricted cash and restricted cash equivalents. The ASU does not define the terms “restricted cash” and“restricted cash equivalents.” The amendments are effective for fiscal years beginning after December 15, 2017, including interim periods within thosefiscal years. Early adoption is permitted. The Company does not anticipate the adoption of ASU 2016-18 will have a material impact on itsconsolidated financial statements.ASU No. 2016-16 - Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (‘ASU 2016-16’)In October 2016, the FASB issued ASU 2016-16, which eliminates the exception for all intra-entity sales of assets other than inventory. As a result, areporting entity would recognize the tax expense from the sale of the asset in the seller’s tax jurisdiction when the transfer occurs, even though thepre-tax effects of that transaction are eliminated in consolidation. Any deferred tax asset that arises in the buyer’s jurisdiction would also be 109Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued recognized at the time of the transfer. The new guidance does not apply to intra-entity transfers of inventory. The income tax consequences from thesale of inventory from one member of a consolidated entity to another will continue to be deferred until the inventory is sold to a third party. Theamendments are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption ispermitted. The Company does not anticipate the adoption of ASU 2016-16 will have a material impact on its consolidated financial statements.ASU No. 2016-15 - Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (‘ASU 2016-15’)In August 2016, the FASB issued ASU 2016-15, which changes how certain cash receipts and cash payments are presented and classified in thestatement of cash flows. The amendments are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscalyears. Early adoption is permitted. The Company does not anticipate the adoption of ASU 2016-15 will have a material impact on its consolidatedfinancial statements.ASU No. 2016-02 - Leases (Topic 842) (‘ASU 2016-02’)In February 2016, the FASB issued ASU 2016-02, which amends the accounting treatment for leases. The amendments are effective for fiscal yearsbeginning after December 15, 2018, including interim periods within those fiscal years. Lessees (for capital and operating leases) and lessors (for sales-type leases, direct financing leases, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered intoafter, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not requireany transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospectivetransition approach. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2016-02 may have on itsconsolidated financial statements.ASU No. 2014-09 - Revenue from Contracts with Customers (Topic 606) (‘ASU 2014-09’), ASU No. 2015-14 - Revenue from Contracts withCustomers (Topic 606): Deferral of the Effective Date (‘ASU 2015-14’), ASU No. 2016-08 - Revenue from Contracts with Customers (Topic 606):Principal versus Agent Considerations (‘ASU 2016-08’), ASU No. 2016-10 - Revenue from Contracts with Customers (Topic 606): IdentifyingPerformance Obligations and Licensing (‘ASU 2016-10’) ASU No. 2016-12 - Revenue from Contracts with Customers (Topic 606): Narrow-ScopeImprovements and Practical Expedients (‘ASU 2016-12’) and ASU No. 2016-20 - Technical Corrections and Improvements to Topic 606, Revenuefrom Contracts with Customers” (‘ASU 2016-20’)In May 2014, the FASB issued ASU 2014-09, which applies to any entity that either enters into contracts with customers to transfer goods or services orenters into contracts for the transfer of non-financial assets unless those contracts are within the scope of other standards supersedes the existingrevenue recognition requirements in ASC Topic 605, “Revenue Recognition.” Pursuant to ASU 2014-09, an entity should recognize revenue to depictthe transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled inexchange, as applied through a multi-step process to achieve that core principle. Subsequently, the FASB approved a deferral included in ASU2015-14 that permits public entities to 110Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued apply the amendments in ASU 2014-09 for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein,and that would also permit public entities to elect to adopt the amendments as of the original effective date as applicable to reporting periodsbeginning after December 15, 2016. The new guidance allows for the amendment to be applied either retrospectively to each prior reporting periodpresented or retrospectively as a cumulative-effect adjustment as of the date of adoption. In March 2016, the FASB issued ASU 2016-08, whichclarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10, which clarifiesidentifying performance obligations and the licensing implementation guidance. In May 2016, the FASB issued ASU 2016-12, which improves certainaspects of ASC Topic 606 “Revenue from Contracts with Customers.” In December 2016, the FASB issued ASU 2016-20, which improves certainaspects of ASC Topic 606 “Revenue from Contracts with Customers.” The effective date and transition requirements for ASU 2016-08, ASU 2016-10,ASU 2016-12 and ASU 2016-20 are the same as the effective date and transition requirements of ASU 2014-09 (collectively, “the standard”).The Company has evaluated the impact of the standard and concluded that the adoption will not have a material impact on its consolidated financialstatements. The impact on the timing of revenue recognition on certain product development agreements is not expected to be material. The Companyis in the final stages of documenting its conclusions on the evaluation of the terms of the customer contracts and arrangements for adoption of thestandard on a modified retrospective basis on January 1, 2018.Note 4: Acquisitions, Divestitures and Licensing TransactionsThe Company pursues strategic acquisitions and divestitures from time to time to leverage its existing capabilities and further build its business.Acquisitions are accounted for as business combinations pursuant to ASC 805 “Business Combinations.” Accordingly, acquisition costs are notincluded as components of consideration transferred and instead are accounted for as expenses in the period in which the costs are incurred. During theyears ended December 31, 2017 and 2016, the Company incurred acquisition and divestiture related costs of approximately $3.2 million and$25.8 million, respectively, which are included in operating expenses on the Company’s Consolidated Statements of Operations and ComprehensiveIncome.2017 DivestitureOn September 29, 2017, the Company entered into a Share Purchase Agreement with mCube, whereby mCube acquired 100% of the outstanding sharesof Xsens Holding B.V., a wholly owned subsidiary of the Company, for cash consideration of $26.0 million (collectively, the “Xsens Transaction”).Twenty percent of the consideration, or $5.2 million, was deposited into an escrow account and the remaining $20.8 million was received onSeptember 29, 2017. There were no indemnification liabilities identified and the escrow amount has been considered as part of the consideration incalculating the gain and included in other assets in the Consolidated Balance Sheet as of December 31, 2017. The escrow amount will be released tothe Company upon satisfaction of any pending claims eighteen months after the date on which the Xsens Transaction closed. The Company recorded again of $12.5 million after writing off the carrying value of the assets and liabilities sold of $7.0 million and goodwill of $6.5 million. This gain hasbeen presented as “Gain on divestiture of business” in the Consolidated Statements of Operations and Comprehensive Income for the year endedDecember 31, 2017. 111Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 2016 AcquisitionOn September 19, 2016, the Company acquired 100% of Fairchild, whereby Fairchild became a wholly-owned subsidiary of the Company. Thepurchase price totaled $2,532.2 million in cash and was funded by the Company’s borrowings against its Term Loan “B” Facility and a partial draw ofthe Revolving Credit Facility, as well as with cash on hand. See Note 8: “Long-Term Debt” for additional information.For the period from September 19, 2016 to December 31, 2016, the Company recognized revenue of $411.5 million and a net loss of $34.5 millionrelating to Fairchild, which included charges for the amortization of fair market value step-up of inventory of $67.5 million, the amortization ofacquired intangible assets and restructuring.The following table presents the allocation of the purchase price for the acquisition of Fairchild, including the effects of the measurement periodadjustments recorded in 2016 for the assets acquired and liabilities assumed based on their fair values (in millions): PurchasePriceAllocation Cash and cash equivalents $ 255.0 Receivables 227.3 Inventories 342.3 Other current assets 61.0 Property, plant and equipment 925.8 Goodwill 656.1 Intangible assets (excluding IPRD) 413.6 In-process research and development 134.2 Other non-current assets 13.1 Total assets acquired 3,028.4 Accounts payable 79.4 Other current liabilities 168.1 Deferred tax liabilities 213.5 Other non-current liabilities 35.2 Total liabilities assumed 496.2 Net assets acquired/purchase price $ 2,532.2 Acquired intangible assets included $134.2 million of IPRD assets, which are to be amortized over the useful life upon successful completion of therelated projects. The value assigned to IPRD was determined by considering the importance of products under development to the overall developmentplan, estimating costs to develop the purchased IPRD into commercially viable products, estimating the resulting net cash flows from the projects whencompleted and discounting the net cash flows to their present value. The Company utilized a discount rate of 14.5% and cash flows from its significantproducts were expected to commence from 2017 and beyond.Other acquired intangible assets of $413.6 million consisted of developed technology of $272.7 million (eleven year weighted-average useful life),customer relationships of $135.5 million (fifteen year useful life) and backlog 112Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued of $3.0 million (six month useful life). The total weighted-average amortization period for the acquired intangibles is 12.1 years.The acquisition produced $656.1 million of goodwill, of which $366.1 million was assigned to the Power Solutions Group and $290.0 million to theAnalog Solutions Group. Goodwill is attributable to a combination of Fairchild’s assembled workforce, expectations regarding a more meaningfulengagement with customers due to the scale of the combined Company and other synergies. Goodwill arising from the Fairchild acquisition is notdeductible for tax purposes.During the year ended December 31, 2016, the Company incurred $24.7 million in acquisition-related costs from the Fairchild acquisition. These costsare recorded in general and administrative expense in the Consolidated Statements of Operations and Comprehensive Income.See Note 12: “Commitments and Contingencies” for information on contingent liabilities assumed from the acquisition of Fairchild.Pro-Forma Results of OperationsUnaudited pro-forma consolidated results of operations for the year ended December 31, 2017 is not required because the results of the acquiredbusiness are included in the Consolidated Statements of Operations and Comprehensive Income for this period. The following unaudited pro-formaconsolidated results of operations for the years ended December 31, 2016 and December 31, 2015 have been prepared as if the acquisition of Fairchildhad occurred on January 1, 2015 and includes adjustments for depreciation expense, amortization of intangibles, interest expense from financing, andthe effect of purchase accounting adjustments, including the step-up of inventory (in millions, except per share data): Year Ended December 31,2016 December 31,2015 Revenue $ 4,912.8 $ 4,866.0 Net Income $196.6 $58.2 Net income attributable to ON Semiconductor Corporation $194.2 $55.4 Net income per common share attributable to ON Semiconductor Corporation: Basic $0.47 $0.13 Diluted $0.46 $0.13 2016 DivestitureOn August 25, 2016, the U.S. Federal Trade Commission (“FTC”) accepted a proposed consent order whereby, prior to the closing of the acquisition ofFairchild, the FTC required the Company to dispose of its IGBT business. In satisfaction of this requirement, on August 29, 2016, the Company soldthe ignition IGBT business to Littelfuse. On the same day, the Company sold its transient voltage suppression diode and switching thyristor productlines (“Thyristor”) to Littelfuse. The sale of the ignition IGBT and Thyristor businesses was for $104.0 million in cash. In connection with the sale, theCompany recorded a gain of $92.2 million after, among other things, transferring inventory of $4.1 million to Littelfuse, writing off goodwill of$3.4 million and 113Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued deferring $4.3 million of the proceeds representing the fair value of manufacturing services to be recognized in the future. This gain has been presentedseparately as “Gain on divestiture of business” in the Consolidated Statements of Operations and Comprehensive Income.2016 Licensing TransactionOn December 19, 2016, the Company entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with HSET Electronic Tech (HongKong) Limited (“HSET”) to sell inventory and license patents related to its Mobile CIS business for $75.0 million. On April 7, 2017, the Company andHSET along with Huaian Imaging Device Manufacturer Corporation (“HIDM”) entered into the First Amendment to the Asset Purchase Agreement. Thearrangement included the sale of $22.5 million of inventory, which has been recorded as revenue for the year ended December 31, 2017.During 2017, the Company received the remaining $52.5 million and provided perpetual, non-exclusive licenses to certain technologies to HIDM. Ofthis, $10.0 million has been recorded as deferred licensing income to be recognized in the period in which certain qualification requirements of thetechnologies are achieved, or refunded to the buyer if qualification does not occur by June 21, 2018. The remaining $42.5 million, along with$2.6 million of withholding taxes borne by HIDM on the Company’s behalf, has been recognized as licensing income in the Consolidated Statementsof Operations and Comprehensive Income for the year ended December 31, 2017. The value of the licensed technologies in intangible assetsamounting to $8.2 million has been fully amortized during 2017 as there are no additional expected future cash flows associated with thesetechnologies.Note 5: Goodwill and Intangible AssetsGoodwillGoodwill is tested for impairment at the reporting unit level, which is one level below the Company’s operating segments. The Company performed aqualitative assessment as part of the annual impairment analysis during the fourth quarter of 2017 and concluded that it is more likely than not that thefair value of its reporting units exceed their carrying amounts and a quantitative impairment test was not required. During 2016, a quantitativeimpairment test was performed to determine that the carrying amount of the Company’s goodwill for all of its reporting units was recoverable and astep two test was not required for any reporting unit.The Company uses the income approach, based on estimated future cash flows, to perform the quantitative impairment test. These estimates includeassumptions about future conditions such as future revenues, gross profits, operating expenses and industry trends. The Company considers othervaluation methods, such as the cost approach or market approach, if it determines that these methods provide a more representative approximation offair value. The material assumptions used for the income approach for periods when no impairment was necessary included projected net cash flows, aweighted-average discount rate of approximately 10.5% and a weighted-average long-term growth rate of 3%. The Company considered historical ratesand current market conditions when determining the discount and growth rates to use in the Company’s analysis. 114Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued The following table summarizes goodwill by relevant reportable segment as of December 31, 2017 and December 31, 2016 (in millions): Balance as of December 31, 2017 Balance as of December 31, 2016 Goodwill AccumulatedImpairmentLosses CarryingValue Goodwill AccumulatedImpairmentLosses CarryingValue Operating Segment Analog Solutions Group $836.7 $(418.9) $417.8 $836.7 $(418.9) $417.8 Image Sensor Group 95.5 — 95.5 96.8 — 96.8 Power Solutions Group 432.2 (28.6) 403.6 438.7 (28.6) 410.1 Total $ 1,364.4 $ (447.5) $ 916.9 $ 1,372.2 $ (447.5) $ 924.7 The following table summarizes the change in goodwill from December 31, 2015 to December 31, 2017 (in millions): Net balance as of December 31, 2015 $ 270.6 Addition due to business combinations 657.5 Divestiture of business (3.4) Net balance as of December 31, 2016 924.7 Measurement period adjustment (1.3) Divestiture of business (6.5) Net balance as of December 31, 2017 $916.9 The measurement period adjustment of $1.3 million related to an immaterial acquisition that occurred on December 29, 2016. 115Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Intangible AssetsIntangible assets, net, were as follows as of December 31, 2017 and December 31, 2016 (in millions): December 31, 2017 OriginalCost AccumulatedAmortization AccumulatedImpairmentLosses CarryingValue Intellectual property $13.9 $(11.8) $(0.4) $1.7 Customer relationships 555.9 (328.5) (20.1) 207.3 Patents 43.7 (26.8) (13.7) 3.2 Developed technology 657.6 (278.2) (2.6) 376.8 Trademarks 17.2 (12.4) (1.1) 3.7 Backlog 3.3 (3.3) — — Favorable Leases 1.7 (1.6) — 0.1 IPRD 54.5 — (19.0) 35.5 Total intangibles $1,347.8 $(662.6) $(56.9) $628.3 December 31, 2016 OriginalCost AccumulatedAmortization AccumulatedImpairmentLosses CarryingValue Intellectual property $13.9 $(11.2) $(0.4) $2.3 Customer relationships 549.0 (283.3) (19.5) 246.2 Patents 43.7 (25.4) (13.7) 4.6 Developed technology 566.9 (201.6) (2.6) 362.7 Trademarks 17.2 (11.6) (1.1) 4.5 Backlog 3.3 (2.4) — 0.9 Favorable Leases 1.5 (0.4) — 1.1 IPRD 145.8 — (6.0) 139.8 Total intangibles $ 1,341.3 $ (535.9) $ (43.3) $ 762.1 During the year ended December 31, 2017, the Company canceled certain of its previously capitalized IPRD projects under the Power Solutions Groupand Analog Solutions Group and recorded impairment losses of $7.7 million. Additionally, as a result of the annual impairment test performed duringthe fourth quarter of 2017, the Company determined that the value of certain of its projects under the Analog Solutions Group were impaired andrecorded charges of $5.4 million. During the year ended December 31, 2017, the Company completed certain of its IPRD projects, resulting in thereclassification of $99.4 million from IPRD to developed technology. Also, during the year ended December 31, 2017, the Company disposed of$8.7 million of intangible assets as part of the Xsens Transaction. See Note 4: “Acquisitions, Divestitures and Licensing Transactions” for moreinformation.During the year ended December 31, 2016, the Company canceled certain of its previously capitalized IPRD projects under the Image Sensor Groupand recorded impairment losses of $2.2 million. Also, during the year ended December 31, 2016, the Company completed certain of its IPRD projects,resulting in the reclassification of $21.6 million from IPRD to developed technology. The Company acquired $547.8 million of intangibles from theacquisition of Fairchild and the resulting purchase accounting.Amortization expense for intangible assets amounted to $123.8 million for the year ended December 31, 2017, $104.8 million for the year endedDecember 31, 2016 and $135.7 million for the year ended December 31, 2015. 116Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Amortization expense for intangible assets, with the exception of the $35.5 million of IPRD assets that will be amortized once the correspondingprojects have been completed, is expected to be as follows over the next five years, and thereafter (in millions): Total 2018 $109.1 2019 99.8 2020 84.9 2021 70.0 2022 57.9 Thereafter 171.1 Total estimated amortization expense $ 592.8 117Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Note 6: Restructuring, Asset Impairments and Other, NetSummarized activity included in the “Restructuring, asset impairments and other, net” caption on the Company’s Consolidated Statements ofOperations and Comprehensive Income for the years ended December 31, 2017, 2016 and 2015 is as follows (in millions): Restructuring AssetImpairments (1) Other (2) Total Year Ended December 31, 2017 Post-Fairchild acquisition restructuring costs $9.7 $— $— $9.7 Manufacturing relocation (2.1) — — (2.1) Former System Solutions Group segment voluntary workforcereduction 2.2 — — 2.2 Other 0.1 7.3 3.6 11.0 Total $9.9 $7.3 $3.6 $20.8 Year Ended December 31, 2016 Post-Fairchild acquisition restructuring costs $25.7 $— $— $25.7 Former System Solutions Group segment voluntary workforcereduction 5.3 — — 5.3 Manufacturing relocation 2.1 — — 2.1 General Workforce Reductions 0.3 — — 0.3 Other (0.2) — — (0.2) Total $33.2 $— $— $33.2 Year Ended December 31, 2015 General Workforce Reductions $4.8 $— $— $4.8 European Marketing Organization Relocation 3.5 — — 3.5 Business Combination Severance 1.0 — — 1.0 KSS Facility Closure 0.3 — (3.4) (3.1) Other 1.4 0.2 1.5 3.1 Total $ 11.0 $ 0.2 $ (1.9) $ 9.3 (1) Includes impairment charges of $7.3 million for the year ended December 31, 2017, to write down certain held-for-sale assets to fairvalue less costs to sell.(2) Includes charges related to certain other reductions in workforce, other facility closures, asset disposal activity and certain otheractivities which are not considered to be significant. Also includes curtailment gains and non-cash foreign currency translation gains for the year endedDecember 31, 2015. See Note 11: “Employee Benefit Plans” for additional information. 118Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Changes in accrued restructuring charges from December 31, 2015 to December 31, 2017 are summarized as follows (in millions): Estimatedemployeeseparation charges Estimatedcosts to exit Total Balance as of December 31, 2015 $5.3 $0.5 $5.8 Charges 33.2 — 33.2 Usage (30.4) (0.5) (30.9) Balance as of December 31, 2016 $8.1 $— $8.1 Charges 7.6 2.3 9.9 Usage (13.8) (2.1) (15.9) Balance as of December 31, 2017 $ 1.9 $ 0.2 $ 2.1 Activity related to the Company’s significant restructuring programs that were either initiated during 2017 or had not been completed as ofDecember 31, 2017 are as follows:Post-Fairchild Acquisition Restructuring CostsFollowing the acquisition of Fairchild, the Company approved the implementation of a cost-reduction plan, which eliminated approximately 225positions from its workforce as a result of redundancies. Restructuring charges of $25.7 million were recorded during the year ended December 31,2016. During the year ended December 31, 2017, an additional 111 positions were eliminated, totaling 336 pursuant to the plan. As of December 31,2017, a total of 331 employees had exited, and the remaining five are expected to exit during 2018. The restructuring expense attributable to severanceand termination benefits was $7.9 million and to other exit costs was $1.8 million for the year ended December 31, 2017. The total expense for thisprogram amounted to $35.4 million and the Company paid $13.4 million and $20.2 million during the years ended December 31, 2017 and 2016,respectively. Accrued severance benefits for this program are $1.8 million as of December 31, 2017.Manufacturing RelocationDuring March 2016, the Company announced a plan to relocate certain of its manufacturing operations to another existing location. During the quarterended March 31, 2017, the Company made the decision to cancel the plans for relocation and announced all workforce would remain intact. As aresult, the accrued balance of $2.1 million was released as of March 31, 2017.Former System Solutions Group Segment Voluntary Workforce ReductionDuring the quarter ended June 30, 2017, the Company announced a voluntary resignation program for the former System Solutions Group. A total of36 employees had signed employee separation agreements as of December 31, 2017 and the related expense for the year was $2.2 million, of which$2.0 million had been paid as of December 31, 2017. The remaining amounts will be paid during 2018. No further expenses are expected for thisprogram. 119Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued During March 2016, the Company had announced a voluntary resignation program for the former System Solutions Group. A total of 75 employeesvolunteered and signed employee separation agreements. The total expense of the plan was $5.3 million and all employees exited and were paidduring the 2016.General Workforce ReductionsDuring the third quarter of 2015, the Company approved and began to implement certain restructuring actions, primarily targeted at workforcereductions. As of December 31, 2016, the Company had notified 150 employees of their employment termination, all of which had exited byDecember 31, 2016. The total expense for the program was $5.1 million, with no additional expenses expected. The Company paid $1.3 million and$3.8 million during the years ended December 31, 2016 and 2015, respectively. As of December 31, 2016, there was no remaining unpaid liability dueto the completion of the program.European Marketing Organization RelocationIn January 2015, the Company announced that it would relocate its European customer marketing organization from France to Slovakia and Germany.As a result, six positions were eliminated and the total expense of the plan was $3.5 million. The Company did not record any related employeeseparation charges during the year ended December 31, 2016. All impacted employees have exited as of 2016. The Company paid $2.9 million and$0.6 million during the years ended December 31, 2016 and 2015, respectively. As of December 31, 2016, there is no remaining unpaid liability due tothe completion of this program. 120Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Note 7: Balance Sheet InformationCertain significant amounts included in the Company’s Consolidated Balance Sheets as of December 31, 2017 and December 31, 2016 consist of thefollowing (in millions): December 31,2017 December 31,2016 Receivables, net: Accounts receivable $704.2 $632.0 Less: Allowance for doubtful accounts (2.7) (2.2) $701.5 $629.8 Inventories: Raw materials $117.7 $121.4 Work in process 660.8 606.9 Finished goods 311.0 301.9 $1,089.5 $1,030.2 Property, plant and equipment, net: Land $148.4 $146.3 Buildings 744.0 713.7 Machinery and equipment 3,454.6 3,131.1 Total property, plant and equipment 4,347.0 3,991.1 Less: Accumulated depreciation (2,067.9) (1,832.0) $2,279.1 $2,159.1 Accrued expenses: Accrued payroll and related benefits $201.8 $155.3 Sales related reserves 280.0 124.8 Income taxes payable 29.9 30.0 Other 101.1 94.9 $ 612.8 $ 405.0 As described in Note 2: “Significant Accounting Policies”, during 2017, the Company began recognizing revenue upon shipment of products to thedistributors, and along with it, recognized accruals for returns and allowances, which is included in sales related reserves as of December 31, 2017.Assets classified as held-for-sale, consisting primarily of properties, are required to be recorded at the lower of carrying value or fair value less any coststo sell. The carrying value of these assets as of December 31, 2017 and 2016 was $5.3 million and $34.1 million, respectively, and is reported as othercurrent assets on the Company’s Consolidated Balance Sheet. The Company sold the remaining assets in January 2018 for $5.5 million. Also includedin other current assets is $17.4 million relating to the consideration held in escrow for the Aptina acquisition to be released upon satisfaction of certainoutstanding items contained in the merger agreement. 121Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Depreciation expense for property, plant and equipment, including amortization of capital leases, totaled $325.2 million, $239.6 million and$201.7 million for 2017, 2016 and 2015, respectively.As of December 31, 2017 and 2016, total property, plant and equipment included $4.2 million and $13.0 million, respectively, of assets financed undercapital leases. Accumulated depreciation associated with these assets is included in total accumulated depreciation in the table above.Warranty ReservesThe activity related to the Company’s warranty reserves for 2015, 2016 and 2017 follows (in millions): Balance as of December 31, 2014 $5.5 Provision 2.7 Usage (2.9) Balance as of December 31, 2015 $5.3 Provision 6.3 Usage (10.8) Warranty reserves from acquired businesses 8.0 Balance as of December 31, 2016 $8.8 Provision 6.8 Usage (7.6) Balance as of December 31, 2017 $ 8.0 122Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Note 8: Long-Term DebtThe Company’s long-term debt consists of the following (annualized rates, dollars in millions): December 31,2017 December 31,2016 Amended Credit Agreement: Revolving Credit Facility due 2021 $400.0 $— Term Loan “B” Facility due 2023, interest payable monthly at 3.57% and 4.02%, respectively 1,204.5 2,394.0 1.00% Notes due 2020 690.0 690.0 2.625% Notes, Series B — 356.4 1.625% Notes due 2023 575.0 — Note payable to SMBC due 2016 through 2018, interest payable quarterly at 3.09% and 2.75%, respectively 122.7 160.4 U.S. real estate mortgages payable monthly through 2019 at an average rate of 3.12% and 3.12%, respectively 34.2 38.9 Philippine term loans due 2016 through 2020, interest payable quarterly at 3.73% and 2.88%, respectively (3) 32.4 44.1 Loan with Singapore bank, interest payable weekly at 2.80% and 2.01%, respectively (2) (6) 25.0 25.0 Loan with Hong Kong bank, interest payable weekly at 2.78% and 2.01%, respectively (2) (6) 25.0 25.0 Malaysia revolving line of credit, interest payable quarterly at 3.14% and 2.45%, respectively (3) 25.0 25.0 Vietnam revolving line of credit, interest payable quarterly at an average rate of 2.88% and 2.43%,respectively (3) (6) 24.9 17.0 Loan with Philippine bank due 2016 through 2019, interest payable quarterly at 4.20% and 3.22%,respectively (1) 9.4 14.1 Loan with Japanese bank due 2016 through 2020, interest payable quarterly at 1.10% 2.7 3.4 Canada equipment financing payable monthly through 2017 at 3.81% (1) — 0.5 Capital lease obligations 4.2 13.0 Gross long-term debt, including current maturities 3,175.0 3,806.8 Less: Debt discount (4) (178.8) (111.4) Less: Debt issuance costs (5) (44.4) (73.1) Net long-term debt, including current maturities 2,951.8 3,622.3 Less: Current maturities (248.1) (553.8) Net long-term debt $ 2,703.7 $ 3,068.5 (1)Debt collateralized by equipment. (2)Debt arrangement collateralized by certain accounts receivable. (3)Non-collateralized debt arrangement. 123Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (4)Discount of $61.9 million and $81.5 million for the 1.00% Notes as of December 31, 2017 and December 31, 2016, respectively. Discount of$104.3 million and zero for the 1.625% Notes as of December 31, 2017 and December 31, 2016, respectively. Discount of $12.5 million and$29.9 million for the Term Loan “B” Facility as of December 31, 2017 and December 31, 2016, respectively. (5)Debt issuance costs of $8.6 million and $11.3 million for the 1.00% Notes as of December 31, 2017 and December 31, 2016, respectively.Debt issuance costs of $10.0 million and zero for the 1.625% Notes as of December 31, 2017 and December 31, 2016. Debt issuance costs of$25.8 million and $61.8 million for the Term Loan “B” Facility as of December 31, 2017 and December 31, 2016, respectively. (6)The Company has historically renewed these arrangements annually.MaturitiesExpected maturities relating to the Company’s gross long-term debt (including current maturities) as of December 31, 2017 are as follows (in millions): AnnualMaturities 2018 $248.1 2019 47.6 2020 699.7 2021 400.0 2022 — Thereafter 1,779.6 Total $ 3,175.0 Amended Credit AgreementFairchild Transaction FinancingOn April 15, 2016, the Company obtained capital for the Fairchild Transaction purchase consideration and other general corporate purposes byentering into the Amended Credit Agreement and the Guarantee and Collateral Agreement. The obligations under the Amended Credit Agreement arealso collateralized by mortgages on certain real property assets of the Company and its domestic subsidiaries. The proceeds from the Term Loan “B”Facility, along with $67.7 million funded by the Company, were deposited into escrow accounts and included within restricted cash on the Company’sConsolidated Balance Sheet until the close of the Fairchild Transaction. Upon the close of the Fairchild Transaction, the Company’s then currentsenior revolving credit facility was terminated and replaced by the Revolving Credit Facility, which became immediately available to the Company.The acquisition of Fairchild was funded with proceeds from the Term Loan “B” Facility, Company-funded amounts previously deposited into escrowaccounts, proceeds from a $200.0 million draw against the Company’s Revolving Credit Facility and existing cash on hand. Proceeds from the TermLoan “B” Facility were also used to pay for debt issuance costs, transaction fees and expenses. 124Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued First Amendment to Credit AgreementOn September 30, 2016, the Company, the Guarantors, the several lenders party thereto and the Agent entered into the first amendment (the “FirstAmendment”) to the Amended Credit Agreement. The First Amendment reduced the applicable margins on Eurocurrency Loans to 2.75% and 3.25%for borrowings under the Revolving Credit Facility and the Term Loan “B” Facility, respectively, and reduced applicable margins on ABR Loans to1.75% and 2.25% for borrowings under the Revolving Credit Facility and the Term Loan “B” Facility, respectively. Additionally, under the FirstAmendment: (i) the Term Loan “B” Facility was increased to $2.4 billion; (ii) certain restructuring transactions and intercompany intellectual propertytransfers are permitted in order to achieve efficient integration of the Company, its subsidiaries and acquired entities; and (iii) certain changes weremade to the provisions regarding hedge agreements to allow the Company and each of the Guarantors to enter into certain hedge arrangements thatshall be deemed to be “obligations” for purposes of the Amended Credit Agreement which may be collateralized by the collateral granted pursuant tothe Guarantee and Collateral Agreement. The Company used the additional $200.0 million proceeds under the Term Loan “B” Facility to pay off theoutstanding balance under the Company’s Revolving Credit Facility. As of December 31, 2016, the Company had $2.4 billion outstanding under theTerm Loan “B” Facility and no amounts outstanding under the Revolving Credit Facility.Second Amendment to Credit AgreementOn March 31, 2017, the Company, the Guarantors, the several lenders party thereto and the Agent entered into the Second Amendment. The SecondAmendment provided for, among other things, modifications to the Amended Credit Agreement to allow the 1.625% Notes to rank pari passu withborrowings under the Amended Credit Agreement and to reduce the interest rates payable under the Term Loan “B” Facility and the Revolving CreditFacility. Pursuant to the Amended Credit Agreement, for any interest period ending after the date of the Second Amendment, the Second Amendmentreduced the applicable margins on Eurocurrency Loans to 1.75% and 2.25% for borrowings under the Revolving Credit Facility and the Term Loan“B” Facility, respectively, and reduced applicable margins on ABR Loans to 0.75% and 1.25% for borrowings under the Revolving Credit Facility andthe Term Loan “B” Facility, respectively.Third Amendment to Credit AgreementOn November 30, 2017, the Company, the Guarantors, the several lenders party thereto and the Agent entered into the Third Amendment. The ThirdAmendment provides for, among other things, modifications to the Amended Credit Agreement to reduce the interest rate payable under the Term Loan“B” Facility and to increase the amount that may be borrowed pursuant to the Revolving Credit Facility to $1.0 billion.Borrowings under the Amended Credit Agreement may be incurred in U.S. Dollars, Euros, Pounds Sterling, Japanese Yen or any other currencyapproved by the Agent and the lenders under the Revolving Credit Facility, subject to certain qualifications described in the Amended CreditAgreement. Regardless of currency, all borrowings under the Amended Credit Agreement may, at the Company’s option, be incurred as eitherEurocurrency Loans or ABR Loans. Pursuant to the Amended Credit Agreement, for any interest period ending after the date of the Third Amendment,Eurocurrency Loans will accrue interest at (i) a base rate per annum equal to the Adjusted LIBO Rate (as defined below) plus (ii) an applicable marginequal to (x) 1.50% with respect to 125Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued borrowings under the Revolving Credit Facility (with step-downs and step-ups as set forth in the Amended Credit Agreement) or (y) 2.00% with respectto borrowings under the Term Loan “B” Facility.Pursuant to the Amended Credit Agreement, ABR Loans will accrue interest at (i) a base rate per annum equal to the highest of (x) the Federal fundsrate plus 0.50%, (y) the prime commercial lending rate announced by Deutsche Bank AG, New York Branch from time to time as its prime lending rateand (z) the Adjusted LIBO Rate for a one month interest period (or if such day is not a business day, the immediately preceding business day)(determined after giving effect to any applicable “floor”) plus 1.00%; provided that, the Adjusted LIBO Rate for any day shall be based on the LIBORate, subject to the interest rate floors set forth in the Amended Credit Agreement, plus (ii) an applicable margin equal to (x) 0.50% with respect toborrowings under the Revolving Credit Facility (with step-downs and step-ups as set forth in the Amended Credit Agreement) or (y) 1.00% with respectto borrowings under the Term Loan “B” Facility.“Adjusted LIBO Rate” means (x) the LIBO Rate for such interest period multiplied by (y) a fraction (expressed as a decimal), the numerator of which isthe number one and the denominator of which is the number one minus the aggregate of the maximum reserve, liquid asset, fees or similar requirements(including any marginal, special, emergency or supplemental reserves or other requirements) established by any central bank, monetary authority, theBoard of Governors of the Federal Reserve System of the United States, the Financial Conduct Authority, the Prudential Regulation Authority, theEuropean Central Bank or other governmental authority for any category of deposits or liabilities customarily used to fund loans in the applicablecurrency, expressed in the case of each such requirement as a decimal. Such reserve, liquid asset, fees or similar requirements shall include thoseimposed pursuant to Regulation D of the Board of Governors of the Federal Reserve System of the United States.The obligations under the Amended Credit Agreement are guaranteed by the Guarantors and secured by a pledge of substantially all of the assets of theCompany and the Guarantors, including a pledge of the equity interests in certain of the Company’s domestic and first-tier foreign subsidiaries, subjectto customary exceptions. The obligations under the Amended Credit Agreement are also collateralized by mortgages on certain real property assets ofthe Company and its domestic subsidiaries. The Amended Credit Agreement includes financial maintenance covenants including a maximumconsolidated total net leverage ratio and a minimum interest coverage ratio. It also contains other customary affirmative and negative covenants andevents of default. The Company was in compliance with its covenants as of December 31, 2017.The Term Loan “B” Facility matures on March 31, 2023 and the Revolving Credit Facility will mature on September 19, 2021. As of December 31,2017, the Company had aggregate borrowings of $400.0 million under the Revolving Credit Facility and $1.2 billion under the Term Loan “B”Facility.Debt Refinancing and PrepaymentThe Company incurred third party, legal and other fees of $3.3 million related to the Third Amendment. The Company performed an analysis for theRevolving Credit Facility and capitalized $1.9 million of closing costs which will be amortized straight-line over the term of the Revolving CreditFacility. The Company performed an analysis for the Term Loan “B” Facility and expensed $1.4 million of third party fees and expenses. TheCompany also expensed $12.9 million of unamortized debt discount and issuance costs attributed to the partial pay down of $400.0 million of theTerm Loan “B” Facility. 126Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued During the quarter ended September 29, 2017, the Company prepaid $200.0 million of borrowings under the Term Loan “B” Facility and expensed$6.7 million of unamortized debt discount and issuance costs attributed to the partial pay down.The Company incurred legal and other fees of $2.4 million related to the Second Amendment. The Company performed an analysis and recorded a debtextinguishment charge of $5.6 million, which included a $3.2 million write-off of unamortized debt issuance costs and $2.4 million in third party fees.On March 31, 2017, the Company used the proceeds from the issuance of the 1.625% Notes, amounting to $562.1 million, and cash on hand of$12.9 million to prepay $575.0 million of the outstanding balance of the Term Loan “B” Facility and expensed $20.6 million of unamortized debtdiscount and issuance costs.The Company incurred debt issuance costs consisting of legal, underwriting and other fees of $66.6 million related to the Term Loan “B” Facility,including $22.0 million toward lender fees for the First Amendment. The Company recorded the Term Loan “B” Facility debt issuance costs as a directdeduction from the carrying amount of the debt and is amortizing them using the effective interest rate method over the term of the loan. The Companyperformed an analysis and recorded a debt extinguishment charge of $4.7 million during the year ended December 31, 2016.The Company incurred debt issuance costs consisting of legal, underwriting and other fees of $8.2 million for the Revolving Credit Facility andrecognized them as deferred costs, which are included in other assets on the Consolidated Balance Sheet. The Company accounted for the terminationand replacement of its senior revolving credit facility by the Revolving Credit Facility as a debt modification and wrote off $1.6 million inunamortized debt issuance costs.The Company recorded debt refinancing and prepayment charges of $47.2 million and $6.3 million for the years ended December 31, 2017 and 2016,respectively.1.00% Notes due 2020On June 8, 2015, the Company completed a private placement of $690.0 million of its 1.00% Notes to qualified institutional buyers pursuant to Rule144A under the Securities Act. The Company was the sole issuer in the private unregistered offering of the 1.00% Notes. The Company incurredissuance costs of $18.3 million in connection with the issuance of the 1.00% Notes, of which $15.4 million were recorded as debt issuance costs andare being amortized using the effective interest method and $2.9 million were allocated to the conversion option (as further described below) and wererecorded to equity. The 1.00% Notes are governed by an indenture between the Company, as the issuer, the guarantors named therein and Wells FargoBank, National Association, as trustee (the “1.00% Indenture”).The Company’s use of the net proceeds from the offering included the following: (i) the funding of the cost of the convertible note hedge transactionsdescribed below (the cost of which was partially offset by the proceeds that the Company received from entering into the warrant transactions describedbelow); (ii) funding the repurchase of $70.0 million of the Company’s common stock which was acquired from purchasers of the 1.00% Notes inprivately negotiated transactions effected through one or more of the initial purchasers or their affiliates conducted concurrently with the issuance ofthe 1.00% Notes; and (iii) repayment of $350.0 million of borrowings outstanding under its Revolving Credit Facility. The remainder of the proceedswas intended for general corporate purposes, including additional share repurchases and potential acquisitions. 127Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued The notes bear interest at the rate of 1.00% per year from the date of issuance, payable semiannually in arrears on June 1 and December 1 of each year,beginning on December 1, 2015. The 1.00% Notes are fully and unconditionally guaranteed on a senior unsecured obligation basis by certain existingsubsidiaries of the Company.The 1.00% Notes are convertible by holders into cash and shares of the Company’s common stock at a conversion rate of 54.0643 shares of commonstock per $1,000 principal amount of notes (subject to adjustment in certain events), which is equivalent to an initial conversion price of $18.50 pershare of common stock. The Company will settle conversion of all 1.00% Notes validly tendered for conversion in cash and shares of the Company’scommon stock, if applicable, subject to the Company’s right to pay the share amount in additional cash. Holders may convert their 1.00% Notes onlyunder the following circumstances: (i) during any calendar quarter commencing after the calendar quarter ending on September 30, 2015, if the lastreported sale price of common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days endingon the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicabletrading day; (ii) during the five business-day period immediately following any five consecutive trading-day period in which the trading price per$1,000 principal amount of 1.00% Notes for each day of such period was less than 98% of the product of the closing sale price of the Company’scommon stock and the conversion rate; (iii) upon occurrence of the specified transactions described in the 1.00% Indenture; or (iv) on and afterSeptember 1, 2020. Upon conversion of the 1.00% Notes, the Company will deliver cash, shares of its common stock or a combination of cash andshares of its common stock, at the Company’s election. For a discussion of the dilutive effects for earnings per share calculations, see Note 9: “EarningsPer Share and Equity.”The 1.00% Notes will mature on December 1, 2020. If a holder elects to convert its 1.00% Notes in connection with the occurrence of specifiedfundamental changes that occur prior to September 1, 2020, the holder will be entitled to receive, in addition to cash and shares of common stock equalto the conversion rate, an additional number of shares of common stock, in each case as described in the 1.00% Indenture. Notwithstanding theseconversion rate adjustments, the 1.00% Notes contain an explicit limit on the number of shares issuable upon conversion.In connection with the occurrence of specified fundamental changes, holders may require the Company to repurchase for cash all or part of their 1.00%Notes at a purchase price equal to 100% of the principal amount of the 1.00% Notes to be repurchased, plus accrued and unpaid interest to, but notincluding, the fundamental change repurchase date.The 1.00% Notes, which are the Company’s unsecured obligations, will rank equally in right of payment to all of the Company’s existing and futureunsubordinated indebtedness and will be senior in right of payment to all of the Company’s existing and future subordinated obligations. The 1.00%Notes will also be effectively subordinated to any of the Company’s or its subsidiaries’ secured indebtedness to the extent of the value of the assetssecuring such indebtedness. ON Semiconductor was the sole issuer of the 1.00% Notes.In accordance with accounting guidance on embedded conversion features, the Company valued and bifurcated the conversion option associated withthe 1.00% Notes from the respective host debt instrument, which is referred to as the debt discount, and initially recorded the conversion option of$110.4 million in stockholders’ 128Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued equity. The resulting debt discount is being amortized to interest expense at an effective interest rate of 4.29% over the contractual terms of the 1.00%Notes.The Company used $56.9 million of the net proceeds from the offering of its 1.00% Notes to concurrently enter into convertible note hedge andwarrant transactions with certain of the initial purchasers of the 1.00% Notes. Pursuant to these transactions, the Company has the option to purchaseinitially (subject to adjustment for certain specified transactions) a total of 37.3 million shares of its common stock at a price of $18.50 per share. Thetotal cost of the convertible note hedge transactions was $108.9 million. In addition, the Company sold warrants to certain bank counterpartieswhereby the holders of the warrants have the option to purchase initially (subject to adjustment for certain specified events) a total of 37.3 millionshares of the Company’s common stock at a price of $25.96 per share. The Company received $52.0 million in cash proceeds from the sale of thesewarrants.In aggregate, the purchase of the convertible note hedges and the sale of the warrants are intended to offset potential dilution from the conversion ofthe 1.00% Notes. As these transactions meet certain accounting criteria, the convertible note hedges and warrants are recorded in stockholders’ equityand are not accounted for as derivatives. The net cost incurred in connection with the convertible note hedge and warrant transactions was recorded asa reduction to additional paid in capital in the Consolidated Balance Sheet. All of the shares subject to the conversion of the 1.00% Notes and hedgingtransactions were reserved in the form of the Company’s treasury stock.2.625% Notes, Series BOn November 17, 2016, the Company announced that it would be exercising its option to redeem the entire $356.9 million outstanding principalamount of the 2.625% Notes, Series B on December 20, 2016 pursuant to the terms of the 2.625% Notes, Series B Indenture. The holders of the 2.625%Notes, Series B had the right to convert their 2.625% Notes, Series B into shares of common stock of the Company at a conversion rate of 95.2381shares per $1,000 principal amount until the close of business on December 19, 2016, which was equivalent to an initial conversion price ofapproximately $10.50 per share of common stock. The Company, at its election, could settle its conversion obligation with respect to the 2.625%Notes, Series B, with shares of common stock, cash or a combination thereof. The Company satisfied its obligation with respect to the 2.625% Notes,Series B tendered for conversion with cash. The final conversion was settled on January 26, 2017, resulting in an aggregate payment of approximately$445.0 million for the redemption and conversion of the 2.625% Notes, Series B. The equity component of the 2.625% Notes, Series B amounting to$32.9 million, representing the amounts previously recorded to additional paid in capital, was reclassified to mezzanine equity as of December 31,2016. There was no loss on extinguishment of debt, and upon settlement, the balance in the mezzanine equity was reduced to zero and the remaining$55.7 million was recorded as a reduction to APIC.1.625% Notes due 2023On March 31, 2017, the Company completed a private placement of $575.0 million of its 1.625% Notes to qualified institutional buyers pursuant toRule 144A under the Securities Act. The Company incurred issuance costs of $13.7 million in connection with the issuance of the 1.625% Notes, ofwhich $11.1 million was capitalized as debt issuance costs and is being amortized using the effective interest method, and $2.6 million was allocatedto the conversion option (as further described below) and was recorded as equity. The 1.625% Notes are governed by the 1.625% Indenture. 129Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued The net proceeds from the offering of the 1.625% Notes were used to repay $562.1 million of borrowings outstanding under the Term Loan “B”Facility. The 1.625% Notes bear interest at the rate of 1.625% per year from the date of issuance, payable semiannually in arrears on April 15 andOctober 15 of each year, beginning on October 15, 2017. The 1.625% Notes are fully and unconditionally guaranteed, on a joint and several basis, byeach of the Company’s subsidiaries that is a borrower or guarantor under the Amended Credit Agreement.The initial conversion rate of the 1.625% Notes is 48.2567 shares of common stock per $1,000 principal amount of 1.625% Notes (subject toadjustment in certain events), which is equivalent to an initial conversion price of approximately $20.72 per share of common stock. Prior to the closeof business on the business day immediately preceding July 15, 2023, the 1.625% Notes will be convertible only under the following circumstances:(1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2017 (and only during such calendar quarter), if the lastreported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutivetrading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price oneach applicable trading day; (2) during the five business day period after any five consecutive trading day period in which the trading price per $1,000principal amount of the 1.625% Notes for each trading day of such period was less than 98% of the product of the last reported sale price of theCompany’s common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate transactions describedin the 1.625% Indenture. On or after July 15, 2023, until the close of business on the second scheduled trading day immediately preceding the maturitydate, holders of the 1.625% Notes may convert all or a portion of their 1.625% Notes at any time. Upon conversion of the 1.625% Notes, the Companywill deliver cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election. For a discussion ofthe dilutive effects for earnings per share calculations, see Note 9: “Earnings Per Share and Equity”.The 1.625% Notes will mature on October 15, 2023. If a holder elects to convert its 1.625% Notes in connection with the occurrence of specifiedfundamental changes that occur prior to July 15, 2023, the holder will be entitled to receive, in addition to cash and/or shares of common stock equalto the conversion rate, an additional number of shares of common stock, as described in the 1.625% Indenture. Notwithstanding these conversion rateadjustments, the 1.625% Notes contain an explicit limit on the number of shares issuable upon conversion.In connection with the occurrence of specified fundamental changes, holders may require the Company to repurchase for cash all or a portion of their1.625% Notes at a purchase price equal to 100% of the principal amount of the 1.625% Notes to be repurchased, plus accrued and unpaid interest to,but not including, the fundamental change repurchase date.The 1.625% Notes, which are the Company’s unsecured obligations, rank equally in right of payment to all of the Company’s existing and futureunsubordinated indebtedness and are senior in right of payment to all of the Company’s existing and future subordinated obligations. The 1.625%Notes are effectively subordinated to any of the Company’s or its subsidiaries’ secured indebtedness to the extent of the value of the assets securingsuch indebtedness.In accordance with accounting guidance on embedded conversion features, the Company valued and bifurcated the conversion option associated withthe 1.625% Notes from the respective host debt instrument, which is referred to as the debt discount, and initially recorded the conversion optionof $115.7 million in stockholders’ 130Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued equity. The resulting debt discount is being amortized to interest expense at an effective interest rate of 5.38% over the contractual terms of the notes.Concurrently with the offering of the 1.625% Notes, the Company used $59.5 million of borrowings under the Revolving Credit Facility to enter intoconvertible note hedge and warrant transactions with certain of the initial purchasers of the 1.625% Notes. Pursuant to these transactions, the Companyhas the option to purchase (subject to adjustment for certain specified transactions) an aggregate of 27.7 million shares of its common stock at a priceof $20.72 per share. The total cost of the convertible note hedge transactions was $144.7 million. In addition, the Company sold warrants to certainbank counterparties whereby the holders of the warrants have the option to purchase initially (subject to adjustment for certain specified events) a totalof 27.7 million shares of the Company’s common stock at a price of $30.70 per share. The Company received $85.2 million in cash proceeds from thesale of these warrants. The tax impact of the conversion option and the convertible note hedge and warrant transactions amounted to $11.0 million andwas recorded in stockholders’ equity.Together, the purchase of the convertible note hedges and the sale of the warrants are intended to offset potential dilution from the conversion of the1.625% Notes. As these transactions meet certain accounting criteria, the convertible note hedges and warrants are recorded in stockholders’ equity andare not accounted for as derivatives. The net cost incurred in connection with the convertible note hedge and warrant transactions was recorded as areduction to additional paid in capital in the consolidated balance sheet. All of the shares subject to the conversion of the 1.625% Notes and hedgingtransactions were reserved from the Company’s unallocated shares.Note Payable to SMBCOn January 31, 2013, the Company amended and restated its seven-year, non-collateralized loan obligation with SANYO Electric. In connection withthe amendment and restatement of the loan agreement, SANYO Electric assigned all of its rights under the loan agreement to SMBC. The loan had anoriginal principal amount of approximately $377.5 million and had a principal balance of $122.7 million and $160.4 million as of December 31, 2017and December 31, 2016, respectively. The outstanding balance was repaid on January 2, 2018.U.S. Real Estate MortgagesOn August 4, 2014, one of the Company’s U.S. subsidiaries entered into an amended and restated loan agreement with a Scottish Bank forapproximately $49.4 million, which was collateralized by real estate, including certain of the Company’s facilities in California, Oregon, and Idaho.The loan bears interest payable monthly at an interest rate of approximately 3.12% per annum, with a balloon payment of approximately $26.7 millionin 2019.Philippine Term LoansDuring the second quarter of 2015, the Company’s wholly-owned Philippine subsidiaries and ON Semiconductor, as guarantor, entered into twonon-collateralized term loans with an aggregate borrowing capacity of $50.0 million, the terms of which were set forth in agreements by and betweenthe Company’s Philippine subsidiaries and a Philippine bank. During the third quarter of 2015, the Company borrowed the full 131Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued $50.0 million available under the term loans. Borrowings under the loans bear interest based on 3-month LIBOR plus 2.0% per annum, with interestpayable quarterly in arrears. The total borrowed amount must be repaid within five years over 17 equal quarterly principal installments starting at theend of the fourth quarter from the initial drawdown date.Malaysia Revolving Line of CreditOn September 23, 2014, one of the Company’s wholly-owned Malaysian subsidiaries and ON Semiconductor, as guarantor, entered into anon-collateralized and uncommitted $25.0 million line of credit (the “Malaysia Line of Credit”), the terms of which were set forth in an agreement byand between the Company’s Malaysian subsidiary and a Japanese bank. During the third quarter of 2014, the Company’s Malaysian subsidiaryborrowed the full $25.0 million available under the Malaysia Line of Credit. The balance as of December 31, 2017 was $25.0 million. Borrowingsunder the Malaysia Line of Credit bear interest based on 3-month LIBOR, as established at the commencement of each borrowing period, plus 1.45%per annum, with interest payable quarterly. The borrowed amount is payable within 21 business days of demand.Vietnam Revolving Line of CreditOn September 3, 2014, one of the Company’s wholly-owned Vietnamese subsidiaries and ON Semiconductor, as guarantor, entered into anon-collateralized and uncommitted $25.0 million line of credit (the “Vietnam Line of Credit”), the terms of which were set forth in an agreement byand between the Company’s Vietnamese subsidiary and a Japanese bank. As of December 31, 2017, the Company’s Vietnamese subsidiary had anoutstanding balance of $24.9 million under the Vietnam Line of Credit. Borrowings under the Vietnam Line of Credit bear interest based on 3-monthLIBOR and 12-month LIBOR, as established at the commencement of each borrowing period, plus 1.45% per annum, with interest payable quarterlyand annually. The borrowed amount is payable within 5 business days of demand.Capital Lease ObligationsThe Company has various capital lease obligations primarily for software, which, as of December 31, 2017, totaled $4.2 million, with interest ratesranging from 2.0% to 5.2% and maturities from the first quarter of 2018 until the fourth quarter of 2020. Future payments for the Company’s capitallease obligations are included in the annual maturities table. 132Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Note 9: Earnings Per Share and EquityEarnings Per ShareCalculations of net income per common share attributable to ON Semiconductor Corporation are as follows (in millions, except per share data): For the years ended December 31, 2017 2016 2015 Net income attributable to ON Semiconductor Corporation $810.7 $182.1 $206.2 Basic weighted average common shares outstanding 421.9 415.2 421.2 Add: Incremental shares for: Dilutive effect of share-based awards 5.5 3.8 4.6 Dilutive effect of convertible notes 0.9 1.0 2.0 Diluted weighted average common shares outstanding 428.3 420.0 427.8 Net income per common share attributable to ON Semiconductor Corporation: Basic $1.92 $0.44 $0.49 Diluted $ 1.89 $ 0.43 $ 0.48 Basic income per common share is computed by dividing net income attributable to ON Semiconductor Corporation by the weighted average numberof common shares outstanding during the period.The number of incremental shares from the assumed exercise of stock options and assumed issuance of shares relating to RSUs is calculated byapplying the treasury stock method. Share-based awards whose impact is considered to be anti-dilutive under the treasury stock method were excludedfrom the diluted net income per share calculation. The excluded number of anti-dilutive share-based awards was approximately 0.2 million, 1.7 millionand 1.3 million for the years ended December 31, 2017, 2016 and 2015, respectively.The dilutive impact related to the Company’s 1.00% Notes, 1.625% Notes and 2.625% Notes, Series B is determined in accordance with the net sharesettlement requirements prescribed by ASC Topic 260, “Earnings Per Share”. Under the net share settlement calculation, the Company’s convertiblenotes are assumed to be convertible into cash up to the par value, with the excess of par value being convertible into common stock. A dilutive effectoccurs when the stock price exceeds the conversion price for each series of the convertible notes. In periods when the share price is lower than theconversion price, the impact is anti-dilutive and therefore has no impact on the Company’s earnings per share calculations. Additionally, if the averageprice of the Company’s common stock exceeds $25.96 per share, with respect to the 1.00% Notes, or $30.70 per share, with respect to the 1.625%Notes, for a reporting period, the Company will also include the effect of the additional potential shares, using the treasury stock method, that may beissued related to the warrants that were issued concurrently with the issuance of the 1.00% Notes and 1.625% Notes, respectively. 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 133Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued conversion, the convertible note hedges are expected to offset the dilutive effect of the 1.00% Notes and 1.625% Notes, respectively, when the stockprice is above $18.50 per share, with respect to the 1.00% Notes, and $20.72 per share, with respect to the 1.625% Notes.EquityShare Repurchase ProgramOn December 1, 2014, the Company announced a capital allocation policy (the “Capital Allocation Policy”) under which the Company intends toreturn to stockholders approximately 80 percent of free cash flow, less repayments of long-term debt, subject to a variety of factors, including ourstrategic plans, market and economic conditions and the Board’s discretion. For the purposes of the Capital Allocation Policy, the Company definesfree cash flow as net cash provided by operating activities less purchases of property, plant and equipment. The Company also announced the 2014Share Repurchase Program pursuant to the Capital Allocation Policy. Under the 2014 Share Repurchase Program, the Company is authorized torepurchase approximately $1.0 billion of its common shares over a four year period, exclusive of any fees, commissions or other expenses, subject tothe same factors and considerations described above. The 2014 Share Repurchase Program was effective December 1, 2014.The Company repurchased shares worth $25.0 million of the Company’s common stock in connection with the offering of the 1.625% Notes during theyear ended December 31, 2017. Other than this, there were no repurchases of the Company’s common stock under its share repurchase program duringthe years ended December 31, 2017 and 2016, respectively, as the Company focused on the funding required for the Fairchild Transaction, and itsassociated debt.Information relating to the Company’s share repurchase programs is as follows (in millions, except per share data): For the years ended December 31, 2017 2016 2015 (5) Number of repurchased shares (1) 1.6 — 30.4 Beginning accrued share repurchases (2) $— $— $— Aggregate purchase price 25.0 — 347.8 Fees, commissions and other expenses — — 0.4 Less: ending accrued share repurchases (3) — — — Total cash used for share repurchases $25.0 $— $ 348.2 Weighted-average purchase price per share (4) $15.35 $— $11.46 Available for future purchases at period end $ 603.2 $628.2 $628.2 (1)None of these shares had been reissued or retired as of December 31, 2017, but may be reissued or retired by the Company at a later date. (2)Represents unpaid amounts recorded in accrued expenses on the Company’s Consolidated Balance Sheet as of the beginning of theperiod. 134Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (3)Represents unpaid amounts recorded in accrued expenses on the Company’s Consolidated Balance Sheet as of the end of the period. (4)Exclusive of fees, commissions and other expenses. (5)Includes 5.4 million shares, totaling $70.0 million, repurchased concurrently with the issuance of the 1.00%Notes. See Note 8: “Long-Term Debt” for information with respect to the Company’s long-term debt.Shares for Restricted Stock Units Tax WithholdingTreasury stock is recorded at cost and is presented as a reduction of stockholders’ equity in the accompanying consolidated financial statements.Shares with a fair market value equal to the applicable statutory minimum amount of the employee withholding taxes due, are withheld by theCompany upon the vesting of RSUs to pay the applicable statutory minimum amount of employee withholding taxes and are considered commonstock repurchases. The Company then pays the applicable statutory minimum amount of withholding taxes in cash. The amounts remitted in the yearsended December 31, 2017 and 2016 were $28.1 million and $12.3 million, respectively, for which the Company withheld approximately 1.8 millionand 1.3 million shares of common stock, respectively, that were underlying the RSUs that vested. None of these shares had been reissued or retired as ofDecember 31, 2017, but may be reissued or retired by the Company at a later date. These repurchases do not count against the Company’s sharerepurchase program.Non-Controlling InterestThe Company’s entity which operates assembly and test operations in Leshan, China is owned by Leshan. The Company owns 80%, of the outstandingequity interests in Leshan and its investment in Leshan has been consolidated in the Company’s financial statements.At December 31, 2017, the non-controlling interest balance was $22.2 million. This balance included the non-controlling interest’s $2.3 million shareof the earnings for the year ended December 31, 2017 offset by $1.9 million of dividends paid to the non-controlling shareholder.At December 31, 2016, the non-controlling interest balance was $21.8 million. This balance included the non-controlling interest’s $2.4 million shareof the earnings for the year ended December 31, 2016 offset by $4.3 million of dividends paid to the non-controlling shareholder. 135Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Note 10: Share-Based CompensationTotal share-based compensation expense related to the Company’s employee stock options, RSUs, stock grant awards and ESPP for the years endedDecember 31, 2017, 2016 and 2015 was comprised as follows (in millions): Year Ended December 31, 2017 2016 2015 Cost of revenues $6.0 $8.0 $7.7 Research and development 12.5 11.1 9.2 Selling and marketing 11.7 9.8 8.5 General and administrative 39.6 27.2 21.5 Share-based compensation expense before income taxes 69.8 56.1 46.9 Related income tax benefits (1) 24.4 — — Share-based compensation expense, net of taxes $45.4 $56.1 $46.9 (1)Recognition of related income tax benefits are the result of the adoption of ASU 2016-09 during the first quarter of 2017. Tax benefit iscalculated using the federal statutory rate of 35%. See Note 3: “Recent Accounting Pronouncements” for more information.At December 31, 2017, total unrecognized estimated share-based compensation expense, net of estimated forfeitures, related to non-vested stockoptions was less than $0.1 million, which is expected to be recognized over a weighted-average period of 3 months. At December 31, 2017, totalunrecognized share-based compensation expense, net of estimated forfeitures, related to non-vested RSUs with time-based service conditions andperformance-based vesting criteria was $76.1 million, which is expected to be recognized over a weighted-average period of 1.6 years. The totalintrinsic value of stock options exercised during the year ended December 31, 2017 was $20.1 million. The Company received cash of $18.0 millionand $23.6 million from the exercise of stock options and the issuance of shares under the ESPP, respectively. Upon option exercise, release of RSUs,stock grant awards, or completion of a purchase under the ESPP, the Company issues new shares of common stock.Share-Based Compensation InformationThe fair value per unit of each time based and performance based RSU and stock grant award is determined on the grant date and is equal to theCompany’s closing stock price on the grant date. There were no employee stock options granted during the years ended December 31, 2017, 2016 and2015.Share-based compensation expense is based on awards ultimately expected to vest. Forfeitures are estimated at the time of grant and revised, ifnecessary, in subsequent periods if actual forfeitures differ from those estimates. Pre-vesting forfeitures for RSUs were estimated to be approximately5% for the years ended December 31, 2017, 2016 and 2015. 136Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Plan DescriptionsOn February 17, 2000, the Company adopted the 2000 SIP which provided key employees, directors and consultants with various equity-basedincentives as described in the plan document. Prior to February 17, 2010, stockholders had approved amendments to the 2000 SIP which increased thenumber of shares of the Company’s common stock reserved and available for grant to 30.5 million, plus an additional number of shares of theCompany’s common stock equal to 3% of the total number of outstanding shares of common stock effective automatically on January 1st of each yearbeginning January 1, 2005 and ending January 1, 2010. On February 17, 2010, the 2000 SIP expired and the Company ceased granting under the plan.Options granted pursuant to the 2000 SIP that remain outstanding continue to be exercisable or subject to vesting pursuant to the underlying optionagreements.On March 23, 2010, the Company adopted the Amended and Restated SIP, which was subsequently approved by the Company’s stockholders at theannual stockholder meeting on May 18, 2010 and reapproved by the Company’s stockholders at the annual stockholder meeting on May 20, 2015.The Amended and Restated SIP provides key employees, directors and consultants with various equity-based incentives as described in the plandocument. The Amended and Restated SIP is administered by the Board of Directors or a committee thereof, which is authorized to determine, amongother things, the key employees, directors or consultants who will receive awards under the plan, the amount and type of award, exercise prices orperformance criteria, if applicable, and vesting schedules. On May 15, 2012, stockholders approved certain amendments to the Amended and RestatedSIP to increase the number of shares of common stock subject to all awards under the Amended and Restated SIP by 33.0 million. On May 17, 2017,stockholders approved certain amendments to the Amended and Restated SIP to increase the number of shares of common stock subject to all awardsunder the Amended and Restated SIP by 27.9 million to 87.0 million, exclusive of shares of common stock subject to awards that were previouslygranted pursuant to the 2000 SIP that have or will become available for grant pursuant to the Amended and Restated SIP.Generally, the options granted under the 2000 SIP and Amended and Restated SIP vest over a period of three to four years and have a contractual termof 10 years and 7 years, respectively. Under both plans, certain outstanding options vest automatically upon a change of control, as defined in therespective plan document, provided the option holder is employed by the Company on the date of the change of control. Certain other outstandingoptions may also vest upon a change of control if the Board of Directors of the Company, at its discretion, provides for acceleration of the vesting ofsaid options. Generally, upon the termination of an option holder’s employment, all unvested options will immediately terminate and vested optionswill generally remain exercisable for a period of 90 days after the date of termination (one year in the case of death or disability).Generally, RSUs granted under the 2000 SIP and the Amended and Restated SIP vest over three years or based on the achievement of certainperformance criteria and are payable in shares of the Company’s stock upon vesting.As of December 31, 2017, there was an aggregate of 39.0 million shares of common stock available for grant under the Amended and Restated SIP. 137Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Stock OptionsA summary of stock option transactions for all stock option plans follows (in millions except per share and contractual term data): Year Ended December 31, 2017 Number ofShares Weighted-AverageExercise Price PerShare WeightedAverageRemainingContractualTerm (in years) AggregateIntrinsic Value Outstanding at December 31, 2016 3.3 $7.75 Granted — — Exercised (2.2) 8.13 Canceled — — Outstanding at December 31, 2017 1.1 $6.95 1.15 $15.1 Exercisable at December 31, 2017 1.1 $6.95 1.15 $15.1 As of December 31, 2017, the Company had 1.1 million of outstanding stock options, representing stock options that previously vested and thosewhich are expected to vest, with a weighted-average exercise price of $6.95. Information about the outstanding stock options with exercise prices lessthan or above $20.94 per share, the closing price of the Company’s common stock at December 31, 2017, is as follows (number of shares in millions): Exercisable Unexercisable Total Exercise Prices Number ofShares WeightedAverageExercise Price Number ofShares WeightedAverageExercise Price Numberof Shares WeightedAverageExercise Price Less than $20.94 1.1 $6.95 — $— 1.1 $6.95 Above $20.94 — $— — $— — $— Total outstanding 1.1 $6.95 — $— 1.1 $6.95 138Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Restricted Stock UnitsA summary of the RSU transactions for the year ended December 31, 2017 follows (number of shares in millions): Number of Shares Weighted-AverageGrant Date FairValue Nonvested shares of RSUs at December 31, 2016 9.7 $10.10 Granted 4.6 15.58 Achieved 1.2 9.01 Released (5.4) 9.81 Canceled (0.3) 12.16 Nonvested shares of RSUs at December 31, 2017 9.8 $12.63 During 2017, the Company awarded 1.5 million RSUs to certain officers and employees of the Company that vest upon the achievement of certainperformance criteria. The number of units expected to vest is evaluated each reporting period and compensation expense is recognized for those unitsfor which achievement of the performance criteria is considered probable.As of December 31, 2017, unrecognized compensation expense, net of estimated forfeitures related to non-vested RSUs granted under the Amendedand Restated SIP with time-based and performance-based conditions, was $53.8 million and $22.3 million, respectively. For RSUs with time-basedservice conditions, expense is being recognized over the vesting period; for RSUs with performance criteria, expense is recognized over the periodduring which the performance criteria is expected to be achieved. Unrecognized compensation cost related to awards with certain performance criteriathat are not expected to be achieved is not included here. Total compensation expense related to both performance-based and service-based RSUs was$62.2 million for the year ended December 31, 2017, which included $36.4 million for RSUs with time-based service conditions that were granted in2017 and prior that are expected to vest.Stock Grant AwardsDuring the year ended December 31, 2017, the Company granted 0.1 million shares of stock under stock grant awards to certain directors of theCompany with immediate vesting at a weighted-average grant date fair value of $16.11 per share. Total compensation expense related to stock grantawards for the year ended December 31, 2017 was approximately $1.6 million.Employee Stock Purchase PlanOn February 17, 2000, the Company adopted the ESPP. Subject to local legal requirements, each of the Company’s eligible employees may elect tocontribute up to 10% of eligible payroll applied towards the purchase of shares of the Company’s common stock at a price equal to 85% of the fairmarket value of such shares as determined under the plan. Employees are limited to annual purchases of $25,000 under this plan. In addition, duringeach quarterly offering period, employees may not purchase stock exceeding the lesser of: (i) 500 shares; 139Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued or (ii) the number of shares equal to $6,250 divided by the fair market value of the stock on the first day of the offering period. During the year endedDecember 31, 2017, employees purchased approximately 1.9 million shares under the ESPP. During the years ended December 31, 2016 and 2015,employees purchased approximately 1.8 million and 1.7 million shares, respectively, under the ESPP. Through May 2013, stockholders had approvedamendments to the ESPP, which increased the number of shares of the Company’s common stock issuable thereunder to 18.0 million shares. OnMay 20, 2015, stockholders approved an amendment to the Company’s ESPP which increased the number of shares reserved and available to be issuedpursuant to the ESPP by 5.5 million to a total of 23.5 million. Again on May 17, 2017 stockholders approved an amendment to the Company’s ESPPwhich increased the number of shares reserved and available to be issued pursuant to the ESPP by 5.0 million to a total of 28.5 million. As ofDecember 31, 2017, there were approximately 8.0 million shares available for issuance under the ESPP.Note 11: Employee Benefit PlansDefined Benefit PlansThe Company maintains defined benefit plans for employees of certain of its foreign subsidiaries. Such plans conform to local practice in terms ofproviding minimum benefits mandated by law, collective agreements or customary practice. The Company recognizes the aggregate amount of alloverfunded plans as assets and the aggregate amount of all underfunded plans as liabilities in its financial statements. The Company’s expected long-term rate of return on plan assets is updated at least annually, taking into consideration its asset allocation, historical returns on similar types of assetsand the current economic environment. For estimation purposes, the Company assumes its long-term asset mix will generally be consistent with thecurrent mix. The Company determines its discount rates using highly rated corporate bond yields and government bond yields.Benefits under all of the Company’s plans are valued utilizing the projected unit credit cost method. The Company’s policy is to fund its definedbenefit plans in accordance with local requirements and regulations. The funding is primarily driven by the Company’s current assessment of theeconomic environment and projected benefit payments of its foreign subsidiaries. The Company’s measurement date for determining its definedbenefit obligations for all plans is December 31 of each year.The Company recognizes actuarial gains and losses in the period the Company’s annual pension plan actuarial valuations are prepared, whichgenerally occurs during the fourth quarter of each year, or during any interim period where a revaluation is deemed necessary. 140Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued The following is a summary of the status of the Company’s foreign defined benefit pension plans and the net periodic pension cost (dollars inmillions): Year Ended December 31, 2017 2016 2015 Service cost $10.0 $9.0 $8.4 Interest cost 4.3 4.5 3.8 Expected return on plan assets (5.5) (3.9) (3.5) Actuarial and other (gain) loss 1.9 10.1 (5.0) Total net periodic pension cost $10.7 $19.7 $3.7 Weighted average assumptions Discount rate 1.66% 1.60% 1.82% Expected return on plan assets 3.22% 3.20% 2.46% Rate of compensation increase 3.22% 3.05% 2.96% 141Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued The long term rate of return on plan assets was determined using the weighted-average method, which incorporates factors that include the historicalinflation rates, interest rate yield curve and current market conditions. December 31, 2017 2016 Change in projected benefit obligation (PBO) Projected benefit obligation at the beginning of the year $261.8 $234.4 Service cost 10.0 9.0 Interest cost 4.3 4.5 Net actuarial (gain) loss 6.4 10.6 Acquired PBO from Fairchild — 17.4 Benefits paid by plan assets (4.7) (4.9) Benefits paid by the Company (4.2) (5.9) Translation and other (gain) loss 19.1 (3.3) Projected benefit obligation at the end of the year $292.7 $261.8 Accumulated benefit obligation at the end of the year $245.8 $222.4 Change in plan assets Fair value of plan assets at the beginning of the year $159.7 $147.2 Acquired assets from Fairchild — 9.1 Actual return on plan assets 10.0 4.4 Benefits paid from plan assets (4.7) (4.9) Employer contributions 6.0 6.1 Translation and other (gain) loss 12.4 (2.2) Fair value of plan assets at the end of the year $183.4 $159.7 Plans with underfunded or non-funded projected benefit obligation Projected benefit obligation $283.3 $256.1 Fair value of plan assets 173.7 152.9 Plans with underfunded or non-funded accumulated benefit obligation Accumulated benefit obligation $174.8 $138.9 Fair value of plan assets $104.3 $63.7 Amounts recognized in the balance sheet consist of Non-current assets $0.1 $— Current liabilities (0.2) (0.1) Non-current liabilities (109.2) (102.0) Funded status $(109.3) $(102.1) As of December 31, 2017 and 2016, respectively, the assets of the Company’s foreign plans were invested 20% and 18% in equity securities, 18% and20% in debt securities, including corporate bonds, 45% and 44% in insurance and investment contracts, 3% and 3% in cash and 14% and 15% in otherinvestments, including foreign government securities, equity securities and mutual funds. This asset allocation is based on the anticipated 142Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued required funding amounts, timing of benefit payments, historical returns on similar assets and the influence of the current economic environment.Plan AssetsThe Company’s overall investment strategy is to focus on stable and low credit risk investments aimed at providing a positive rate of return to the planassets. The Company has an investment mix with a wide diversification of asset types and fund strategies that are aligned with each region and foreignlocation’s economy and market conditions. Investments in government securities are generally guaranteed by the respective government offering thesecurities. Investments in corporate bonds, equity securities, and foreign mutual funds are made with the expectation that these investments will givean adequate rate of long-term returns despite periods of high volatility. Other types of investments include investments in cash deposits, money marketfunds and insurance contracts. Asset allocations are based on the anticipated required funding amounts, timing of benefit payments, historical returnson similar assets and the influence of the current economic environment.The following table sets forth, by level within the fair value hierarchy, a summary of investments measured at fair value and the asset allocations of theplan assets in the Company’s foreign pension plans (in millions): December 31, 2017 Total Quoted Prices inActive Marketsfor IdenticalAssets (Level 1) SignificantObservableInputs(Level 2) SignificantUnobservableInputs(Level 3) Asset Category Cash/Money Markets $4.9 $4.9 $— $— Foreign Government/Treasury Securities (1) 20.1 20.1 — — Corporate Bonds, Debentures (2) 32.5 — 32.5 — Equity Securities (3) 36.8 — 36.8 — Mutual Funds 6.7 — 6.7 — Investment and Insurance Annuity Contracts (4) 82.4 — 27.2 55.2 $183.4 $25.0 $103.2 $55.2 143Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued December 31, 2016 Total Quoted Prices inActive Marketsfor IdenticalAssets (Level 1) SignificantObservableInputs (Level 2) SignificantUnobservableInputs(Level 3) Asset Category Cash/Money Markets $4.9 $4.9 $— $— Foreign Government/TreasurySecurities (1) 15.6 15.6 — — Corporate Bonds, Debentures (2) 32.0 — 32.0 — Equity Securities (3) 28.8 — 28.8 — Mutual Funds 8.8 — 8.8 — Investment and Insurance AnnuityContracts (4) 69.6 — 22.4 47.2 $159.7 $20.5 $92.0 $47.2 (1)Includes investments primarily in guaranteed return securities.(2)Includes investments in government bonds and corporate bonds of developed countries, emerging market government bonds, emerging marketcorporate bonds and convertible bonds.(3)Includes investments in equity securities of developed countries and emerging markets.(4)Includes certain investments with insurance companies which guarantee a minimum rate of return on the investment.When available, the Company uses observable market data, including pricing on recently closed market transactions and quoted prices, which areincluded in Level 2. When data is unobservable, valuation methodologies using comparable market data are utilized and included in Level 3. Activityduring the year ended December 31, 2017 for plan assets with fair value measurement using significant unobservable inputs (Level 3) was as follows(in millions): CorporateBonds,Debentures Investmentand InsuranceContracts Total Balance at December 31, 2015 $0.6 $47.0 $47.6 Actual return on plan assets — 3.3 3.3 Purchase, sales and settlements (0.6) (0.4) (1.0) Foreign currency impact — (2.7) (2.7) Balance at December 31, 2016 $— $47.2 $47.2 Actual return on plan assets — 1.5 1.5 Purchase, sales and settlements — (0.3) (0.3) Foreign currency impact — 6.8 6.8 Balance at December 31, 2017 $— $55.2 $55.2 144Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued The expected benefit payments for the Company’s defined benefit plans by year from 2018 through 2022 and the five years thereafter are as follows (inmillions): 2018 $4.2 2019 5.6 2020 7.3 2021 10.9 2022 12.5 Five years thereafter 86.9 Total $127.4 The total underfunded status was $109.3 million at December 31, 2017. The Company expects to contribute $12.2 million during 2018 to its foreigndefined benefit plans.Defined Contribution PlansThe Company has a deferred compensation savings plan for all eligible U.S. employees established under the provisions of Section 401(k) of theInternal Revenue Code (the “Code”). Eligible employees may contribute a percentage of their salary subject to certain limitations. The Company haselected to match 100% of employee contributions between 0% and 4% of their salary, with an annual limit of $10,800. The Company recognized$18.4 million, $14.0 million and $13.6 million of expense relating to matching contributions in 2017, 2016 and 2015, respectively.Certain foreign subsidiaries have defined contribution plans in which eligible employees participate. The Company recognized compensation expenseof $16.8 million, $8.9 million and $3.1 million relating to these plans for the years ended 2017, 2016 and 2015, respectively.Note 12: Commitments and ContingenciesLeasesThe following is a schedule by year of future minimum lease obligations under non-cancelable operating leases as of December 31, 2017 (in millions): Year Ending December 31, 2018 $33.4 2019 28.6 2020 20.6 2021 16.5 2022 12.4 Thereafter 49.0 Total (1) $160.5 (1)Excludes $13.0 million of expected sublease income. 145Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued The Company’s existing leases do not contain significant restrictive provisions; however, certain leases contain renewal options and provisions forpayment by the Company of real estate taxes, insurance and maintenance costs. Total rent expense associated with operating leases for 2017, 2016, and2015 was $45.3 million, $31.1 million, and $27.7 million, respectively.Purchase ObligationsThe Company has agreements with suppliers, external manufacturers and other parties to purchase inventory, manufacturing services and other goodsand services. The following is a schedule by year of future minimum purchase obligations under non-cancelable arrangements in the ordinary course ofbusiness as of December 31, 2017 (in millions): Year Ending December 31, 2018 $417.1 2019 55.4 2020 23.4 2021 22.1 2022 10.9 Thereafter 14.5 Total $543.4 Environmental ContingenciesThe Company’s headquarters in Phoenix, Arizona are located on property that is a “Superfund” site, which is a property listed on the National PrioritiesList and subject to clean-up activities under CERCLA. Motorola and Freescale have been involved in the cleanup of on-site solvent contaminated soiland groundwater and off-site contaminated groundwater pursuant to consent decrees with the State of Arizona. As part of the Company’s separationfrom Motorola in 1999, Motorola retained responsibility for this contamination, and Motorola and Freescale have agreed to indemnify the Companywith respect to remediation costs and other costs or liabilities related to this matter.The Company’s former front-end manufacturing location in Aizu, Japan is located on property where soil and ground water contamination wasdetected. The Company believes that the contamination originally occurred during a time when the facility was operated by a prior owner. TheCompany worked with local authorities to implement a remediation plan and has completed remaining remediation. The majority of the cost ofremediation was covered by insurance. Any costs to the Company in connection with this matter have not been, and, based on the informationavailable, are not expected to be, material.The Company’s manufacturing facility in the Czech Republic has ongoing remediation projects to respond to releases of hazardous substances thatoccurred during the years that this facility was operated by government-owned entities. The remediation projects consist primarily of monitoringgroundwater wells located on-site and off-site with additional action plans developed to respond in the event activity levels are exceeded. Thegovernment of the Czech Republic has agreed to indemnify the Company and its respective subsidiaries, subject to specified limitations, forremediation costs associated with this historical contamination. Any costs to the Company in connection with this matter have not been, and, based onthe information available, are not expected to be, material. 146Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued The Company’s design center in East Greenwich, Rhode Island is located on property that has localized soil contamination. In connection with thepurchase of the facility, the Company entered into a Settlement Agreement and Covenant Not to Sue with the State of Rhode Island. This agreementrequires that remedial actions be undertaken and a quarterly groundwater monitoring program be initiated by the former owners of the property. Anycosts to the Company in connection with this matter have not been, and, based on the information available, are not expected to be, material.As a result of the acquisition of AMIS of 2008, the Company is a “primary responsible party” to an environmental remediation and cleanup at AMIS’sformer corporate headquarters in Santa Clara, California. Costs incurred by AMIS include implementation of the clean-up plan, operations andmaintenance of remediation systems, and other project management costs. However, AMIS’s former parent company, a subsidiary of Nippon Mining,contractually agreed to indemnify AMIS and the Company for any obligations relating to environmental remediation and cleanup at this location. Anycosts to the Company in connection with this matter have not been, and, based on the information available, are not expected to be, material.Through its acquisition of Fairchild, the Company acquired a facility in South Portland, Maine. This facility has ongoing environmental remediationprojects to respond to certain releases of hazardous substances that occurred prior to the leveraged recapitalization of Fairchild from its former parentcompany, National Semiconductor Corporation, which is now owned by Texas Instruments, Inc. Although the Company may incur certain liabilitieswith respect to these remediation projects, pursuant to the asset purchase agreement entered into in connection with the Fairchild recapitalization,National Semiconductor Corporation agreed to indemnify Fairchild, without limitation and for an indefinite period of time, for all future costs relatedto these projects. Under a 1999 asset purchase agreement pursuant to which Fairchild purchased the power device business of Samsung, Samsungagreed to indemnify Fairchild in an amount up to $150.0 million for remediation costs and other liabilities related to historical contamination atSamsung’s Bucheon, South Korea operations. Any costs to the Company in connection with this matter have not been, and, based on the informationavailable, are not expected to be, material.Under a 2001 asset purchase agreement pursuant to which Fairchild purchased a manufacturing facility in Mountain Top, Pennsylvania, Intersil Corp.agreed to indemnify Fairchild for remediation costs and other liabilities related to historical contamination at the facility. Any costs to the Companyincurred to respond to the above conditions and projects have not been, and are not expected to be, material, and any future payments the Companymakes in connection with such liabilities are not expected to be material.The Company was notified by the EPA that it has been identified as a PRP under CERCLA in the Chemetco Superfund matter. Chemetco, a defunctreclamation services supplier that operated in Illinois at what is now a Superfund site, has performed reclamation services for the Company in thepast. The EPA is pursuing Chemetco customers for contribution to the site cleanup activities. The Company has joined a PRP group which iscooperating with the EPA in the evaluation and funding of the cleanup. Any costs to the Company in connection with this matter have not been, and,based on the information available, are not expected to be, material.Financing ContingenciesIn the ordinary course of business, the Company provides standby letters of credit or other guarantee instruments to certain parties initiated by eitherthe Company or its subsidiaries, as required for transactions such as, but not 147Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued limited to, material purchase commitments, agreements to mitigate collection risk, leases, utilities or customs guarantees. As of December 31, 2017, theCompany’s Revolving Credit Facility included $15.0 million of availability for the issuance of letters of credit. There were $0.4 million letters ofcredit outstanding under the Revolving Credit Facility as of December 31, 2017, which reduces the Company’s borrowing capacity. The Company alsohad outstanding guarantees and letters of credit outside of its Revolving Credit Facility totaling $5.7 million as of December 31, 2017.As part of obtaining financing in the ordinary course of business, the Company has issued guarantees related to certain of its capital lease obligations,equipment financing, lines of credit and real estate mortgages, which totaled $120.6 million as of December 31, 2017. The Company is also a guarantorof SCI LLC’s non-collateralized loan with SMBC, which had a balance of $122.7 million as of December 31, 2017. See Note 8: “Long-Term Debt” foradditional information.Based on historical experience and information currently available, the Company believes that it will not be required to make payments under thestandby letters of credit or guarantee arrangements for the foreseeable future.Indemnification ContingenciesThe Company is a party to a variety of agreements entered into in the ordinary course of business pursuant to which it may be obligated to indemnifythe other parties for certain liabilities that arise out of or relate to the subject matter of the agreements. Some of the agreements entered into by theCompany require it to indemnify the other party against losses due to IP infringement, property damage (including environmental contamination),personal injury, failure to comply with applicable laws, the Company’s negligence or willful misconduct, or breach of representations and warrantiesand covenants related to such matters as title to sold assets.The Company faces risk of exposure to warranty and product liability claims in the event that its products fail to perform as expected or such failure ofits products results, or is alleged to result, in economic damage, bodily injury or property damage. In addition, if any of the Company’s designedproducts are alleged to be defective, the Company may be required to participate in their recall. Depending on the significance of any particularcustomer and other relevant factors, the Company may agree to provide more favorable rights to such customer for valid defective product claims.The Company and its subsidiaries provide for indemnification of directors, officers and other persons in accordance with limited liability companyoperating agreements, certificates of incorporation, by-laws, articles of association or similar organizational documents, as the case may be.Section 145 of the Delaware General Corporation Law (“DGCL”) authorizes a court to award, or a corporation’s board of directors to grant, indemnityto directors and officers under certain circumstances and subject to certain limitations. The terms of Section 145 of the DGCL are sufficiently broad topermit indemnification under certain circumstances for liabilities, including reimbursement of expenses incurred, arising under the Exchange Act. Aspermitted by the DGCL, the Company’s Amended and Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”), containsprovisions relating to the limitation of liability and indemnification of directors and officers. The Certificate of Incorporation eliminates the personalliability of each of the Company’s directors to the fullest extent permitted by Section 102(b)(7) of the DGCL, as it may be amended or supplemented,and provides that the Company will indemnify its directors and officers to the fullest extent permitted by Section 145 of the DGCL, as amended fromtime to time. 148Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued The Company has entered into indemnification agreements with each of its directors and executive officers. The form of agreement (the“Indemnification Agreement”) provides, subject to certain exceptions and conditions specified in the Indemnification Agreement, that the Companywill indemnify each indemnitee to the fullest extent permitted by Delaware law against all expenses, judgments, fines and amounts paid in settlementactually and reasonably incurred by such person in connection with a proceeding or claim in which such person is involved because of his or her statusas one of the Company’s directors or executive officers. In addition, the Indemnification Agreement provides that the Company will, to the extent notprohibited by law and subject to certain exceptions and repayment conditions, advance specified indemnifiable expenses incurred by the indemniteein connection with such proceeding or claim. The foregoing description of the Indemnification Agreement does not purport to be complete and isqualified in its entirety by reference to the full and complete terms of the Indemnification Agreement, which is filed as Exhibit 10.1 to the CurrentReport on Form 8-K filed by the Company on February 25, 2016 and is incorporated by reference herein.The Company also maintains directors’ and officers’ insurance policies that indemnify its directors and officers against various liabilities, includingcertain liabilities under the Exchange Act, that might be incurred by any director or officer in his or her capacity as such.The Fairchild Agreement provides for indemnification and insurance rights in favor of Fairchild’s then current and former directors, officers andemployees. Specifically, the Company has agreed that, for no fewer than six years following the Fairchild acquisition, the Company will: (a) indemnifyand hold harmless each such indemnitee against losses and expenses (including advancement of attorneys’ fees and expenses) in connection with anyproceeding asserted against the indemnified party in connection with such person’s servings as a director, officer, employee or other fiduciary ofFairchild or its subsidiaries prior to the effective time of the acquisition; (b) maintain in effect all provisions of the certificate of incorporation orbylaws of Fairchild or any of its subsidiaries or any other agreements of Fairchild or any of its subsidiaries with any indemnified party regardingelimination of liability, indemnification of officers, directors and employees and advancement of expenses in existence on the date of the FairchildAgreement for acts or omissions occurring prior to the effective time of the acquisition; and (c) subject to certain qualifications, provide to Fairchild’sthen current directors and officers an insurance and indemnification policy that provides coverage for events occurring prior to the effective time of theacquisition that is no less favorable than Fairchild’s then-existing policy, or, if insurance coverage that is no less favorable is unavailable, the bestavailable coverage.While the Company’s future obligations under certain agreements may contain limitations on liability for indemnification, other agreements do notcontain such limitations and under such agreements it is not possible to predict the maximum potential amount of future payments due to theconditional nature of the Company’s obligations and the unique facts and circumstances involved in each particular agreement. Historically, paymentsmade by the Company under any of these indemnities have not had a material effect on the Company’s business, financial condition, results ofoperations or cash flows. Additionally, the Company does not believe that any amounts that it may be required to pay under these indemnities in thefuture will be material to the Company’s business, financial position, results of operations or cash flows.Legal MattersFrom time to time, the Company is party to various legal proceedings arising in the ordinary course of business, including indemnification claims,claims of alleged infringement of patents, trademarks, copyrights and other 149Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued intellectual property rights, claims of alleged non-compliance with contract provisions and claims related to alleged violations of laws andregulations. The Company regularly evaluates the status of the legal proceedings in which it is involved to assess whether a loss is probable or there isa reasonable possibility that a loss, or an additional loss, may have been incurred and determine if accruals are appropriate. If accruals are notappropriate, the Company further evaluates each legal proceeding to assess whether an estimate of possible loss or range of possible loss can be madefor disclosure. Although litigation is inherently unpredictable, the Company believes that it has adequate provisions for any probable and estimablelosses. It is possible, nevertheless, that the Company’s consolidated financial position, results of operations or liquidity could be materially andadversely affected in any particular period by the resolution of a legal proceeding. The Company’s estimates do not represent its maximumexposure. Legal expenses related to defense, negotiations, settlements, rulings and advice of outside legal counsel are expensed as incurred.The Company is currently involved in a variety of legal matters that arise in the ordinary course of business. Based on information currently available,except as disclosed below, the Company is not involved in any pending or threatened legal proceedings that it believes could reasonably be expectedto have a material adverse effect on its financial condition, results of operations or liquidity. The litigation process and the administrative process atthe USPTO are inherently uncertain, and the Company cannot guarantee that the outcome of these matters will be favorable to it.Patent Litigation with Power Integrations, Inc.There are eight outstanding civil litigation proceedings with PI, five of which were pending between PI and various Fairchild entities (includingFairchild Semiconductor International, Inc., Fairchild Semiconductor Corporation, and Fairchild (Taiwan) Corporation, f/k/a System GeneralCorporation (collectively referred to in this sub-section as “Fairchild”)), prior to the acquisition of Fairchild. The Company is vigorously defending thelawsuits filed by PI and believes that it has strong defenses. There are also over two dozen outstanding administrative proceedings between the partiesat the USPTO in which each party is challenging the validity of the other party’s patents.The outcome of any litigation is inherently uncertain and difficult to predict. Any estimate or statement regarding any reserve or the estimated range ofpossible losses is made solely in compliance with applicable GAAP requirements, and is not a statement or admission that the Company is or should beliable in any amount, or that any arguments, motions or appeals before any Court lack merit or are subject to impeachment. To the contrary, theCompany believes that it has significant and meritorious grounds for judgment in its favor with respect to all of the PI cases and that the Company’sappeals or motions currently pending at the district court level will significantly reduce or eliminate all prior adverse jury verdicts. Subject to theforegoing, as of the date of the filing of this Form 10-K, the Company estimates its range of possible losses for all PI cases to be between approximately$4 million and $20 million in the aggregate.Power Integrations v. Fairchild Semiconductor International, Inc. et al. (October 20, 2004, Delaware, 1:04-cv-01371-LPS): PI filed this lawsuit in2004 in the U.S. District Court for the District of Delaware against Fairchild, alleging that certain of Fairchild’s pulse width modulation (“PWM”)integrated circuit products infringed U.S. patents owned by PI. The lawsuit sought a permanent injunction as well as money damages for Fairchild’salleged infringement. In October 2006, a jury returned a willful infringement verdict and assessed damages against Fairchild. Fairchild voluntarilystopped U.S. sales and importation of those products in 2007 and 150Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued has been offering replacement products since 2006. In December 2008, the judge overseeing the case reduced the jury’s 2006 damages award from$34.0 million to approximately $6.1 million and ordered a new trial on the issue of willfulness. Following the new trial held in June 2009, the courtfound Fairchild’s infringement to have been willful, and in January 2011 the court awarded PI final damages in the amount of $12.2 million. Fairchildappealed the final damages award, willfulness finding, and other issues to the U.S. Court of Appeals for the Federal Circuit. In March 2013, the Court ofAppeals vacated substantially all of the damages award, ruling that there was no basis upon which a reasonable jury could find Fairchild liable forinduced infringement. The Court of Appeals also vacated the earlier judgment of willful patent infringement. The full Court of Appeals and theSupreme Court of the United States later denied PI’s request to review the Court of Appeals ruling. The Court of Appeals instructed the lower court toconduct further proceedings to determine damages based on approximately $750,000 worth of sales and imports of affected products, and to re-assessits finding that the infringement was willful. In December 2017, the lower court reinstated the willfulness finding, and the parties are currently workingwith the court to set a schedule to resolve the outstanding issues, including damages adequate to compensate PI.Power Integrations v. Fairchild Semiconductor International, Inc. et al. (May 23, 2008, Delaware, 1:08-cv-00309-LPS): This lawsuit was initiated byPI in 2008 in the U.S. District Court for the District of Delaware against Fairchild, alleging that certain other PWM products infringed several U.S.patents owned by PI. On October 14, 2008, Fairchild filed a patent infringement lawsuit against PI in the U.S. District Court for the District of Delaware,alleging that certain PI products infringed U.S. patents owned by Fairchild. Each lawsuit included claims for money damages and a request for apermanent injunction. These two lawsuits were consolidated and heard together in a jury trial in April 2012, during which the jury found that PIinfringed one of the two U.S. patents owned by Fairchild and upheld the validity of both of the Fairchild patents. In the same verdict, the jury foundthat Fairchild infringed two of four U.S. patents asserted by PI and that Fairchild had induced its customers to infringe the asserted patents. (The courtlater ruled that Fairchild infringed one other asserted PI patent that the jury found was not infringed.) The jury also upheld the validity of the assertedPI patents, and the court entered a permanent injunction against Fairchild. Willfulness and damages were not considered in the April 2012 trial, butwere reserved for subsequent proceedings. Fairchild and PI appealed the liability phase of this litigation to the U.S. Court of Appeals for the FederalCircuit, which heard arguments in July 2016 and issued a decision in December 2016. In the decision, the appeals court vacated the jury’s finding thatFairchild induced infringement of PI’s patents, held that one of PI’s patents was invalid, vacated the permanent injunction against Fairchild, reversedthe jury’s finding that PI infringed the Fairchild patent, and remanded the case back to the lower court for further proceedings consistent with theserulings.The Company is preparing for a trial later this year at which willfulness, inducement and money damages are expected to be addressed.Power Integrations v. Fairchild Semiconductor International Inc. et al. (November 4, 2009, Northern District of California, 3:09-cv-05235-MMC): In2009, PI sued Fairchild in the U.S. District Court for the Northern District of California, alleging that several of Fairchild’s products infringe three ofPI’s patents. Fairchild filed counterclaims asserting that PI infringed two Fairchild patents. During the initial trial in this matter in 2014, a jury foundthat Fairchild willfully infringed two PI patents, awarded PI $105.0 million in damages and found that PI did not infringe any Fairchild patent. InSeptember 2014, the court granted a motion filed by Fairchild that sought to set aside the jury’s determination that it acted willfully, and held that, as amatter of law, Fairchild’s actions were not willful. In November 2014, in response to another post-trial motion filed by Fairchild, the trial 151Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued court ruled that the jury lacked sufficient evidence on which to base its damages award and, consequently, vacated the $105.0 million verdict andordered a second trial on damages. The second damages trial was held in December 2015, in which a jury awarded PI $139.8 million in damages.Fairchild filed a number of post-trial motions challenging the second damages verdict, but the court ruled against Fairchild on these motions andawarded PI approximately $7.0 million in pre-judgment interest. Following the court’s rulings on these issues, PI moved the court to reinstate the jury’swillfulness finding and sought enhanced damages and attorneys’ fees. On January 23, 2017, the court reinstated the jury’s willful infringement finding,but denied PI’s motion for enhanced damages and attorneys’ fees in its entirety. The Company has filed a notice of appeal with the U.S. Court ofAppeals for the Federal Circuit with respect to the current damages award as well as the 2014 verdict finding that PI’s patents were infringed and valid.The appeal briefing is complete, and the parties are currently waiting for the Federal Circuit to schedule oral arguments. On May 26, 2017, the districtcourt ordered Fairchild to obtain a bond for the judgment pending appeal, and on June 22, 2017, the district court accepted Fairchild’s bond andstayed execution of judgment. All claims of the two PI patents found to be infringed by Fairchild and that support the damages verdict have since beendetermined to be unpatentable in several inter partes review administrative proceedings described below. The impact of the USPTO’s unpatentabilitydeterminations on the district court judgment is uncertain at this stage of the proceedings.Fairchild Semiconductor International Inc. et al. v. Power Integrations (May 1, 2012, Delaware, 1:12-cv-00540-LPS): In May 2012, Fairchild sued PIin the U.S. District Court for the District of Delaware, and alleged that various PI products infringe Fairchild’s U.S. patents. PI filed counterclaims ofpatent infringement against Fairchild, asserting five PI patents. Of those five patents, the court granted Fairchild summary judgment of no infringementon one, and PI voluntarily withdrew a second and was forced to remove a third patent during the trial, which began in May 2015. In that trial, the juryfound that PI induced infringement of Fairchild’s patent rights and awarded Fairchild $2.4 million in damages. The same jury found that Fairchildinfringed a PI patent and awarded PI damages of $100,000. Based on the December 2016 appellate court decision in the litigation filed in Delaware in2008 (described above), on July 13, 2017, the district court vacated the jury’s finding that PI infringed Fairchild’s patent. The court has yet to enter afinal judgment in this case.Power Integrations v. Fairchild Semiconductor International Inc. et al. (October 21, 2015, Northern District of California, 3:15-cv-04854 MMC): In2015, PI filed another complaint for patent infringement against Fairchild in the U.S. District Court for the Northern District of California, allegingFairchild’s products willfully infringe two PI patents. In the complaint, PI is seeking a permanent injunction, unspecified damages, a trebling ofdamages, and an accounting of costs and fees. Fairchild answered and counterclaimed, alleging infringement by PI of four Fairchild patents related toaspects of PI’s products, and also seeking damages and a permanent injunction. The lawsuit is in its earliest stages, and has been stayed pending theoutcome of the Company’s administrative challenges to the two PI patents asserted against Fairchild, which are described below. PI has also filedadministrative challenges to Fairchild’s asserted patents.Power Integrations v. ON Semiconductor Corporation, and Semiconductor Components Industries, LLC (November 1, 2016, Northern District ofCalifornia, 5:16-cv-06371-BLF and 5:17-cv-03189): On August 11, 2016, ON Semiconductor Corporation and SCILLC (collectively, “ON Semi”)filed a lawsuit against PI in the U.S. District Court for the District of Arizona, alleging that PI infringed six patents and seeking a permanent injunctionand money damages for the alleged infringement. The lawsuit also sought a claim for a declaratory judgment that ON Semi does not infringe several ofPI’s patents. Rather than responding to ON Semi’s lawsuit in Arizona, PI filed a separate lawsuit in the U.S. District Court for the Northern District ofCalifornia in November 152Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 2016, alleging that ON Semi infringes six PI patents, including two of the three of ON Semi’s declaratory judgment non-infringement claims, and thenmoved the Arizona court to dismiss ON Semi’s lawsuit. Following various procedural motions, ON Semi’s Arizona action has been transferred to theU.S. District Court for the Northern District of California and consolidated with PI’s November 2016 lawsuit. The lawsuit is in its early stages, but theparties have begun to engage in discovery, with substantive developments expected throughout the course of 2018.ON Semiconductor Corporation and Semiconductor Components Industries, LLC v. Power Integrations, Inc. (March 9, 2017, District of Delaware,1:17-cv-00247-LPS-CJB): On March 9, 2017, ON Semi filed a lawsuit against PI in the U.S. District Court for the District of Delaware, alleging that PI’sInnoSwitch family of products infringe six of ON Semi’s U.S. patents. Following some procedural motions, PI has since counterclaimed alleginginfringement by ON Semi of seven of PI’s U.S. Patents. Both parties seek money damages and a permanent injunction. The lawsuit is in its early stages,but the parties have begun to engage in discovery, with substantive developments expected throughout the course of 2018.Semiconductor Components Industries, LLC v. Power Integrations, Inc. (November 2017, Taiwan Intellectual Property Court,106-Ming-min-bu-Tzu-238): In November 2017, Semiconductor Components Industries, LLC filed a lawsuit against PI in Taiwan, alleginginfringement by PI of certain of ON Semi’s Taiwanese patents. The lawsuit is in its early stages.Administrative Challenges to PI’s PatentsIn addition to the eight court proceedings described above, there are over two dozen pending inter partes review administrative proceedings between PIand ON Semi/Fairchild at the USPTO. Each of these administrative proceedings seeks to invalidate certain claims asserted in the various courtproceedings. For two of the proceedings filed by ON Semi, both of which relate to the case filed in 2009 in the Northern District of California, theUSPTO has issued a Final Written Decision finding that all of the claims challenged in those proceedings are unpatentable. PI may appeal the USPTO’sFinal Written Decision regarding the unpatentability of those claims during 2018. In three of the proceedings, the USPTO has instituted a review ofthree ON Semi patents that are being asserted against PI, but the USPTO has not rendered a Final Written Decision in any of those three cases. All of theother proceedings remain pending, with further developments expected during 2018.Litigation with Acbel Polytech, Inc.On November 27, 2013, Fairchild and Fairchild Semiconductor Corporation were named as defendants in a complaint filed by Acbel Polytech, Inc.(“Acbel”) in the U.S. District Court for the District of Massachusetts. The lawsuit alleged a number of causes of action, including breach of warranty,fraud, negligence and strict liability, and has been docketed as Acbel Polytech, Inc. v. Fairchild Semiconductor International, Inc. et al, Case #1:13-CV-13046-DJC. On December 10, 2016, the Court issued an order on the Company’s motion for summary judgment dismissing all of Acbel’sclaims except for claims alleging breach of implied warranties. A bench trial was held in June 2017. On December 27, 2017, the Court rendered averdict in favor of the Fairchild defendants on the remaining implied warranty claims. On January 24, 2018, Acbel filed a notice of appeal. 153Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Intellectual Property MattersThe Company faces risk to exposure from claims of infringement of the IP rights of others. In the ordinary course of business, the Company receivesletters asserting that the Company’s products or components breach another party’s rights. These threats may seek that the Company make royaltypayments, stop use of such rights, or other remedies.Note 13: Fair Value MeasurementsFair Value of Financial InstrumentsThe following table summarizes the Company’s financial assets and liabilities, excluding pension assets, measured at fair value on a recurring basis asof December 31, 2017 and December 31, 2016 (in millions): Fair Value Measurements as ofDecember 31, 2017 Description Balance as ofDecember 31, 2017 Level 1 Level 2 Level 3 Assets: Cash, cash equivalents: Demand and time deposits $71.7 $71.7 — — Money market funds $0.2 $0.2 — — Liabilities: Contingent consideration $2.3 — — $2.3 Fair Value Measurements as ofDecember 31, 2016 Description Balance as ofDecember 31, 2016 Level 1 Level 2 Level 3 Assets: Cash, cash equivalents: Demand and time deposits $67.2 $67.2 — — Money market funds $30.3 $30.3 — — Liabilities: Contingent consideration $4.5 — — $4.5 During the year ended December 31, 2017, the Company paid the first earn-out amount of approximately $3.9 million relating to the contingentconsideration for the AXSEM acquisition and increased the second earn-out amount by $1.7 million due to the revision of the Company’s expectationsof the earn-out achievement.OtherThe carrying amounts of other current assets and liabilities, such as accounts receivable and accounts payable, approximate fair value based on theshort-term nature of these instruments. 154Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Fair Value of Long-Term Debt, Including Current PortionThe carrying amounts and fair values of the Company’s long-term borrowings (excluding capital lease obligations, real estate mortgages andequipment financing) at December 31, 2017 and December 31, 2016 are as follows (in millions): December 31, 2017 December 31, 2016 CarryingAmount FairValue CarryingAmount FairValue Long-term debt, including current portion Convertible notes (1) $1,080.1 $1,596.7 $953.6 $1,160.9 Long-term debt (1) $1,833.2 $ 1,845.4 $2,616.3 $2,731.5 (1) Carrying amount shown is net of debt discounts and debt issuance costs. See Note 8: “Long-Term Debt” for additional information.The fair value of the Company’s 1.00% Notes and 1.625% Notes were estimated based on market prices in active markets (Level 1). The fair value ofother long-term debt was estimated based on discounting the remaining principal and interest payments using current market rates for similar debt(Level 2) at December 31, 2017 and December 31, 2016.Fair Values Measured on a Non-Recurring BasisOur non-financial assets, such as property, plant and equipment, goodwill and intangible assets are recorded at fair value upon acquisition and areremeasured at fair value only if an impairment charge is recognized. The Company uses unobservable inputs to the valuation methodologies that aresignificant to the fair value measurements, and the valuations require management’s judgment due to the absence of quoted market prices. Wedetermine the fair value of our held and used assets, goodwill and intangible assets using an income, cost or market approach as determined reasonable.See Note 5: “Goodwill and Intangible Assets” for a discussion of certain asset impairments.As of December 31, 2017 and December 31, 2016, there were no non-financial assets included in the Company’s Consolidated Balance Sheet that wereremeasured at fair value on a nonrecurring basis.The following table shows the adjustments to fair value of certain of the Company’s non-financial assets that had an impact on the Company’s resultsof operations during the years ended December 31, 2017, 2016 and 2015, respectively (in millions): Year Ended December 31,2017 December 31,2016 December 31,2015 Nonrecurring fair value measurements Impairment of property, plant and equipment held-for-sale or disposal (Level 3) $7.9 $0.5 $0.2 IPRD (Level 3) 13.1 2.2 3.8 $21.0 $2.7 $4.0 155Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued See Note 5: “Goodwill and Intangible Assets” and Note 6: “Restructuring, Asset Impairments and Other, Net” for additional information with respect toimpairment charges.Cost Method InvestmentsInvestments in equity securities that do not qualify for fair value accounting are accounted for under the cost method. Accordingly, the Companyaccounts for investments in companies that it does not control under the cost method, as applicable. If a decline in the fair value of a cost methodinvestment is determined to be other than temporary, an impairment charge is recorded and the fair value becomes the new cost basis of the investment.The Company evaluates all of its cost method investments for impairment; however, it is not required to determine the fair value of its investmentunless impairment indicators are present.As of each of December 31, 2017 and 2016, the Company’s cost method investments had a carrying value of $12.6 million and $12.3 million,respectively.On October 10, 2017, ON Semiconductor and Fujitsu Semiconductor Limited (“Fujitsu”) announced that ON Semiconductor will purchase a 30 percentincremental share of Fujitsu’s 8-inch wafer fab in Aizu-Wakamatsu, resulting in a 40 percent ownership when the purchase is completed, at which timethe Company would pay a purchase price of approximately $20.0 million in cash. The purchase is scheduled to be completed on April 1, 2018 (the“second closing date”), subject to certain regulatory approvals and other customary closing conditions. Subject to the fulfillment of certain conditions,the Company will be required to increase its ownership to 60 percent between one and six months following the second closing date (the “third closingdate”) and will be required to increase its ownership to 100 percent between nine and 18 months following the third closing date.Note 14: Financial InstrumentsForeign CurrenciesAs a multinational business, the Company’s transactions are denominated in a variety of currencies. When appropriate, the Company uses forwardforeign currency contracts to reduce its overall exposure to the effects of currency fluctuations on its results of operations and cash flows. TheCompany’s policy prohibits trading in currencies for which there are no underlying exposures, or entering into trades for any currency to intentionallyincrease the underlying exposure.The Company primarily hedges existing assets and liabilities associated with transactions currently on its balance sheet, which are undesignatedhedges for accounting purposes.At December 31, 2017 and 2016, the Company had net outstanding foreign exchange contracts with net notional amounts of $130.5 million and$95.9 million, respectively. Such contracts were obtained through financial institutions and were scheduled to mature within one to three months fromthe time of purchase. Management believes that these financial instruments should not subject the Company to increased risks from foreign exchangemovements because gains and losses on these contracts should offset losses and gains on the underlying assets, liabilities and transactions to whichthey are related. 156Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued The following schedule summarizes the Company’s net foreign exchange positions in U.S. dollars as of December 31, 2017 and 2016 (in millions): December 31, 2017 Buy (Sell) 2017 Notional Amount 2016 Buy (Sell) 2016 Notional Amount Euro $(22.9) $22.9 $(25.4) $25.4 Japanese Yen (40.0) 40.0 (33.7) 33.7 Philippine Peso 26.4 26.4 15.8 15.8 Other currencies - Buy 30.9 30.9 (6.1) 6.1 Other currencies - Sell (10.3) 10.3 14.9 14.9 $(15.9) $130.5 $(34.5) $95.9 The Company is exposed to credit-related losses if counterparties to its foreign exchange contracts fail to perform their obligations. As of December 31,2017, the counterparties to the Company’s foreign exchange contracts, as well as the cash flow hedges described below, are held at financialinstitutions which the Company believes to be highly rated and no credit-related losses are anticipated. Amounts receivable or payable under thecontracts are included in other current assets or accrued expenses in the accompanying Consolidated Balance Sheet. For the years ended December 31,2017, 2016 and 2015, realized and unrealized foreign currency transactions totaled a $6.3 million loss, a $0.7 million gain and a $1.5 million loss,respectively, and are included in other income and expenses in the Company’s Consolidated Statements of Operations and Comprehensive Income.Cash Flow HedgesAll derivatives are recognized on the balance sheet at their fair value and classified based on the instrument’s maturity date.Interest rate riskThe Company uses interest rate swap contracts to mitigate its exposure to interest rate fluctuations associated with the Term Loan “B” Facility. TheCompany does not use such swap contracts for speculative or trading purposes.To partially offset the variability of future interest payments on the outstanding Term Loan “B” Facility arising from changes in LIBOR rates, onJanuary 11, 2017, the Company entered into interest rate swap agreements with three financial institutions for notional amounts totaling$500.0 million (effective as of January 11, 2017), $750.0 million (effective as of December 29, 2017) and $1.0 billion (effective as of December 31,2018) with expiry dates of December 29, 2017, December 31, 2018 and December 31, 2019, respectively. These agreements effectively hedge some ofthe future variable rate LIBOR interest expense to a fixed rate interest expense. The derivative instruments qualified for accounting as a cash flowhedge in accordance with ASC 815, and the Company designated it as such. The Company has performed an effectiveness assessment and concludedthat there is no ineffectiveness during the year ended December 31, 2017.The Company did not have any interest rate swap contracts outstanding during the year ended December 31, 2016. 157Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Foreign currency riskThe purpose of the Company’s foreign currency hedging activities is to protect the Company from the risk that the eventual cash flows resulting fromtransactions in foreign currencies will be adversely affected by changes in exchange rates. The Company enters into forward contracts that aredesignated as foreign currency cash flow hedges of selected forecasted payments denominated in currencies other than U.S. dollars.For the years ended December 31, 2017 and 2016, the Company recorded a net loss of zero and $0.2 million, respectively, associated with cash flowhedges recognized as a component of cost of revenues. The Company did not have outstanding derivatives for its foreign currency exposuredesignated as cash flow hedges as of December 31, 2017 and 2016.See Note 16: “Changes in Accumulated Other Comprehensive Loss” for the effective amounts related to derivative instruments designated as cash flowhedges affecting accumulated other comprehensive loss and the Company’s Consolidated Statements of Operations and Comprehensive Income for theyear ended December 31, 2017.Convertible Note HedgesThe Company entered into convertible note hedges in connection with the issuance of the 1.00% Notes and 1.625% Notes. See Note 8: “Long-TermDebt” for further details.OtherAt December 31, 2017, the Company had no outstanding commodity derivatives, currency swaps or options relating to either its debt instruments orinvestments. The Company does not hedge the value of its equity investments in its subsidiaries or affiliated companies.Note 15: Income TaxesThe Company’s geographic sources of income before income taxes and non-controlling interest are as follows (in millions): Year ended December 31, 2017 2016 2015 United States $(270.1) $(287.0) $(102.7) Foreign 817.6 467.6 322.5 $547.5 $180.6 $219.8 158Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued The Company’s provision (benefit) for income taxes is as follows (in millions): Year ended December 31, 2017 2016 2015 Current: Federal $26.3 $(0.1) $— State and local 0.2 0.1 2.0 Foreign 53.1 34.4 21.3 79.6 34.4 23.3 Deferred: Federal (356.3) 60.8 0.4 State and local 0.4 — (1.4) Foreign 10.8 (99.1) (11.5) (345.1) (38.3) (12.5) Total provision (benefit) $(265.5) $(3.9) $10.8 A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as follows: Year ended December 31, 2017 2016 2015 U.S. federal statutory rate 35.0% 35.0% 35.0% Increase (decrease) resulting from: State and local taxes, net of federal tax benefit 2.2 (3.6) (1.0) Impact of U.S. Tax Reform and related effects (1) (82.2) — — Impact of foreign operations (1.5) (8.1) (39.8) Reversal of prior years’ indefinite reinvestment assertion — 172.1 — Dividend income from foreign subsidiaries — 0.2 85.5 Change in valuation allowance and related effects (2) 0.4 (190.7) (75.3) Nondeductible acquisition costs — 1.9 0.1 Nondeductible share-based compensation costs (1.6) 0.7 0.9 U.S. federal R&D credit (1.5) (10.1) — Other 0.7 0.4 (0.5) Total (48.5)% (2.2)% 4.9% (1) Includes the benefit of $744.1 million, or 135.9% for the reduction in the Company’s deferred tax liability for undistributed current and prior years’earnings of the Company’s foreign subsidiaries and the benefit of $33.0 million, or 6.0% for the release of valuation allowance on federal foreign taxcredit carryforwards which were utilized against the mandatory repatriation tax. These benefits are offset by the expense for the mandatory repatriationtax, net of uncertain tax positions, of $207.1 million, or 37.8% and expense related to the change in the federal rate from 35% to 21% of$120.1 million, or 21.9% on the Company’s remaining net federal deferred tax asset balances. 159Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (2) The Company has included the benefit related to the change in valuation allowance on federal foreign tax credits which were previously set toexpire unutilized but were utilized against the expense related to the mandatory repatriation tax $33.0 million or 6.0%, in the line “Impact of U.S. TaxReform and related effects”The Company’s effective tax rate for 2017 was a benefit of 48.5%, which differs from the U.S. federal statutory income tax rate of 35% primarily due toU.S. tax reform codified under the Tax Act. The Company’s effective tax rate for 2016 was a benefit of 2.2%, which differs from the U.S. federalstatutory income tax rate of 35% primarily due to the release of its U.S. and Japan valuation allowances, partially offset by the reversal of the prioryears’ indefinite reinvestment assertion. The Company’s effective tax rate for 2015 was a provision of 4.9%, which differs from the U.S. federalstatutory income tax rate of 35% primarily due to its change in valuation allowance, deemed dividend income from foreign subsidiaries and tax ratedifferential in its foreign subsidiaries.The tax effects of temporary differences in the recognition of income and expense for tax and financial reporting purposes that give rise to significantportions of the net deferred tax asset (liability) as of December 31, 2017 and December 31, 2016 are as follows (in millions): Year ended December 31, 2017 2016 Net operating loss and tax credit carryforwards $738.4 $978.1 Tax-deductible goodwill and amortizable intangibles (29.1) (57.1) Reserves and accruals 49.8 51.7 Property, plant and equipment (42.8) (60.9) Inventories 24.5 42.1 Undistributed earnings of foreign subsidiaries (32.5) (639.1) Share-based compensation 9.2 14.3 Pension 21.1 21.5 Debt financing costs (9.9) (40.8) Other 17.6 14.3 Deferred tax assets and liabilities before valuation allowance 746.3 324.1 Valuation allowance (462.3) (474.1) Net deferred tax asset (liability) $284.0 $(150.0) On December 22, 2017, the U.S. enacted comprehensive tax legislation, the Tax Act. The Tax Act reduces the U.S. federal corporate tax rate from 35%to 21%, and requires companies to pay a one-time mandatory repatriation tax on earnings of certain foreign subsidiaries that were previously taxdeferred and creates new taxes on certain future foreign earnings. In December 2017 the SEC staff issued Staff Accounting Bulletin No. 118, IncomeTax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), which allows the Company to record provisional amounts during ameasurement period not to extend beyond one year of the enactment date. As of December 31, 2017, the Company has not completed its accountingfor the tax effects of the enactment of the Tax Act; however, in certain cases, specifically as follows, the Company has made a reasonable estimate of(i) the effects on its existing deferred tax balances and (ii) the effects of the one-time mandatory repatriation tax. The Company has recognized aprovisional tax benefit of $449.9 million in the year ended December 31, 2017 associated with the items it could reasonably estimate as described inthe 160Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate table. The Company is still analyzing the TaxAct and refining its calculations, which could potentially impact the measurement of its tax balances. The Company expects to complete its analysiswithin the measurement period in accordance with SAB 118.As of December 31, 2017, all benefits related to excess tax deductions from employee equity exercises are included in the Company’s NOL deferred taxasset due to the adoption of ASU 2016-09 as of the first quarter of 2017. As of December 31, 2016, the Company’s deferred tax assets do not include$194.5 million of excess tax deductions from employee equity exercises.As of December 31, 2017 and 2016, the Company had approximately $1,198.6 million and $1,203.6 million, respectively, of federal NOLcarryforwards, before reduction for uncertain tax positions, which are subject to annual limitations prescribed in Section 382 of the Code. If notutilized, a portion of the NOLs will expire in varying amounts from 2021 to 2036.As of December 31, 2017 and 2016, the Company had approximately $46.0 million and $211.9 million, respectively, of federal credit carryforwards,before consideration of valuation allowance or reduction for uncertain tax positions, which are subject to annual limitations prescribed in Section 383of the Code. The decrease is primarily due to utilization of $191.1 million of credits to offset the mandatory repatriation tax liability. If not utilized, aportion of the credits will expire in varying amounts from 2033 to 2037.As of December 31, 2017 and 2016, the Company had approximately $790.3 million and $1,191.2 million, respectively, of state NOL carryforwards,before consideration of valuation allowance or reduction for uncertain tax positions. The decrease is primarily due to expiration. If not utilized, aportion of the NOLs will expire in varying amounts from 2018 to 2037. As of December 31, 2017 and 2016, the Company had $107.2 million and$129.0 million, respectively, of state credit carryforwards before consideration of valuation allowance or reduction for uncertain tax positions. If notutilized, a portion of the credits will begin to expire in varying amounts starting in 2018.As of December 31, 2017 and 2016, the Company had approximately $1,103.0 million and $1,078.8 million, respectively, of foreign NOLcarryforwards, before consideration of valuation allowance or reduction for uncertain tax positions. If not utilized, a portion of the NOLs will begin toexpire in varying amounts starting in 2018. As of December 31, 2017 and 2016, the Company had $65.3 million and $50.5 million, respectively, offoreign credit carryforwards before consideration of valuation allowance. The majority of these credits have an indefinite life and do not expire.In 2016, the Company reassessed its need for a valuation allowance for the Japan consolidated group. Due to the Company’s recent trend of positiveoperating results, which resulted in the Japan group being in a cumulative twelve-quarter income position as of the period ended December 31, 2016,as well as the realignment of the former System Solutions Group segment, the Company realized an $89.4 million net tax benefit related to the releaseof a portion of its valuation allowance, to reflect the amount of its deferred tax assets which are expected to be realized in future years. The Companycontinues to maintain a valuation allowance on a portion of its Japan NOLs, or $302.0 million, which expire in varying amounts from 2018 to 2024. 161Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued In addition to the valuation allowance mentioned above on Japan NOLs, as of December 31, 2017 and 2016, the Company continues to maintain a fullvaluation allowance on its U.S. state deferred tax assets, and a valuation allowance on foreign NOLs and tax credits in certain other foreignjurisdictions.The consummation of the Fairchild acquisition during 2016 caused the Company to reassess its prior years’ indefinite reinvestment assertion becauseof the U.S. debt incurred to fund the acquisition. See Note 8: “Long-Term Debt” for additional information. This resulted in a change in judgmentregarding the Company’s future cash flows by jurisdiction and its prior years’ indefinite reinvestment assertion. The change in assertion, which resultedin recording a deferred tax liability for future U.S. taxes, had a direct impact on the Company’s judgment about the realizability of its U.S. federaldeferred tax assets which resulted in a release of valuation allowance. The change in the Company’s prior years’ indefinite reinvestment assertionresulted in an increase to income tax expense of $310.8 million, which was partially offset by a benefit of $267.9 million relating to the release ofvaluation allowance. The reversal of the prior years’ indefinite reinvestment assertion and release of the U.S. federal valuation allowance did not havean effect on the Company’s cash taxes. At December 31, 2016, the Company was not indefinitely reinvested with respect to any of its foreign earnings.In 2017, the Company reevaluated its indefinite reinvestment assertion because of the fundamental change in the U.S. approach to taxing internationaloperations under the Tax Act. As a result, the Company has indefinitely reinvested certain foreign earnings. Therefore, tax has not been recognized onthe excess of the amount for financial reporting over the tax basis of investments in its foreign subsidiaries that are considered indefinitely reinvested.The excess of the amount for financial reporting over the tax basis for which the Company is indefinitely reinvested is $226.3 million as ofDecember 31, 2017, and the related unrecognized deferred income tax liability is $9.9 million. However, substantially all of the Company’s foreignearnings continue to not be indefinitely reinvested at December 31, 2017.The Company maintains liabilities for uncertain tax positions. These liabilities involve considerable judgment and estimation and are continuouslymonitored by management based on the best information available, including changes in tax regulations, the outcome of relevant court cases, andother information. The Company is currently under examination by various taxing authorities. Although the outcome of any tax audit is uncertain, theCompany believes that it has adequately provided in its consolidated financial statements for any additional taxes that the Company may be requiredto pay as a result of such examinations. If the payment ultimately proves not to be necessary, the reversal of these tax liabilities would result in taxbenefits being recognized in the period the Company determines such liabilities are no longer necessary. However, if an ultimate tax assessmentexceeds the Company’s estimate of tax liabilities, additional tax expense will be recorded. The impact of such adjustments could have a materialimpact on the Company’s results of operations in future periods. 162Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued The activity for unrecognized gross tax benefits for 2017, 2016, and 2015 is as follows (in millions): 2017 2016 2015 Balance at beginning of year $136.7 $33.5 $31.2 Acquired balances — 86.9 — Additions for tax positions related to the current year 23.6 4.6 9.2 Additions for tax positions of prior years 4.7 13.7 3.4 Reductions for tax positions of prior years (1.6) (0.4) (6.9) Lapse of statute (16.3) (1.6) (3.3) Settlements (4.9) — (0.1) Change in rate due to U.S. Tax Reform (27.4) — — Balance at end of year $114.8 $136.7 $33.5 For the period ended December 31, 2016, the Company performed a U.S. R&D tax credit study which covered the years from 2012 to 2015. The resultsof the study were recorded during the period ended December 31, 2016. As a result the uncertain tax position related to the outcome of the prior yearstudy was also recorded.Included in the December 31, 2017 balance of $114.8 million is $114.0 million related to unrecognized tax positions that, if recognized, would impactthe annual effective tax rate. Although the Company cannot predict the timing of resolution with taxing authorities, if any, the Company believes it isreasonably possible that its unrecognized tax positions will be reduced by $8.3 million in the next 12 months due to settlement with tax authorities orexpiration of the applicable statute of limitations.The Company recognizes interest and penalties accrued in relation to unrecognized tax benefits in tax expense. The Company recognizedapproximately $1.5 million of tax expenses for interest and penalties during the year ended December 31, 2017, and recognized approximately$0.5 million and $0.9 million of tax expenses for interest and penalties during the years ended December 31, 2016 and 2015, respectively. TheCompany had approximately $5.9 million, $4.4 million, and $3.9 million of accrued interest and penalties at December 31, 2017, 2016, and 2015,respectively.Tax years prior to 2013 are generally not subject to examination by IRS except for items involving tax attributes that have been carried forward to taxyears whose statute of limitations remains open. The Company is not currently under IRS examination. For state returns, the Company is generally notsubject to income tax examinations for years prior to 2012. The Company is also subject to routine examinations by various foreign tax jurisdictions inwhich it operates. With respect to major jurisdictions outside the United States, the Company’s subsidiaries are no longer subject to income tax auditsfor years prior to 2007. The Company is currently under audit in the following significant jurisdictions: China, Malaysia, Philippines, Singapore andVietnam. 163Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Note 16: Changes in Accumulated Other Comprehensive LossAmounts comprising the Company’s accumulated other comprehensive loss and reclassifications for the years ended December 31, 2017 andDecember 31, 2016 are as follows (in millions): ForeignCurrencyTranslationAdjustments Effects of CashFlow Hedges UnrealizedGains andLosses onAvailable-for-Sale Securities Total Balance as of December 31, 2015 $(42.2) $(0.1) $— $(42.3) Other comprehensive income (loss) prior toreclassifications (1) (8.0) 0.3 — (7.7) Amounts reclassified from accumulated othercomprehensive loss — (0.2) — (0.2) Net current period other comprehensiveincome (loss) (8.0) 0.1 — (7.9) Balance as of December 31, 2016 $(50.2) $— $— $(50.2) Other comprehensive income prior toreclassifications (1) (2) 7.0 2.2 — 9.2 Amounts reclassified from accumulated othercomprehensive loss — 0.4 — 0.4 Net current period other comprehensiveincome 7.0 2.6 — 9.6 Balance as of December 31, 2017 $(43.2) $2.6 $— $(40.6) (1)Foreign currency translation adjustments are net of tax of zero and $0.2 million for the years ended December 31, 2017 and December 31, 2016,respectively.(2)Effects of cash flow hedges are net of tax of $0.7 million and zero of tax expense for the years ended December 31, 2017 and December 31, 2016,respectively.Amounts which were reclassified from accumulated other comprehensive loss to the Company’s Consolidated Statements of Operations andComprehensive Income during the years ended December 31, 2017 and December 31, 2016 were as follows (net of tax of $0.2 million and zero in 2017and 2016, respectively, in millions): Amounts Reclassified from Accumulated Other Comprehensive Loss December 31,2017 December 31,2016 Statement of Operations and ComprehensiveIncome Line ItemForeign currency hedges $— $0.2 Cost of revenuesInterest rate swaps (0.4) — Other income and expenseTotal reclassifications $(0.4) $0.2 164Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Note 17: Supplemental DisclosuresSupplemental Disclosure of Cash Flow InformationThe Company’s non-cash financing activities and cash payments for interest and income taxes during the years ended December 31, 2017, 2016 and2015 are as follows (in millions): Year ended December 31, 2017 2016 2015 Non-cash financing activities: Debt issuance costs paid directly from escrow accounts $— $46.0 $— Capital expenditures in accounts payable and other liabilities 165.6 105.9 102.2 Equipment acquired or refinanced through capital leases — — 12.5 Cash (received) paid for: Interest income $(3.0) $(4.5) $(1.1) Interest expense 92.1 106.7 28.4 Income taxes 67.8 27.3 20.0 Note 18: Segment InformationDuring the third quarter of 2016, the Company realigned its segments into three operating segments to optimize efficiencies resulting from theacquisition of Fairchild. These operating segments also represent its three reporting segments: Power Solutions Group, Analog Solutions Group andImage Sensor Group. The results of the System Solutions Group, which was previously the Company’s fourth operating segment, and which did nothave goodwill, are now part of the three operating segments and previously-reported information has been presented based on the new structure toreflect the current organizational structure. The Company’s Power and Analog Solutions Groups include the business acquired in the FairchildTransaction. See Note 4: “Acquisitions, Divestitures and Licensing Transactions” for additional information with respect to the Company’s recentacquisitions.Each of the Company’s major product lines has been examined and each product line has been assigned to a reportable segment, as illustrated in thetable below, based on the Company’s operating strategy. Because many products are sold into different end-markets, the total revenue reported for asegment is not indicative of actual sales in the end-market associated with that segment, but rather is the sum of the revenue from the product linesassigned to that segment. These segments represent the Company’s view of the business and as such are used to evaluate progress of major initiativesand allocation of resources. 165Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Power Solutions Group Analog Solutions Group Image Sensor GroupBipolar Power (8) Automotive ASSPs (1) CCD Image Sensors (7)Thyristor (8) Analog Automotive (2) CMOS Image Sensors (7)Small Signal (8) Automotive Power Switching (3) Proximity Sensors (13)Zener (8) Automotive Mixed-Signal Solutions (1) Linear Light Sensors (7)Protection (3) Medical ASICs & ASSPs (1) Image Stabilizer ICs (12)Rectifier (8) Mixed-Signal ASICs (1) Auto Focus ICs (12)Filters (3) Industrial ASSPs (1) MOSFETs (3) High Frequency / Timing (4) Signal & Interface (2) IPDs (5) Standard Logic (6) Foundry and Manufacturing Services (5) LDO’s & VREGs (2) Hearing Components (1) EE Memory and Programmable Analog (9) DC-DC Conversion (2) IGBTs (3) Analog Switches (6) Power MOSFETs (10) AC-DC Conversion (2) Power and Signal Discretes (10) Low Voltage Power Management (2) Intelligent Power Modules (11) Power Switching (2) Smart Passive Sensors (13) RF Antenna Tuning Solutions (1) PIM (14) Motor Driver ICs (12) Display Drivers (12) ASICs (12) Microcontrollers (12) Flash Memory (12) Touch Sensor (12) Power Supply IC (12) Audio DSP (12) Audio Tuners (12) (1) ASIC products (8) Discrete products (2) Analog products (9) Memory products (3) TMOS products (10) HD products (4) ECL products (11) IPM products (5) Foundry products / services (12) LSI products (6) Standard logic products (13) Other sensor products (7) Image sensor / ASIC products (14) PIM Products The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluatesperformance based on segment revenues and gross profit. 166Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued The Company’s wafer manufacturing facilities fabricate ICs for all business units, as necessary, and their operating costs are reflected in the segments’cost of revenues on the basis of product costs. Because operating segments are generally defined by the products they design and sell, they do notmake sales to each other. The Company does not discretely allocate assets to its operating segments, nor does management evaluate operatingsegments using discrete asset information.In addition to the operating and reporting segments mentioned above, the Company also operates global operations, sales and marketing, informationsystems, finance and administration groups that are led by vice presidents who report to the Chief Executive Officer. A portion of the expenses of thesegroups are allocated to the segments based on specific and general criteria and are included in the segment results reported below. The Company doesnot allocate income taxes or interest expense to its operating segments as the operating segments are principally evaluated on gross profit.Additionally, restructuring, asset impairments and other, net and certain other manufacturing and operating expenses, which include corporate researchand development costs, unallocated inventory reserves and miscellaneous nonrecurring expenses, are not allocated to any segment.Revenues and gross profit for the Company’s reportable segments for the years ended December 31, 2017, 2016 and 2015, respectively, are as follows(in millions): PowerSolutionsGroup AnalogSolutionsGroup ImageSensorGroup Total For year ended December 31, 2017: Revenues from external customers $2,819.3 $1,950.9 $772.9 $5,543.1 Segment gross profit 959.2 817.2 302.0 2,078.4 For year ended December 31, 2016: Revenues from external customers $1,708.6 $1,481.5 $716.8 $3,906.9 Segment gross profit 566.3 589.0 236.5 1,391.8 For year ended December 31, 2015: Revenues from external customers $1,409.9 $1,338.6 $747.3 $3,495.8 Segment gross profit 428.7 537.9 242.4 1,209.0 Gross profit shown above and below is exclusive of the amortization of acquisition related intangible assets. Depreciation expense is included insegment gross profit. Reconciliations of segment gross profit to consolidated gross profit are as follows (in millions): Year Ended December 31, 2017 December 31, 2016 December 31, 2015 Gross profit for reportable segments $ 2,078.4 $ 1,391.8 $ 1,209.0 Less: unallocated manufacturing costs (44.6) (94.9) (15.8) Consolidated gross profit $2,033.8 $1,296.9 $1,193.2 The Company’s consolidated assets are not specifically ascribed to its individual reporting segments. Rather, assets used in operations are generallyshared across the Company’s reporting segments. 167Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued The Company operates in various geographic locations. Sales to unaffiliated customers have little correlation with the location of manufacturers. It is,therefore, not meaningful to present operating profit by geographical location.Revenues by geographic location, including local sales made by operations within each area, based on sales billed from the respective country, aresummarized as follows (in millions): Year Ended December 31, 2017 December 31, 2016 December 31, 2015 United States $748.8 $588.4 $544.3 United Kingdom 668.8 541.1 503.2 Hong Kong 1,785.0 1,086.8 874.4 Japan 429.0 334.5 281.7 Singapore 1,466.9 1,110.4 1,120.7 Other 444.6 245.7 171.5 $5,543.1 $3,906.9 $3,495.8 Property, plant and equipment, net by geographic location, are summarized as follows (in millions): December 31,2017 December 31,2016 United States $547.9 $548.1 Korea 380.5 385.9 Malaysia 230.0 224.0 Philippines 439.5 381.7 China 246.0 217.7 Other 435.2 401.7 $2,279.1 $2,159.1 For the years ended December 31, 2017, 2016 and 2015, there were no individual customers, including distributors, which accounted for more than10% of the Company’s total consolidated revenues. 168Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Note 19: Supplementary Financial Information - Selected Quarterly Financial Data (Unaudited)Consolidated unaudited quarterly financial information for 2017 and 2016 is as follows (in millions, except per share data): Quarters ended in 2017 March 31 June 30 September 29 December 31 Revenues $1,436.7 $1,338.0 $1,390.9 $1,377.5 Gross Profit (exclusive of the amortization of acquisition relatedintangible assets) 503.3 492.1 524.2 514.2 Net income attributable to ON Semiconductor Corporation 78.2 93.9 108.7 529.9 Diluted net income per common share attributable to ONSemiconductor Corporation 0.18 0.22 0.25 1.22 Quarters ended in 2016 April 1 July 1 September 26 December 31 Revenues $817.2 $877.8 $950.9 $1,261.0 Gross Profit (exclusive of the amortization of acquisition relatedintangible assets) 275.5 307.9 329.0 384.5 Net income attributable to ON Semiconductor Corporation 36.0 25.1 10.1 110.9 Diluted net income per common share attributable to ONSemiconductor Corporation 0.09 0.06 0.02 0.26 169Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESSCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS(in millions) Description Balance atBeginning ofPeriod Charged toCosts andExpenses Charged toOtherAccounts Deductions/Write-offs Balance atEnd ofPeriod Allowance for doubtful accounts Year ended December 31, 2015 $1.6 $3.7 $0.9 $— $6.2 Year ended December 31, 2016 6.2 (2.0) (2.0) — 2.2 Year ended December 31, 2017 2.2 0.5 — — 2.7 Allowance for deferred tax assets Year ended December 31, 2015 $977.5 $(242.5) $0.7 $— $735.7 Year ended December 31, 2016 735.7 (356.0) 94.4(1) — 474.1 Year ended December 31, 2017 474.1 (30.6) 18.8(2) — 462.3 (1) Represents the effects of cumulative translation adjustments. This also includes $81.6 million of additional allowance for deferred tax assets arisingfrom the Fairchild acquisition in 2016.(2) Represents the effects of cumulative translation adjustments. 170Exhibit 10.12AMENDED AND RESTATED EMPLOYMENT AGREEMENTThis AMENDED AND RESTATED EMPLOYMENT AGREEMENT, dated as of June 1, 2017 (the “Agreement”), is made and entered into by andamong Semiconductor Components Industries, LLC (the “Company”), a wholly-owned subsidiary of ON Semiconductor Corporation, a DelawareCorporation (the “Parent”), with offices at 5005 East McDowell Road, Phoenix, Arizona 85008, and George H. Cave (the “Executive”).Executive is currently employed as the Executive Vice President, General Counsel, Chief Compliance & Ethics Officer, Chief Risk Officer, andCorporate Secretary of the Company and Parent pursuant to the Employment Agreement dated May 26, 2005, and amended by Amendment No. 1 datedApril 23, 2008, Amendment No. 2 dated April 30, 2009, and Amendment No. 3 dated March 24, 2010 (collectively, the “Prior Agreement”).Executive and the Company desire to enter into this Agreement to supersede and replace the Prior Agreement in its entirety and to continueExecutive’s employment pursuant to the terms and conditions set forth herein.1. Employment, Duties and Agreements.(a) Executive shall continue his employment as the Executive Vice President, General Counsel, Chief Compliance & Ethics Officer, Chief Risk Officer,and Corporate Secretary of the Company and Parent during the employment period described in Section 3 hereof (the “Employment Period”). Executive shallreport to the Office of the Chief Executive Officer (the “Office of the CEO”) of the Company and shall have such duties and responsibilities as the Office ofthe CEO may reasonably determine from time to time as are consistent with Executive’s position as Executive Vice President, General Counsel, ChiefCompliance & Ethics Officer, Chief Risk Officer, and Corporate Secretary. During the Employment Period, Executive shall be subject to, and shall act inaccordance with, all reasonable instructions and directions of the Office of the CEO and all applicable policies and rules of the Company.(b) During the Employment Period, excluding any periods of vacation and sick leave to which Executive is entitled, Executive shall devote his fullworking time, energy and attention to the performance of his duties and responsibilities hereunder and shall faithfully and diligently endeavor to promote thebusiness and best interests of the Company.(c) During the Employment Period, Executive may not, without the prior written consent of the Company, directly or indirectly, operate, participate inthe management, operations or control of, or act as an executive, officer, consultant, agent or representative of, any type of business or service (other than asan executive of the Company), provided that it shall not be a violation of the foregoing for Executive to manage his personal, financial and legal affairs solong as such activities do not interfere with the performance of his duties and responsibilities to the Company as provided hereunder.2. Compensation.(a) As compensation for the agreements made by Executive herein and the performance by Executive of his obligations hereunder, during theEmployment Period, the Company shall pay Executive, pursuant to the Company’s normal and customary payroll procedures, a base salary at the ratedetermined by the Board of Directors of the Parent and/or its Compensation Committee (both or either herein may be referred to as the “Board”) (the “BaseSalary”). The Board shall review Executive’s Base Salary from time to time.(b) In addition to the Base Salary, during the Employment Period, Executive shall be eligible to participate in the bonus program established andapproved by the Board (the “Bonus Program”) and, pursuant to the Bonus Program, Executive may earn a bonus (the “Bonus”) on an annual or otherperformance period basis (a “Performance Cycle”) of up to a target of 75% of Base Salary earned and paid during the applicable Performance Cycle or anadditional amount as approved by the Board under the Bonus Program and in each case based on certain performance criteria; provided that Executive isactively employed by the Company on the date the Bonuses are paid under the Bonus Program, except as provided in Section 5(a) herein. The Bonus may bepaid annually or more frequently depending upon the Performance Cycle, as determined by the Board and pursuant to the Bonus Program. The Bonus will bespecified by the Board, and the Bonus will be reviewed at least annually by the Board.(c) During the Employment Period: (i) except as specifically provided herein, Executive shall be entitled to participate in all savings and retirementplans, practices, policies and programs of the Company which are made available generally to other senior executive officers of the Company, and (ii) exceptas specifically provided herein, Executive and/or Executive’s family, as the case may be, shall be eligible for participation in, and shall receive all benefitsunder, all welfare benefit plans, practices, policies and programs provided by the Company which are made available generally to other senior executiveofficers of the Company (for the avoidance of doubt, such plans, practices, policies or programs shall not include any plan, practice, policy or program whichprovides benefits in the nature of severance or continuation pay).(d) During the Employment Period, the Company shall provide Executive with a car allowance of $1,200 per month.(e) During the Employment Period, Executive shall be entitled to at least four (4) weeks of paid vacation time for each calendar year in accordance withthe Company’s normal and customary policies and procedures now in force or as such policies and procedures may be modified with respect to seniorexecutive officers of the Company.(f) During the Employment Period, the Company shall reimburse Executive for all reasonable business expenses upon the presentation of statements ofsuch expenses in accordance with the Company’s normal and customary policies and procedures now in force or as such policies and procedures may bemodified with respect to senior executive officers of the Company.(g) During the Employment Period, the Office of the CEO may ask Executive to provide services to affiliates of the Company, including the Parent, thatare consistent with Executive’s position as Executive Vice President, General Counsel, Chief Compliance & Ethics Officer, Chief Risk Officer, and CorporateSecretary. Executive agrees to perform such services without additional compensation from the Company, any affiliate, or the Parent. 23. Employment Period.The Company shall employ Executive on the terms and subject to the conditions of this Agreement commencing as of the date of the execution of thisAgreement (the “Effective Date”). Executive shall be considered an “at-will” employee, which means that Executive’s employment may be terminated by theCompany or by Executive at any time for any reason or no reason at all. The period during which Executive is employed by the Company pursuant to thisAgreement shall be referred to as the “Employment Period.” Executive’s employment hereunder may be terminated during the Employment Period upon theearliest to occur of the following events (at which time the Employment Period shall be terminated):(a) Death. Executive’s employment hereunder shall terminate upon his death.(b) Disability. The Company shall be entitled to terminate Executive’s employment hereunder for “Disability” if, as a result of Executive’s incapacitydue to physical or mental illness or injury, after any accommodation required by law, Executive shall have been unable to perform his duties hereunder for aperiod of ninety (90) consecutive days, and within thirty (30) days after Notice of Termination (as defined in Section 4 below) for Disability is givenfollowing such 90-day period Executive shall not have returned to the performance of his duties on a full-time basis.(c) Cause. The Company may terminate Executive’s employment hereunder for Cause. For purposes of this Agreement, the term “Cause” shall mean:(i) a material breach by Executive of this Agreement; (ii) the failure by Executive to reasonably and substantially perform his duties hereunder (other than asa result of physical or mental illness or injury); (iii) Executive’s willful misconduct or gross negligence which is materially injurious to the Company; or(iv) the commission by Executive of a felony or other serious crime involving moral turpitude. In the case of clauses (i) and (ii) above, the Company shallprovide notice to Executive indicating in reasonable detail the events or circumstances that it believes constitute Cause hereunder and, if such breach orfailure is reasonably susceptible to cure, provide Executive with a reasonable period of time (not to exceed thirty (30) days) to cure such breach or failure. If,subsequent to Executive’s termination of employment hereunder for other than Cause, it is determined in good faith by the Board that Executive’semployment could have been terminated for Cause (except for a termination under (ii) of the above definition of Cause), Executive’s employment shall, atthe election of the Board, be deemed to have been terminated for Cause retroactively to the date the events giving rise to Cause occurred.(d) Without Cause. The Company may terminate Executive’s employment hereunder during the Employment Period without Cause.(e) Voluntarily. Executive may voluntarily terminate his employment hereunder (other than for Good Reason), provided that Executive provides theCompany with notice of his intent to terminate his employment at least three months in advance of the Date of Termination (as defined in Section 4 below).(f) For Good Reason. Executive may terminate his employment hereunder for Good Reason and any such termination shall be deemed a termination bythe Company without Cause. For purposes of this Agreement, “Good Reason” shall mean (i) a material breach of this Agreement by the Company, (ii) withoutExecutive’s written consent, reducing Executive’s 3salary, as in effect immediately prior to such reduction, while at the same time not proportionately reducing the salaries of the other comparable officers of theCompany, or (iii) without Executive’s written consent, a material and continued diminution of Executive’s duties and responsibilities hereunder; providedthat in either (i), (ii), or (iii) above, Executive shall notify the Company within thirty (30) days after the event or events which Executive believes constituteGood Reason hereunder and shall describe in such notice in reasonable detail such event or events and provide the Company a thirty (30) day period afterdelivery of such notice to cure such breach or diminution.4. Termination Procedure.(a) Notice of Termination. Any termination of Executive’s employment by the Company or by Executive during the Employment Period (other than atermination on account of the death of Executive) shall be communicated by written “Notice of Termination” to the other party hereto in accordance withSection 11(a).(b) Date of Termination. “Date of Termination” shall mean (i) if Executive’s employment is terminated by his death, the date of his death, (ii) ifExecutive’s employment is terminated pursuant to Section 3(b), thirty (30) days after Notice of Termination, provided that Executive shall not have returnedto the performance of his duties hereunder on a full-time basis within such thirty (30) day period, (iii) if Executive voluntarily terminates his employment, thedate specified in the notice given pursuant to Section 3(e) herein which shall not be less than three (3) months after the Notice of Termination is delivered tothe Company, (iv) if Executive terminates his employment for Good Reason pursuant to Section 3(f) herein, thirty (30) days after Notice of Termination, and(v) if Executive’s employment is terminated for any other reason, the date on which a Notice of Termination is given or any later date (within thirty (30) days,or any alternative time period agreed upon by the parties, after the giving of such notice) set forth in such Notice of Termination.5. Termination Payments.(a) Without Cause. In the event of the termination of Executive’s employment during the Employment Period by the Company without Cause(including a deemed termination without Cause as provided for in Section 3(f) herein), Executive shall be entitled to: (i) any accrued but unused vacation,(ii) Base Salary through the Date of Termination (to the extent not theretofore paid), (iii) the continuation of Base Salary (as in effect immediately prior to thetermination) for twelve (12) months following the Date of Termination which, subject to the restrictions set forth below, shall be paid in accordance with theCompany’s ordinary payroll practices in effect from time to time and which shall begin on the first payroll period immediately following the date on whichthe general release and waiver described below in Section 5(d) becomes irrevocable, (iv) any earned but not paid Bonus for the Performance Cycleimmediately preceding the Date of Termination, and (v) a pro-rata portion of the Bonus, if any, for the Performance Cycle in which the Date of Terminationoccurs (based on the achievement of the applicable performance criteria and related to the applicable Performance Cycle as described in Section 2(b)).Notwithstanding the foregoing, the amount of payment set forth in (iii) above during the six-month period following the Date of Termination shall notexceed the separation pay exception limitation amount set forth in Treasury Regulation Section 1.409A-1(b)(9)(iii)(A) (any amount that is payable duringsuch six-month period that is in excess of the separation pay exception limitation shall be paid in a single lump sum on the first day of the seventh monthafter the date of 4Executive’s separation from service or, if earlier, the date of Executive’s death following such separation from service (the “Delayed Payment Date”). If theCompany determines in good faith that the separation pay exception set forth in Treasury Regulation Section 1.409A-1(b)(9)(iii) does not apply as of theDate of Termination, the amount set forth in (iii) above shall be paid (a) in an initial lump sum equal to six months’ base salary (net of applicable taxes andwithholdings) on the Delayed Payment Date and (b) thereafter in installments in accordance with the Company’s ordinary payroll practices. The amounts setforth in (i) and (ii) above, shall be paid in accordance with applicable law on the Date of Termination. The amounts set forth in (iv) and (v) above shall bepaid as soon as is reasonably practicable after the close of the accounting books and records of the Company for the relevant Performance Cycle at the sametime bonuses are paid to other active employees, but in no event will payment be made for any Performance Cycle ending on December 31 before January 1or after March 15 of the year following the year in which the Performance Cycle ends. If payment by such date is administratively impracticable, paymentmay be made at a later date as permitted under Treasury Regulation Section 1.409A-1(b)(4)(ii). In addition, in the event of a termination by the Companywithout Cause under this Section 5(a) (including a deemed termination without Cause as provided in Section 3(f) herein): (1) if Executive elects to continuethe Company’s group health plans pursuant to his rights under COBRA, the Company shall pay Executive’s COBRA continuation premiums until the earlierof (x) the date Executive receives group health benefits from another employer or (y) the one-year anniversary of the Date of Termination; and (2) theCompany will provide Executive with outplacement services from vendors designated by the Company for a period of six (6) months following the Date ofTermination, at a cost not to exceed $5,000. For the avoidance of doubt, Executive shall pay Executive’s share of any such premiums with after-tax incomeand any premium reimbursements or premiums paid by the Company pursuant to this Section 6 shall be taxable to Executive for federal and state taxpurposes. Notwithstanding the foregoing, the payments and benefits provided in this Section 5(a) are subject to and conditioned upon Executive executing(and not revoking) the general release and waiver described in Section 5(d) and the payments and benefits are subject to and conditioned upon Executive’scompliance with the restrictive covenants provided in Sections 7 and 8 hereof. Except as provided in this Section 5(a), the Company shall have no additionalobligations under this Agreement.(b) Cause, Disability, Death or Voluntarily other than for Good Reason. If Executive’s employment is terminated during the Employment Period by(i) the Company for Cause, (ii) voluntarily by Executive other than for Good Reason, or (iii) as a result of Executive’s death or Disability, the Company shallpay Executive or Executive’s estate, as the case may be, within thirty (30) days following the Date of Termination Executive’s accrued but unused vacationand his Base Salary through the Date of Termination (to the extent not theretofore paid). Except as provided in this Section 5(b), the Company shall have noadditional obligations under this Agreement.(c) Change in Control. If within twenty-four (24) months following a Change in Control (as defined herein), (i) the Company terminates Executive’semployment without Cause; or (ii) Executive terminates employment with the Company for Good Reason, then, in addition to all of the benefits provided toExecutive under Section 5(a) of this Agreement, Executive shall be entitled to an amount equal to the total target Bonus (as defined above) under the BonusProgram in effect as of the Date of Termination; provided that if Bonuses are paid semi-annually as of the Date of Termination Executive shall be entitled toan amount equal to two (2) times the total target Bonus for the Performance Cycle in which the Date of Termination occurs, with such amount paid as soon asis reasonably practicable after the close of the accounting books and 5records of the Company for the relevant performance period at the same time bonuses are paid to other active employees, but in no event will payment bemade for any performance period ending on December 31 before January 1 or after March 15 of the year following the year in which the performance periodends. If payment by such date is administratively impracticable, payment may be made at a later date as permitted under Treasury RegulationSection 1.409A-1(b)(4)(ii). In addition, notwithstanding any provision in any applicable option grant agreement between the Company or Parent andExecutive: (A) any outstanding but unvested options granted on or prior to the Effective Date shall fully vest upon the Date of Termination; and (B) alloptions (both vested and unvested) granted on or prior to the Effective Date will remain fully exercisable until the first to occur of (1) the one-yearanniversary of the Date of Termination, and (2) either the tenth anniversary or the seventh anniversary of the grant date of such options, depending upon whatthe relevant option grant agreement specifies with regard to an option’s term or expiration date, provided, however, that if the Company determines in goodfaith that the extension of the option’s exercise period results in the options being considered non-qualified deferred compensation subject to Section 409Aof the Internal Revenue Code of 1986, as amended (the “Code”), such extension shall not take effect. For purposes of this Agreement, a “Change in Control”shall have the meaning set forth in the ON Semiconductor Corporation Amended and Restated Stock Incentive Plan, as it may be amended from time-to-time.(d) Release Required. To receive the termination related payments and benefits described in this Section 5, within the time periods described below,Executive must execute (and not revoke) a general release and waiver (in a form reasonably acceptable to the Company) waiving all claims Executive mayhave against the Company, its affiliates (including, without limitation, Parent), successors, assigns, executives, officers and directors, and others. The releaseshall be provided to Executive on or before the date that is five (5) days following Executive’s Date of Termination and Executive shall have twenty-one(21) days following the date on which the release is given to Executive to sign and return the release to the Company. The release must be executed andreturned to the Company within the time period described in the release and it must not be revoked by Executive during the seven (7) day revocation periodthat will be described in the release. Notwithstanding anything in this Agreement to the contrary, if the Company concludes that the severance paymentsdescribed in Section 5(a) constitute a “deferral of compensation” within the meaning of the Section 409A Regulations, and if the consideration period thatwill be described in the release, plus the seven (7) day revocation period that will be described in the release, spans two (2) calendar years, the severancepayments shall not begin until the second calendar year.6. Legal Fees.In the event of any contest or dispute between the Company and Executive with respect to this Agreement or Executive’s employment hereunder, eachof the parties shall be responsible for their respective legal fees and expenses.7. Non-Solicitation.Executive recognizes that the Company’s employees are a valuable asset to the Company and represent a substantial investment of Company time andresources. Accordingly, during the Employment Period and for one (1) year thereafter, Executive hereby agrees not to, directly or indirectly, solicit or assistany other person or entity in soliciting any employee of the Parent, the Company or any of their subsidiaries to perform services for any entity (other than theParent, the Company or their subsidiaries), or attempt to induce any such employee to leave the employment of the Parent, the Company or their subsidiaries. 68. Confidentiality; Non-Compete; Non-Disclosure; Non-Disparagement.(a) During the Employment Period and thereafter, Executive shall hold in strict confidence any proprietary or Confidential Information related to theParent, the Company and their affiliates. For purposes of this Agreement, “Confidential Information” shall mean all information of the Parent, the Companyor any of their affiliates (in whatever form) which is not generally known to the public, including without limitation any inventions, processes, methods ofdistribution, customer lists or customers’ or trade secrets. “Confidential Information” does not include information that (i) is or becomes part of the publicdomain through no fault of Executive; (ii) is already known to Executive and has been identified by Executive to the Company in writing prior to thecommencement of Executive’s employment with Company; or (iii) is subsequently lawfully received by Executive from a third party not subject toconfidentiality restrictions.(b) During Executive’s employment with Company, and at all times thereafter, Executive will (i) keep confidential and not divulge, furnish or makeaccessible to any person any Confidential Information; and (ii) use the Confidential Information solely for the purpose of performing Executive’s duties ofemployment and not for Executive’s own benefit or the benefit of any other person. Promptly after the Date of Termination, or at any time upon request byCompany, Executive shall return to Company any Confidential Information (in hard copy and electronic formats) in Executive’s possession.(c) With the limited exceptions noted below, Executive shall be permitted to disclose Confidential Information to the extent, but only to the extent,(i) Company provides its express prior written consent to such disclosure; (ii) it is necessary to perform the duties of Executive’s employment; or (iii) asrequired by law; provided, that prior to making any disclosure of Confidential Information required by law (whether pursuant to a subpoena, governmentinvestigative demand, or other similar process), Executive must notify Company of Executive’s intent to make such disclosure, so that Company may seek aprotective order or other appropriate remedy and may participate with Executive in determining the amount and type of Confidential Information, if any,which must be disclosed to comply with applicable law.(d) There are limited exceptions to the above confidentiality requirement if Executive is providing information to government agencies, including butnot limited to the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Safety and Health Administration (orits state equivalent), and the Securities and Exchange Commission. This Agreement does not limit Executive’s ability to communicate with any governmentagencies regarding matters within their jurisdiction or otherwise participate in any investigation or proceeding that may be conducted by any governmentagency, including providing documents or other information, without notice, to the government agencies. Nothing in this Agreement shall prevent Executivefrom the disclosure of Confidential Information or trade secrets that: (i) is made: (A) in confidence to a federal, state, or local government official, eitherdirectly or indirectly, or to an attorney; and (B) solely for the purpose of reporting or investigating a suspected violation of law; or (ii) is made in a complaintor other document filed in a lawsuit or other proceeding, if such filing is made under seal. In the event that Executive files a lawsuit alleging retaliation byCompany for reporting a suspected violation of law, 7Executive may disclose Confidential Information or trade secrets related to the suspected violation of law or alleged retaliation to Executive’s attorney anduse the Confidential Information or trade secrets in the court proceeding if Executive or Executive’s attorney: (i) files any document containing ConfidentialInformation or trade secrets under seal; and (ii) does not disclose Confidential Information or trade secrets, except pursuant to court order. The Companyprovides this notice in compliance with, among other laws, the Defend Trade Secrets Act of 2016.(e) Executive and the Company agree that the Parent, the Company, and their affiliates would likely suffer significant harm from Executive competingwith any or all of the Parent, the Company or their affiliates for a certain period of time after the Date of Termination. Accordingly, Executive agrees thatExecutive will not, for a period of one (1) year following the Date of Termination, directly or indirectly, become employed by, engage in business with, serveas an agent or consultant to, become a partner, member, principal, stockholder or other owner (other than a holder of less than 1% of the outstanding votingshares of any publicly held company) of, or otherwise perform services for (whether or not for compensation) any Competitive Business (as defined below) inor from any location in the United States (the “Restricted Territory”); provided, however, that if (and only if) required by a court of competent jurisdiction forthe provisions of this section to remain valid and enforceable against Executive, the Restricted Territory means the state of Arizona. For purposes of thisAgreement, “Competitive Business” shall mean any individual, partnership, corporation, limited liability company, unincorporated organization, trust orjoint venture, or government agency or political subdivision thereof that is engaged in, or otherwise competes or has demonstrated a potential for competingwith the Business (as defined below) for customers of the Company or its affiliates anywhere in the world. For purposes of this Agreement, “Business” shallmean the design, marketing and sale of semiconductors in the power, analog, digital signal processing, mixed signal, advanced logic, discrete and customdevices, data management semiconductors, memory and standard semiconductor components and integrated circuits offered by any or all of the Parent, theCompany or their affiliates for use in electronic products, appliances and automobiles, computing, consumer and industrial electronics, wirelesscommunications, networking, military and aerospace and medical end-user markets.(f) Upon the termination of the Employment Period, Executive shall not take, without the prior written consent of the Company, any drawing,blueprint, specification or other document (in whatever form) of the Parent, the Company or their affiliates, which is of a confidential nature relating to theParent, the Company or their affiliates, or, without limitation, relating to any of their methods of distribution, or any description of any formulas or secretprocesses and will return any such information (in whatever form) then in his possession.(g) During the Employment Period and at all times thereafter, Executive agrees that Executive will not make (or cause or encourage others to make)statements that unlawfully defame or disparage the Parent, the Company, their affiliates and their officers, directors, members or executives. Executive herebyagrees to cooperate with the Company in refuting any defamatory or disparaging remarks by any third party made in respect of the Parent, the Company, theiraffiliates or their directors, members, officers or executives. 89. Injunctive Relief.It is impossible to measure in money the damages that will accrue to the Company in the event that Executive breaches any of the restrictive covenantsprovided in Sections 7 and 8 hereof. In the event that Executive breaches any such restrictive covenant, the Company shall be entitled to an injunctionrestraining Executive from violating such restrictive covenant (without posting any bond or other security). If the Company shall institute any action orproceeding to enforce any such restrictive covenant, Executive hereby waives the claim or defense that the Company has an adequate remedy at law andagrees not to assert in any such action or proceeding the claim or defense that the Company has an adequate remedy at law. The foregoing shall not prejudicethe Company’s right to require Executive to account for and pay over to the Company, and Executive hereby agrees to account for and pay over, thecompensation, profits, monies, accruals or other benefits derived or received by Executive as a result of any transaction constituting a breach of any of therestrictive covenants provided in Sections 7 or 8 hereof. If Executive is in breach of any of the provisions of Section 7 or 8 above, then the time periods setforth in Sections 7 or 8 will be extended by the length of time during which Executive is in breach of any of such provisions.10. Representations.(a) The parties hereto hereby represent that they each have the authority to enter into this Agreement, and Executive hereby represents to the Companythat the execution of, and performance of duties under, this Agreement shall not constitute a breach of or otherwise violate any other agreement to whichExecutive is a party.(b) Executive hereby represents to the Company that he will not utilize or disclose any confidential information obtained by Executive in connectionwith his former employment with respect to his duties and responsibilities hereunder.11. Miscellaneous.(a) Any notice or other communication required or permitted under this Agreement shall be effective only if it is in writing and shall be deemed to begiven when delivered personally or four (4) days after it is mailed by registered or certified mail, postage prepaid, return receipt requested or one day after it issent by a reputable overnight courier service and, in each case, addressed as follows (or if it is sent through any other method agreed upon by the parties):If to the Company:Semiconductor Components Industries, LLC5005 East McDowell RoadPhoenix, Arizona 85008Attention: Chief Executive OfficerIf to Executive, to the address for Executive on file with the Company at the time of the notice or to such other address as any party hereto maydesignate by notice to the others. 9(b) This Agreement shall constitute the entire agreement among the parties hereto with respect to Executive’s employment hereunder, and supersedesand is in full substitution for any and all prior understandings or agreements with respect to Executive’s employment, including, without limitation, the PriorAgreement (it being understood that, except as otherwise expressly stated in this Agreement, any equity awards granted to Executive shall be governed bythe relevant equity plan document and related equity grant agreement and any other related documents).(c) This Agreement may be amended only by an instrument in writing signed by the parties hereto, and any provision hereof may be waived only by aninstrument in writing signed by the party or parties against whom or which enforcement of such waiver is sought. The failure of any party hereto at any timeto require the performance by any other party hereto of any provision hereof shall in no way affect the full right to require such performance at any timethereafter, nor shall the waiver by any party hereto of a breach of any provision hereof be taken or held to be a waiver of any succeeding breach of suchprovision or a waiver of the provision itself or a waiver of any other provision of this Agreement.(d) The parties hereto acknowledge and agree that each party has reviewed and negotiated the terms and provisions of this Agreement and has had theopportunity to contribute to its revision. Accordingly, the rule of construction to the effect that ambiguities are resolved against the drafting party shall notbe employed in the interpretation of this Agreement. Rather, the terms of this Agreement shall be construed fairly as to both parties hereto and not in favor oragainst either party.(e) (i) This Agreement is binding on and is for the benefit of the parties hereto and their respective successors, assigns, heirs, executors, administratorsand other legal representatives. Neither this Agreement nor any right or obligation hereunder may be assigned by Executive.(i) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantiallyall of the business and/or assets of the Company to assume this Agreement in the same manner and to the same extent that the Company would have beenrequired to perform it if no such succession had taken place. As used in the Agreement, the “Company” shall mean both the Company as defined above andany such successor that assumes this Agreement, by operation of law or otherwise.(f) Any provision of this Agreement (or portion thereof) which is deemed invalid, illegal or unenforceable in any jurisdiction shall, as to thatjurisdiction and subject to this Section, be ineffective to the extent of such invalidity, illegality or unenforceability, without affecting in any way theremaining provisions thereof in such jurisdiction or rendering that or any other provisions of this Agreement invalid, illegal, or unenforceable in any otherjurisdiction. If any covenant should be deemed invalid, illegal or unenforceable because its scope is considered excessive, such covenant shall be modifiedso that the scope of the covenant is reduced only to the minimum extent necessary to render the modified covenant valid, legal and enforceable. No waiver ofany provision or violation of this Agreement by Company shall be implied by Company’s forbearance or failure to take action.(g) The Company may withhold from any amounts payable to Executive hereunder all federal, state, city or other taxes that the Company mayreasonably determine are required to be withheld pursuant to any applicable law or regulation, (it being understood, that Executive shall be responsible forpayment of all taxes in respect of the payments and benefits provided herein). 10(h) The payments and other consideration to Executive under this Agreement shall be made without right of offset.(i) This Agreement shall be governed by and construed in accordance with the laws of the State of Arizona without reference to its principles ofconflicts of law.(j) This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which shall constitute one and thesame instrument.(k) The headings in this Agreement are inserted for convenience of reference only and shall not be a part of or control or affect the meaning of anyprovision hereof.(l) (i) Notwithstanding anything set forth herein to the contrary, no amount payable pursuant to this Agreement on account of Executive’s terminationof employment which constitutes a “deferral of compensation” within the meaning of the Treasury Regulations issued pursuant to Section 409A of the Code(“Section 409A Regulations”) shall be paid unless and until Executive has incurred a “separation from service” within the meaning of the Section 409ARegulations. Furthermore, to the extent that Executive is a “specified employee” within the meaning of the Section 409A Regulations as of the date ofExecutive’s separation from service, no amount that constitutes a deferral of compensation that is payable on account of Executive’s separation from serviceshall be paid to Executive before the Delayed Payment Date. All such amounts that would, but for this subsection, become payable prior to the DelayedPayment Date will be accumulated and paid on the Delayed Payment Date.(ii) The Company intends that income provided to Executive pursuant to this Agreement will not be subject to taxation under Section 409A ofthe Code. The provisions of this Agreement shall be interpreted and construed in favor of satisfying any applicable requirements of Section 409A of the Codeand the Section 409A Regulations or an exception thereto. However, the Company does not guarantee any particular tax effect for income provided toExecutive pursuant to this Agreement. In any event, except for the Company’s responsibility to withhold applicable income and employment taxes fromcompensation paid or provided to Executive, the Company shall not be responsible for the payment of any applicable taxes on compensation paid orprovided to Executive pursuant to this Agreement. Notwithstanding the foregoing, in the event this Agreement or any benefit paid to Executive hereunder isdeemed to be subject to Section 409A of the Code, Executive consents to the Company adopting such conforming amendments as the Company deemsnecessary, in its sole discretion, to comply with Section 409A, without reducing the amounts of any benefits due to Executive hereunder.(m) By signing this Agreement, Executive agrees to be bound by, and comply with the terms of the compensation recovery policy or policies (andrelated practices) of the Company or its affiliates as such may be in effect from time-to-time. 1112. Section 280G of the Code.(a) Sections 280G and 4999 of the Code may place significant tax burdens on both Executive and the Company if the total payments made toExecutive due to certain change in control events described in Section 280G of the Code (the “Total Change in Control Payments”) equal or exceedExecutive’s 280G Cap. For this purpose, Executive’s “280G Cap” is equal to Executive’s average annual compensation in the five (5) calendar yearspreceding the calendar year in which the change in control event occurs (the “Base Period Income Amount”) times three (3). If the Total Change in ControlPayments equal or exceed the 280G Cap, Section 4999 of the Code imposes a 20% excise tax (the “Excise Tax”) on all amounts in excess of one (1) timesExecutive’s Base Period Income Amount. In determining whether the Total Change in Control Payments will equal or exceed the 280G Cap and result in theimposition of an Excise Tax, the provisions of Sections 280G and 4999 of the Code and the applicable Treasury Regulations will control over the generalprovisions of this Section 12. All determinations and calculations required to implement the rules set forth in this Section 12 shall take into account allapplicable federal, state, and local income taxes and employment taxes (and for purposes of such calculations, Executive shall be deemed to pay incometaxes at the highest combined federal, state and local marginal tax rates for the calendar year in which the Total Change in Control Payments are to be made,less the maximum federal income tax deduction that could be obtained as a result of a deduction for state and local taxes (the “Assumed Taxes”)).(b) Subject to the “best net” exception described in Section 12(c), in order to avoid the imposition of the Excise Tax, the total payments to whichExecutive is entitled under this Agreement or otherwise will be reduced to the extent necessary to avoid equaling or exceeding the 280G Cap, with suchreduction first applied to the cash severance payments that Executive would otherwise be entitled to receive pursuant to this Agreement and thereafterapplied in a manner that will not subject Executive to tax and penalties under Section 409A of the Code.(c) If Executive’s Total Change in Control Payments minus the Excise Tax and the Assumed Taxes (payable with respect to the amount of the TotalChange in Control Payments) exceeds the 280G Cap minus the Assumed Taxes (payable with respect to the amount of the 280G Cap), then the totalpayments to which Executive is entitled under this Agreement or otherwise will not be reduced pursuant to Section 12(b). If this “best net” exception applies,Executive shall be fully responsible for paying any Excise Tax (and income or other taxes) that may be imposed on Executive pursuant to Section 4999 ofthe Code or otherwise.(d) The Company will engage a law firm, a certified public accounting firm, and/or a firm of reputable executive compensation consultants (the“Consultant”) to make any necessary determinations and to perform any necessary calculations required in order to implement the rules set forth in thisSection 12. The Consultant shall provide detailed supporting calculations to both the Company and Executive and all fees and expenses of the Consultantshall be borne by the Company. If the provisions of Section 280G and 4999 of the Code are repealed without succession, this Section 12 shall be of no furtherforce or effect. In addition, if this provision does not apply to Executive for whatever reason, this Section shall be of no further force or effect. 12IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. Semiconductor Components Industries, LLC/s/ KEITH D. JACKSONName: Keith JacksonTitle: Chief Executive Officer and President/s/ GEORGE H. CAVEName: George H. Cave 13Exhibit 10.15(b)AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENTWHEREAS, Semiconductor Components Industries, LLC (the “Company”) and Bob Klosterboer (the “Executive”) entered into an EmploymentAgreement dated as of March 14, 2008 (the “Agreement”);WHEREAS, all defined terms used herein shall have the meanings set forth in the Agreement unless specifically defined herein; andWHEREAS, the Executive and the Company desire to amend the Agreement as set forth in this Amendment No. 1 to the Agreement (the“Amendment”).NOW, THEREFORE, for mutual consideration the receipt of which is hereby acknowledged, the Agreement is hereby amended as follows:1. The second to last sentence of Section 5(a) of the Agreement is hereby amended and restated in its entirety to read as follows:Notwithstanding the foregoing, to receive the termination related payments and benefits described in this Section 5, within the time periodsdescribed below, the Executive must execute (and not revoke) a general release and waiver (in a form reasonably acceptable to the Company) waivingall claims the Executive may have against the Company, its affiliates (including, without limitation, Parent (as defined below)), successors, assigns,executives, officers and directors, and others. The release shall be provided to the Executive on or before the date that is five (5) days following theDate of Termination and the Executive shall have twenty-one (21) days following the date on which the release is given to the Executive to sign andreturn the release to the Company. The release must be executed and returned to the Company within the time period described in the release and itmust not be revoked by the Executive during the seven (7) day revocation period that will be described in the release. Notwithstanding anything inthis Agreement to the contrary, if the Company concludes that the severance payments described in Section 5(a) constitute a “deferral ofcompensation” within the meaning of the Section 409A Regulations, and if the consideration period that will be described in the release, plus theseven (7) day revocation period that will be described in the release, spans two (2) calendar years, the severance payments shall not begin until thesecond calendar year.2. Section 5(c) of the Agreement is hereby amended and restated in its entirety to read as follows:(c) Change in Control. If within twenty-four (24) months following a Change in Control (as defined herein), (i) the Company terminates theExecutive’s employment without Cause; or (ii) the Executive terminates employment with the Company for Good Reason, then, in addition to all ofthe benefits provided to the Executive under Section 5(a) of this Agreement, notwithstanding any provision in any applicable award agreementbetween the Company and the Executive: (i) any outstanding but unvested portion of the Option described in Section 2(d) or any Assumed AMISOptions (as defined herein) shall vest upon the Date of Termination; (ii) the Option and any Assumed AMIS Options will remain fully exercisable untilthe first to occur of (1) the one-year anniversary of the Date of Termination, and (2) the tenth anniversary of the grant date of such option; and (iii) thePBRSU Award described in Section 2(d) and any Assumed AMIS RSUs (as defined herein) shall vest and become payable upon the Date ofTermination to the extent not previously vested and paid. For purposes of this Agreement, (x) a “Change in Control” shall have the meaning set forthin the ON Semiconductor Corporation Amended and Restated Stock Incentive Plan, as it may be amended from time-to-time; (y) the “Assumed AMISOptions” shall mean the stock options granted to the Executive by AMIS and assumed by Parent pursuant to the AMIS Transaction; and (z) the“Assumed AMIS RSUs” shall mean the restricted stock unit awards granted to the Executive by AMIS and assumed by Parent pursuant to the AMISTransaction. In addition, the Executive shall be entitled to an amount equal to the total target Bonus (as defined above) under the Bonus Program ineffect as of the Date of Termination; provided that if Bonuses are paid semi-annually as of the Date of Termination the Executive shall be entitled to anamount equal to two (2) times the total target Bonus for the Performance Cycle in which the Date of Termination occurs, with such amount paid as soonas is reasonably practicable after the close of the accounting books and records of the Company for the relevant Performance Cycle at the same timebonuses are paid to other active employees, but in no event will payment be made for any Performance Cycle ending on December 31 before January 1or after March 15 of the year following the year in which the Performance Cycle ends. If payment by such date is administratively impracticable,payment may be made at a later date as permitted under Treasury Regulation Section 1.409A-1(b)(4)(ii).3. Section 7 of the Agreement is hereby amended and restated in its entirety to read as follows:7. Non-Solicitation. The Executive recognizes that the Company’s employees are a valuable asset to the Company and represent a substantialinvestment of Company time and resources. Accordingly, during the Employment Period and for one (1) year thereafter, the Executive hereby agreesnot to, directly or indirectly, solicit or assist any other person or entity in soliciting any employee of ON Semiconductor Corporation (the “Parent”), theCompany or any of their subsidiaries to perform services for any entity (other than the Parent, the Company or their subsidiaries), or attempt to induceany such employee to leave the employment of the Parent, the Company or their subsidiaries. 24. Section 8 of the Agreement is hereby amended and restated in its entirety to read as follows:(a) During the Employment Period and thereafter, the Executive shall hold in strict confidence any proprietary or Confidential Informationrelated to the Parent, the Company and their affiliates. For purposes of this Agreement, “Confidential Information” shall mean all information of theParent, the Company or any of their affiliates (in whatever form) which is not generally known to the public, including without limitation anyinventions, processes, methods of distribution, customer lists or customers’ or trade secrets. “Confidential Information” does not include informationthat (i) is or becomes part of the public domain through no fault of the Executive; (ii) is already known to the Executive and has been identified by theExecutive to the Company in writing prior to the commencement of the Executive’s employment with Company; or (iii) is subsequently lawfullyreceived by the Executive from a third party not subject to confidentiality restrictions.(b) During the Executive’s employment with Company, and at all times thereafter, the Executive will (i) keep confidential and not divulge,furnish or make accessible to any person any Confidential Information; and (ii) use the Confidential Information solely for the purpose of performingthe Executive’s duties of employment and not for the Executive’s own benefit or the benefit of any other Person. Promptly after the Date ofTermination, or at any time upon request by Company, the Executive shall return to Company any Confidential Information (in hard copy andelectronic formats) in the Executive’s possession.(c) With the limited exceptions noted below, the Executive shall be permitted to disclose Confidential Information to the extent, but only to theextent, (i) Company provides its express prior written consent to such disclosure; (ii) it is necessary to perform the duties of the Executive’semployment; or (iii) as required by law; provided, that prior to making any disclosure of Confidential Information required by law (whether pursuant toa subpoena, government investigative demand, or other similar process), the Executive must notify Company of the Executive’s intent to make suchdisclosure, so that Company may seek a protective order or other appropriate remedy and may participate with the Executive in determining theamount and type of Confidential Information, if any, which must be disclosed to comply with applicable law.(d) There are limited exceptions to the above confidentiality requirement if the Executive is providing information to government agencies,including but not limited to the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Safety andHealth Administration (or its state equivalent), and the Securities and Exchange Commission. This Agreement does not limit the Executive’s ability to 3communicate with any government agencies regarding matters within their jurisdiction or otherwise participate in any investigation or proceeding thatmay be conducted by any government agency, including providing documents or other information, without notice, to the government agencies.Nothing in this Agreement shall prevent the Executive from the disclosure of Confidential Information or trade secrets that: (i) is made: (A) inconfidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (B) solely for the purpose of reporting orinvestigating a suspected violation of law; or (ii) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is madeunder seal. In the event that the Executive files a lawsuit alleging retaliation by Company for reporting a suspected violation of law, the Executive maydisclose Confidential Information or trade secrets related to the suspected violation of law or alleged retaliation to the Executive’s attorney and use theConfidential Information or trade secrets in the court proceeding if the Executive or the Executive’s attorney: (i) files any document containingConfidential Information or trade secrets under seal; and (ii) does not disclose Confidential Information or trade secrets, except pursuant to court order.The Company provides this notice in compliance with, among other laws, the Defend Trade Secrets Act of 2016.(e) The Executive and the Company agree that the Parent, the Company, and their affiliates would likely suffer significant harm from theExecutive competing with any or all of the Parent, the Company or their affiliates for a certain period of time after the Date of Termination.Accordingly, the Executive agrees that the Executive will not, for a period of one (1) year following the Date of Termination, directly or indirectly,become employed by, engage in business with, serve as an agent or consultant to, become a partner, member, principal, stockholder or other owner(other than a holder of less than 1% of the outstanding voting shares of any publicly held company) of, or otherwise perform services for (whether ornot for compensation) any Competitive Business (as defined below) in or from any location in the United States (the “Restricted Territory”); provided,however, that if (and only if) required by a court of competent jurisdiction for the provisions of this section to remain valid and enforceable against theExecutive, the Restricted Territory means the state of Arizona. For purposes of this Agreement, “Competitive Business” shall mean any individual,partnership, corporation, limited liability company, unincorporated organization, trust or joint venture, or government agency or political subdivisionthereof that is engaged in, or otherwise competes or has demonstrated a potential for competing with the Business (as defined below) for customers ofthe Company or its affiliates anywhere in the world. For purposes of this Agreement, “Business” shall mean the design, marketing and sale ofsemiconductors in the power, analog, digital signal processing, mixed signal, advanced logic, discrete and custom devices, data managementsemiconductors, memory and standard semiconductor components and integrated circuits offered by any or all of the Parent, the Company or theiraffiliates for use in electronic products, appliances and automobiles, computing, consumer and industrial electronics, wireless communications,networking, military and aerospace and medical end-user markets. 4(f) Upon the termination of the Employment Period, the Executive shall not take, without the prior written consent of the Company, any drawing,blueprint, specification or other document (in whatever form) of the Parent, the Company or their affiliates, which is of a confidential nature relating tothe Parent, the Company or their affiliates, or, without limitation, relating to any of their methods of distribution, or any description of any formulas orsecret processes and will return any such information (in whatever form) then in the Executive’s possession.(g) During the Employment Period and at all times thereafter, the Executive agrees that the Executive will not make (or cause or encourageothers to make) statements that unlawfully defame or disparage the Parent, the Company, their affiliates and their officers, directors, members orexecutives. The Executive hereby agrees to cooperate with the Company in refuting any defamatory or disparaging remarks by any third party made inrespect of the Parent, the Company, their affiliates or their directors, members, officers or executives.5. Section 9 of the Agreement is hereby amended by adding the following new sentence to the end thereof to read as follows:If the Executive is in breach of any of the provisions of Section 7 or 8 above, then the time periods set forth in Sections 7 or 8 will be extendedby the length of time during which the Executive is in breach of any of such provisions.6. Section 11 of the Agreement is hereby amended by adding the following new subsection (m) to the end thereof to read as follows:(m) By signing this Agreement, the Executive agrees to be bound by, and comply with the terms of the compensation recovery policy or policies(and related practices) of the Company or its affiliates as such may be in effect from time-to-time.7. The Agreement is hereby amended by adding the following new Section 12 to the end thereof to read as follows:12. Section 280G of the Internal Revenue Code.(a) Sections 280G and 4999 of the Internal Revenue Code may place significant tax burdens on both the Executive and the Company if the total 5payments made to the Executive due to certain change in control events described in Section 280G of the Internal Revenue Code (the “Total Changein Control Payments”) equal or exceed the Executive’s 280G Cap. For this purpose, the Executive’s “280G Cap” is equal to the Executive’s averageannual compensation in the five (5) calendar years preceding the calendar year in which the change in control event occurs (the “Base Period IncomeAmount”) times three (3). If the Total Change in Control Payments equal or exceed the 280G Cap, Section 4999 of the Internal Revenue Code imposesa 20% excise tax (the “Excise Tax”) on all amounts in excess of one (1) times the Executive’s Base Period Income Amount. In determining whether theTotal Change in Control Payments will equal or exceed the 280G Cap and result in the imposition of an Excise Tax, the provisions of Sections 280Gand 4999 of the Internal Revenue Code and the applicable Treasury Regulations will control over the general provisions of this Section 12. Alldeterminations and calculations required to implement the rules set forth in this Section 12 shall take into account all applicable federal, state, andlocal income taxes and employment taxes (and for purposes of such calculations, the Executive shall be deemed to pay income taxes at the highestcombined federal, state and local marginal tax rates for the calendar year in which the Total Change in Control Payments are to be made, less themaximum federal income tax deduction that could be obtained as a result of a deduction for state and local taxes (the “Assumed Taxes”)).(b) Subject to the “best net” exception described in Section 12(c), in order to avoid the imposition of the Excise Tax, the total payments to whichthe Executive is entitled under this Agreement or otherwise will be reduced to the extent necessary to avoid equaling or exceeding the 280G Cap, withsuch reduction first applied to the cash severance payments that the Executive would otherwise be entitled to receive pursuant to this Agreement andthereafter applied in a manner that will not subject the Executive to tax and penalties under Section 409A of the Internal Revenue Code.(c) If the Executive’s Total Change in Control Payments minus the Excise Tax and the Assumed Taxes (payable with respect to the amount of theTotal Change in Control Payments) exceeds the 280G Cap minus the Assumed Taxes (payable with respect to the amount of the 280G Cap), then thetotal payments to which the Executive is entitled under this Agreement or otherwise will not be reduced pursuant to Section 12(b). If this “best net”exception applies, the Executive shall be fully responsible for paying any Excise Tax (and income or other taxes) that may be imposed on theExecutive pursuant to Section 4999 of the Internal Revenue Code or otherwise.(d) The Company will engage a law firm, a certified public accounting firm, and/or a firm of reputable executive compensation consultants (the“Consultant”) to make any necessary determinations and to perform any necessary calculations required in order to implement the rules set forth in thisSection 12. The Consultant shall provide detailed supporting calculations to both 6the Company and the Executive and all fees and expenses of the Consultant shall be borne by the Company. If the provisions of Section 280G and4999 of the Internal Revenue Code are repealed without succession, this Section 12 shall be of no further force or effect. In addition, if this provisiondoes not apply to the Executive for whatever reason, this Section shall be of no further force or effect.8. The provisions of this Amendment shall be effective as of the date written below.9. This Amendment shall amend only the provisions of the Agreement as set forth herein. Those provisions of the Agreement not expressly amendedshall be considered in full force and effect.IN WITNESS WHEREOF, the Company and the Executive have caused this Amendment to be executed as of June 1, 2017. Semiconductor Components Industries, LLC/s/ KEITH D. JACKSONName: Keith JacksonTitle: Chief Executive Officer and President/s/ BOB KLOSTERBOERName: Bob Klosterboer 7Exhibit 10.21(b)AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENTWHEREAS, Semiconductor Components Industries, LLC (the “Company”) and Paul Rolls (the “Executive”) entered into an Employment Agreementdated as of July 14, 2013 (the “Agreement”);WHEREAS, all defined terms used herein shall have the meanings set forth in the Agreement unless specifically defined herein; andWHEREAS, the Executive and the Company desire to amend the Agreement as set forth in this Amendment No. 1 to the Agreement (the“Amendment”).NOW, THEREFORE, for mutual consideration the receipt of which is hereby acknowledged, the Agreement is hereby amended as follows:1. The second to last sentence of Section 5(a) of the Agreement is hereby amended and restated in its entirety to read as follows:Notwithstanding the foregoing, to receive the termination related payments and benefits described in this Section 5, within the time periodsdescribed below, the Executive must execute (and not revoke) a general release and waiver (in a form reasonably acceptable to the Company) waivingall claims the Executive may have against the Company, its affiliates (including, without limitation, Parent (as defined below)), successors, assigns,executives, officers and directors, and others. The release shall be provided to the Executive on or before the date that is five (5) days following theDate of Termination and the Executive shall have twenty-one (21) days following the date on which the release is given to the Executive to sign andreturn the release to the Company. The release must be executed and returned to the Company within the time period described in the release and itmust not be revoked by the Executive during the seven (7) day revocation period that will be described in the release. Notwithstanding anything inthis Agreement to the contrary, if the Company concludes that the severance payments described in Section 5(a) constitute a “deferral ofcompensation” within the meaning of the Section 409A Regulations, and if the consideration period that will be described in the release, plus theseven (7) day revocation period that will be described in the release, spans two (2) calendar years, the severance payments shall not begin until thesecond calendar year.2. Section 5(c) of the Agreement is hereby amended and restated in its entirety to read as follows:(c) Change in Control. If within twenty-four (24) months following a Change in Control (as defined herein), (i) the Company terminates theExecutive’s employment without Cause; or (ii) the Executive terminates employment with the Company for Good Reason, then, in addition to all ofthe benefits provided to the Executive under Section 5(a) of this Agreement, notwithstanding any provision in any applicable option grant agreementor restricted stock unit award agreement where the award vests based solely on the passage of time between the Company (or Parent (as defined below))and the Executive: (i) any outstanding but unvested options and any restricted stock units where the award vests based solely on the passage of timegranted on or prior to the Effective Date and any unvested options and/or restricted stock units granted in connection with the Executive’s Promotionshall fully vest upon the Date of Termination; and (ii) all options (both vested and unvested) granted on or prior to the Effective Date or in connectionwith the Executive’s Promotion will remain fully exercisable until the first to occur of (1) the one-year anniversary of the Date of Termination, and(2) either the tenth anniversary or the seventh anniversary of the grant date of such options, depending upon what the relevant option grant agreementspecify with regard to an option’s term or expiration date; provided, however, that if the Company determines in good faith that the extension of theoption’s exercise period results in the options being considered non-qualified deferred compensation subject to Section 409A of the Internal RevenueCode of 1986, as amended (the “Code”), such extension shall not take effect. In addition, the Executive shall be entitled to an amount equal to thetotal target Bonus (as defined above) under the Bonus Program in effect as of the Date of Termination; provided that if Bonuses are paid semi-annuallyas of the Date of Termination the Executive shall be entitled to an amount equal to two (2) times the total target Bonus for the Performance Cycle inwhich the Date of Termination occurs, with such amount paid as soon as is reasonably practicable after the close of the accounting books and recordsof the Company for the relevant Performance Cycle at the same time bonuses are paid to other active employees, but in no event will payment be madefor any Performance Cycle ending on December 31 before January 1 or after March 15 of the year following the year in which the Performance Cycleends. If payment by such date is administratively impracticable, payment may be made at a later date as permitted under Treasury RegulationSection 1.409A-1(b)(4)(ii). For purposes of this Agreement, a “Change in Control” shall have the meaning set forth in the ON SemiconductorCorporation Amended and Restated Stock Incentive Plan, as it may be amended from time-to-time. For the avoidance of doubt, the equity awardvesting provisions described in this Section 5(c) do not apply to performance-based restricted stock or performance-based restricted stock unit awardsand such awards shall continue to be governed by the Amended and Restated Stock Incentive Plan, as it may be amended from time to time and anyother related equity grant or award agreement document. 23. Section 7 of the Agreement is hereby amended and restated in its entirety to read as follows:7. Non-Solicitation. The Executive recognizes that the Company’s employees are a valuable asset to the Company and represent a substantialinvestment of Company time and resources. Accordingly, during the Employment Period and for one (1) year thereafter, the Executive hereby agreesnot to, directly or indirectly, solicit or assist any other person or entity in soliciting any employee of ON Semiconductor Corporation (the “Parent”), theCompany or any of their subsidiaries to perform services for any entity (other than the Parent, the Company or their subsidiaries), or attempt to induceany such employee to leave the employment of the Parent, the Company or their subsidiaries.4. Section 8 of the Agreement is hereby amended and restated in its entirety to read as follows:(a) During the Employment Period and thereafter, the Executive shall hold in strict confidence any proprietary or Confidential Informationrelated to the Parent, the Company and their affiliates. For purposes of this Agreement, “Confidential Information” shall mean all information of theParent, the Company or any of their affiliates (in whatever form) which is not generally known to the public, including without limitation anyinventions, processes, methods of distribution, customer lists or customers’ or trade secrets. “Confidential Information” does not include informationthat (i) is or becomes part of the public domain through no fault of the Executive; (ii) is already known to the Executive and has been identified by theExecutive to the Company in writing prior to the commencement of the Executive’s employment with Company; or (iii) is subsequently lawfullyreceived by the Executive from a third party not subject to confidentiality restrictions.(b) During the Executive’s employment with Company, and at all times thereafter, the Executive will (i) keep confidential and not divulge,furnish or make accessible to any person any Confidential Information; and (ii) use the Confidential Information solely for the purpose of performingthe Executive’s duties of employment and not for the Executive’s own benefit or the benefit of any other Person. Promptly after the Date ofTermination, or at any time upon request by Company, the Executive shall return to Company any Confidential Information (in hard copy andelectronic formats) in the Executive’s possession.(c) With the limited exceptions noted below, the Executive shall be permitted to disclose Confidential Information to the extent, but only to theextent, (i) Company provides its express prior written consent to such disclosure; (ii) it is necessary to perform the duties of the Executive’semployment; or (iii) as required by law; provided, that prior to making any disclosure of Confidential Information required by law (whether pursuant toa subpoena, government investigative demand, or other similar process), the Executive must notify Company of the Executive’s intent to make suchdisclosure, so that Company may seek a protective order or other appropriate remedy and may participate with the Executive in determining theamount and type of Confidential Information, if any, which must be disclosed to comply with applicable law. 3(d) There are limited exceptions to the above confidentiality requirement if the Executive is providing information to government agencies,including but not limited to the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Safety andHealth Administration (or its state equivalent), and the Securities and Exchange Commission. This Agreement does not limit the Executive’s ability tocommunicate with any government agencies regarding matters within their jurisdiction or otherwise participate in any investigation or proceeding thatmay be conducted by any government agency, including providing documents or other information, without notice, to the government agencies.Nothing in this Agreement shall prevent the Executive from the disclosure of Confidential Information or trade secrets that: (i) is made: (A) inconfidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (B) solely for the purpose of reporting orinvestigating a suspected violation of law; or (ii) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is madeunder seal. In the event that the Executive files a lawsuit alleging retaliation by Company for reporting a suspected violation of law, the Executive maydisclose Confidential Information or trade secrets related to the suspected violation of law or alleged retaliation to the Executive’s attorney and use theConfidential Information or trade secrets in the court proceeding if the Executive or the Executive’s attorney: (i) files any document containingConfidential Information or trade secrets under seal; and (ii) does not disclose Confidential Information or trade secrets, except pursuant to court order.The Company provides this notice in compliance with, among other laws, the Defend Trade Secrets Act of 2016.(e) The Executive and the Company agree that the Parent, the Company, and their affiliates would likely suffer significant harm from theExecutive competing with any or all of the Parent, the Company or their affiliates for a certain period of time after the Date of Termination.Accordingly, the Executive agrees that the Executive will not, for a period of one (1) year following the Date of Termination, directly or indirectly,become employed by, engage in business with, serve as an agent or consultant to, become a partner, member, principal, stockholder or other owner(other than a holder of less than 1% of the outstanding voting shares of any publicly held company) of, or otherwise perform services for (whether ornot for compensation) any Competitive Business (as defined below) in or from any location in the United States (the “Restricted Territory”); provided,however, that if (and only if) required by a court of competent jurisdiction for the provisions of this section to remain valid and enforceable against theExecutive, the Restricted Territory means the state of Arizona. For purposes of this Agreement, “Competitive Business” shall mean any individual,partnership, corporation, limited liability company, unincorporated organization, trust or joint venture, or government 4agency or political subdivision thereof that is engaged in, or otherwise competes or has demonstrated a potential for competing with the Business (asdefined below) for customers of the Company or its affiliates anywhere in the world. For purposes of this Agreement, “Business” shall mean the design,marketing and sale of semiconductors in the power, analog, digital signal processing, mixed signal, advanced logic, discrete and custom devices, datamanagement semiconductors, memory and standard semiconductor components and integrated circuits offered by any or all of the Parent, theCompany or their affiliates for use in electronic products, appliances and automobiles, computing, consumer and industrial electronics, wirelesscommunications, networking, military and aerospace and medical end-user markets.(f) Upon the termination of the Employment Period, the Executive shall not take, without the prior written consent of the Company, any drawing,blueprint, specification or other document (in whatever form) of the Parent, the Company or their affiliates, which is of a confidential nature relating tothe Parent, the Company or their affiliates, or, without limitation, relating to any of their methods of distribution, or any description of any formulas orsecret processes and will return any such information (in whatever form) then in the Executive’s possession.(g) During the Employment Period and at all times thereafter, the Executive agrees that the Executive will not make (or cause or encourageothers to make) statements that unlawfully defame or disparage the Parent, the Company, their affiliates and their officers, directors, members orexecutives. The Executive hereby agrees to cooperate with the Company in refuting any defamatory or disparaging remarks by any third party made inrespect of the Parent, the Company, their affiliates or their directors, members, officers or executives.5. Section 9 of the Agreement is hereby amended by adding the following new sentence to the end thereof to read as follows:If the Executive is in breach of any of the provisions of Section 7 or 8 above, then the time periods set forth in Sections 7 or 8 will be extendedby the length of time during which the Executive is in breach of any of such provisions.6. Section 11(j) of the Agreement is hereby amended and restated in its entirety to read as follows:(j) By signing this Agreement, the Executive agrees to be bound by, and comply with the terms of the compensation recovery policy or policies(and related practices) of the Company or its affiliates as such may be in effect from time-to-time. 57. The Agreement is hereby amended by adding the following new Section 12 to the end thereof to read as follows:12. Section 280G of the Internal Revenue Code.(a) Sections 280G and 4999 of the Internal Revenue Code may place significant tax burdens on both the Executive and the Company if the totalpayments made to the Executive due to certain change in control events described in Section 280G of the Internal Revenue Code (the “Total Changein Control Payments”) equal or exceed the Executive’s 280G Cap. For this purpose, the Executive’s “280G Cap” is equal to the Executive’s averageannual compensation in the five (5) calendar years preceding the calendar year in which the change in control event occurs (the “Base Period IncomeAmount”) times three (3). If the Total Change in Control Payments equal or exceed the 280G Cap, Section 4999 of the Internal Revenue Code imposesa 20% excise tax (the “Excise Tax”) on all amounts in excess of one (1) times the Executive’s Base Period Income Amount. In determining whether theTotal Change in Control Payments will equal or exceed the 280G Cap and result in the imposition of an Excise Tax, the provisions of Sections 280Gand 4999 of the Internal Revenue Code and the applicable Treasury Regulations will control over the general provisions of this Section 12. Alldeterminations and calculations required to implement the rules set forth in this Section 12 shall take into account all applicable federal, state, andlocal income taxes and employment taxes (and for purposes of such calculations, the Executive shall be deemed to pay income taxes at the highestcombined federal, state and local marginal tax rates for the calendar year in which the Total Change in Control Payments are to be made, less themaximum federal income tax deduction that could be obtained as a result of a deduction for state and local taxes (the “Assumed Taxes”)).(b) Subject to the “best net” exception described in Section 12(c), in order to avoid the imposition of the Excise Tax, the total payments to whichthe Executive is entitled under this Agreement or otherwise will be reduced to the extent necessary to avoid equaling or exceeding the 280G Cap, withsuch reduction first applied to the cash severance payments that the Executive would otherwise be entitled to receive pursuant to this Agreement andthereafter applied in a manner that will not subject the Executive to tax and penalties under Section 409A of the Internal Revenue Code.(c) If the Executive’s Total Change in Control Payments minus the Excise Tax and the Assumed Taxes (payable with respect to the amount of theTotal Change in Control Payments) exceeds the 280G Cap minus the Assumed Taxes (payable with respect to the amount of the 280G Cap), then thetotal payments to which the Executive is entitled under this Agreement or otherwise will not be reduced pursuant to Section 12(b). If this “best net”exception applies, the Executive shall be fully responsible for paying any Excise Tax (and income or other taxes) that may be imposed on theExecutive pursuant to Section 4999 of the Internal Revenue Code or otherwise. 6(d) The Company will engage a law firm, a certified public accounting firm, and/or a firm of reputable executive compensation consultants (the“Consultant”) to make any necessary determinations and to perform any necessary calculations required in order to implement the rules set forth in thisSection 12. The Consultant shall provide detailed supporting calculations to both the Company and the Executive and all fees and expenses of theConsultant shall be borne by the Company. If the provisions of Section 280G and 4999 of the Internal Revenue Code are repealed without succession,this Section 12 shall be of no further force or effect. In addition, if this provision does not apply to the Executive for whatever reason, this Section shallbe of no further force or effect.8. The provisions of this Amendment shall be effective as of the date written below.9. This Amendment shall amend only the provisions of the Agreement as set forth herein. Those provisions of the Agreement not expressly amendedshall be considered in full force and effect.IN WITNESS WHEREOF, the Company and the Executive have caused this Amendment to be executed as of June 1, 2017. Semiconductor Components Industries, LLC/s/ KEITH D. JACKSONName: Keith JacksonTitle: Chief Executive Officer and President/s/ PAUL ROLLSName: Paul Rolls 7Exhibit 10.22KEY OFFICERSEVERANCE AND CHANGE OF CONTROL AGREEMENTThis Key Officer Severance and Change of Control Agreement, dated as of June 1, 2017 (the “Agreement”), is made and entered into betweenSemiconductor Components Industries, LLC (the “Company”), with offices at 5005 East McDowell Road, Phoenix, Arizona 85008, and Taner Ozcelik (the“Executive”).RECITALSA. The Executive has been and continues to be employed by the Company in a key officer position at the Company. As such, the Executive has earned acommensurate level of base salary, Bonus (as defined below), equity based awards, and other compensation and benefits including certain perquisites.B. The Board of Directors (the “Board”) of the Parent (as defined below) and its Compensation Committee (the “Committee”) have determined that it is in thebest interests of the Company and its stockholders to ensure that the Company continue to have the full support, dedication and objectivity of certain keyofficers of the Company (including, without limitation, the key officer position that the Executive now holds (“Key Officer” or “Key Officers”)) under variouspossible circumstances and situations (as summarized below in these Recitals) that the Company and the Key Officers and/or the Executive may findthemselves.C. The Board and Committee believe it is important to diminish the inevitable distractions that each of the Key Officers may experience by virtue of thepersonal risks and uncertainties associated with their key officer roles and responsibilities at the Company. The Board and Committee have thereforedetermined to provide Key Officers with assurances regarding certain severance payments and benefits to be received by the Key Officers in the event of aloss of their employment so that these persons can provide their full attention and dedication to the business and affairs of the Company notwithstanding anyattendant personal risks and uncertainties to the Key Officers including the Executive.D. The Board and Committee also recognize that the possibility, threat or occurrence of a Change in Control (as defined below) transaction involving theCompany can be a distraction to the Key Officers and can cause the Key Officers to consider alternative employment opportunities. The Board andCommittee have therefore determined to provide the Key Officers with: (i) incentive to continue their employment and to motivate each Key Officer tomaximize the value of the Company upon a Change in Control; and (ii) certain severance payments and benefits upon each Key Officer’s termination ofemployment following a Change in Control.E. In connection with this Agreement, the Board and Committee have previously stated the belief that it is important to secure each Key Officer’scommitment to comply with certain restrictive covenants contained herein (e.g., non-solicitation, non-compete, confidentiality, etc.). These governing bodiesalso require herein that the Executive’s rights to any severance payments and benefits be subject to and conditioned upon the execution by the Executive ofa general release and waiver (in the form reasonably acceptable to the Company), waiving all claims the Executive may have against the Company, itsaffiliates and others. For the remainder of this Agreement, reference to the “Board” may refer to both the Board and the Committee or either of these twobodies.AGREEMENTNOW, THEREFORE, it is hereby agreed as follows:1. Employment Period.The employment of the Executive shall be subject to the terms and conditions of this Agreement commencing as of the date of the execution ofthis Agreement (the “Effective Date”). The Executive shall be considered an “at-will” employee, which means that the Executive’s employment may beterminated by the Company or by the Executive at any time for any reason or no reason at all. The period during which the Executive is employed by theCompany pursuant to this Agreement shall be referred to as the “Employment Period.” The Executive’s employment hereunder may be terminated during theEmployment Period upon the earliest to occur of the following events (at which time the Employment Period shall be terminated):(a) Death. The Executive’s employment hereunder shall terminate upon the Executive’s death.(b) Disability. The Company shall be entitled to terminate the Executive’s employment hereunder for “Disability” if, as a result of theExecutive’s incapacity due to physical or mental illness or injury, after any accommodation required by law, the Executive shall have been unable to performthe Executive’s duties hereunder for a period of ninety (90) consecutive days, and within thirty (30) days after Notice of Termination (as defined below) forDisability is given following such 90-day period the Executive shall not have returned to the performance of his duties on a full-time basis.(c) Cause. The Company may terminate the Executive’s employment hereunder for Cause. For purposes of this Agreement, “Cause” shall mean:(i) a material breach by the Executive of this Agreement; (ii) the failure by the Executive to reasonably and substantially perform the Executive’s dutieshereunder (other than as a result of physical or mental illness or injury); (iii) the Executive’s willful misconduct or gross negligence which is materiallyinjurious to the Company; or (iv) the commission by the Executive of a felony or other serious crime involving moral turpitude. In the case of clauses (i) and(ii) above, the Company shall provide notice to the Executive indicating in reasonable detail the events or circumstances that it believes constitute Causehereunder and, if such breach or failure is reasonably susceptible to cure, provide the Executive with a reasonable period of time (not to exceed thirty(30) days) to cure such breach or failure. If, subsequent to the Executive’s termination of employment hereunder for other than Cause, it is determined in goodfaith by the Board of the Parent that the Executive’s employment could have been terminated for Cause (except for a termination under (ii) of the abovedefinition of Cause), the Executive’s employment shall, at the election of the Board, be deemed to have been terminated for Cause retroactively to the datethe events giving rise to Cause occurred.(d) Without Cause. The Company may terminate the Executive’s employment hereunder during the Employment Period without Cause.(e) Voluntarily. The Executive may voluntarily terminate the Executive’s employment hereunder (other than for Good Reason), provided thatthe Executive provides the Company with notice of the Executive’s intent to terminate employment at least three (3) months in advance of the Date ofTermination (as defined below). 2(f) For Good Reason. The Executive may terminate employment hereunder for Good Reason. For purposes of this Agreement, “Good Reason”shall mean (i) a material breach of this Agreement by the Company, (ii) without the Executive’s written consent, reducing the Executive’s salary, as in effectimmediately prior to such reduction, while at the same time not proportionately reducing the salaries of the other comparable officers of the Company, or(iii) without the Executive’s written consent, a material and continued diminution of the Executive’s duties and responsibilities hereunder, unless theExecutive is provided with comparable duties and responsibilities in a comparable position (i.e., a position of equal or greater duties and responsibilities);provided that in either (i), (ii), or (iii) above, the Executive shall notify the Company within thirty (30) days after the event or events which the Executivebelieves constitute Good Reason hereunder and shall describe in such notice in reasonable detail such event or events and provide the Company a thirty(30) day period after delivery of such notice to cure such breach or diminution.2. Termination Procedure.(a) Notice of Termination. Any termination of the Executive’s employment by the Company or by the Executive during the Employment Period(other than a termination on account of the death of the Executive) shall be communicated by written “Notice of Termination” to the other party hereto inaccordance with Section 9(a).(b) Date of Termination. “Date of Termination” shall mean (i) if the Executive’s employment is terminated by death, the date of the Executive’sdeath, (ii) if the Executive’s employment is terminated pursuant to Section 1(b), thirty (30) days after Notice of Termination, provided that the Executiveshall not have returned to the performance of the Executive’s duties hereunder on a full-time basis within such thirty (30) day period, (iii) if the Executivevoluntarily terminates employment, the date specified in the notice given pursuant to Section 1(e) herein which shall not be less than three (3) months afterthe Notice of Termination is delivered to the Company, (iv) if the Executive terminates employment for Good Reason pursuant to Section 1(f) herein, thirty(30) days after Notice of Termination, and (v) if the Executive’s employment is terminated for any other reason, the date on which a Notice of Termination isgiven or any later date (within thirty (30) days, or any alternative time period agreed upon by the parties, after the giving of such notice) set forth in suchNotice of Termination.3. Termination Payments.(a) Without Cause. In the event of the termination of the Executive’s employment during the Employment Period by the Company withoutCause, the Executive shall be entitled to: (i) any accrued but unused vacation, (ii) base salary through the Date of Termination (to the extent not theretoforepaid), (iii) the continuation of base salary (as in effect immediately prior to the termination) for twelve (12) months following the Date of Termination which,subject to the restrictions set forth below, shall be paid in accordance with the Company’s ordinary payroll practices in effect from time to time and whichshall begin on the first payroll period immediately following the date on which the release described below in Section 3(d) becomes irrevocable, (iv) anyearned but unpaid Bonus (as defined below) for the performance period immediately preceding the Date of Termination, and (v) a pro-rata portion of theBonus, if any, for the performance period in which the Date of Termination occurs (based on the achievement of the applicable performance criteria andrelated to the applicable performance period). Notwithstanding the foregoing, the amount of payment set forth in (iii) above during the six-month periodfollowing the Date of Termination shall not exceed the separation pay exception limitation amount set forth in 3Treasury Regulation Section 1.409A-1(b)(9)(iii)(A) (any amount that is payable during such six-month period that is in excess of the separation payexception limitation shall be paid in a single lump sum on the first day of the seventh month after the date of the Executive’s separation from service or, ifearlier, the date of the Executive’s death following such separation from service (the “Delayed Payment Date”). If the Company determines in good faith thatthe separation pay exception set forth in Treasury Regulation Section 1.409A-1(b)(9)(iii) does not apply as of the Date of Termination, the amount set forth in(iii) above shall be paid (a) in an initial lump sum equal to six months’ base salary (net of applicable taxes and withholdings) on the Delayed Payment Dateand (b) thereafter in installments in accordance with the Company’s ordinary payroll practices. The amounts set forth in (i) and (ii) above shall be paid inaccordance with applicable law on the Date of Termination. The amounts set forth in (iv) and (v) above shall be paid as soon as is reasonably practicable afterthe close of the accounting books and records of the Company for the relevant performance period at the same time bonuses are paid to other activeemployees, but in no event will payment be made for any performance period ending on December 31 before January 1 or after March 15 of the yearfollowing the year in which the performance period ends. If payment by such date is administratively impracticable, payment may be made at a later date aspermitted under Treasury Regulation Section 1.409A-1(b)(4)(ii). In addition, in the event of a termination by the Company without Cause under thisSection 3(a): (1) if the Executive elects to continue the Company’s group health plans pursuant to the Executive’s rights under COBRA, the Company shallpay the Executive’s COBRA continuation premiums until the earlier of (x) the date the Executive receives group health benefits from another employer or(y) the one-year anniversary of the Date of Termination; and (2) the Company will provide the Executive with outplacement services from vendorsdesignated by the Company for a period of six (6) months following the Date of Termination, at a cost not to exceed $5,000. For the avoidance of doubt,Executive shall pay Executive’s share of any such premiums with after-tax income and any premium reimbursements or premiums paid by the Companypursuant to this Section 3(a) shall be taxable to Executive for federal and state tax purposes. For purposes of this Agreement, the “Bonus Program” shall meanthe discretionary bonus program established and approved by the Board or Committee for employees of the Company in similar positions to the Executive.Also, for purposes of this Agreement, the “Bonus” shall mean a bonus earned, if any, by the Executive on an annual or other performance period basis up to acertain percentage of base salary actually earned and paid, if any, to the Executive during an applicable performance period, or a lesser or an additionalamount, as approved by the Board or Committee under the Bonus Program and in all cases based on certain performance criteria; provided that the Executiveis actively employed by the Company on the date the bonuses are paid under the Bonus Program, except as provided in this Section 3(a). Notwithstandinganything else in this Agreement, the payments and benefits provided in this Section 3(a) are subject to and conditioned upon the Executive executing (andnot revoking) the general release and waiver described below in Section 3(d) and conditioned upon the Executive’s compliance with the restrictivecovenants provided in Sections 5 and 6 hereof. For the avoidance of any doubt or confusion, the Executive shall not be entitled to any payments or benefitsprovided under this Section 3(a) in the event of any for Good Reason termination of employment by the Executive. Except as provided in this Section 3(a),the Company shall have no additional obligations under this Agreement.(b) Cause, Disability, Death or Voluntarily (including for Good Reason Absent a Change in Control). If the Executive’s employment isterminated during the Employment Period by (i) the Company for Cause, (ii) as a result of the Executive’s death or Disability, or (iii) voluntarily by theExecutive (including for Good Reason but absent a Change in Control (as defined below)), the Company shall pay the Executive or the Executive’s estate, asthe case may be, within thirty (30) days following the Date of Termination the Executive’s accrued but unused vacation and the Executive’s base salarythrough the Date of Termination (to the extent not theretofore paid). Except as provided in this Section 3(b), the Company shall have no additionalobligations under this Agreement. 4(c) Change in Control. If, within twenty-four (24) months following a Change in Control, (i) the Company terminates the Executive’semployment without Cause or (ii) the Executive terminates employment with the Company for Good Reason, then, in addition to all the other benefitsprovided to the Executive under Section 3(a) of this Agreement, notwithstanding any provision in any applicable option grant agreement or restricted stockor restricted stock unit award agreement where the award vests based solely on the passage of time between the Parent (or the Company) and the Executive:(A) any outstanding but unvested options or any earned but unvested restricted stock or restricted stock unit awards where the award vests based solely on thepassage of time granted on or prior to the date of this Agreement or in connection with the Executive’s Promotion shall fully vest upon the Date ofTermination; (B) any such options (both vested and unvested) granted on or prior to the date of this Agreement or in connection with the Executive’sPromotion will remain fully exercisable until the first to occur of (1) the one-year anniversary of the Date of Termination, and (2) either the tenth anniversaryor the seventh anniversary of the grant date of such options depending upon what the relevant option grant agreement specifies with regard to an option’sterm or expiration date, provided, however, that if the Company determines in good faith that the extension of the option’s exercise period results in theoptions being considered non-qualified deferred compensation subject to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”),such extension shall not take effect; and (C) an amount equal to the total target Bonus (as defined above) under the Bonus Program in effect as of the Date ofTermination; provided that if Bonuses are paid semi-annually as of the Date of Termination the Executive shall be entitled to an amount equal to two(2) times the total target Bonus for the performance period in which the Date of Termination occurs. The amounts set forth in subsection (C) above shall bepaid as soon as is reasonably practicable after the close of the accounting books and records of the Company for the relevant performance period at the sametime bonuses are paid to other active employees, but in no event will payment be made for any performance period ending on December 31 before January 1or after March 15 of the year following the year in which the performance period ends. If payment by such date is administratively impracticable, paymentmay be made at a later date as permitted under Treasury Regulation Section 1.409A-1(b)(4)(ii). For purposes of this Agreement, a “Change in Control” shallhave the meaning set forth in the ON Semiconductor Corporation Amended and Restated Stock Incentive Plan, as it may be amended from time to time.Except as provided in this Section 3(c), the Company shall have no additional obligations under this Agreement. For the avoidance of doubt, the equityaward vesting provisions described in this Section 3(c) do not apply to performance-based restricted stock or performance-based restricted stock unit awardsand such awards shall continue to be governed by the Amended and Restated Stock Incentive Plan, as it may be amended from time to time and any otherrelated equity grant or award agreement document.(d) Release Required. To receive the termination-related payments and benefits described in this Section 3 within the time periods describedbelow, the Executive must execute (and not revoke) a general release and waiver (in a form reasonably acceptable to the Company) waiving all claims theExecutive may have against the Company, its affiliates (including, without limitation, Parent), successors, assigns, executives, officers and directors, andothers. The release shall be provided to the Executive on or before the date that is five (5) days following the Executive’s Date of Termination and theExecutive shall have twenty-one (21) days following the 5date on which the release is given to the Executive to sign and return the release to the Company. The release must be executed and returned to the Companywithin this time period and it must not be revoked by the Executive during the seven (7) day revocation period that will be described in the release.Notwithstanding anything in this Agreement to the contrary, if the period during which the Executive may consider and revoke the release spans two(2) calendar years, payment will not begin to be made to the Executive until the second calendar year.4. Legal Fees.In the event of any contest or dispute between the Company and the Executive with respect to this Agreement or the Executive’s employmenthereunder, each of the parties shall be responsible for their respective legal fees and expenses.5. Non-Solicitation.The Executive recognizes that the Company’s employees are a valuable asset to the Company and represent a substantial investment ofCompany time and resources. Accordingly, during the Employment Period and for one (1) year thereafter, the Executive hereby agrees not to, directly orindirectly, solicit or assist any other person or entity in soliciting any employee of ON Semiconductor Corporation (the “Parent”), the Company or any oftheir subsidiaries to perform services for any entity (other than the Parent, the Company or their subsidiaries), or attempt to induce any such employee toleave the employment of the Parent, the Company or their subsidiaries.6. Confidentiality; Non-Compete; Non-Disclosure; Non-Disparagement.(a) During the Employment Period and thereafter, the Executive shall hold in strict confidence any proprietary or Confidential Informationrelated to the Parent, the Company and their affiliates. For purposes of this Agreement, “Confidential Information” shall mean all information of the Parent,the Company or any of their affiliates (in whatever form) which is not generally known to the public, including without limitation any inventions, processes,methods of distribution, customer lists or customers’ or trade secrets. “Confidential Information” does not include information that (i) is or becomes part ofthe public domain through no fault of the Executive; (ii) is already known to the Executive and has been identified by the Executive to the Company inwriting prior to the commencement of the Executive’s employment with Company; or (iii) is subsequently lawfully received by the Executive from a thirdparty not subject to confidentiality restrictions.(b) During the Executive’s employment with Company, and at all times thereafter, the Executive will (i) keep confidential and not divulge,furnish or make accessible to any person any Confidential Information, and (ii) use the Confidential Information solely for the purpose of performing theExecutive’s duties of employment and not for the Executive’s own benefit or the benefit of any other Person. Promptly after the Date of Termination, or atany time upon request by Company, the Executive shall return to Company any Confidential Information (in hard copy and electronic formats) in theExecutive’s possession.(c) With the limited exceptions noted below, the Executive shall be permitted to disclose Confidential Information to the extent, but only to theextent, (i) Company provides its express prior written consent to such disclosure; (ii) it is necessary to perform the duties of the Executive’s employment; or(iii) as required by law; provided, that prior to making any disclosure 6of Confidential Information required by law (whether pursuant to a subpoena, government investigative demand, or other similar process), the Executivemust notify Company of the Executive’s intent to make such disclosure, so that Company may seek a protective order or other appropriate remedy and mayparticipate with the Executive in determining the amount and type of Confidential Information, if any, which must be disclosed to comply with applicablelaw.(d) Limited Exceptions. There are limited exceptions to the above confidentiality requirement if the Executive is providing information togovernment agencies, including but not limited to the Equal Employment Opportunity Commission, the National Labor Relations Board, the OccupationalSafety and Health Administration (or its state equivalent), and the Securities and Exchange Commission. This Agreement does not limit the Executive’sability to communicate with any government agencies regarding matters within their jurisdiction or otherwise participate in any investigation or proceedingthat may be conducted by any government agency, including providing documents or other information, without notice, to the government agencies.Nothing in this Agreement shall prevent the Executive from the disclosure of Confidential Information or trade secrets that: (i) is made: (A) in confidence to afederal, state, or local government official, either directly or indirectly, or to an attorney; and (B) solely for the purpose of reporting or investigating asuspected violation of law; or (ii) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. In theevent that the Executive files a lawsuit alleging retaliation by Company for reporting a suspected violation of law, the Executive may disclose ConfidentialInformation or trade secrets related to the suspected violation of law or alleged retaliation to the Executive’s attorney and use the Confidential Information ortrade secrets in the court proceeding if the Executive or the Executive’s attorney: (i) files any document containing Confidential Information or trade secretsunder seal; and (ii) does not disclose Confidential Information or trade secrets, except pursuant to court order. The Company provides this notice incompliance with, among other laws, the Defend Trade Secrets Act of 2016.(e) The Executive and the Company agree that the Parent, the Company, and their affiliates would likely suffer significant harm from theExecutive competing with any or all of the Parent, the Company or their affiliates for a certain period of time after the Date of Termination. Accordingly, theExecutive agrees that the Executive will not, for a period of one (1) year following the Date of Termination, directly or indirectly, become employed by,engage in business with, serve as an agent or consultant to, become a partner, member, principal, stockholder or other owner (other than a holder of less than1% of the outstanding voting shares of any publicly held company) of, or otherwise perform services for (whether or not for compensation) any CompetitiveBusiness (as defined below) in or from any location in the United States (the “Restricted Territory”); provided, however, that if (and only if) required by acourt of competent jurisdiction for the provisions of this section to remain valid and enforceable against the Executive, the Restricted Territory means thestate of Arizona. For purposes of this Agreement, “Competitive Business” shall mean any individual, partnership, corporation, limited liability company,unincorporated organization, trust or joint venture, or government agency or political subdivision thereof that is engaged in, or otherwise competes or hasdemonstrated a potential for competing with the Business (as defined below) for customers of the Company or its affiliates anywhere in the world. Forpurposes of this Agreement, “Business” shall mean the design, marketing and sale of semiconductors in the power, analog, digital signal processing, mixedsignal, advanced logic, discrete and custom devices, data management semiconductors, memory and standard semiconductor components and integratedcircuits offered by any or all of the Parent, the Company or their affiliates for use in electronic products, appliances and automobiles, computing, consumerand industrial electronics, wireless communications, networking, military and aerospace and medical end-user markets. 7(f) Upon the termination of the Employment Period, the Executive shall not take, without the prior written consent of the Company, any drawing,blueprint, specification or other document (in whatever form) of the Parent, the Company or their affiliates, which is of a confidential nature relating to theParent, the Company or their affiliates, or, without limitation, relating to any of their methods of distribution, or any description of any formulas or secretprocesses and will return any such information (in whatever form) then in the Executive’s possession.(g) During the Employment Period and at all times thereafter, the Executive agrees that the Executive will not make (or cause or encourageothers to make) statements that unlawfully defame or disparage the Parent, the Company, their affiliates and their officers, directors, members or executives.The Executive hereby agrees to cooperate with the Company in refuting any defamatory or disparaging remarks by any third party made in respect of theParent, the Company, their affiliates or their directors, members, officers or executives.7. Injunctive Relief.It is impossible to measure in money the damages that will accrue to the Company in the event that the Executive breaches any of the restrictivecovenants provided in Sections 5 and 6 hereof. In the event that the Executive breaches any such restrictive covenant, the Company shall be entitled to aninjunction restraining the Executive from violating such restrictive covenant (without posting any bond or other security). If the Company shall institute anyaction or proceeding to enforce any such restrictive covenant, the Executive hereby waives the claim or defense that the Company has an adequate remedy atlaw and agrees not to assert in any such action or proceeding the claim or defense that the Company has an adequate remedy at law. The foregoing shall notprejudice the Company’s right to require the Executive to account for and pay over to the Company, and the Executive hereby agrees to account for and payover, the compensation, profits, monies, accruals or other benefits derived or received by the Executive as a result of any transaction constituting a breach ofany of the restrictive covenants provided in Sections 5 or 6 hereof. If the Executive is in breach of any of the provisions of Section 5 or 6 above, then the timeperiods set forth in Sections 5 or 6 will be extended by the length of time during which the Executive is in breach of any of such provisions.8. Representations.(a) The parties hereto hereby represent that they each have the authority to enter into this Agreement, and the Executive hereby represents to theCompany that the execution of, and performance of duties under, this Agreement shall not constitute a breach of or otherwise violate any other agreement towhich the Executive is a party.(b) The Executive hereby represents to the Company that the Executive will not utilize or disclose any confidential information obtained by theExecutive in connection with the Executive’s former employment with respect to the Executive’s duties and responsibilities hereunder.9. Miscellaneous.(a) Any notice or other communication required or permitted under this Agreement shall be effective only if it is in writing and shall be deemedto be given when delivered personally or four (4) days after it is mailed by registered or certified mail, postage prepaid, return receipt 8requested or one day after it is sent by a reputable overnight courier service and, in each case, addressed as follows (or if it is sent through any other methodagreed upon by the parties):If to the Company:Semiconductor Components Industries, LLC5005 East McDowell RoadPhoenix, Arizona 85008Attention: General CounselIf to the Executive, to the address for the Executive on file with the Company at the time of the notice or to such other address as any party hereto maydesignate by notice to the others.(b) This Agreement shall constitute the entire agreement among the parties hereto with respect to the Executive’s employment hereunder, andsupersedes and is in full substitution for any and all prior understandings or agreements with respect to the Executive’s employment (it being understoodthat, except as otherwise expressly stated in this Agreement, any equity awards granted to the Executive shall be governed by the relevant equity plandocument and any other related equity grant or award agreement and any other related documents).(c) This Agreement may be amended only by an instrument in writing signed by the parties hereto, and any provision hereof may be waived onlyby an instrument in writing signed by the party or parties against whom or which enforcement of such waiver is sought. The failure of any party hereto at anytime to require the performance by any other party hereto of any provision hereof shall in no way affect the full right to require such performance at any timethereafter, nor shall the waiver by any party hereto of a breach of any provision hereof be taken or held to be a waiver of any succeeding breach of suchprovision or a waiver of the provision itself or a waiver of any other provision of this Agreement.(d) The parties hereto acknowledge and agree that each party has reviewed and negotiated the terms and provisions of this Agreement and hashad the opportunity to contribute to its revision. Accordingly, the rule of construction to the effect that ambiguities are resolved against the drafting partyshall not be employed in the interpretation of this Agreement. Rather, the terms of this Agreement shall be construed fairly as to both parties hereto and not infavor or against either party.(e) (i) This Agreement is binding on and is for the benefit of the parties hereto and their respective successors, assigns, heirs, executors,administrators and other legal representatives. Neither this Agreement nor any right or obligation hereunder may be assigned by the Executive.(ii) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all orsubstantially all of the business and/or assets of the Company to assume this Agreement in the same manner and to the same extent that the Company wouldhave been required to perform it if no such succession had taken place. As used in the Agreement, the “Company” shall mean both the Company (as definedabove) and any such successor that assumes this Agreement, by operation of law or otherwise.(f) Any provision of this Agreement (or portion thereof) which is deemed invalid, illegal or unenforceable in any jurisdiction shall, as to thatjurisdiction and subject to this Section, be ineffective to the extent of such invalidity, illegality or unenforceability, without affecting in any 9way the remaining provisions thereof in such jurisdiction or rendering that or any other provisions of this Agreement invalid, illegal, or unenforceable in anyother jurisdiction. If any covenant should be deemed invalid, illegal or unenforceable because its scope is considered excessive, such covenant shall bemodified so that the scope of the covenant is reduced only to the minimum extent necessary to render the modified covenant valid, legal and enforceable. Nowaiver of any provision or violation of this Agreement by Company shall be implied by Company’s forbearance or failure to take action.(g) The Company may withhold from any amounts payable to the Executive hereunder all federal, state, city or other taxes that the Companymay reasonably determine are required to be withheld pursuant to any applicable law or regulation, (it being understood, that the Executive shall beresponsible for payment of all taxes in respect of the payments and benefits provided herein).(h) The payments and other consideration to the Executive under this Agreement shall be made without right of offset.(i) (i) Notwithstanding anything set forth herein to the contrary, no amount payable pursuant to this Agreement on account of the Executive’stermination of employment which constitutes a “deferral of compensation” within the meaning of the Treasury Regulations issued pursuant to Section 409Aof the Code (“Section 409A Regulations”) shall be paid unless and until the Executive has incurred a “separation from service” within the meaning of theSection 409A Regulations. Furthermore, to the extent that the Executive is a “specified employee” within the meaning of the Section 409A Regulations as ofthe date of the Executive’s separation from service, no amount that constitutes a deferral of compensation that is payable on account of the Executive’sseparation from service shall be paid to the Executive before the Delayed Payment Date. All such amounts that would, but for this subsection, becomepayable prior to the Delayed Payment Date will be accumulated and paid on the Delayed Payment Date.(ii) The Company intends that income provided to the Executive pursuant to this Agreement will not be subject to taxation underSection 409A of the Code. The provisions of this Agreement shall be interpreted and construed in favor of satisfying any applicable requirements ofSection 409A of the Code and the Section 409A Regulations or an exception thereto. However, the Company does not guarantee any particular tax effect forincome provided to the Executive pursuant to this Agreement. In any event, except for the Company’s responsibility to withhold applicable income andemployment taxes from compensation paid or provided to the Executive, the Company shall not be responsible for the payment of any applicable taxes oncompensation paid or provided to the Executive pursuant to this Agreement.(j) By signing this Agreement, the Executive agrees to be bound by, and comply with the terms of the compensation recovery policy or policies(and related practices) of the Company or its affiliates as such may be in effect from time-to-time.(k) This Agreement shall be governed by and construed in accordance with the laws of the State of Arizona without reference to its principles ofconflicts of law.(l) This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which shall constitute one andthe same instrument. 10(m) The headings in this Agreement are inserted for convenience of reference only and shall not be a part of or control or affect the meaning ofany provision hereof.10. Section 280G of the Code.(a) Sections 280G and 4999 of the Code may place significant tax burdens on both Executive and the Company if the total payments made toExecutive due to certain change in control events described in Section 280G of the Code (the “Total Change in Control Payments”) equal or exceedExecutive’s 280G Cap. For this purpose, Executive’s “280G Cap” is equal to Executive’s average annual compensation in the five (5) calendar yearspreceding the calendar year in which the change in control event occurs (the “Base Period Income Amount”) times three (3). If the Total Change in ControlPayments equal or exceed the 280G Cap, Section 4999 of the Code imposes a 20% excise tax (the “Excise Tax”) on all amounts in excess of one (1) timesExecutive’s Base Period Income Amount. In determining whether the Total Change in Control Payments will equal or exceed the 280G Cap and result in theimposition of an Excise Tax, the provisions of Sections 280G and 4999 of the Code and the applicable Treasury Regulations will control over the generalprovisions of this Section 10. All determinations and calculations required to implement the rules set forth in this Section 10 shall take into account allapplicable federal, state, and local income taxes and employment taxes (and for purposes of such calculations, Executive shall be deemed to pay incometaxes at the highest combined federal, state and local marginal tax rates for the calendar year in which the Total Change in Control Payments are to be made,less the maximum federal income tax deduction that could be obtained as a result of a deduction for state and local taxes (the “Assumed Taxes”)).(b) Subject to the “best net” exception described in Section 10(c), in order to avoid the imposition of the Excise Tax, the total payments to whichExecutive is entitled under this Agreement or otherwise will be reduced to the extent necessary to avoid equaling or exceeding the 280G Cap, with suchreduction first applied to the cash severance payments that Executive would otherwise be entitled to receive pursuant to this Agreement and thereafterapplied in a manner that will not subject Executive to tax and penalties under Section 409A of the Code.(c) If Executive’s Total Change in Control Payments minus the Excise Tax and the Assumed Taxes (payable with respect to the amount of theTotal Change in Control Payments) exceeds the 280G Cap minus the Assumed Taxes (payable with respect to the amount of the 280G Cap), then the totalpayments to which Executive is entitled under this Agreement or otherwise will not be reduced pursuant to Section 10(b). If this “best net” exception applies,Executive shall be fully responsible for paying any Excise Tax (and income or other taxes) that may be imposed on Executive pursuant to Section 4999 ofthe Code or otherwise.(d) The Company will engage a law firm, a certified public accounting firm, and/or a firm of reputable executive compensation consultants (the“Consultant”) to make any necessary determinations and to perform any necessary calculations required in order to implement the rules set forth in thisSection 10. The Consultant shall provide detailed supporting calculations to both the Company and Executive and all fees and expenses of the Consultantshall be borne by the Company. If the provisions of Section 280G and 4999 of the Code are repealed without succession, this Section 10 shall be of no furtherforce or effect. In addition, if this provision does not apply to Executive for whatever reason, this Section shall be of no further force or effect. 11IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. Semiconductor Components Industries, LLC/s/ KEITH D. JACKSONName: Keith JacksonTitle: Chief Executive Officer and President/s/ TANER OZCELIKName: Taner Ozcelik 12Exhibit 21.1ON SEMICONDUCTOR CORPORATIONList of Subsidiaries as of 12/31/2017 (1)AMI Semiconductor Canada Company {Nova Scotia, Canada}AMI Semiconductor GmbH {Germany}AMIS Foreign Holdings, Inc. {Delaware}Aptina (Mauritius) Limited {Mauritius}Aptina (UK) Limited {United Kingdom}Aptina Imaging (Cayman) Inc. {Cayman Islands}Aptina Imaging (Shanghai) Co., Ltd. {China (PRC)}Aptina Imaging Corporation {Cayman Islands}Aptina India Private Limited {India}Aptina Pte. Ltd. {Singapore}Aptina, LLC {Delaware}Axsem AG {Switzerland}Bestcyber Developments Limited {Samoa}Fairchild (Taiwan) Corporation {Taiwan}Fairchild Energy, LLC {Maine}Fairchild Korea Semiconductor, Ltd. {South Korea}Fairchild Semiconductor (India) Private Limited {India}Fairchild Semiconductor (Malaysia) Sdn. Bhd. {Malaysia}Fairchild Semiconductor (Netherlands) B.V. {Netherlands}Fairchild Semiconductor (Philippines), Inc. {Philippines}Fairchild Semiconductor (Shanghai) Company Limited {China (PRC)}Fairchild Semiconductor (Suzhou) Co., Ltd. {China (PRC)}Fairchild Semiconductor Asia Pacific Pte. Ltd. {Singapore}Fairchild Semiconductor Corporation {Delaware}Fairchild Semiconductor Corporation of California {Delaware}Fairchild Semiconductor GmbH {Germany}Fairchild Semiconductor Hong Kong (Holdings) Limited {Hong Kong, China (PRC)}Fairchild Semiconductor Hong Kong Limited {Hong Kong, China (PRC)}Fairchild Semiconductor International, Inc. {Delaware}Fairchild Semiconductor Japan Ltd. {Japan}Fairchild Semiconductor Limited {United Kingdom}Fairchild Semiconductor Mauritius (Trading) Ltd. {Mauritius}Fairchild Semiconductor Mauritius Ltd. {Mauritius}Fairchild Semiconductor Pte. Ltd. {Singapore}Fairchild Semiconductor SARL {France}Fairchild Semiconductor Srl {Italy}Fairchild Semiconductor Sweden AB {Sweden}Fairchild Semiconductor Technology (Beijing) Co., Ltd. {China (PRC)}Fairchild Semiconductor Technology (Shanghai) Co., Ltd. {China (PRC)}Fairchild Semiconductor West Corporation {Delaware}Giant Holdings, Inc. {Delaware}Giant Semiconductor Corporation {North Carolina} 1Kota Microcircuits, Inc. {Colorado}Leshan-Phoenix Semiconductor Company Limited {China}Micro-Ohm Corporation {North Carolina}New Conversion Co., Ltd. {Taiwan}ON Design Czech s.r.o. {Czech Republic}ON Design Israel Ltd {Israel}ON Electronics Private Limited {India}ON Management Ltd. {Bermuda}ON Semiconductor (Shenzhen) Limited {China (PRC)}ON Semiconductor (Thailand) Co. Ltd. {Thailand}ON Semiconductor Adria d.o.o. {Slovenia}ON Semiconductor Belgium BVBA {Belgium}ON Semiconductor Benelux B.V. {Netherlands}ON Semiconductor Binh Duong Company Limited {Vietnam}ON Semiconductor Canada Holding Corporation {Ontario, Canada}ON Semiconductor Canada Trading Corporation {Nova Scotia, Canada}ON Semiconductor Coöperatief U.A. {Netherlands}ON Semiconductor Czech Republic, s.r.o. {Czech Republic}ON Semiconductor France SAS {France}ON Semiconductor Germany GmbH {Germany}ON Semiconductor Holdings Malaysia Sdn. Bhd. {Malaysia}ON Semiconductor Holland B.V. {Netherlands}ON Semiconductor Ireland Research and Design Limited {Ireland}ON Semiconductor Italy S.r.l. {Italy}ON Semiconductor Japan Holdings Ltd. {Japan}ON Semiconductor Japan Ltd. {Japan}ON Semiconductor Kanto Co. Ltd. {Japan}ON Semiconductor Leasing BVBA {Belgium}ON Semiconductor Limited {United Kingdom}ON Semiconductor Malaysia Sdn. Bhd. {Malaysia}ON Semiconductor Netherlands Coöperatief U.A. {Netherlands}ON Semiconductor Netherlands BV {Netherlands}ON Semiconductor Niigata Co., Ltd. {Japan}ON Semiconductor Philippines, Inc. {Philippines}ON Semiconductor Romania SRL {Romania}ON Semiconductor s.r.l. {Italy}ON Semiconductor SAS {France}ON Semiconductor Shenzhen China (ONSC) Limited {China (PRC)}ON Semiconductor Slovakia a.s. {Slovak Republic}ON Semiconductor SSMP Philippines Corporation {Philippines}ON Semiconductor Switzerland SA {Switzerland}ON Semiconductor Technology Hong Kong Limited {Hong Kong, China (PRC)}ON Semiconductor Technology India Private Ltd. {India}ON Semiconductor Technology Korea Limited {South Korea}ON Semiconductor Trading (Shanghai) Limited {China (PRC)}ON Semiconductor Trading Sàrl {Switzerland}ON Semiconductor United Kingdom Limited {United Kingdom}ON Semiconductor Vietnam Company Limited {Vietnam}ON Semiconductor, LLC {Delaware} 2ROCTOV, LLC {Delaware}SANYO LSI Technology India Private Limited {India}SANYO Semiconductor (S) Pte. Ltd. {Singapore}SANYO Semiconductor (Thailand) Co., Ltd. {Thailand}SCG Czech Design Center, s.r.o. {Czech Republic}SCG Hong Kong SAR Limited {Hong Kong, China (PRC)}SCG Korea Limited {South Korea}Semiconductor Components Industries of Rhode Island, Inc. {Rhode Island}Semiconductor Components Industries Singapore Pte Ltd (Singapore}Semiconductor Components Industries, LLC {Delaware}SGC Semiconductor (ShenZhen) Co., Ltd. {China (PRC)}Silicon Patent Holdings {California}Sound Design Technologies, Ltd. {Ontario, Canada}System Solutions Distribution Co., Ltd. {Japan}System-General Corporation {California}TranSiC AB {Sweden} { }Denotes jurisdiction.(1)All ON Semiconductor Corporation subsidiaries generally do business under the name “ON Semiconductor” or such other similar name as theytransition to “ON Semiconductor.” 3Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-219751, No. 333-219752, No. 333-206471, No.333-190344, No. 333-183389, No. 333-166958, No. 333-164733, No. 333-161545, No. 333-159381, No. 333-154514,No. 333-149848, No. 333-118814, No. 333-107896, No. 333-71336, No. 333-37638 and No. 333-34130) of ON Semiconductor Corporation of our reportdated February 21, 2018 relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting,which appears in this Form 10-K./s/ PricewaterhouseCoopers LLPPhoenix, ArizonaFebruary 21, 2018Exhibit 24.1POWER OF ATTORNEY(Atsushi Abe)I hereby appoint Bernard Gutmann, George H. Cave and Mark N. Rogers, and each of them, my attorneys-in-fact, each with full power of substitution,to sign for me as a Director of ON Semiconductor Corporation (the “Corporation”) and file with the Securities and Exchange Commission the Corporation’sAnnual Report on Form 10-K for 2017, and any amendments.Dated: February 21, 2018 /s/ ATSUSHI ABEAtsushi AbePOWER OF ATTORNEY(Alan Campbell)I hereby appoint Bernard Gutmann, George H. Cave and Mark N. Rogers, and each of them, my attorneys-in-fact, each with full power of substitution,to sign for me as a Director of ON Semiconductor Corporation (the “Corporation”) and file with the Securities and Exchange Commission the Corporation’sAnnual Report on Form 10-K for 2017, and any amendments.Dated: February 21, 2018 /s/ ALAN CAMPBELLAlan CampbellPOWER OF ATTORNEY(Curtis J. Crawford)I hereby appoint Bernard Gutmann, George H. Cave and Mark N. Rogers, and each of them, my attorneys-in-fact, each with full power of substitution,to sign for me as a Director of ON Semiconductor Corporation (the “Corporation”) and file with the Securities and Exchange Commission the Corporation’sAnnual Report on Form 10-K for 2017, and any amendments.Dated: February 21, 2018 /s/ CURTIS J. CRAWFORDCurtis J. CrawfordPOWER OF ATTORNEY(Gilles Delfassy)I hereby appoint Bernard Gutmann, George H. Cave and Mark N. Rogers, and each of them, my attorneys-in-fact, each with full power of substitution,to sign for me as a Director of ON Semiconductor Corporation (the “Corporation”) and file with the Securities and Exchange Commission the Corporation’sAnnual Report on Form 10-K for 2017, and any amendments.Dated: February 21, 2018 /s/ GILLES DELFASSYGilles DelfassyPOWER OF ATTORNEY(Emmanuel T. Hernandez)I hereby appoint Bernard Gutmann, George H. Cave and Mark N. Rogers, and each of them, my attorneys-in-fact, each with full power of substitution,to sign for me as Director of ON Semiconductor Corporation (the “Corporation”) and file with the Securities and Exchange Commission the Corporation’sAnnual Report on Form 10-K for 2017, and any amendments.Dated: February 21, 2018 /s/ EMMANUEL T. HERNANDEZEmmanuel T. HernandezPOWER OF ATTORNEY(Paul Mascarenas)I hereby appoint Bernard Gutmann, George H. Cave and Mark N. Rogers, and each of them, my attorneys-in-fact, each with full power of substitution,to sign for me as a Director of ON Semiconductor Corporation (the ”Corporation”) and file with the Securities and Exchange Commission the Corporation’sAnnual Report on Form 10-K for 2017, and any amendments.Dated: February 21, 2018 /s/ PAUL MASCARENASPaul MascarenasPOWER OF ATTORNEY(Daryl A. Ostrander)I hereby appoint Bernard Gutmann, George H. Cave and Mark N. Rogers, and each of them, my attorneys-in-fact, each with full power of substitution,to sign for me as a Director of ON Semiconductor Corporation (the “Corporation”) and file with the Securities and Exchange Commission the Corporation’sAnnual Report on Form 10-K for 2017, and any amendments.Dated: February 21, 2018 /s/ DARYL A. OSTRANDERDaryl A. OstranderPOWER OF ATTORNEY(Teresa M. Ressel)I hereby appoint Bernard Gutmann, George H. Cave and Mark N. Rogers, and each of them, my attorneys-in-fact, each with full power of substitution,to sign for me as a Director of ON Semiconductor Corporation (the “Corporation”) and file with the Securities and Exchange Commission the Corporation’sAnnual Report on Form 10-K for 2017, and any amendments.Dated: February 21, 2018 /s/ TERESA M. RESSELTeresa M. ResselExhibit 31.1CERTIFICATIONSI, Keith D. Jackson, certify that: 1.I have reviewed this annual report on Form 10-K of ON Semiconductor Corporation; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periodcovered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules13a-15(f) and 15d-15(f)) for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known tous by others within those entities, particularly during the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions aboutthe effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on suchevaluation; and d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’smost recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or isreasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalentfunctions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal control over financial reporting. Date: February 21, 2018 /s/ KEITH D. JACKSON Keith D. Jackson Chief Executive OfficerExhibit 31.2CERTIFICATIONSI, Bernard Gutmann, certify that: 1.I have reviewed this annual report on Form 10-K of ON Semiconductor Corporation; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periodcovered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules13a-15(f) and 15d-15(f)) for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known tous by others within those entities, particularly during the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions aboutthe effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on suchevaluation; and d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’smost recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or isreasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalentfunctions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal control over financial reporting. Date: February 21, 2018 /s/ BERNARD GUTMANN Bernard Gutmann Chief Financial OfficerExhibit 32CertificationPursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906of the Sarbanes-Oxley Act of 2002For purposes of Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002, each of the undersigned officers of ON Semiconductor Corporation, a Delaware corporation (the “Company”), does hereby certify, to suchofficer’s knowledge, that:The Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (the “Form 10-K”) of the Company fully complies with the requirementsof Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and information contained in the Form 10-K fairly presents,in all material respects, the financial condition and results of operations of the Company. Dated: February 21, 2018 /s/ KEITH D. JACKSON Keith D. Jackson President and Chief Executive OfficerDated: February 21, 2018 /s/ BERNARD GUTMANN Bernard Gutmann Executive Vice President, Chief Financial Officer, and Treasurer

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