ON Semiconductor Annual Report 2018

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, 2018Or ☐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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ 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 ☐ 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 $9,369,083,794 as of June 29, 2018, 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 15, 2019 was 409,710,366.Documents Incorporated by ReferencePortions of the registrant’s Definitive Proxy Statement relating to its 2019 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, 2018, 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 10 Manufacturing Operations 11 Raw Materials 13 Sales, Marketing and Distribution 14 Patents, Trademarks, Copyrights and Other Intellectual Property Rights 14 Seasonality 14 Backlog and Inventory 14 Competition 15 Research and Development 16 Government Regulation 16 Employees 18 Executive Officers of the Registrant 18 Geographical Information 21 Available Information 21 Item 1A. Risk Factors 22 Item 1B. Unresolved Staff Comments 47 Item 2. Properties 48 Item 3. Legal Proceedings 48 Item 4. Mine Safety Disclosures 48 Part II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 49 Item 6. Selected Financial Data 51 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 51 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 77 Item 8. Financial Statements and Supplementary Data 78 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 78 Item 9A. Controls and Procedures 79 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 Term 1.00% 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 CouncilAI Artificial intelligenceAptina Aptina, Inc.Amended and Restated SIP ON Semiconductor Corporation 2010 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.CCD Charge-coupled deviceCMOS Complementary metal oxide semiconductorCSP Chip scale packageDFN Dual-flat no-leadsDSP Digital signal processingECL Emitter coupled logicEDI Electronic data interfaceEE Electrically erasableEEPROM Electrically erasable programmable read-only memoryESD 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 DeviceIC Integrated circuitIGBT Insulated-gate bipolar transistorIoT Internet-of-ThingsIP Intellectual propertyIPD Integrated passive devicesIPRD In-process research and development 3Table of ContentsAbbreviated Term Defined TermIPM Intelligent power moduleLDOs Low drop out regulator controllersLED Light-emitting diodeLIBO Rate A base rate per annum equal to the London Interbank Offered Rate as administered by the Intercontinental ExchangeBenchmark AdministrationLiDAR Light detection and rangingLSI Large scale integrationMCU Microcontroller UnitMOS Metal oxide semiconductorMOSFET Metal oxide semiconductor field effect transistorMotorola Motorola Inc.OEM Original equipment manufacturersPC Personal computerPIM Power integrated moduleRF 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 amendedSensL SensL Technologies Ltd.SiC Silicon carbideSiPM Silicon photomultipliersSMBC Sumitomo Mitsui Banking CorporationSoC System on chipSPAD Single photon avalanche diode arraysTMOS T-metal oxide semiconductorUPS Uninterruptible power suppliesVCORE Voltage coreVREG Voltage regulatorWBG Wide band gapWSTS World Semiconductor Trade StatisticsX4DFN 01005 Dual-flat no-leads 0.445 x 0.24 x 0.18 mm package* 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, together with its subsidiaries (“we,” “us,” “our,” “ON Semiconductor,” or the “Company”), was incorporated under thelaws of the state of Delaware in 1992 under the name Motorola Energy Systems, Inc. Immediately prior to our August 4, 1999 recapitalization, we werea wholly-owned subsidiary of Motorola, Inc.ON Semiconductor is driving innovation in energy-efficient electronics. Our extensive portfolio of sensors, power management, connectivity, customand SoC, analog, logic, timing and discrete devices helps customers efficiently solve their design challenges in advanced electronic systems andproducts. Our power management and motor driver semiconductor components control, convert, protect and monitor the supply of power to thedifferent elements within a wide variety of electronic devices. Our custom ASICs and SoC devices use analog, MCU, DSP, mixed-signal and advancedlogic capabilities to enable the application and uses of many of our automotive, medical, aerospace/defense, consumer and industrial customers’products. Our signal management semiconductor components provide high-performance clock management and data flow management for precisioncomputing, communications and industrial systems. Our growing portfolio of sensors, including image sensors, radar and LiDAR, provide advancedsolutions for automotive, industrial and IoT applications. Our standard semiconductor components serve as “building blocks” within virtually all typesof 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, data center and enterprise servers,wearable medical devices, personal computers, industrial building and home automation systems, factory automation, consumer white goods, securityand surveillance systems, machine vision and robotics, LED lighting, power supplies, networking and telecom equipment, medical diagnostics,imaging and hearing health.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 75.7 billion units in 2018, as compared to 72.8 billion units in 2017. 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. As of December 31, 2018, we were organized into the following three operating andreporting segments: the Power Solutions Group, the Analog Solutions Group and the Intelligent Sensing Group. During 2018, we changed the name ofone of our operating and reporting segments from the Image Sensor Group to the Intelligent Sensing Group. The following table illustrates the producttechnologies under each of our segments based on our operating strategy: Power Solutions Group Analog Solutions Group Intelligent Sensing GroupAnalog products Analog products LSI productsDiscrete products ASIC products SensorsHD products ECL products IPM products Foundry products / services Memory products LSI products PIM products Standard logic products Sensors TMOS products Standard logic products TMOS products WBG products We 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, Italy, Japan, Korea,Philippines, Romania, Singapore, Slovakia, Slovenia, Switzerland, Taiwan and the United Kingdom. Additionally, we currently operate domesticmanufacturing facilities in Idaho, Maine, Pennsylvania, New York and Oregon and have foreign manufacturing facilities in Belgium, Canada, China,the Czech Republic, Japan, Korea, Malaysia, the Philippines and Vietnam. We also have global distribution centers in China, the Philippines andSingapore.Company Highlights for the year ended December 31, 2018 • Total revenue of $5,878.3 million • Gross margin of 38.1% • Net income of $1.44 per diluted share • Cash and cash equivalents of $1,069.6 millionCompleted AcquisitionsOn May 8, 2018, we acquired 100% of the outstanding shares of SensL, a company specializing in silicon photomultipliers, single photon avalanchediode and LiDAR sensing products for the automotive, medical, industrial and consumer markets for $71.6 million, funded with cash on hand. Thisacquisition positions us to extend our products in automotive sensing applications for ADAS and autonomous driving by adding LiDAR capabilitiesto our existing capabilities in imaging and radar.On 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, as subsequently amended, provides for a $1.0 billion revolving credit facility (the “Revolving Credit Facility”)and a $2.4 billion term loan “B” facility (the “Term Loan “B” Facility”). 6Table of ContentsSee Note 5: “Acquisitions, Divestitures and Licensing Transactions” in the notes to our audited consolidated financial statements included elsewherein 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 3: “Revenue and Segment Information” in the notes to our audited consolidated financial statements included elsewhere in this Form10-K for other information regarding our segments and their revenue 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 powersemiconductor 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 the 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. • CommunicationsOur smallest packages: DFN MOSFETs, CSP (MOSFET/EEPROMs), EEPROMs and LDOs, and X4DFN 01005 for small signal devices andprotection. Low capacitance ESD and common mode filters for high speed serial interface protection. 7Table of ContentsAnalog 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 IPD productstechnology, which leverage the Company’s broad range of manufacturing, IC design, packaging, and silicon technology offerings to provide turn-keysolutions 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. • 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. • 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. • 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.Intelligent Sensing GroupThe Intelligent Sensing Group designs and develops CMOS and CCD image sensors, as well as proximity sensors, image signal processors, singlephoton detectors, including SiPM and SPAD arrays, as well as actuator drivers for autofocus and image stabilization for a broad base of end-users in theautomotive, industrial, consumer, wireless, medical and aerospace/defense markets. Our broad range of product offerings delivers excellent pixelperformance, sensor functionality and camera systems capabilities in which high quality visual imagery is becoming increasingly important to ourcustomers and their end-users, particularly in applications powered by AI. Certain of the Intelligent Sensing Group’s broad portfolio of products andsolutions are summarized below: • Automotive Imaging 8Table of ContentsA broad portfolio of automotive sensing technologies spanning ultrasonic, imaging, radar and LiDAR paving the way to high levels ofdriver assistance (ADAS) and automated driving with built in functional safety and cybersecurity processing. • Industrial ImagingA broad range of CMOS, CCD and SiPM sensors with an emphasis on machine vision for factory automation, robotics and logistics,intelligent transportation systems, agriculture, medical, cinematography, scientific 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 and supply, but generally do not require minimum purchasecommitments. Most of our OEM customers negotiate pricing terms with us on an annual basis near the end of the calendar year, our distributorsgenerally negotiate pricing terms on a quarterly basis, and electronic manufacturer service providers negotiate prices periodically during the year.Pricing terms on product development agreements are negotiated at the beginning of a project. We allocate the transaction price to each distinctproduct based on its relative stand-alone selling price. 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 year ended December 31, 2018, aggregate revenue from our five largest customers for our Power Solutions Group, Analog Solutions Group andIntelligent Sensing Group, comprised approximately 44%, 36% and 49%, respectively, of our total consolidated revenue. The loss of certain of thesecustomers 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. Our customers may cancel orders 30 days prior to shipment for standard productsand, generally prior to start of production for custom products without incurring a penalty. For additional information regarding agreements with ourcustomers, see “End-Markets for Our Products,” “Manufacturing and Operations,” and “Backlog and Inventory,” below, “Risk Factors - Trends, Risksand Uncertainties Related to Our Business” included elsewhere in this Form 10-K and Note 2: “Significant Accounting Policies - RevenueRecognition” in the notes to our audited consolidated financial statements included elsewhere in this Form 10-K. 9Table 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 revenue generated from each end-market during 2018, and sample applications for our products. OurIndustrial end-market includes the data relating to the Medical, Aerospace and Defense and our Communications end-market includes the data relatingto the Networking and Wireless. Automotive Industrial Communications Consumer ComputingApproximatepercentage of 2018Revenue 31% 27% 18% 13% 11%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 Sensors Industrial Automation AI AI AR/VR Robotics AI Diagnostic, Therapy, &Monitoring OEMs Direct sales to OEMs accounted for approximately 34% of our revenue in 2018, 34% of our revenue in 2017 and 38% of our revenue in 2016.OEM customers include a variety of companies in the electronics industry. We focus on three types of OEMs: multi-nationals; selected regionalaccounts; and target market customers. Large multi-nationals and selected regional accounts, which are significant in specific markets, are our coreOEM customers. The target market customers for our end-markets are OEMs that are on the leading edge of specific technologies and provide directionfor technology and new product development. Generally, our OEM customers do not have the right to return our products following a sale other thanpursuant to our warranty.Distributors Sales to distributors accounted for approximately 60% of our revenue in 2018, 60% of our revenue in 2017 and 56% of our revenue in2016, the 2017 increase being attributed to our acquisition of Fairchild, which had a greater distribution mix than our historical business. Ourdistributors resell to mid-sized and smaller OEMs and to electronic manufacturing service providers and other companies. Sales to distributors aretypically made pursuant to agreements that provide return rights and stock rotation provisions permitting limited levels of product returns. Wedeveloped our new internal processes and systems which enabled us to reliably estimate upfront the effects of returns and allowances and thus beganrecognizing revenue at the time of sales to the distributors beginning in the first quarter of 2017. Prior to 2017, for products sold to distributors who areentitled to returns and allowances (generally referred to as “ship and credit rights”), we recognized related revenue and cost of revenue when we wereinformed by the distributors that they had resold the products to the end-user. 10Table of ContentsElectronic Manufacturing Service Providers Direct sales to electronic manufacturing service providers accounted for approximately 6% of ourrevenue in 2018, 6% of our revenue in 2017 and 6% of our revenue in 2016. These customers are manufacturers who typically provide contractmanufacturing services for OEMs. Originally, these companies were involved primarily in the assembly of printed circuit boards, but they nowtypically provide design, supply management and manufacturing solutions as well. Many OEMs now outsource a large part of their manufacturing toelectronic manufacturing service providers in order to focus on their core competencies. We are pursuing a number of strategies to penetrate thisincreasingly important marketplace. Generally, our electronic manufacturing service customers do not have the right to return our products following asale other than pursuant to our warranty.See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 3: “Revenue and Segment Information” inthe notes to our audited consolidated financial statements included elsewhere in this Form 10-K for revenue by geographic locations.Manufacturing OperationsWe operate front-end wafer fabrication facilities in Belgium, the Czech Republic, Japan, Korea, Malaysia and the United States and back-end assemblyand test 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 Rožnov pod Radhoštěm, Czech Republic manufactures silicon wafers that are used by a number of ourfacilities. 11Table of ContentsThe table below sets forth information with respect to the manufacturing facilities we operate either directly or pursuant to joint ventures, the reportingsegments that use such facilities, and the approximate gross square footage of each site’s building, which includes, among other things, manufacturing,laboratory, warehousing, office, utility, support and unused areas. Location Reporting Segment Size (sq. ft.)Front-end Facilities: Gresham, Oregon Analog Solutions Group, Intelligent Sensing Group and Power Solutions Group 558,457Pocatello, Idaho Analog Solutions Group, Intelligent Sensing Group and Power Solutions Group 582,384Rožnov pod Radhoštěm,Czech Republic Analog Solutions Group and Power Solutions Group 438,882Oudenaarde, Belgium Analog Solutions Group, Intelligent Sensing Group and Power Solutions Group 422,605Seremban, Malaysia (Site 2) (3) Analog Solutions Group and Power Solutions Group 133,061Niigata, Japan Analog Solutions Group, Intelligent Sensing Group and Power Solutions Group 1,106,779Rochester, New York (2) (4) Intelligent Sensing 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 437,000Aizuwakamatsu, Japan Analog Solutions Group and Power Solutions Group 734,482Back-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, Intelligent Sensing Group and Power Solutions Group 926,367Tarlac City, Philippines (3) Analog Solutions Group, Intelligent Sensing Group and Power Solutions Group 381,764Shenzhen, China (1) Analog Solutions Group, Intelligent Sensing Group and Power Solutions Group 275,463Bien Hoa, Vietnam (3) Analog Solutions Group and Power Solutions Group 294,418Nampa, Idaho (1) (2) Intelligent Sensing 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: Rožnov pod Radhoštěm,Czech Republic Analog Solutions Group, Intelligent Sensing Group and Power Solutions Group 11,873Thuan An District, Vietnam (3) Analog Solutions Group and 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. 12Table of ContentsWe operate all of our manufacturing facilities directly except our assembly and test operations facility located in Leshan, China, which is owned byLeshan-Phoenix Semiconductor Company Limited, a joint venture company in which we own a majority of the outstanding equity interests(“Leshan”), and our manufacturing facility located in Aizuwakamatsu, Japan, which is owned by ON Semiconductor Aizu Co., Ltd., a joint venturecompany in which we own a majority of the outstanding equity interests (“OSA”). Our investments in Leshan and OSA have been consolidated in ourfinancial statements.Our joint venture partner in Leshan, Leshan Radio Company Ltd., is formerly a state-owned enterprise. Pursuant to the joint venture agreement,requests for production capacity are made to the board of directors of Leshan by each shareholder of the joint venture. Each request represents apurchase commitment by the requesting shareholder, provided that the shareholder may elect to pay the cost associated with the unused capacity(which is generally equal to the fixed cost of the capacity) in lieu of satisfying the commitment. We committed to purchase 80% of Leshan’sproduction capacity in each of 2018, 2017 and 2016 and are currently committed to purchase approximately 80% of Leshan’s expected productioncapacity in 2019.Our joint venture partner in OSA is Fujitsu Semiconductor Limited (“FSL”), a Japanese corporation. Pursuant to a foundry agreement, on a quarterlybasis, ON and FSL are required to allocate the capacity of OSA and provide a rolling twenty-four month forecast consistent with the capacity allocatedto each joint venture partner. We have committed to purchase approximately 50% of OSA’s production capacity, and our committed capacity isscheduled to increase gradually through the second quarter of 2020, when, subject to the fulfillment of certain conditions, we are required to increaseour ownership in OSA to 100%.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 forecast product needs and commit to purchase services consistent with theseforecasts. In some cases, longer-term commitments are required in the early stages of the relationship. These contract manufacturers collectivelyaccounted for approximately 36% of our manufacturing costs in each of 2018, 2017 and 2016.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. 13Table of ContentsSales, Marketing and DistributionAs of December 31, 2018, our sales and marketing organization consisted of approximately 1,800 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 IP. We acquired or were licensed or sublicensed to a significant amount of IP, including patents and patent applications, in connectionwith our acquisitions, and we have numerous U.S. and foreign patents issued, allowed and pending. As of December 31, 2018, we held patents withexpiration dates ranging from 2019 to 2038, and none of the patents that expire in the next three years materially affect our business. Our policy is toprotect our products and processes by asserting our IP rights where appropriate and prudent and by obtaining patents, copyrights and other IP rightsused in connection with our business when practicable and appropriate.SeasonalityWe believe our business today is driven more by content gains within applications and secular growth drivers and not solely by macroeconomic andindustry cyclicality, as was the case historically. However, in the future, we could again experience period-to-period fluctuations in operating resultsdue to general industry or economic conditions. For information regarding risks associated with the cyclicality and seasonality of our business, see“Risk Factors - Trends, Risks and Uncertainties Related to Our Business” included elsewhere in this Form 10-K.Backlog 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 EDI customers, ineach 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 2018, our backlog at the beginning of each quarter represented between83% and 89% of actual revenue during such quarter, which is consistent with backlog levels in recent prior periods. As manufacturing capacityutilization in the industry increases, customers tend to order products further in advance and, as a result, backlog at the beginning of a period as apercentage of revenue 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. 14Table of ContentsWe 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 technologies, micro packaging expertise, breadth of product line and IP portfolio,high quality cost effective manufacturing and supply chain management which ensures supply to our customers. Our commitment to continualinnovation allows us to provide an ever broader range of semiconductor solutions to our customers who differentiate in power density and powerefficiency, the key performance characteristics driving our markets.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. The Power Solutions Group’s competitors include: Broadcom Limited, Diodes Incorporated,Infineon Technologies AG, KEC Corporation, Nexperia, Rohm Semiconductor, Semtech Corporation, STMicroelectronics N.V., Texas InstrumentsIncorporated, 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. 15Table of ContentsOur 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 Incorporated.Intelligent Sensing GroupThe Intelligent Sensing Group differentiates itself from the competition through deep technical knowledge and close customer relationships to driveleading edge sensing performance for both human and machine vision applications. The Intelligent Sensing Group has over four decades of imagingexperience, was the first to commercialize CMOS active pixel sensors and was also the first to introduce CMOS technology into many of our markets.The Intelligent Sensing Group has leveraged this expertise into market leading positions in automotive and industrial applications, which allows us tooffer a wealth of technical and end-user applications knowledge to help customers develop innovative imaging solutions across a broad range ofend-user needs. Competitors for certain of the Intelligent Sensing Group’s products and solutions include: Sony Semiconductor, Samsung ElectronicsCo., Ltd. (“Samsung”), Omnivision, STMicroelectronics N.V. and Toshiba Corporation for image sensors; Rohm Semiconductor, Renesas ElectronicsCorporation and Dongwoon Anatech for actuator drivers; Texas Instruments Incorporated, NXP, and Infineon Technologies for radar; and Hamamatsu,Broadcom and ST Microelectronics for SiPMs and SPADs.Research and DevelopmentResearch and development costs in 2018, 2017 and 2016 were $650.7 million, $594.7 million and $446.8 million, respectively, representing 11% ofrevenue for each of those years. We seek to maximize the investment of our people and capital in research and development by targeting innovativeproducts and solutions for high growth 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 addedsolutions to our global customers 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 (acquired by NXP Semiconductors N.V.) have been involved in the cleanup of on-site solvent-contaminated soil and groundwater and off-sitecontaminated groundwater pursuant to consent decrees with the State of Arizona. As part of our separation from Motorola in 1999, Motorola retainedresponsibility for this contamination, and Motorola and Freescale have agreed to indemnify us with respect to remediation costs and other costs orliabilities related to this matter. 16Table of ContentsOur 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. During2018, semi-annual groundwater monitoring indicated that the treatment was effective, and accordingly, we ceased such monitoring and havedetermined that this remediation project is complete. Any costs to us in connection with this matter have not been material.Our manufacturing facility in the Czech Republic has undergone remediation to respond to releases of hazardous substances that occurred during theyears that this facility was operated by government-owned entities. The remediation projects consisted primarily of monitoring groundwater wellslocated on-site and off-site, with additional action plans developed to respond in the event activity levels are exceeded. The government of the CzechRepublic has agreed to indemnify us and our respective subsidiaries, subject to specified limitations, for remediation costs associated with thishistorical contamination. We have completed remediation on this project, and accordingly, have ceased all related monitoring efforts. Any costs to usin connection with this matter have not been, and, based on the information available, are not expected to 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, contractuallyagreed to indemnify AMIS and us for any obligations relating to environmental remediation and clean-up at this location. Any costs to us inconnection 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 Incorporated. Although we may incur certain liabilities with respectto the above 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. Any costs to us in connection with this matter have not been, and, based on the information available, are notexpected to be, material.Under a 2001 asset purchase agreement pursuant to which Fairchild purchased a manufacturing facility in Mountain Top, Pennsylvania, Intersil Corp.(subsequently acquired by Renesas Electronics Corporation) agreed to indemnify Fairchild for remediation costs and other liabilities related tohistorical contamination at the facility. Any costs to us incurred to respond to the above conditions and projects have not been, and are not expected tobe, material, and any future payments we make in connection with such liabilities are not expected to be material. 17Table of ContentsWe 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. Any costs to us in connectionwith this matter have not been, and, based on the information available, 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 the year ended December 31, 2018 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 13: “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, 2018, we had approximately 35,700 employees worldwide, of which approximately 4,700 employees were in the United States.None of our employees in the United States are covered by collective bargaining agreements, except for approximately 115 of our employees (orapproximately 2% of our U.S.-based employees) at the Mountain Top, Pennsylvania manufacturing facility. Certain of our foreign employees arecovered by collective bargaining arrangements (e.g., those in China, Korea, Japan and Belgium) or similar arrangements or are represented by workerscouncils. For information regarding employee risk associated with our international operations, see “Risk Factors - Trends, Risks and UncertaintiesRelated to Our Business” included elsewhere in this Form 10-K. Of the total number of our employees as of December 31, 2018, approximately 29,700were engaged in manufacturing, approximately 3,100 were engaged in research and development, approximately 1,800 were engaged in our sales andmarketing organization, 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 15, 2019 is set forth below. Name Age PositionKeith D. Jackson 63 President, Chief Executive Officer and Director*Bernard Gutmann 59 Executive Vice President, Chief Financial Officer and Treasurer*George H. Cave 61 Executive Vice President, General Counsel, Chief Compliance & Ethics Officer, Chief Risk Officer andCorporate Secretary*Bernard R. Colpitts, Jr. 44 Chief Accounting Officer and Vice President of Finance and Treasury*Vincent C. Hopkin 56 Executive Vice President and General Manager, Analog Solutions Group*Simon Keeton 46 Executive Vice President and General Manager, Power Solutions Group*Taner Ozcelik 51 Senior Vice President and General Manager, Intelligent Sensing Group*Paul E. Rolls 56 Executive Vice President, Sales and Marketing*William A. Schromm 60 Executive Vice President and Chief Operating Officer** Executive Officers of both ON Semiconductor and SCI LLC. 18Table of ContentsThe 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, Corporate Analysis & Strategy of SCI LLC, serving in that position from April 2006 to September 2012. In these roles, hisresponsibilities have included finance integration, financial reporting, restructuring, tax, treasury and financial planning and analysis. From November2002 to April 2006, Mr. Gutmann served as Vice President, Financial Planning & Analysis and Treasury of SCI LLC. From September 1999 toNovember 2002, he held the position of Director, Financial Planning & Analysis of SCI LLC. Prior to joining ON Semiconductor, Mr. Gutmann servedin various financial positions with Motorola from 1982 to 1999, including controller of various divisions and an off-shore wafer and backend factory,finance and accounting manager, financial planning manager and financial analyst. He holds a Bachelor of Science in Management Engineering fromWorcester Polytechnic Institute 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 degree cumlaude from Duke University. 19Table of ContentsBernard 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, a position he has held since June 2013. In connection with the promotion to Chief Accounting Officer, theCompany 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.Vincent C. Hopkin. Mr. Hopkin joined the Company in March 2008 and currently serves as Executive Vice President and General Manager of theAnalog Solutions Group for ON Semiconductor and SCI LLC. From September 2016 to May 2018, he was Senior Vice President and General Managerof the Digital and DC/DC Solutions Division. He has more than three decades of experience in the electronics industry. During his career, Mr. Hopkinhas held various leadership positions within business units, sales and manufacturing. Prior to joining ON Semiconductor in 2008, he successfullymanaged several businesses including ASIC, military/aerospace, image sensing and foundry services at AMI Semiconductor, Inc. Mr. Hopkin joinedAMIS in 1983 and worked in several operations functions. Mr. Hopkin holds a Bachelor of Science degree in management and organizational behaviorfrom Idaho State University.Simon Keeton. Mr. Keeton joined the Company in July 2007 and is currently the Executive Vice President and General Manager of the PowerSolutions Group of ON Semiconductor and SCI LLC. During his career, Mr. Keeton has held various management positions within the Company.Before Mr. Keeton’s promotion to his current role on January 1, 2019, he was a Senior Vice President and General Manager of the MOSFET Division.From 2012 to 2016, Mr. Keeton served as Vice President and General Manager of the Integrated Circuit Division under our former Standard ProductsGroup. Prior to that time, he served as Vice President and General Manager of the Consumer Products Division from 2009 to 2012 and as Business UnitDirector of our Signals and Interface Business Unit from 2007 to 2009. Before joining the Company, Mr. Keeton served as Strategic Planning Managerof the Digital Enterprise Group of Intel Corporation at Intel and held various marketing and business management roles at Vitesse SemiconductorCorporation.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 Intelligent Sensing 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 a Masters of Business Administration degreefrom the Wharton School of the University of Pennsylvania, a Ph.D. in Electrical Engineering from Northwestern University and a Bachelor of Sciencein Electrical Engineering from Bogazici University, Turkey. He is listed as an inventor on 23 U.S. patents. 20Table of ContentsPaul 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 to July 2013. Mr. Rolls has more than 26 years of technology sales, sales management and operationsexperience, with more than 19 years of sales and sales management experience in the semiconductor industry. Before joining the Company, Mr. Rollswas the Senior Vice President, Worldwide Sales and Marketing at Integrated Device Technology, Inc. from January 2010 to April 2012. From August1996 to December 2009, he held multiple sales positions at International Rectifier Corp., most recently as Senior Vice President, Global Sales. Duringhis career, he has also held management roles at Compaq 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 Bachelor of Science degree from Boston College and aMaster of Business Administration degree from the University of Phoenix.Geographical InformationFor certain geographic operating information, see Note 3: “Revenue and Segment Information” and Note 16: “Income Taxes” in the notes to ouraudited consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in eachcase as included elsewhere in this Form 10-K. For information regarding other risks associated with our foreign operations, see “Risk Factors - Trends,Risks and 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 website as soon as reasonably practicable after we electronically file these materials with, orfurnish these materials to the SEC. Our website is www.onsemi.com. Information on or connected to our website is neither part of, nor incorporated byreference into, this Form 10-K or any other report filed with or furnished to the SEC. You will find these materials on the SEC website at www.sec.gov,which contains reports, proxy statements and other information regarding issuers that file electronically with the SEC. 21Table of ContentsItem 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 revenue and operating performance; economic conditions and markets (including current financial conditions); risksrelated to our ability to meet our assumptions regarding outlook for revenue and gross margin as a percentage of revenue; effects of exchange ratefluctuations; 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 our acquisition of Fairchild and with other acquisitions and dispositions,including our ability to realize the anticipated benefits of our acquisitions and dispositions; risks that acquisitions or dispositions may disrupt ourcurrent plans and operations, the risk of unexpected costs, charges or expenses resulting from acquisitions or dispositions and difficulties arising fromintegrating and consolidating acquired businesses, our timely filing of financial information with the SEC for acquired businesses and our ability toaccurately predict the future financial performance of acquired businesses; competitor actions, including the adverse impact of competitor productannouncements; 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 toexpend cash reserves for various uses in accordance with our capital allocation policy such as debt prepayment, stock repurchases or acquisitions ratherthan to retain such cash for future needs; risks associated with our substantial leverage and restrictive covenants in our debt agreements that may be inplace from time to time; risks associated with our worldwide operations, including changes in trade policies, foreign employment and labor mattersassociated with unions and collective bargaining arrangements, as well as man-made and/or natural disasters affecting our operations or financialresults; the threat or occurrence of international armed conflict and terrorist activities both in the United States and internationally; risks of changes inU.S. or international tax rates or legislation, including the impact of the recent U.S. tax legislation; risks and costs associated with increased and newregulation of corporate governance and disclosure standards; risks related to new legal requirements; and risks involving environmental or othergovernmental regulation. Additional factors that could affect our future results or events are described from time to time in our SEC reports. Readers arecautioned not to place undue reliance on forward-looking statements. We assume no obligation to update such information, except as may be requiredby law. 22Table of ContentsYou 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 BusinessDownturns 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 recent and expected shifts inlegislative and regulatory conditions concerning, among other matters, international trade and taxation, and that an uneven recovery or a renewedglobal downturn may put pressure on our sales due to reductions in customer demand as well as customers deferring purchases. Volatile and/oruncertain economic conditions can adversely impact sales and profitability and make it difficult for us and our competitors to accurately forecast andplan our future business activities. To the extent we incorrectly plan for favorable economic conditions that do not materialize or take longer tomaterialize than expected, we may face oversupply of our products relative to customer demand. In the past, reduced customer spending has driven us,and may in the future drive us and our competitors, to reduce product pricing, which results in a negative effect on gross profit. Moreover, volatility inrevenue as a result 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 economicconditions, our business and results of operations may be materially adversely affected.The loss of one of our largest customers, or a significant reduction in the revenue we generate from these customers, could materially adversely affectour revenue, profitability, and results of operations.Product sales to our ten largest end-customers, which excludes distributors, have historically accounted for a significant amount of our business. Forinstance, for the years ended December 31, 2018 and 2017, revenue from our 10 largest end-customers collectively represented approximately 25% and24%, respectively, of our total revenue for those years. Many of our customers operate in cyclical industries, and, in the past, we have experiencedsignificant fluctuations from period to period in the volume of our products ordered. Generally, our agreements with our customers impose nominimum or continuing obligations to purchase our products. We cannot assure you that our largest customers will not cease purchasing products fromus in favor of products produced by other suppliers, significantly reduce orders or seek price reductions in the future, and any such event could have amaterial adverse effect on our revenue, profitability, and results of operations. 23Table of ContentsBecause 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 wireless and networking). Sales into these industries represented approximately 31%, 27%, and 18% of our revenue, respectively,for the year ended December 31, 2018, and those percentages will vary from quarter to quarter. Each of the automotive, industrial and communicationsindustries is cyclical, and, as a result, our customers in these industries are sensitive to changes in general economic conditions, disruptive innovationand end-market preferences, which can adversely affect sales of our products and, correspondingly, our results of operations. Additionally, the quantityand price 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.The 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.Rapid 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. 24Table of ContentsShortages 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, the costs of our raw materials increases significantly, their quality deteriorates or they give rise tocompatibility or performance issues in our products, our results of operations could be materially adversely affected.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 Rožnov pod Radhoštěm, Czech Republic, manufactures silicon wafers used by a number of our facilities, and our Intelligent SensingGroup relies predominantly on one third-party for manufacturing at the front-end of its manufacturing process, and any operational disruption, naturalor man-made disaster or other extraordinary event that impacted either of those facilities would have a material adverse effect on our ability to producea number of our products worldwide. In the event of a disruption at any such facility, we may be unable to effectively source replacement componentson acceptable 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.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 technologies and divert the efforts of our technical and management personnel,whether or not such litigation is resolved in our favor. In the event of an adverse outcome in any such litigation, we may be required to: • pay substantial damages; • indemnify customers or distributors; 25Table of Contents • 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 13: “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.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, inaccuracies in or restatements of our consolidated financial statements due to accounting for our acquisitions could have amaterial adverse effect our financial condition and results of operations. 26Table of ContentsWe 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 revenue does 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.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 internal manufacturing, working with our material suppliers to lowercosts, implementing personnel reductions and voluntary retirement programs, reducing employee compensation, temporary shutdowns of facilitieswith mandatory vacation and aggressively streamlining our overhead. In the past, we have recorded net restructuring charges to cover costs associatedwith our cost reduction initiatives. These costs have been primarily composed of employee separation costs (including severance payments) and assetimpairments. We also often undertake restructuring activities and programs to improve our cost structure in connection with our business acquisitions,which can result in significant charges, including charges for severance payments 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. 27Table of ContentsIf 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 standards and certification requirements may adversely affect the demand for our products. We focus our independent new productdevelopment efforts on market segments and applications that we anticipate will experience growth, but there can be no assurance that we will besuccessful in identifying high-growth areas or develop products that meet industry standards or certification requirements in a timely manner. Afundamental shift in technologies, the regulatory climate or consumption patterns and preferences in our existing product markets or the productmarkets of our customers or end-users could make our current products obsolete, prevent or delay the introduction of new products that we planned tomake or render our current or new products irrelevant to our customers’ needs. If our new product development efforts fail to align with the needs of ourcustomers, including due to circumstances outside of our control like a fundamental shift in the product markets of our customers and end users orregulatory changes, our business and results of operations could be materially adversely affected. 28Table of ContentsUncertainties 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. Our customers may cancel orders 30 days prior to shipment for standard productsand, generally prior to start of production for custom products without incurring a 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 times of under supply for certain products, some customers could respond by inflating their demand signals. As markets leveloff and supply capacity begins to match actual market demands, we could experience an increased risk of inventory write-downs, which may materiallyadversely affect our results of operations and our financial condition. In addition, our customers may change their inventory practices on short noticefor any reason. Furthermore, short customer lead times are standard in the industry due to overcapacity. The cancellation or deferral of product orders,the return of previously sold products, or overproduction of products due to the failure of anticipated orders to materialize could result in excessobsolete inventory, which could result in write-downs of inventory or the incurrence of significant cancellation penalties under our arrangements withour raw materials and equipment suppliers. Unsold inventory, canceled orders and cancellation penalties may materially adversely affect our results ofoperations, and inventory write-downs, which may materially 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.The 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. 29Table of ContentsOur 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 revenue may be materially adversely affected. Competitive pressures may limit our ability to raise prices, and any inability to maintainrevenue 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 disrupt the operations of our businesses by negatively impacting our supply chain, our ability to deliver products, and the cost of ourproducts. Such events can negatively impact revenue and earnings and can significantly impact cash flow, both from decreased revenue and fromincreased costs associated with the event. In addition, these events could cause consumer confidence and spending to decrease or result in increasedvolatility to the U.S. and worldwide economies. Although we carry insurance to generally compensate for losses of the type noted above, suchinsurance may not be adequate to cover all losses that may be incurred or continue to be available in the affected area at commercially reasonable ratesand terms. To the extent any losses from natural disasters or other business disruptions are not covered by insurance, any costs, write-downs,impairments and decreased revenue can materially adversely affect our business, our results of operations and our financial condition. 30Table of ContentsWe 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 global operations subject us to risks inherent in doing business on a global level that could adversely impact our business, financial conditionand results of operations.A significant amount of our total revenue is derived from the Asia/Pacific region and Europe, and we maintain significant operations in these regions.In addition, we rely on a number of contract manufacturers whose operations are primarily located in the Asia/Pacific region. Risks inherent in doingbusiness on a global 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; • 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 additional 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 • 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. 31Table of ContentsWe 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 laws or regulations in the United States and the jurisdictions in which we operate, or in the interpretation of such laws orregulations, could, under our existing tax structure, significantly increase our effective tax rate and ultimately reduce our cash flow from operatingactivities, result in us having to restructure and otherwise have a material 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 incometaxes upon finalization of various tax returns or as a result of deficiencies asserted by taxing authorities, increases in expenses not deductible for taxpurposes, changes in available tax credits, increasing operations in high tax jurisdictions, and changes in tax rates, could also increase our futureeffective 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 recent 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 made broad and complex changes to the U.S. tax code. Many of the changes require additional guidance, including through the issuance offinal Treasury Regulations, which could lessen or increase certain adverse impacts of the Tax Act. Although our accounting under ASC 740 for theprovisions of the Tax Act is now complete, our analysis and interpretation of the Tax Act and proposed Treasury Regulations are ongoing and mayinclude judgments and interpretations that could change based on final Treasury Regulations or other guidance or due to actions that the Companymay take in response to such regulatory change. As a result, the impact of the Tax Act may differ from our estimates, possibly materially.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.Any benefit associated with the lower U.S. corporate tax rate could be reduced or outweighed by the cost of compliance or other adverse regulatorychanges related to the Tax Act or final Treasury Regulations. 32Table of ContentsWe 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 ContentsChanges in tariffs or other government trade policies may materially adversely affect our business and results of operations, including by reducingdemand for our products.The imposition of tariffs and trade restrictions as a result of international trade disputes or changes in trade policies may adversely affect our sales andprofitability. For example, in 2018, the U.S. government imposed and proposed, among other actions, new or higher tariffs on specified importedproducts originating from China in response to what it characterizes as unfair trade practices, and China has responded by imposing and proposing newor higher tariffs on specified products including some semiconductors fabricated in the United States. There can be no assurance that a broader tradeagreement will be successfully negotiated between the United States and China to reduce or eliminate these tariffs. These tariffs, and the relatedgeopolitical uncertainty between the United States and China, may cause decreased end-market demand for our products from distributors and othercustomers, which could have a material adverse effect on our business and results of operations. For example, certain of our foreign customers mayrespond to the imposition of tariffs or threat of tariffs on products we produce by delaying purchase orders, purchasing products from our competitors ordeveloping their own products. Ongoing international trade disputes and changes in trade policies could also impact economic activity and lead to ageneral contraction of customer demand. In addition, tariffs on components that we import from China or other nations that have imposed, or may inthe future impose, tariffs will adversely affect our profitability unless we are able to exclude such components from the tariffs or we raise prices for ourproducts, which may result in our products becoming less attractive relative to products offered by our competitors. Future actions or escalations byeither the United States or China that affect trade relations may also impact our business, or that of our suppliers or customers, and we cannot provideany assurances as to whether such actions will occur or the form that they may take. To the extent that our sales or profitability are negatively affectedby any such tariffs or other trade actions, our business and results of operations may be materially adversely affected.Changes in government trade policies could limit our ability to sell our products to certain customers, which may materially adversely affect oursales and results of operations.The U.S. Congress or U.S. regulatory authorities may take administrative, legislative or regulatory action that could materially interfere with our abilityto make sales to certain of our customers, particularly in China. We could experience unanticipated restrictions on our ability to sell to certain foreigncustomers where sales of products and the provision of services may require export licenses or are prohibited by government action. For example, theU.S. Department of Commerce could ban the export of U.S. products to foreign customers. The terms and duration of any such restrictions may not beknown to us in advance and may be subject to ongoing modifications. Even to the extent such restrictions are subsequently lifted, any financial orother penalties imposed on affected foreign customers could have a negative impact on future orders. Such foreign customers may also respond tosanctions or the threat of sanctions by developing their own solutions or adopting alternative solutions or competitors’ solutions. The loss ortemporary loss of customers as a result of such future regulatory limitations could materially adversely affect our sales, business and results ofoperations. 34Table 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. 35Table of ContentsIf 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, trade secrets, trademarks, mask works and copyrights to protect our products and technologies are subject to legislativeand regulatory change and interpretation 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. 36Table of ContentsEnvironmental 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; • 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. 37Table of ContentsThere 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 their recall. As suppliers become more integrally involved in electrical design, OEMs are increasingly expecting them to warrant theirproducts and are increasingly looking to them for contributions when faced with product liability claims or recalls. A successful warranty or productliability claim against us in excess of our available insurance coverage, if any, and established reserves, or a requirement that we participate in aproduct recall, could have material adverse effects on our business, results of operations and financial condition. Additionally, in the event that ourproducts fail to perform as expected or such failure of our products results in a recall, our reputation may be damaged, which could make it moredifficult for us to sell our products to existing and prospective customers and could materially adversely affect our business, results of operations andfinancial 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 revenue 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 revenue and profits we receivedfrom the products involved, our results of operations and financial condition could be materially adversely affected. 38Table of ContentsWe 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 business. Failure to manage risks related to our use of distributorsmay reduce sales, increase expenses, and weaken our competitive position, any of which could have a material adverse effect on our results ofoperations.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. 39Table of ContentsThe 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 (“GDPR”) that imposed more stringent data protection requirements and provided for greater penalties for noncompliancebeginning in May 2018. Although the Company has substantially complied with the GDPR, any inability, or perceived inability, to adequatelyaddress privacy and data protection concerns, even if unfounded, or to comply with applicable laws, regulations, policies, industry standards,contractual obligations or other legal obligations, could result in additional cost and liability to the Company or company officials, damage ourreputation, inhibit sales and adversely affect our 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, 2018, we had $2,939.0 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 other purposes, and if we incur additional debt, the related risks that we now face couldintensify. The degree to which we are leveraged could have important 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 2018 Share Repurchase Program, could be affected by thedegree to 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; 40Table of Contents • 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 which, as subsequently amended, provides for our$1.0 billion Revolving Credit Facility, which provides liquidity to us, and our $2.4 billion Term Loan “B” Facility, the proceeds of which wereinitially used to fund the acquisition of Fairchild. The obligations under the Amended Credit Agreement are collateralized by a lien on substantiallyall of the personal property and material real property assets of the Company and most of the Company’s domestic subsidiaries. As a result, if we areunable to satisfy our obligations under the Amended Credit Agreement, the lenders could take possession of and foreclose on the pledged collateralsecuring the indebtedness, in which case we would be at risk of losing the related collateral, which would have a material adverse effect on our businessand operations. In addition, subject to customary exceptions, the Amended Credit Agreement requires mandatory prepayment under certaincircumstances, which may result in prepaying outstanding amounts under the Revolving Credit Facility and the Term Loan “B” Facility rather thanusing 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 additional financing for working capital, capital expenditures, acquisitions, and other generalcorporate purposes and could reduce our flexibility to respond 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. 41Table of ContentsSuch 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 that indebtedness, which could materially negatively impact our results of operations and financialcondition. A default under our committed credit facilities, including our Amended Credit Agreement, could also limit our ability to make furtherborrowings under those facilities, which could materially adversely affect our business and results of operations. In addition, to the extent we are notable to borrow or refinance debt obligations, we may have to issue additional shares of our common stock, which would have a dilutive effect to thecurrent 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 certain of our agreements relating to our outstanding indebtedness, the holders of the defaulted debt could causeall amounts 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. 42Table of ContentsIf 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 through the end of 2019. However, we may notmaintain interest rate swaps with respect to all of our variable rate indebtedness, and any swaps we enter into may not fully mitigate our interest raterisk. To the extent the risk materializes and is not fully mitigated, the resulting increase in interest expense could have a material adverse effect on ourresults of operations. 43Table 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 any such issuance of common stock could materially dilute the ownership interests ofexisting stockholders, including stockholders who previously converted such notes to shares of our common stock. 44Table of ContentsThe 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. 45Table 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 revenue 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 revenue 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. 46Table 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 volatility, 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 ourboard of 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. 47Table of ContentsItem 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 third-party, 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 manufacturing operations. While these facilities are primarily used in manufacturing operations, they alsoinclude office, utility, laboratory, warehouse and 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, Taiwanand the United States. Our joint ventures in Leshan, China and in Aizuwakamatsu, Japan also own manufacturing, warehouse, laboratory, office andother unused space. We believe that our facilities around the world, whether owned or leased, are well-maintained.Certain of our properties are subject to encumbrances such as mortgages and liens. See Note 9: “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 13: “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 DisclosureNot applicable. 48Table 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 stock price details can be obtained from the Nasdaqwebsite at www.nasdaq.com. As of February 15, 2019, there were approximately 233 holders of record of our common stock and 409,710,366 shares ofcommon 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 and the amount we are permitted to buy back shares underthe Share Repurchase Programs (as defined below). So long as no default has occurred and is continuing or results therefrom, our Amended CreditAgreement permits us to pay cash dividends to our common stockholders, buy back shares under the Share Repurchase Programs, or a combinationthereof, in an amount up to $100.0 million. Additionally, we may pay dividends and buy back shares under the Share Repurchase Programs in anunlimited amount so long as, after giving effect thereto, the consolidated total net leverage ratio (calculated in accordance with our Amended CreditAgreement) does not exceed 2.50 to 1.00. See Note 9: “Long-Term Debt” in the notes to the audited consolidated financial statements includedelsewhere in this Form 10-K for further discussion of our Amended Credit Agreement.Issuer Purchases of Equity SecuritiesThe following table provides information regarding repurchases of our common stock during the quarter ended December 31, 2018: Period (1) Total Number ofShares Purchased (2) Average Price Paidper Share (3) Total Number ofSharesPurchased aspart of PubliclyAnnouncedPlans orPrograms Approximatedollar value ofShares that mayyet be Purchasedunder the Plansor Programs($ in millions)(4) (5) September 29, 2018 - October 26, 2018 3,622,003 $16.84 3,570,198 $428.2 October 27, 2018 - November 23, 2018 7,916,139 17.73 7,901,299 288.2 November 24, 2018 - December 31, 2018 69,875 17.75 — 1,500.0 Total 11,608,017 17.46 11,471,497 (1)These time periods represent our fiscal month start and end dates for the fourth quarter of 2018. (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 and shares purchased under the Share Repurchase Programs. 49Table of Contents(3)The price per share is based on the fair market value at the time of tender or repurchase, respectively. (4)On December 1, 2014, we announced a capital allocation policy (the “Capital Allocation Policy”) and a share repurchase program pursuant to theCapital Allocation Policy (the “2014 Share Repurchase Program”) for up to $1.0 billion of our common stock over a four-year period effectiveDecember 1, 2014, exclusive of any fees, commissions or other expenses. The 2014 Share Repurchase Program expired on November 30, 2018,and approximately $288.2 million that remained unutilized was canceled. (5)On November 15, 2018, we announced a new share repurchase program pursuant to the Capital Allocation Policy (the “2018 Share RepurchaseProgram” and, together with the 2014 Share Repurchase Program, the “Share Repurchase Programs”) for up to $1.5 billion of our common stockover a four-year period effective from December 1, 2018, exclusive of any fees, commissions or other expenses.Share Repurchase ProgramsUnder the 2014 Share Repurchase Program, we were permitted to repurchase up to $1.0 billion (exclusive of fees, commissions and other expenses) ofour common stock over a period of four years from December 1, 2014, subject to certain contingencies. We were permitted to repurchase our commonstock from time to time in privately negotiated transactions or open market transactions, including pursuant to a trading plan in accordance with Rule10b5-1 and Rule 10b-18 of the Exchange Act, or by any combination of such methods or other methods. The timing of any repurchases and the actualnumber of shares repurchased depended on a variety of factors, including our stock price, corporate and regulatory requirements, restrictions under ourdebt obligations and other market and economic conditions. The 2014 Share Repurchase Program did not require us to purchase any particular amountof common stock and was subject to a variety of factors including the Board’s discretion. The 2014 Share Repurchase Program expired onNovember 30, 2018.We repurchased 11.5 million shares of our common stock for approximately $200.0 million under the 2014 Share Repurchase Program during thequarter ended December 31, 2018.Under the 2018 Share Repurchase Program, we may repurchase up to $1.5 billion (exclusive of fees, commissions and other expenses) of our commonstock over a period of four years from December 1, 2018, subject to certain contingencies. We may repurchase our common stock from time to time inprivately negotiated transactions or open market transactions, including pursuant to a trading plan in accordance with Rule 10b5-1 and Rule 10b-18 ofthe Exchange Act, or by any combination of such methods or other methods. The timing of any repurchases and the actual number of sharesrepurchased will depend on a variety of factors, including our stock price, corporate and regulatory requirements, restrictions under our debtobligations, other market and economic conditions. The 2018 Share Repurchase Program does not require us to purchase any particular amount ofcommon stock and is subject to a variety of factors including the Board’s discretion.No shares were repurchased under the 2018 Share Repurchase Program during the quarter ended December 31, 2018. As of December 31, 2018,$1.5 billion remained of the total amount authorized to purchase common stock pursuant to the 2018 Share Repurchase Program.See Note 10: “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, the 2014 Share Repurchase Program and the 2018 Share Repurchase Program. 50Table 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 are derived from our audited consolidated financial statements. The table below includes consolidated results, including our recentacquisitions, 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, 2018 2017 2016 2015 2014 (in millions, except per share data) Consolidated Statements of Operations data: Revenue $ 5,878.3 $ 5,543.1 $ 3,906.9 $ 3,495.8 $ 3,161.8 Restructuring, asset impairments and other, net 4.3 20.8 33.2 9.3 30.5 Goodwill and intangible asset impairment charges 6.8 13.1 2.2 3.8 9.6 Net income 629.9 813.0 184.5 209.0 192.1 Diluted net income per common share attributable to ON SemiconductorCorporation 1.44 1.89 0.43 0.48 0.43 Consolidated Balance Sheets data: Total assets (1) $7,587.6 $7,195.1 $6,924.4 $3,869.6 $3,822.1 Net long-term debt, including current maturities, less capital leaseobligations (1) 2,765.2 2,947.6 3,609.3 1,365.7 1,150.9 Capital lease obligations 0.9 4.2 13.0 28.2 40.8 Total stockholders’ equity 3,194.1 2,801.0 1,845.0 1,631.9 1,647.4 (1)Increased in 2016 primarily due to the Fairchild Transaction. See Note 5: “Acquisitions, Divestitures and Licensing Transactions” and Note 9:“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. 51Table of ContentsIndustry OverviewAccording to WSTS (an industry research firm), worldwide semiconductor industry sales were $468.8 billion in 2018, an increase of approximately13.7% from $412.2 billion in 2017. 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 revenue and revenue in our Serviceable Addressable Market (“SAM”) since 2014: Year EndedDecember 31, WorldwideSemiconductorIndustry Sales (1) PercentageChange ServiceableAddressableMarket Sales (1)(2) PercentageChange (in billions) (in billions) 2018 $468.8 13.7 % $82.0 10.2 % 2017 $412.2 21.6 % $74.4 12.6 % 2016 $338.9 1.1 % $66.1 5.4 % 2015 $335.2 (0.2)% $62.7 (1.9)% 2014 $335.8 9.9 % $63.9 11.5 % (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)From time to time, we reassess the WSTS product categories that our SAM comprises. For comparison purposes, the information for 2014through 2017 in the table above has been revised from previously-reported SAM sales to reflect our current assessment. Our SAM comprisesmainly the following WSTS product categories: (a) discrete products, which includes diodes, small signal transistors, power transistors andmodules, rectifiers and thyristors; (b) image sensors; (c) general purpose analog; (d) application specific analog for computer, automotive, andindustrial; and (e) MOS general purpose logic. Our SAM is derived using the most recent information available, excluding foundry exposure, atthe 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 $335.8 billion in 2014 to $468.8 billion in 2018. The increase of 13.7% from 2017to 2018 was the result of increased demand for semiconductor products. Sales in our SAM increased from $63.9 billion in 2014 to $82.0 billion in2018. The increase of 10.2% from 2017 to 2018 is consistent with the trend in the worldwide semiconductor market.ON Semiconductor OverviewOur 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. 52Table of ContentsWe believe that some of the key factors and trends affecting our results of operations include, but not limited to: • 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, such as tariffs on imports into the U.S. from China; • The effects of trends in the automotive and industrial end-markets on our revenue; and • Competitive conditions, and in particular, consolidation, within our industry.Recent ON Semiconductor ResultsOur total revenue for the year ended December 31, 2018 was $5,878.3 million, an increase of approximately 6.0% from $5,543.1 million from the yearended December 31, 2017. The increase was primarily attributable to an increase in revenue in our Power Solutions Group and Analog Solutions Groupas a result of better demand. During 2018, we reported net income attributable to ON Semiconductor of $627.4 million compared to $810.7 million in2017. Net income attributable to ON Semiconductor for the year ended December 31, 2017 was positively impacted by $449.9 million relating to theU.S. tax reform as well as the change in revenue recognition from sell-through to sell-in for shipment to our distributors. Excluding the impact of theseitems, the improved results for 2018 were attributable to healthy end-user demand for our products and contributions from the acquired Fairchildbusiness. Our gross margin increased by approximately 140 basis points to 38.1% in 2018 from 36.7% in 2017. The increase in gross margin wasprimarily due to more favorable product mix.Business and Macroeconomic Environment Influence on Cost Savings and Restructuring ActivitiesWe have historically pursued, and expect to continue to pursue, cost-saving initiatives to align our overall cost structure, capital investments and otherexpenditures with our expected revenue, spending and capacity levels based on our current sales and manufacturing projections. We have recognizedefficiencies from previously implemented restructuring activities and programs and continue to implement profitability enhancement programs toimprove our cost structure. The semiconductor industry has traditionally been highly cyclical and has often experienced significant downturns inconnection with, or in anticipation of, declines in general economic conditions. We have historically taken significant actions to align our overall coststructure with our expectations of market conditions and by focusing on synergies-related cost reductions arising from each of our acquisitions.However, there can be no assurances that we will adequately forecast economic conditions or that we will effectively align our cost structure, capitalinvestments and other expenditures with our revenue, spending and capacity levels in the future.See “Results of Operations—Restructuring, asset impairments and other, net” below, along with Note 7: “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.Results of OperationsOur results of operations for the years ended December 31, 2018 and December 31, 2017 include the full year results, and our results of operations forthe year ended December 2016 include the partial year results from our acquisition of Fairchild on September 19, 2016. Our results of operations for theyear ended December 31, 2018 include the partial year results, from our acquisition of SensL on May 8, 2018. 53Table of ContentsOperating ResultsThe following table summarizes certain information relating to our operating results that has been derived from our audited consolidated financialstatements (in millions): Year ended December 31, Dollar Change 2018 2017 2016 2017 to 2018 2016 to2017 Revenue $ 5,878.3 $ 5,543.1 $ 3,906.9 $ 335.2 $ 1,636.2 Cost of revenue (exclusive of amortization shown below) 3,639.6 3,507.5 2,606.4 132.1 901.1 Gross profit 2,238.7 2,035.6 1,300.5 203.1 735.1 Operating expenses: Research and development 650.7 594.7 446.8 56.0 147.9 Selling and marketing 324.7 316.6 236.7 8.1 79.9 General and administrative 293.3 285.0 230.0 8.3 55.0 Amortization of acquisition-related intangible assets 111.7 123.8 104.8 (12.1) 19.0 Restructuring, asset impairments and other, net 4.3 20.8 33.2 (16.5) (12.4) Goodwill and intangible asset impairment 6.8 13.1 2.2 (6.3) 10.9 Total operating expenses 1,391.5 1,354.0 1,053.7 37.5 300.3 Operating income 847.2 681.6 246.8 165.6 434.8 Other income (expense), net: Interest expense (128.2) (141.2) (145.3) 13.0 4.1 Interest income 6.1 3.0 4.5 3.1 (1.5) Loss on debt refinancing and prepayment (4.6) (47.2) (6.3) 42.6 (40.9) Gain on divestiture of business 5.0 12.5 92.2 (7.5) (79.7) Licensing income 36.6 47.6 — (11.0) 47.6 Other expense (7.1) (8.8) (11.3) 1.7 2.5 Other income (expense), net (92.2) (134.1) (66.2) 41.9 (67.9) Income before income taxes 755.0 547.5 180.6 207.5 366.9 Income tax benefit (provision) (125.1) 265.5 3.9 (390.6) 261.6 Net income 629.9 813.0 184.5 (183.1) 628.5 Less: Net income attributable to non-controlling interest (2.5) (2.3) (2.4) (0.2) 0.1 Net income attributable to ON Semiconductor Corporation $627.4 $810.7 $182.1 $(183.3) $628.6 RevenueRevenue was $5,878.3 million, $5,543.1 million and $3,906.9 million for 2018, 2017 and 2016, respectively. 54Table of ContentsPrior to the first quarter of 2017, we recognized revenue from distributors under the sell-through method as we did not have the ability to estimate theeffects of returns and allowances. Beginning in the first quarter of 2017, we were able to estimate upfront the effects of returns and allowances andrecord revenue at the time of shipments to our distributors. This change resulted in us recognizing an additional $155.1 million in revenue during thefirst quarter of 2017, which resulted in an increase of $59.0 million to gross profit and income before income taxes for such period. The impact of thischange is reflected in the discussion below.The increase of $335.2 million, or approximately 6%, in revenue in 2018 compared to 2017 was primarily attributable to approximately 8% and 6%increases in revenue in our Power Solutions Group and Analog Solutions Group, respectively, as a result of better demand for these products.Excluding the one-time impact of the change in revenue recognition for the year ended December 31, 2017 amounting to $155.1 million, revenueincreased $490.3 million, or approximately 9%.The increase in revenue from 2017 compared to 2016 of $1,636.2 million, or approximately 42%, was primarily attributable to approximately 65% and32% increases in revenue in our Power Solutions Group and Analog Solutions Group, respectively, as a result of increased demand for these products.The year 2017 included an entire twelve-month period of Fairchild revenue and $155.1 million in revenue due to the change in revenue recognition ondistributor sales. Excluding the one-time impact of the change in revenue recognition for the year ended December 31, 2017, revenue increased$1,481.1 million, or approximately 38%.Revenue by reportable segment for each were as follows (dollars in millions): 2018 As a % of Revenue (1) 2017 As a % of Revenue (1) 2016 As a % of Revenue (1) Power Solutions Group $ 3,038.2 51.7% $ 2,819.3 50.9% $ 1,708.6 43.7% Analog Solutions Group 2,071.2 35.2% 1,950.9 35.2% 1,481.5 37.9% Intelligent Sensing Group 768.9 13.1% 772.9 13.9% 716.8 18.3% Total revenue $5,878.3 $5,543.1 $3,906.9 (1) Certain of the amounts may not total due to rounding of individual amounts.Revenue from the Power Solutions GroupRevenue from the Power Solutions Group increased by $218.9 million, or approximately 8%, during 2018 compared to 2017, and increased by$1,110.7 million, or approximately 65%, during 2017 compared to 2016. Excluding the $107.8 million increase in revenue due to the change inrevenue recognition on distributor sales during the year ended December 31, 2017, revenue increased by $326.7 million or 12% in 2018 compared to2017.The 2018 increase was primarily attributable to an increase in revenue of $165.9 million in our Power MOSFET division due to increased demand, anincrease in revenue of our High Power division by $83.8 million due to entry into new markets, and to a lesser extent, $30.0 million increase in ourIntegrated Circuits division and $28.5 million increase in our Protection and Signal division also due to better demand.The 2017 increase was 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 revenue in our Power MOSFET division, a$327.8 million increase in revenue in our High Power division, and, to a lesser extent, $132.9 million increase in revenue in our Integrated Circuitsdivision and $120.7 million increase in revenue in our Protection and Signal division. 55Table of ContentsRevenue from the Analog Solutions GroupRevenue from the Analog Solutions Group increased by $120.3 million, or approximately 6%, during 2018 compared to 2017 and increased by$469.4 million, or approximately 32%, during 2017 compared to 2016. Excluding the $42.1 million increase in revenue due to the change in revenuerecognition on distributor sales during the year ended December 31, 2017, revenue increased by $162.4 million or 9% in 2018 compared to 2017.The 2018 increase was primarily attributable to revenue in our Mobile and Computing Division increasing by $78.5 million, revenue in our Signal,Wireless and Medical Division increasing by $30.5 million and revenue in our Automotive Division increasing by $52.8 million, all due to increase indemand in the markets served.The 2017 increase was primarily attributable to the acquisition of Fairchild, which had a full year contribution in 2017, as well as a $42.1 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 $150.6 million increase in revenue in our Mobile Solutions division, a$100.3 million increase in revenue in our Automotive division, a $97.5 million increase in revenue in our then Digital and DC/DC division and a$81.3 million increase in revenue in our Industrial and Offline Power division.Revenue from the Intelligent Sensing GroupRevenue from the Intelligent Sensing Group decreased by $4.0 million, or approximately 1%, during 2018 compared to 2017 and increased by$56.1 million, or approximately 8%, during 2017 compared to 2016.The 2018 decrease was primarily attributable to a decrease in our Consumer Solutions Division revenue by $52.6 million, primarily as a result of theexit of the Mobile CIS business and a $7.8 million decrease in our Industrial Solutions Division due to our de-emphasis of certain lower marginproduct lines as well as decreased demand, offset by an increase in our Automotive Solutions Division revenue by $56.6 million due to better demandin the markets served.The 2017 increase was primarily attributable to an $84.9 million, or 29%, increase in revenue in our Automotive Solutions division, which waspartially offset by a $39.6 million, or approximately 13%, decrease in revenue in our Consumer Solutions division as a result of the exit of the MobileCIS business which occurred during the fourth quarter of 2016. For further information on the Mobile CIS business exit, see Note 5: “Acquisitions,Divestitures and Licensing Transactions”.Revenue by Geographic LocationRevenue by geographic location, including local sales made by operations within each area, based on sales billed from the respective country, are asfollows (dollars in millions): 2018 As a % of Revenue (1) 2017 As a % of Revenue (1) 2016 As a % of Revenue (1) Singapore $1,955.0 33.3% $1,466.9 26.5% $1,110.4 28.4% Hong Kong 1,489.1 25.3% 1,785.0 32.2% 1,086.8 27.8% United Kingdom 946.5 16.1% 668.8 12.1% 541.1 13.8% United States 862.7 14.7% 748.8 13.5% 588.4 15.1% Other 625.0 10.6% 873.6 15.8% 580.2 14.9% Total $ 5,878.3 $ 5,543.1 $ 3,906.9 (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 was as follows (dollars in millions): 2018 As a % ofSegmentRevenue (1) 2017 As a % ofSegmentRevenue (1) 2016 As a % ofSegmentRevenue (1) Power Solutions Group $ 1,110.1 36.5 % $959.8 34.0 % $567.5 33.2 % Analog Solutions Group 878.3 42.4 % 817.8 41.9 % 590.2 39.8 % Intelligent Sensing Group 317.1 41.2 % 302.6 39.2 % 237.7 33.2 % Gross profit for all segments (2) $2,305.5 $ 2,080.2 $1,395.4 Unallocated manufacturing costs (3) (66.8) (1.1)% (44.6) (0.8)% (94.9) (2.4)% Total gross profit $2,238.7 38.1 % $2,035.6 36.7 % $ 1,300.5 33.3 % (1) Certain of the amounts may not total due to rounding of individual amounts.(2) Gross profit for the years ended December 31, 2017 and 2016 has been retrospectively adjusted due to the adoption of ASU 2017-07. See Note 1:“Background and Basis of Presentation” in the notes to our audited consolidated financial statements included elsewhere in this Form 10-K.(3) 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, $13.6 million during 2017, and $1.0 million during 2018).Our gross profit was $2,238.7 million, $2,035.6 million and $1,300.5 million for 2018, 2017 and 2016, respectively. The gross profit increase of$203.1 million, or approximately 10%, for 2018 compared to 2017 was primarily due to an increase in gross profit in our Power Solutions Group andAnalog Solutions Group. Gross profit for the year ended December 31, 2017 was positively impacted by $59.0 million due to the change in revenuerecognition on distributor sales and negatively impacted by $13.6 million of expensing fair market value of inventory step-up from the FairchildAcquisition. Excluding these items, gross profit increased by $248.5 million, or 12%, for the year ended December 31, 2018.The gross profit increase of $735.1 million, or approximately 57%, for 2017 compared to 2016 was primarily due to an increase in gross profit in ourPower Solutions Group and Analog Solutions Group, which included a full-year of contributions from the acquired Fairchild business and the positiveimpact due to the change in revenue recognition on distributor sales. Gross profit improvement in the Intelligent Sensing Group of $64.9 million wasdue to increased revenue in high margin automotive and industrial markets offsetting decreased revenue on the exit of the Mobile CIS business.Gross margin increased to approximately 38.1% during 2018 compared to approximately 36.7% during 2017. The increase was due to a combinationof operational leverage as a result of better demand, entry into new markets, and product mix and was offset by slightly lower factory utilization.Gross margin increased to approximately 36.7% during 2017 compared to approximately 33.3% 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 35.0% 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. 57Table of ContentsOperating ExpensesResearch and DevelopmentResearch and development expenses were $650.7 million, $594.7 million and $446.8 million for 2018, 2017 and 2016, respectively representingapproximately 11% of revenue for each of the years.The increase in research and development expenses of $56.0 million, or approximately 9%, during 2018 compared to 2017 was primarily in the area ofpayroll and payroll related costs due to additional headcount as well as an increase in the cost of materials utilized in research and development, offsetby a decrease in variable compensation.The increase in research and development expenses of $147.9 million, or approximately 33%, 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.Selling and MarketingSelling and marketing expenses were $324.7 million, $316.6 million and $236.7 million for 2018, 2017 and 2016, respectively representingapproximately 6% of revenue for each of the years.The increase in selling and marketing expenses of $8.1 million, or approximately 3%, during 2018 compared to 2017 did not relate to any significantexpense driver.The increase in selling and marketing expenses of $79.9 million, or approximately 34%, 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.General and AdministrativeGeneral and administrative expenses were $293.3 million, $285.0 million and $230.0 million, representing approximately 5%, 5% and 6% of revenue,for 2018, 2017 and 2016, respectively.The increase in general and administrative expenses of $8.3 million, or approximately 3%, during 2018 compared to 2017 did not relate to anysignificant expense driver.The increase in general and administrative expenses of $55.0 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. 58Table of ContentsAmortization of Acquisition—Related Intangible AssetsAmortization of acquisition-related intangible assets was $111.7 million, $123.8 million and $104.8 million for 2018, 2017 and 2016, respectively.The decrease of $12.1 million during 2018 compared to 2017 was primarily due to the additional amortization of $8.1 million recorded during the yearended December 31, 2017, representing the value of the technology transferred under a licensing transaction.The increase in amortization 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.See Note 5: “Acquisitions, Divestitures and Licensing Transactions” and Note 6: “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 $4.3 million, $20.8 million and $33.2 million for 2018, 2017 and 2016, respectively. Theinformation below summarizes the major activities in each year.2018During 2018, we recorded approximately $4.3 million of net charges attributable to the asset impairments and severance charges relating to therestructuring programs in effect during the period.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.For additional information, see Note 7: “Restructuring, Asset Impairments and Other, Net” in the notes to our audited consolidated financial statementsincluded elsewhere in this Form 10-K.Goodwill and Intangible Asset ImpairmentGoodwill and intangible asset impairments were $6.8 million, $13.1 million and $2.2 million for 2018, 2017 and 2016, respectively. The informationbelow summarizes the major activities in each year. 59Table of Contents2018During 2018, we recorded $3.3 million of goodwill impairment charges and $3.5 million relating to the impairment in the value of one project as aresult of the indefinite-lived impairment test performed during the fourth quarter of 2018.2017During 2017, we recorded $13.1 million of intangible asset impairment charges consisting of $7.7 million relating to abandoned IPRD projects and$5.4 million relating to the impairment in the value of certain IPRD projects as a result of the indefinite-lived impairment test performed during thefourth quarter of 2017.2016During 2016, we canceled certain of our previously capitalized IPRD projects and recorded intangible asset impairment charges of $2.2 million.See Note 6: “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 $13.0 million, or approximately 9%, to $128.2 million during 2018 compared to $141.2 million in 2017, primarily dueto repayments of outstanding balances offset by a marginal increase in the interest rate of the Term Loan “B” Facility. Interest expense decreased by$4.1 million, or approximately 2.8%, to $141.2 million during 2017, down from $145.3 million in 2016, primarily due to the interest rate reductionunder our Amended Credit Agreement. We recorded amortization of debt discount to interest expense of $36.1 million, $30.8 million and$26.0 million for 2018, 2017 and 2016, respectively. Our average gross amount of long-term debt balance (including current maturities) during 2018,2017 and 2016 was $3,057.0 million, $3,490.9 million and $2,661.3 million, respectively. Our weighted average interest rate on our gross amount oflong-term debt (including current maturities) was approximately 4.2%, 4.0% and 5.5% per annum in 2018, 2017 and 2016, respectively. See“Liquidity and Capital Resources—Key Financing and Capital Events” below and Note 9: “Long-Term Debt” in the notes to our audited consolidatedfinancial statements included elsewhere in this Form 10-K for a description of our indebtedness and our refinancing activities.Loss on Debt Refinancing and Prepayment2018Loss on debt refinancing and prepayment decreased by $42.6 million from $47.2 million in 2017 to $4.6 million in 2018. We recorded a debtextinguishment charge of $2.6 million related to refinancing of the Term Loan “B” Facility and expensed $2.0 million of unamortized debt discountand issuance costs attributable to the partial pay-down of the Term Loan “B” Facility during 2018. 60Table of Contents2017Loss on debt refinancing and prepayment increased by $40.9 million from $6.3 million in 2016 to $47.2 million in 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 Amendment(as defined below).2016Loss on debt refinancing and prepayment was $6.3 million in 2016, due to the execution of the First Amendment (as defined below), which resulted ina debt extinguishment charge of $4.7 million, and the termination and replacement of our previous senior revolving credit facility by the RevolvingCredit Facility, which resulted in a debt modification and write-off of $1.6 million in unamortized debt issuance costs.See Note 9: “Long-Term Debt” in the notes to our audited consolidated financial statements included elsewhere in this Form 10-K for additionalinformation.Gain on Divestiture of BusinessGain on divestiture of business was $5.0 million, $12.5 million and $92.2 million for 2018, 2017 and 2016, respectively. The information belowsummarizes the major activities in each year.2018Gain on divestiture of business was $5.0 million during 2018. On June 25, 2018, we divested the transient voltage suppressing diodes business weacquired from Fairchild to TSC America, Inc. and recorded a gain of $4.6 million.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.For additional information, see Note 5: “Acquisitions, Divestitures and Licensing Transactions” in the notes to our audited consolidated financialstatements included elsewhere in this Form 10-K. 61Table of ContentsLicensing IncomeLicensing income was $36.6 million, $47.6 million and zero for 2018, 2017 and 2016, respectively. The information below summarizes the majoractivities in each year.2018Licensing income was $36.6 million for 2018 primarily due to the achievement of the established criteria based on which income was recognizedunder the various licensing agreements. We have completed recognizing licensing income under existing agreements as of December 31, 2018.2017Licensing 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 5: “Acquisitions, Divestitures and Licensing Transactions” in the notes to our audited consolidated financial statements included elsewherein this Form 10-K for more information.Other ExpenseOther expense decreased by $1.7 million, from expense of $8.8 million in 2017 to $7.1 million in 2018. Other expense decreased by $2.5 million, fromexpense of $11.3 million in 2016 to $8.8 million in 2017. The change from year to year is attributable to fluctuations in foreign currencies against theU.S. dollar for the periods presented, net of the impact from our hedging activity, pension related gain and losses and an adjustment to contingentconsideration.Income Tax (Provision) BenefitWe recorded an income tax provision of $125.1 million, an income tax benefit of $265.5 million and an income tax benefit of $3.9 million in 2018,2017 and 2016, respectively.The income tax provision for the year ended December 31, 2018 consisted primarily of $180.0 million for income and withholding taxes of certain ofour foreign and domestic current year operations and $35.2 million related to the finalization of the Company’s tax impacts of U.S. tax reform. Theseexpenses were offset by a one-time benefit of $48.2 million related to U.S. tax method changes made during the year that impacted the Company’sGlobal Intangible Low Tax Income (“GILTI”) inclusion, a benefit of $17.1 million relating to an increase in deferred tax assets expected to be realizedin the foreseeable future due to the liquidation of a foreign subsidiary, a benefit of $14.0 million relating to the lapse of the statute of limitations oncertain unrecognized tax benefits, a benefit of $7.6 million relating to equity award excess tax benefits and a benefit of $3.2 million relating to changesin valuation allowance.The income tax benefit for 2017 consisted primarily of the provisional benefit of $449.9 million related to the estimated impact of U.S. tax reform andrelated effects and a discrete benefit of $13.2 million relating to equity award excess tax benefits. These benefits were offset by $186.8 million forincome and withholding taxes of certain of our foreign and domestic current year operations and $10.8 million relating to the establishment of anadditional valuation allowance on certain foreign deferred tax assets. 62Table of ContentsThe 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.Our effective tax rate for 2018 was 16.6%, which differs from the U.S. federal statutory income tax rate of 21% primarily due to U.S. tax methodchanges made during the year that impacted the Company’s GILTI inclusion. Our effective tax rate for 2017 was a benefit of 48.5%, which differs fromthe U.S. federal statutory income tax rate of 35% primarily due to U.S. tax reform codified under the Tax Act. Our effective tax rate for 2016 was abenefit of 2.2%, which differs from the U.S. federal statutory income tax rate of 35% primarily due to the release of our U.S. and Japan valuationallowances, partially offset by the reversal of the prior years’ indefinite reinvestment assertion.We expect our effective tax rate, before discrete items, to be between 23% and 27% until we fully utilize all of our U.S. federal net operating losses. Theprimary difference between our effective tax rate and the federal statutory rate of 21% is due to foreign taxes for which the Company will not receive aU.S. tax credit as a result of U.S. tax reform until our U.S. federal net operating losses are fully utilized. Once our U.S. federal net operating losses arefully utilized, we expect our future effective tax rate, before discrete items, to approximate, or be lower than, the federal statutory rate of 21%. Weanticipate our U.S. federal net operating losses and credits will be fully utilized by 2021.Our cash tax, as a percentage of income before income taxes (“Cash Tax Rate”), is significantly lower than our effective tax rate due to the currentutilization of our U.S. federal net operating losses and credits. We expect our future Cash Tax Rate to approximate our effective tax rate once our U.S.federal net operating losses and credits are fully utilized.We continue to maintain a full valuation allowance on our U.S. state deferred tax assets and a valuation allowance on foreign net operating losses andtax credits in certain other foreign jurisdictions, a substantial portion of which relate to Japan net operating losses which are projected to expire prior toutilization.For additional information, see Note 16: “Income Taxes” in the notes to the audited consolidated financial statements included elsewhere in this Form10-K.Liquidity 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. 63Table of ContentsContractual 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, 2018 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 2019 2020 2021 2022 2023 Thereafter Long-term debt, excluding capital leases (2) $3,256.8 $223.4 $773.3 $470.5 $58.5 $1,731.1 $— Capital leases (2) 0.9 0.8 0.1 — — — — Operating leases (3) 160.8 36.8 27.6 21.9 16.8 12.3 45.4 Purchase obligations (3): Capital purchase obligations 103.1 100.5 1.7 0.7 0.2 — — Inventory and external manufacturing purchase obligations 262.7 219.6 13.4 6.7 6.1 6.0 10.9 Information technology, communication and mainframe supportservices 34.2 16.2 11.0 6.6 0.3 0.1 — Other 63.3 37.4 12.1 9.0 2.7 2.1 — Total contractual obligations $3,881.8 $634.7 $839.2 $515.4 $84.6 $1,751.6 $56.3 (1)The table above excludes approximately $17.8 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, 2018.(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 $15.3 million and $4.7 million, respectively, in 2019. This future payment estimate assumes we continue to meetour statutory funding requirements. The timing and amount of contributions may be impacted by a number of factors, including the funded status ofthe plans. Beyond 2019, the actual amounts required to be contributed are dependent upon, among other things, interest rates, underlying asset returnsand the impact of legislative or regulatory actions related to pension funding obligations. See Note 12: “Employee Benefit Plans” in the notes to ouraudited consolidated financial statements included elsewhere in this Form 10-K for more information on our pension obligations.Our balance of cash and cash equivalents was $1,069.6 million as of December 31, 2018. 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, 2018 include approximately $448.7 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 and cashequivalents outside the United States in various foreign subsidiaries, we have the ability to obtain cash in the United States in order to cover ourdomestic needs, through distributions from our foreign subsidiaries, by utilizing existing credit facilities or through new bank loans or debtobligations.See Note 9: “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. 64Table of ContentsOff-Balance Sheet ArrangementsIn the ordinary course of business, we enter into various operating leases for buildings, equipment including our mainframe computer system, desktopcomputers, 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 in connection with certaintransactions including, but not limited to: material purchase commitments, agreements to mitigate collection risk, leases, utilities or customsguarantees. As of December 31, 2018, our Revolving Credit Facility included $15.0 million of availability for the issuance of letters of credit. Therewere $1.0 million letters of credit outstanding under our Revolving Credit Facility as of December 31, 2018, which reduces our borrowing capacitydollar-for-dollar. As of December 31, 2018, we also had outstanding guarantees and letters of credit outside of our Revolving Credit Facility in theamount of $6.1 million at December 31, 2018.As part of securing financing in the ordinary course of business, we issued guarantees related to certain of our subsidiaries’ capital lease obligations,equipment financing, lines of credit and real estate mortgages, which totaled $68.6 million as of December 31, 2018. Based on historical experienceand information currently available, we believe that we will not be required to make payments under the standby letters of credit or guaranteearrangements for the foreseeable future.For our operating leases, we expect to make cash payments and similarly incur expenses totaling $160.8 million as payments come due. We have notrecorded any liability in connection with these operating leases, letters of credit and guarantee arrangements. We will record the associated leaseobligations as a liability when we adopt the provisions of the New Leasing Standard (as defined below). See Note 4: “Recent AccountingPronouncements”, “Note 9:” “Long-Term Debt,” and Note 13: “Commitments and Contingencies” in the notes to our audited consolidated financialstatements 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, environmental contamination and other property damage, personal injury, our failureto comply with applicable laws, our negligence or willful misconduct or our breach of representations, warranties or covenants related to such mattersas title 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.We 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. 65Table of ContentsThe 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 13: “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, forresearch 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. We expect interest expense to remain significant in future periods as we continue toservice the debt incurred in connection with the Fairchild Transaction. Our principal sources of liquidity are cash on hand, cash generated fromoperations and funds from external borrowings and equity issuances. In the near term, we expect to fund our primary cash requirements through cashgenerated from operations and with 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. During 2018, we completed theacquisition of SensL and the divestiture of the transient voltage suppressing diodes business we acquired from Fairchild. See Note 5: “Acquisitions,Divestitures and Licensing Transactions” in the notes to our audited consolidated financial statements included elsewhere in this Form 10-K foradditional information. 66Table of ContentsWe 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 pressures, effective management of our manufacturing capacity, ourability to achieve further reductions in operating expenses, the impact of our restructuring programs on our production and costefficiency and our ability to make the research and development 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 and existing credit facilities will be adequate to fundour operating and capital needs, as well as enable us to maintain compliance with our various debt agreements, through at least the next 12 months. Tothe extent that results or events differ from our financial projections or business plans, our liquidity may be adversely impacted.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. For example, during 2018, we paid approximately $514.8 million for capital expenditures, while in 2017 we paid approximately$387.5 million. While our capital expenditures have historically been approximately 6% to 7% of annual revenue, we incurred capital expenditures ofapproximately 8% to 9% of annual revenue in 2018 and expect to incur similar amounts in 2019 to adjust to a higher growth environment and tofurther improve our manufacturing cost structure. Future capital expenditures may be impacted by events and transactions that are not currentlyforecasted.On April 15, 2016, in connection with the Fairchild Transaction, we entered into the Amended Credit Agreement which initially provided for a$600 million Revolving Credit Facility and a $2.2 billion Term Loan “B” Facility.On September 30, 2016, we entered into the First Amendment (as defined below) pursuant to which, among other things, we increased the amount thatmay be borrowed under the Term Loan “B” Facility by $200.0 million to $2.4 billion, the proceeds of which were used to pay off the $200.0 millionoutstanding balance under the Revolving Credit Facility. 67Table of ContentsOn 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 November 30, 2017, we entered into the Third Amendment (as defined below) pursuant to which, among other things, we increased the amount thatmay be borrowed under the Revolving Credit Facility to $1.0 billion. In connection with the Third Amendment, we prepaid $400.0 million ofborrowings under the Term Loan “B” Facility, bringing the outstanding borrowings under the Term Loan “B” Facility to approximately $1.2 billion.As of December 31, 2018, there was $1,134.5 million outstanding under the Term Loan “B” Facility and $400.0 million outstanding under theRevolving Credit Facility. The associated interest expense related to the Term Loan “B” Facility has had, and will continue to have, a material impacton our results of operations throughout the term of the Amended Credit Agreement.We repurchased common stock worth approximately $315.0 million under the 2014 Share Repurchase Program during the year ended December 31,2018. We repurchased shares worth $25.0 million of our common stock under the 2014 Share Repurchase Program in connection with the offering ofthe 1.625% Notes during the year ended December 31, 2017.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$1,274.2 million, $1,094.2 million, and $581.1 million for the years ended December 31, 2018, 2017 and 2016, respectively.Our cash flows provided by operating activities for the year ended December 31, 2018 increased by approximately $180.0 million, or approximately16.5%, compared to the year ended December 31, 2017. The increase was primarily attributable to better cash flows from operations and effective cashmanagement. Our ability to maintain positive operating cash flows is dependent on, among other factors, our success in achieving our revenue goalsand 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. 68Table 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 the current portion of long-term debt, was $767.4 million as of December 31, 2018 and has fluctuated between $743.4 million and$941.0 million at the end of each of our last eight fiscal quarters. Our working capital, including cash and cash equivalents and the current portion oflong-term debt, was $1,698.5 million as of December 31, 2018 and has fluctuated between $1,022.0 million and $1,782.3 million at the end of each ofour last eight fiscal quarters.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, 2018, our working capital was most significantly impacted by our capital expenditures and our repaymentof long-term debt, including capital leases. See Note 9: “Long-Term Debt” and Note 10: “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, our annual funding of these obligations is at a minimum generally equalto the minimum amount legally required in each jurisdiction in which the plans operate. This annual amount is dependent upon numerous actuarialassumptions. For additional information, see Note 12: “Employee Benefit Plans” and Note 16: “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 2018. Set forth below is a summary of certain key financing events affectingour capital structure during the last three years. For further discussion of our debt instruments, see Note 9: “Long-Term Debt” and for further discussionon Share Repurchase Programs, see Note 10: “Earnings Per Share and Equity” in the notes to our audited consolidated financial statements includedelsewhere in this Form 10-K. 69Table of ContentsOn April 15, 2016, the Company and certain of its subsidiaries, as guarantors (the “Guarantors”), entered into the Amended Credit Agreement, whichprovides for the Revolving Credit Facility and the Term Loan “B” Facility. Borrowings under the Amended Credit Agreement may be incurred in U.S.Dollars, Euros, Pounds Sterling, Japanese Yen or any other currency approved by the agent and the lenders under the Revolving Credit Facility, subjectto certain qualifications described in the Amended Credit Agreement. Regardless of currency, all borrowings under the Amended Credit Agreementmay, at the Company’s option, be incurred as either eurocurrency loans (“Eurocurrency Loans”) or alternate base rate loans (“ABR Loans”).On April 15, 2016, the Company and the Guarantors entered into a Guarantee and Collateral Agreement (the “Guarantee and Collateral Agreement”),pursuant to which the Amended Credit Agreement was 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 mortgage on certain real property assets ofthe Company and its domestic subsidiaries.Recent Events2018 Financing EventsAmendments to the Amended Credit AgreementOn May 31, 2018, the Company, the Guarantors, the several lenders party thereto and the Agent entered into the Fourth Amendment to the AmendedCredit Agreement (the “Fourth Amendment”). Pursuant to the Fourth Amendment, for any interest period ending after the date of the FourthAmendment, Eurocurrency Loans will accrue interest at (i) a base rate per annum equal to the Adjusted LIBO Rate (as defined in the Amended CreditAgreement) plus (ii) an applicable margin equal to (x) 1.25% with respect to borrowings under the Revolving Credit Facility (with step-downs andstep-ups as set forth in the Amended Credit Agreement) or (y) 1.75% with respect to borrowings under the Term Loan “B” Facility.Pursuant to the Fourth Amendment, ABR Loans will accrue interest at (i) a base rate per annum equal to the highest of (x) the Federal funds rate plus0.50%, (y) the prime commercial lending rate announced by the Agent from time to time as its prime lending rate and (z) the Adjusted LIBO Rate for aone month interest period (or if such day is not a business day, the immediately preceding business day) (determined after giving effect to anyapplicable “floor”) plus 1.00%; provided that, the Adjusted LIBO Rate for any day shall be based on the LIBO Rate (as defined in the Amended CreditAgreement), subject to the interest rate floors set forth in the Amended Credit Agreement, plus (ii) an applicable margin equal to (x) 0.25% with respectto borrowings under the Revolving Credit Facility (with step-ups as set forth in the Amended Credit Agreement) or (y) 0.75% with respect toborrowings under the Term Loan “B” Facility.During the year ended December 31, 2018 we prepaid $70.0 million of borrowings under the Term Loan “B” Facility.Share Repurchase ProgramsWe repurchased 16.8 million shares of our common stock for $315.0 million under the 2014 Share Repurchase Program during the year endedDecember 31, 2018. No shares were repurchased under our 2018 Share Repurchase Program during the year ended December 31, 2018. 70Table of ContentsWe repurchased 4.2 million shares of our common stock for $71.7 million under our 2018 Share Repurchase Program subsequent to December 31, 2018through February 15, 2019.2017 Financing EventsAmendments to the Amended Credit AgreementOn April 15, 2016, we and the Guarantors entered into the Amended Credit Agreement. On March 31, 2017, we and the Guarantors entered into theSecond Amendment to the Amended Credit Agreement (the “Second Amendment”). 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 Agreementand to reduce the interest rates payable under the Term Loan “B” Facility and the Revolving Credit Facility. For any interest period ending after thedate of the Second Amendment, the Second Amendment reduced the applicable margins on borrowings under 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 borrowings underABR Loans to 0.75% and 1.25% for borrowings under the Revolving Credit Facility and the Term Loan “B” Facility, respectively. For furtherdiscussion of the Amended Credit Agreement, see “2016 Financing Events—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 and the Guarantors entered into the Third Amendment to the Amended Credit Agreement (the “Third Amendment”). TheThird Amendment provided for, among other things, modifications to the Amended Credit Agreement to reduce the interest rate payable under theTerm Loan “B” Facility and to increase the amount that may be borrowed pursuant to the Revolving Credit Facility to $1.0 billion. For any interestperiod ending after the date of the Third Amendment, the Third Amendment reduced the applicable margins on Eurocurrency Loans to 2.00% forborrowings 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 theoutstanding borrowings under the Term Loan “B” Facility to approximately $1.2 billion as of the date of the Third Amendment. We had$400.0 million of borrowings outstanding under the Revolving Credit Facility 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 October 15 of each year, beginning on October 15, 2017. The 1.625% Notes are fullyand unconditionally guaranteed, on a joint and several basis, by each of our subsidiaries that is a borrower or guarantor under our Amended CreditAgreement. 71Table of ContentsShare Repurchase ProgramsWe repurchased approximately 1.6 million shares of our common stock for an aggregate purchase price of $25.0 million pursuant to the 2014 ShareRepurchase Program in connection with the offering 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) the Guarantee and Collateral Agreement. Subject to the terms andconditions of the Amended Credit Agreement, on April 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, we and the Guarantors entered into the First Amendment to the Amended Credit Agreement (the “First Amendment”). The FirstAmendment reduced the applicable margins on Eurocurrency Loans to 2.75% and 3.25% for borrowings under the Revolving Credit Facility and theTerm Loan “B” Facility, respectively, and reduced applicable margins on ABR Loans to 1.75% and 2.25% for borrowings under the Revolving CreditFacility and the Term Loan “B” Facility, respectively. Additionally, the First Amendment included the following: (i) the Term Loan “B” Facility wasincreased to $2.4 billion; (ii) certain restructuring transactions and intercompany IP transfers are permitted in order to achieve efficient integration ofthe Company, its subsidiaries and acquired entities; and (iii) certain changes were made to the provisions regarding hedge agreements to allow theCompany and each of the guarantors to enter into certain hedge arrangements. We used the additional $200.0 million proceeds under the Term Loan“B” Facility to pay off the $200.0 million outstanding balance under the Revolving Credit Facility. 72Table of ContentsShare Repurchase ProgramsWe did not repurchase shares pursuant to the 2014 Share Repurchase Program during the year ended December 31, 2016, as we focused on the fundingrequired for the Fairchild Transaction.Debt Guarantees and Related CovenantsAs of December 31, 2018, 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 agreements. Our 1.00% Notes are senior to the existing and future subordinatedindebtedness of ON Semiconductor and its guarantor subsidiaries. Our 1.625% Notes rank equally in right of payment to all of our existing and futuresenior debt and as unsecured obligations are subordinated to all of our existing and future secured debt. See Note 9: “Long-Term Debt” in the notes toour audited consolidated financial statements included elsewhere in this Form 10-K for additional 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 revenue 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; (iii) fair values of share-based compensation and of financialinstruments (including derivative financial instruments); and (iv) measurement of valuation allowances against deferred tax assets, evaluations ofuncertain tax positions, and impact of U.S. tax reform. Additionally, during periods where it becomes applicable, significant estimates will be used bymanagement in determining the future cash flows used to assess and test for impairment of goodwill, indefinite-lived intangible assets and long-livedassets and in assumptions used in connection with business combinations. Actual results may differ from the estimates. 73Table of ContentsRevenue. We generate revenue from sales of our semiconductor products to OEMs, electronic manufacturing service providers and distributors. Wealso generate revenue, to a much lesser extent, from product development agreements and manufacturing services provided to customers. We recognizerevenue when we satisfy a performance obligation in an amount reflecting the consideration to which we expect to be entitled. For sales agreements, wehave identified the promise to transfer products, each of which is distinct, to be the performance obligation. For product development agreements, wehave identified the completion of a service defined in the agreement to be the performance obligation. We apply a five step approach in determiningthe amount and timing of revenue to be recognized: (1) identifying the contract with a customer; (2) identifying the performance obligations in thecontract; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations in the contract; and (5) recognizingrevenue when the performance obligation is satisfied. We allocate the transaction price to each distinct product based on its relative stand-alone sellingprice. In determining the transaction price, we evaluate whether the price is subject to refund or adjustment to determine the net consideration to whichwe expect to be entitled. Sales to certain distributors, primarily those with ship and credit rights, can be subject to price adjustment on certain products.Substantially all of our revenue is recognized at the time control of the products transfers to the customer.Prior to the first quarter of 2017, for products sold to distributors who are entitled to ship and credit rights, we recognized the related revenue and costof revenue 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 estimate upfront the effects of the returns and allowances with these distributors. In anticipation of the adoption of the New Revenue Standard (see Note 3:“Revenue and Segment Information”), we had developed our internal systems, processes and controls for making the required estimates on the sales tothese distributors. We develop an estimate of their expected claims under the ship and credit program based primarily on the historical claimssubmitted by product and customer which requires the use of estimates and assumptions related to the amount of each claim as well as the historicalperiod used to develop the estimate.Our OEM customers do not have the right to return products, other than pursuant to the provisions of the Company’s standard warranty. Sales todistributors, however, are typically made pursuant to agreements that provide return rights and stock rotation provisions permitting limited levels ofproduct returns. Provisions for discounts and rebates to customers, estimated returns and allowances, ship and credit claims and other adjustments areprovided for in the same period the related revenue are recognized, and are netted against revenue. For returns, we recognize a related asset for the rightto recover returned products with a corresponding reduction to cost of goods sold. We record a reserve for cash discounts as a reduction to accountsreceivable and a reduction to revenue, based on the experience with each customer. Although payment terms vary, most distributor agreements requirepayment within 30 days. In addition, the Company offers cash discounts to certain customers for payments received within an agreed upon time,generally 10 days after shipment.We have elected to record freight and handling costs associated with outbound freight after control over a product has transferred to a customer as afulfillment cost and include it in cost of revenue. Taxes assessed by government authorities on revenue-producing transactions, including value-addedand excise taxes, are presented on a net basis (excluded from revenue) in the Consolidated Statements of Operations and Comprehensive Income. 74Table of ContentsInventories. 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. The determination of projected end-user demand requires the use of estimates and assumptions related to projected unitsales for each product. These provisions can influence our results from operations. For example, when demand falls for a given part, all or a portion ofthe related inventory that is considered to be in excess of anticipated demand is reserved, impacting our cost of revenue and gross profit. If demandrecovers 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.Share-Based Compensation. We record compensation expense for all share-based payment awards including RSUs and ESPPs and measure them atthe grant date, based on the estimated fair value of the award, recognized as an expense over the employee’s requisite service period. Determining theamount of share-based compensation to be recorded requires us to develop estimates to be used in calculating the grant-date fair value of the award. Wecalculate the grant-date fair values of the award using valuation models. The use of valuation models requires us to make estimates of key assumptionssuch as expected option term and stock price volatility to determine the fair value of the award. The estimate of these key assumptions is based onhistorical information and judgment regarding market factors and trends. For the past several years, we have utilized RSUs as our primary equityincentive compensation for employees. We have outstanding awards with performance, time and service-based vesting provisions.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. 75Table of ContentsWe 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 16: “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.Impairment of Goodwill, Indefinite-lived Intangible Assets and Long-Lived Assets. We evaluate our goodwill for potential impairment annuallyduring the fourth quarter and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. Ourimpairment evaluation consists of a qualitative assessment, and if deemed necessary, a quantitative test is performed which compares the fair value of areporting 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 revenue, gross profit, 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.We are required to test our IPRD assets for impairment annually using the guidance for indefinite-lived intangible assets. An IPRD asset is consideredto be impaired when the asset’s carrying amount is greater than its fair value. Our impairment evaluation consists of first assessing qualitative factors,and if deemed necessary, we calculate the fair value of the IPRD asset and record an impairment charge if the carrying amount exceeds fair value. Wedetermine the fair value based on an income approach, which is calculated as the present value of the estimated future cash flows of the IPRD asset. Theassumptions about estimated cash flows include factors such as future revenue, gross profit, operating expenses, and industry trends. 76Table of ContentsWe evaluate the recoverability of the carrying amount of our property, plant and equipment and intangible assets (excluding IPRD), whenever eventsor changes in circumstances indicate that the carrying amount of an asset group may not be fully recoverable. Impairment is first assessed when theundiscounted expected cash flows derived for an asset group are less than its carrying amount. Impairment losses, if applicable, are measured as theamount by which the carrying value of an asset group exceeds its fair value and are recognized in operating results. We continually apply our bestjudgment when applying these impairment rules to determine the timing of the impairment test, the undiscounted cash flows used to assessimpairments and the fair value of an impaired asset group. The dynamic economic environment in which we operate and the resulting assumptionsused to estimate future cash flows impact the outcome of our impairment tests.Business Combination. We use significant estimates and assumptions in allocating the purchase price of acquired business by utilizing establishedvaluation techniques appropriate for the technology industry. We utilize the income approach, cost approach or market approach, depending uponwhich approach is the most appropriate based on the nature and reliability of available data. The income approach is predicated upon the value of thefuture cash flows that an asset is expected to generate over its economic life and involves significant assumptions as to cash flows, associated expenses,long-term growth rates and discount rates. The cost approach takes into account the cost to replace (or reproduce) the asset and involves assumptionsrelating to the asset’s value of physical, functional and/or economic obsolescence that has occurred with respect to the asset. The market approach isused to estimate value from an analysis of actual transactions or offerings for economically comparable assets available as of the valuation date.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.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 4: “Recent Accounting Pronouncements” in the notes to our audited consolidatedfinancial statements included elsewhere in this Form 10-K.Item 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, 2018, our long-term debt (including current maturities) totaled $2,939.0 million. We have no interest rate exposure to rate changeson our fixed rate debt, which totaled $2,295.4 million. We do have interest rate exposure with respect to the $643.6 million balance of our variableinterest rate debt outstanding as of December 31, 2018. A 50 basis point increase in interest rates would impact our expected annual interest expensefor the next 12 months by approximately $3.2 million. However, some of this impact would be offset by additional interest earned on our cash and cashequivalents should rates on deposits and investments also increase. We entered into interest rate swaps to hedge some of the risk of variability in cashflows resulting from future interest payments on our variable interest rate debt under the Term Loan “B” Facility. 77Table of ContentsTo 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. Some of our Japaneseoperations utilize Japanese Yen as the functional currency, which results in a translation adjustment that is included as a component of accumulatedother comprehensive 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, 2018 and 2017 was $157.3 million and $130.5 million, respectively. Our policies prohibit speculation on financial instruments, tradingin currencies 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 $102.9 million for the year endedDecember 31, 2018, assuming no inter-relationship between the currencies.See Note 15: “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.Item 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. 78Table 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, 2018.There have been no changes to our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurredduring the fiscal quarter ended December 31, 2018 which have materially affected, or are reasonably likely to materially affect, our internal controlover 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, 2018. 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, 2018.The effectiveness of our internal control over financial reporting as of December 31, 2018 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.Item 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 fiscal year ended December 31, 2018 in connection with our 2019 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—2018 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, 2018 and December 31, 2017 96 Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2018, 2017 and 2016 97 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2018, 2017 and 2016 98 Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016 99 Notes to Consolidated Financial Statements 100 (2) Consolidated Financial Statement Schedule: Schedule II - Valuation and Qualifying Accounts 168 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 toExhibit 2.1 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 Quarterly 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 Annual Report on Form 10-K filed with theCommission on March 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 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 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 toExhibit 10.1 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 toExhibit 10.1 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)10.5(m) Fourth Amendment to Credit Agreement, dated May 31, 2018, among ON Semiconductor Corporation, asborrower, 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 toExhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on July 30,2018)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) 86Table of ContentsExhibit No. Exhibit Description10.7(d) 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(e) 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(f) 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(g) 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)10.7(h) 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(i) 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(j) 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(k) 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(l) 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) 87Table of ContentsExhibit No. Exhibit Description10.7(m) 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)10.7(n) 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(o) 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(p) 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(q) 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(r) 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(s) Performance-Based Restricted Stock Units Award Agreement under the ON Semiconductor CorporationAmended and Restated Stock Incentive Plan (2018 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 April 30, 2018)(2)10.7(t) Restricted Stock Units Award Agreement under the ON Semiconductor Corporation Amended and RestatedStock Incentive Plan (2018 form agreement for Senior Vice Presidents and Above) (incorporated byreference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the Commission onApril 30, 2018)(2)10.7(u) Restricted Stock Units Award Agreement under the ON Semiconductor Corporation Amended and RestatedStock Incentive Plan (2019 form agreement for Section 16 Officers) (incorporated by reference toExhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on February 19,2019)(2) 88Table of ContentsExhibit No. Exhibit Description10.7(v) Performance-Based Restricted Stock Units Award Agreement under the ON Semiconductor CorporationAmended and Restated Stock Incentive Plan (2019 form agreement for Senior Vice Presidents and Above)(incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with theCommission on February 19, 2019)(2)10.7(w) Performance-Based Restricted Stock Units Upside Award Agreement under the ON SemiconductorCorporation Amended and Restated Stock Incentive Plan (2019 form agreement for Senior Vice Presidentsand Above) (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filedwith the Commission on February 19, 2019)(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 onForm 10-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 onForm 10-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 onForm 10-Q filed with the Commission on August 7, 2017)(2)10.9(a) ON Semiconductor 2002 Executive Incentive Plan (incorporated by reference to Exhibit 10.1 of theCompany’s Quarterly Report on 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’sQuarterly Report on Form 10-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) 89Table of ContentsExhibit No. Exhibit Description10.12 Amended and Restated Employment Agreement, effective June 1, 2017, by and between SemiconductorComponents Industries, LLC and George H. Cave (incorporated by reference to Exhibit 10.12 to theCompany’s Annual Report on Form 10-K filed with the Commission on February 21, 2018)(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 Current 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 Current 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’sAnnual Report on Form 10-K filed with the Commission on February 21, 2014)(2)10.15(b) Amendment No. 1 to Employment Agreement by and between Semiconductor Components Industries,LLC and Robert Klosterboer, effective June 1, 2017 (incorporated by reference to Exhibit 10.15(b) to theCompany’s Annual Report on Form 10-K filed with the Commission on February 21, 2018)(2)10.16(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)10.16(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 Current Report on Form 8-K filed with the Commission on June 2, 2017)(2)10.17(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 Quarterly Report on Form 10-Qfiled with the Commission on May 4, 2015)(2) 90Table of ContentsExhibit No. Exhibit Description10.17(b) Amendment No. 1 to Employment Agreement by and between Semiconductor Components Industries, LLCand Paul Rolls, effective June 1, 2017 (incorporated by reference to Exhibit 10.21(b) to the Company’sAnnual Report on Form 10-K filed with the Commission on February 21, 2018)(2)10.18 Key Officer Severance and Change of Control Agreement by and between Semiconductor ComponentsIndustries, LLC and Taner Ozcelik, dated as of June 1, 2017 (incorporated by reference to Exhibit 10.22 tothe Company’s Annual Report on Form 10-K filed with the Commission on February 21, 2018)(2)10.19 Employment Agreement by and between Semiconductor Components Industries, LLC and Vince Hopkin,dated as of May 11, 2018 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Reporton Form 10-Q filed with the Commission on July 30, 2018)(2)10.20 Employment Agreement by and between Semiconductor Components Industries, LLC and Simon Keeton,dated January 1, 2019(1)(2)10.21 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)10.22(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))10.22(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))10.22(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)10.22(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))10.22(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) 91Table of ContentsExhibit No. Exhibit Description23.1 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. (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 20, 2019 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 20, 2019 Keith D. Jackson and Director (PrincipalExecutive Officer) /s/ BERNARD GUTMANN Executive Vice President, Chief February 20, 2019 Bernard Gutmann Financial Officer and Treasurer(Principal Financial Officer) /s/ BERNARD R. COLPITTS, JR. Chief Accounting Officer February 20, 2019 Bernard R. Colpitts, Jr. (Principal Accounting Officer) * Chair of the Board of Directors February 20, 2019 Alan Campbell * Director February 20, 2019 Atsushi Abe * Director February 20, 2019 Curtis J. Crawford * Director February 20, 2019 Gilles Delfassy * Director February 20, 2019 Emmanuel T. Hernandez * Director February 20, 2019 Paul A. Mascarenas * Director February 20, 2019 Daryl A. Ostrander * Director February 20, 2019 Teresa M. Ressel * Director February 20, 2019 Christine Y. Yan *By: /s/ BERNARD GUTMANN Attorney in Fact February 20, 2019 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, 2018 and2017, and the related consolidated statements of operations and comprehensive income, of stockholders’ equity and of cash flows for each of the threeyears in the period ended December 31, 2018, including the related notes and schedule of valuation and qualifying accounts for each of the three yearsin the period ended December 31, 2018 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, 2018, based on criteria established in Internal Control—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, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 inconformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in allmaterial respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control—Integrated Framework (2013) issued by the COSO.Change in Accounting PrincipleAs discussed in Note 11: “Share-Based Compensation” to the consolidated financial statements, the Company changed the manner in which itaccounts for the 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 Financing 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. 94Table of ContentsOur 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 that respond to those risks. Such procedures included examining, on atest basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accountingprinciples used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing therisk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide areasonable 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 20, 2019We 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 31,2018 December 31,2017 Assets Cash and cash equivalents $1,069.6 $949.2 Receivables, net 686.0 701.5 Inventories 1,225.2 1,089.5 Other current assets 187.0 193.0 Total current assets 3,167.8 2,933.2 Property, plant and equipment, net 2,549.6 2,279.1 Goodwill 932.5 916.9 Intangible assets, net 566.4 628.3 Deferred tax assets 266.2 339.1 Other assets 105.1 98.5 Total assets $7,587.6 $7,195.1 Liabilities, Non-Controlling Interest and Stockholders’ Equity Accounts payable $671.7 $548.0 Accrued expenses 659.1 612.8 Current portion of long-term debt 138.5 248.1 Total current liabilities 1,469.3 1,408.9 Long-term debt 2,627.6 2,703.7 Deferred tax liabilities 54.8 55.1 Other long-term liabilities 241.8 226.4 Total liabilities 4,393.5 4,394.1 Commitments and contingencies (Note 13) ON Semiconductor Corporation stockholders’ equity: Common stock ($0.01 par value, 1,250,000,000 shares authorized, 558,701,620 and 551,873,115 sharesissued, 413,834,227 and 425,118,194 shares outstanding, respectively) 5.6 5.5 Additional paid-in capital 3,702.3 3,593.5 Accumulated other comprehensive loss (37.9) (40.6) Accumulated earnings 979.6 351.5 Less: Treasury stock, at cost; 144,867,393 and 126,754,921 shares, respectively (1,478.0) (1,131.1) Total ON Semiconductor Corporation stockholders’ equity 3,171.6 2,778.8 Non-controlling interest in consolidated subsidiary 22.5 22.2 Total stockholders’ equity 3,194.1 2,801.0 Total liabilities and stockholders’ equity $ 7,587.6 $ 7,195.1 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, 2018 2017 2016 Revenue $5,878.3 $5,543.1 $3,906.9 Cost of revenue (exclusive of amortization shown below) 3,639.6 3,507.5 2,606.4 Gross profit 2,238.7 2,035.6 1,300.5 Operating expenses: Research and development 650.7 594.7 446.8 Selling and marketing 324.7 316.6 236.7 General and administrative 293.3 285.0 230.0 Amortization of acquisition-related intangible assets 111.7 123.8 104.8 Restructuring, asset impairments and other, net 4.3 20.8 33.2 Goodwill and intangible asset impairment 6.8 13.1 2.2 Total operating expenses 1,391.5 1,354.0 1,053.7 Operating income 847.2 681.6 246.8 Other income (expense), net: Interest expense (128.2) (141.2) (145.3) Interest income 6.1 3.0 4.5 Loss on debt refinancing and prepayment (4.6) (47.2) (6.3) Gain on divestiture of business 5.0 12.5 92.2 Licensing income 36.6 47.6 — Other expense (7.1) (8.8) (11.3) Other income (expense), net (92.2) (134.1) (66.2) Income before income taxes 755.0 547.5 180.6 Income tax benefit (provision) (125.1) 265.5 3.9 Net income 629.9 813.0 184.5 Less: Net income attributable to non-controlling interest (2.5) (2.3) (2.4) Net income attributable to ON Semiconductor Corporation $ 627.4 $ 810.7 $ 182.1 Comprehensive income, net of tax: Net income $629.9 $813.0 $184.5 Foreign currency translation adjustments 0.7 7.0 (8.0) Effects of cash flow hedges 2.0 2.6 0.1 Other comprehensive income (loss) 2.7 9.6 (7.9) Comprehensive income 632.6 822.6 176.6 Comprehensive income attributable to non-controlling interest (2.5) (2.3) (2.4) Comprehensive income attributable to ON Semiconductor Corporation $630.1 $820.3 $174.2 Net income per common share attributable to ON Semiconductor Corporation: Basic $1.48 $1.92 $0.44 Diluted $1.44 $1.89 $0.43 Weighted-average common shares outstanding: Basic 423.8 421.9 415.2 Diluted 435.9 428.3 420.0 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 Treasury Stock Non-ControllingInterest inConsolidatedSubsidiary Number ofshares At ParValue Accumulated(Deficit)Earnings Number ofshares At Cost TotalEquity 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 Stock option exercises 1,849,777 0.1 14.8 — — — — — 14.9 Shares issued pursuant to the ESPP 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, equitycomponent to mezzanine equity — — (32.9) — — — — — (32.9) Comprehensive (loss) income — — — (7.9) 182.1 — — 2.4 176.6 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 Impact of the adoption of ASU 2016-09 — — — — 68.1 — — — 68.1 Stock option exercises 2,213,859 — 18.0 — — — — — 18.0 Shares issued pursuant to the ESPP 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 - EquityPortion — — (55.7) — — — — — (55.7) Dividend to non-controlling shareholder — — — — — — — (1.9) (1.9) Warrants and bond hedge, net — — (59.5) — — — — — (59.5) Issuance of 2023 convertible notes — — 113.1 — — — — — 113.1 Tax impact of 2023 convertible notes, warrantsand bond hedge — — 11.0 — — — — 11.0 Comprehensive income — — — 9.6 810.7 — — 2.3 822.6 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 Impact of the adoption of ASU 2016-16 (1.4) (1.4) Impact of the Adoption of ASC 606 — — — — 2.1 — — — 2.1 Stock option exercises 794,165 — 5.7 — — — — — 5.7 Shares issued pursuant to the ESPP 1,516,012 — 24.9 — — — — — 24.9 RSUs and stock grant awards issued 4,518,328 0.1 (0.1) — — — — — — Shares withheld for employee taxes on RSUs — — — — — (1,343,961) (31.6) — (31.6) Share-based compensation expense — — 78.3 — — — — — 78.3 Repurchase of common stock — — — — — (16,768,511) (315.3) — (315.3) Dividend to non-controlling shareholder — — — — — — — (2.2) (2.2) Comprehensive income — — — 2.7 627.4 — — 2.5 632.6 Balance at December 31, 2018 558,701,620 $5.6 $3,702.3 $(37.9) $979.6 (144,867,393) $(1,478.0) $22.5 $3,194.1 See accompanying notes to consolidated financial statements. 98Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(in millions) Year ended December 31, 2018 2017 2016 Cash flows from operating activities: Net income $629.9 $813.0 $184.5 Adjustments to reconcile net income to net cash provided by operating activities and other adjustments: Depreciation and amortization 508.7 481.9 364.1 Loss on sale or disposal of fixed assets 2.4 3.9 1.5 Gain on divestiture of business (5.0) (12.5) (92.2) Loss on debt refinancing and prepayment 4.6 47.2 6.3 Amortization of debt discount and issuance costs 13.2 16.0 12.0 Payments for term debt modification (1.1) (3.8) (26.4) Write-down of excess inventories 55.7 67.0 66.2 Share-based compensation expense 78.3 69.8 56.1 Non-cash interest on convertible notes 36.1 30.8 26.0 Non-cash asset impairment charges 2.4 7.9 0.5 Goodwill and intangible asset impairment charges 6.8 13.1 2.2 Change in deferred taxes 69.2 (348.3) (38.1) Other (1.6) 2.2 (4.6) Changes in operating assets and liabilities (exclusive of the impact of acquisitions and divestitures): Receivables (2.7) (57.9) 28.1 Inventories (185.2) (126.9) (7.9) Other assets (37.4) (86.0) (25.0) Accounts payable 44.8 51.8 42.4 Accrued expenses 56.5 211.1 (15.3) Deferred income on sales to distributors — (109.8) 0.1 Other long-term liabilities (1.4) 23.7 0.6 Net cash provided by operating activities 1,274.2 1,094.2 581.1 Cash flows from investing activities: Purchase of property, plant and equipment (514.8) (387.5) (210.7) Proceeds from sales of property, plant and equipment 36.5 14.3 0.4 Deposits utilized (made) for purchases of property, plant and equipment 4.1 (8.2) (2.2) Purchase of business, net of cash acquired (70.9) (0.8) (2,284.0) Purchase of equity interest and assets, net of cash acquired (24.6) — — Proceeds from divestiture of business, net of cash transferred 8.4 20.0 104.0 Proceeds from repayment of note receivable 10.2 — — Cash placed in escrow — — (67.7) Cash received from escrow — — 23.8 Other 2.2 (2.6) — Net cash used in investing activities (548.9) (364.8) (2,436.4) Cash flows from financing activities: Proceeds for the issuance of common stock under the ESPP 25.0 23.6 15.0 Proceeds from exercise of stock options 5.7 18.0 14.9 Payments of tax withholding for restricted shares (31.6) (28.1) (12.3) Repurchase of common stock (315.3) (25.0) — Proceeds from debt issuance 15.3 1,106.2 2,586.9 Payment of debt issuance and other financing costs — — (6.8) Repayment of long-term debt (298.4) (1,831.4) (313.8) Purchase of convertible note hedges — (144.7) — Proceeds from issuance of warrants — 85.2 — Payment of capital lease obligations (3.6) (8.9) (14.9) Payment of contingent consideration — (3.9) — Dividend to non-controlling shareholder (2.2) (1.9) (4.3) Net cash (used in) provided by financing activities (605.1) (810.9) 2,264.7 Effect of exchange rate changes on cash, cash equivalents and restricted cash 0.3 2.3 (0.8) Net increase (decrease) in cash, cash equivalents and restricted cash 120.5 (79.2) 408.6 Cash, cash equivalents and restricted cash, beginning of period (Note 18) 966.6 1,045.8 637.2 Cash, cash equivalents and restricted cash, end of period (Note 18) 1,087.1 966.6 1,045.8 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, together with its wholly and majority-owned subsidiaries (the “Company”), prepares its consolidated financialstatements in accordance with GAAP. As of December 31, 2018, the Company was organized into three operating segments, which also represent itsthree reporting segments: the Power Solutions Group, the Analog Solutions Group and the Intelligent Sensing Group. Additional information about theCompany’s operating and reporting segments is included in Note 3: “Revenue and Segment Information”.During the year ended December 31, 2018, the Company adopted the provisions of ASU No 2017-07—Compensation-Retirement Benefits (Topic715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”) retrospectively, whichrequired the net benefit cost to be split in the income statement resulting in the service cost component to be included in operating income while theother components, including the interest cost and the expected return on plan assets, are reported separately outside of operating income. TheCompany utilized the practical expedient to estimate the impact of ASU 2017-07 for the years ended December 31, 2017 and 2016 using theinformation previously disclosed in the notes to the consolidated financial statements in the 2017 Form 10-K. This resulted in the operating incomeincreasing by $0.7 million and $10.7 million for the years ended December 31, 2017 and 2016, respectively, compared to the amounts previouslydisclosed, with offsetting impact to other expense. The service cost is allocated between the cost of revenue, research and development, selling andmarketing and general and administrative line items, while the other components are included in other expense in the Consolidated Statements ofOperations and Comprehensive Income for the years ended December 31, 2018, 2017 and 2016.All dollar amounts 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, revenue 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. 100Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 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 revenue and expenses during the reporting period.Management evaluates these estimates and judgments on an ongoing basis and bases its estimates on experience, current and expected 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; (iii) fair values of share-basedcompensation and of financial instruments (including derivative financial instruments); and (iv) measurement of valuation allowances against deferredtax assets, evaluations of uncertain tax positions, and the impact of U.S. tax reform. Additionally, during periods where it becomes applicable,significant estimates will be used by management in determining the future cash flows used to assess and test for impairment of goodwill, indefinite-lived intangible assets and long-lived assets and in assumptions used in connection with business combinations. Actual results may differ from theestimates and 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 institutions. If, due to current economic conditions, one or more of the financialinstitutions with which the Company maintains deposits fails, the Company’s cash and cash equivalents may be at risk. Deposits with these banksgenerally exceed the amount of insurance provided on such deposits; however, these deposits typically may be redeemed upon demand and, as a resultof the quality of the respective financial institutions, management believes these deposits bear minimal risk.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 revenue and gross profit. If demand recovers and the parts previously written down aresold, a higher than normal margin will generally be recognized. However, the majority of product inventory that has been previously written down isultimately 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. 101Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 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.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 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 a reporting unit may not be recoverable.The Company’s divisions are one level below the operating segments,constituting individual businesses, at which level the Company’s segment management conducts regular reviews of the operating results. TheCompany’s divisions, either individually or in a combination, constitute reporting units for purposes of allocating and testing goodwill. TheCompany’s impairment evaluation of goodwill consists of a qualitative assessment to determine if it is more likely than not that the fair value of areporting unit exceeds its carrying amount. If this qualitative assessment indicates it is more likely than not the estimated fair value of a reporting unitexceeds its carrying value, no further analysis is required and goodwill is not impaired. Otherwise, the Company performs a quantitative goodwillimpairment test to determine if goodwill is impaired. The quantitative test compares the fair value of a reporting unit with its carrying amount,including goodwill. 102Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 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 aboutestimated cash flows include factors such as future revenue, gross profit, operating expenses and industry trends. The Company considers historicalrates and current market conditions when determining the discount and long-term growth rates to use in its analysis. The Company considers othervaluation methods, such as the cost approach or market approach, if it is determined that these methods provide a more representative approximation offair value. Changes in these estimates based on evolving economic conditions or business strategies could result in material impairment charges infuture periods. The Company bases its fair value estimates on assumptions it believes to be reasonable. Actual results may differ from 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 revenue, gross profit,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 considered long-lived assets and are stated at cost less accumulated amortization, are amortized over theirestimated useful lives, and are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset groupcontaining these assets may not be recoverable. A potential impairment charge is evaluated when the undiscounted expected cash flows derived froman asset group are less than its carrying amount. Impairment losses are measured as the amount by which the carrying value of an asset group exceedsits fair value and are recognized in operating results. Judgment is used when applying these impairment rules to determine the timing of the impairmenttest, the undiscounted cash flows used to assess impairments and the fair value of an asset group. The dynamic economic environment in which theCompany operates and the resulting assumptions used to estimate future cash flows impact the outcome of these impairment tests. 103Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 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.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 and Term Loan “B” Facility are recorded as a direct deduction from the carrying amount ofthe convertible notes and the Term Loan “B” Facility, consistent with debt discounts, and are amortized over their term using the effective interestmethod. Amortization of these debt issuance costs is included in interest expense.Revenue RecognitionOn January 1, 2018, as required, the Company adopted ASU No. 2014-09 - Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”),ASU No. 2015-14 - Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU 2015-14”), ASU No. 2016-08 - Revenuefrom Contracts with Customers (Topic 606): Principal versus Agent Considerations (“ASU 2016-08”), ASU No. 2016-10 - Revenue from Contracts withCustomers (Topic 606): Identifying Performance Obligations and Licensing (“ASU 2016-10”), ASU No. 2016-12 - Revenue from Contracts withCustomers (Topic 606): Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”) and ASU No. 2016-20 - Technical Corrections andImprovements to Topic 606, Revenue from Contracts with Customers (“ASU 2016-20”) (collectively, the “New Revenue Standard”).The Company adopted the New Revenue Standard using the modified retrospective method, applying the guidance to all open contracts, andrecognized the cumulative effect adjustment of $2.1 million to retained earnings and accrued expenses. The comparative financial information has notbeen restated and continues to be presented under the accounting standards in effect for the respective periods. The Company applied the practicalexpedient and has not disclosed the revenue allocated to future shipments of partially completed contracts.In anticipation of the adoption of the New Revenue Standard, during the quarter ended March 31, 2017, the Company developed its internal systems,processes and controls to enable it to make the estimates required by the New Revenue Standard on sales to its distributors and was able to reliablyestimate upfront the effects of returns and allowances and record revenue at the time of shipments to these distributors. Prior to this, the Companyrecognized revenue from distributors under the sell-through method as it did not have the ability to estimate the effects of returns and allowances. As aresult of this change, the Company recognized an additional $155.1 million in revenue during the first quarter of 2017, which resulted in an increase of$59.0 million to income before income taxes. 104Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued The Company generates revenue from sales of its semiconductor products to OEMs, electronic manufacturing service providers and distributors. TheCompany also generates revenue, to a much lesser extent, from product development agreements and manufacturing services provided to customers.The Company recognizes revenue when it satisfies a performance obligation in an amount reflecting the consideration to which it expects to beentitled. For sales agreements, the Company has identified the promise to transfer products, each of which is distinct, to be the performance obligation.For product development agreements, the Company has identified the completion of a service defined in the agreement to be the performanceobligation. The Company applies a five-step approach in determining the amount and timing of revenue to be recognized: (1) identifying the contractwith a customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction priceto the performance obligations in the contract; and (5) recognizing revenue when the performance obligation is satisfied.Substantially all of the Company’s revenue continues to be recognized following the transfer of control of the products to the customer, whichtypically occurs upon shipment or delivery depending on the terms of the underlying contracts. Under the New Revenue Standard, revenue fromcertain product development agreements, which was previously deferred as delivered, is now recognized over time. During year ended December 31,2018, revenue increased by $4.6 million due to the impact of the adoption of the New Revenue Standard.Sales agreements with customers are renewable periodically and contain terms and conditions with respect to payment, delivery, warranty and supply,but typically do not require minimum purchase commitments. In the absence of a sales agreement, the Company’s standard terms and conditions apply.The Company considers the customer purchase orders, governed by sales agreements or the Company’s standard terms and conditions, to be thecontract with the customer. The Company evaluates certain factors including the customer’s ability to pay (or credit risk).Most of the Company’s OEM customers negotiate pricing terms on an annual basis, distributors generally negotiate pricing terms on a quarterly basis,while the pricing terms for electronic manufacturer service providers are negotiated periodically during the year. Pricing terms on product developmentagreements are negotiated at the beginning of a project. The Company allocates the transaction price to each distinct product based on its relativestand-alone selling price. 105Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued In determining the transaction price, the Company evaluates whether the price is subject to refund or adjustment to determine the net consideration towhich the Company expects to be entitled. The Company’s OEM customers do not have the right to return products, other than pursuant to theprovisions of the Company’s standard warranty. Sales to distributors, however, are typically made pursuant to agreements that provide return rights andstock rotation provisions permitting limited levels of product returns. Sales to certain distributors, primarily those with ship and credit rights, can alsobe subject to price adjustment on certain products. Although payment terms vary, most distributor agreements require payment within 30 days. Inaddition, the Company offers cash discounts to certain customers for payments received within an agreed upon time, generally 10 days after shipment.The Company recognizes revenue when it satisfies a performance obligation. The Company recognizes revenue from sales agreements upontransferring control of a product to the customer. This typically occurs when products are shipped or delivered, depending on the delivery terms, orwhen products that are consigned at customer locations are consumed. The Company recognizes revenue from product development agreements overtime based on the cost-to-cost method. Revenue recognized during the year ended December 31, 2018 for sales agreements and product developmentagreements was $5,849.0 million and $29.3 million, respectively. Sales returns and allowances are estimated based on historical experience. Provisionsfor discounts and rebates to customers, estimated returns and allowances, ship and credit claims and other adjustments are provided for in the sameperiod the related revenue are recognized, and are netted against revenue. For returns, the Company recognizes a related asset for the right to recoverreturned products with a corresponding reduction to cost of goods sold. The Company records a reserve for cash discounts as a reduction to accountsreceivable and a reduction to revenue, based on the experience with each customer.Frequently, the Company receives orders with multiple delivery dates that may extend across reporting periods. Since each delivery constitutes aperformance obligation, the Company allocates the transaction price of the contract to each performance obligation based on the stand-alone sellingprice of the products. The Company invoices the customer for each delivery upon shipment and recognizes revenue in accordance with delivery terms.As scheduled delivery dates are within one year, revenue allocated to future shipments of partially completed contracts are not disclosed.The Company has elected to record freight and handling costs associated with outbound freight after control over a product has transferred to acustomer as a fulfillment cost and include it in cost of revenue. Taxes assessed by government authorities on revenue-producing transactions,including value-added and excise taxes, are presented on a net basis (excluded from revenue) in the Consolidated Statements of Operations andComprehensive Income.The 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 and records them as a component of the cost of revenue.Research and Development CostsResearch and development costs are expensed as incurred. 106Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 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 increased with a charge to income tax expense. Conversely, if the Company determines it is more likely thannot to be able to utilize all or a portion of the deferred tax assets for which a valuation allowance has been provided, the related portion of thevaluation allowance will be recorded as a reduction 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. 107Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Historically, the majority of the Company’s Japanese subsidiaries utilized Japanese Yen as their functional currency. The assets and liabilities of thesesubsidiaries are translated at current exchange rates, while revenue and expenses are translated at the average rates in effect for the period. The relatedtranslation gains and losses are included in other comprehensive income or loss within the Consolidated Statements of Operations and ComprehensiveIncome. As a result of an analysis which took into account the economic indicators of these subsidiaries from a long-term perspective, the Companychanged the functional currency for some of these subsidiaries from Japanese Yen to U.S. Dollars effective as of January 1, 2018.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.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 the 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. 108Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Note 3: Revenue and Segment InformationThe Company is organized into three operating and reporting segments consisting of the Power Solutions Group, the Analog Solutions Group and theIntelligent Sensing Group.The Company does not allocate income taxes or interest expense to its operating segments as the operating segments are principally evaluated onrevenue and gross profit. Additionally, restructuring, asset impairments and other, net and certain other manufacturing and operating expenses, whichinclude corporate research and development costs, unallocated inventory reserves and miscellaneous nonrecurring expenses, are not allocated to anysegment. In addition to the operating and reporting segments, the Company also operates global operations, sales and marketing, information systems,finance and administration groups that are led by vice presidents who report to the Chief Executive Officer. A portion of the expenses of these groupsare allocated to the segments based on specific and general criteria and are included in the segment results.Revenue and gross profit for the Company’s operating and reporting segments are as follows (in millions): PowerSolutionsGroup AnalogSolutionsGroup IntelligentSensingGroup Total For year ended December 31, 2018: Revenue from external customers $ 3,038.2 $ 2,071.2 $ 768.9 $ 5,878.3 Segment gross profit 1,110.1 878.3 317.1 2,305.5 For year ended December 31, 2017: Revenue from external customers $2,819.3 $1,950.9 $772.9 $5,543.1 Segment gross profit 959.8 817.8 302.6 2,080.2 For year ended December 31, 2016: Revenue from external customers $1,708.6 $1,481.5 $716.8 $3,906.9 Segment gross profit 567.5 590.2 237.7 1,395.4 Gross profit is exclusive of the amortization of acquisition-related intangible assets. Depreciation expense is included in segment gross profit.Reconciliations of segment gross profit to consolidated gross profit are as follows (in millions): Year Ended December 31, 2018 2017 2016 Gross profit for reportable segments $ 2,305.5 $ 2,080.2 $ 1,395.4 Less: unallocated manufacturing costs (66.8) (44.6) (94.9) Consolidated gross profit $2,238.7 $2,035.6 $1,300.5 109Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Revenue for the Company’s operating and reporting segments disaggregated into geographic locations and sales channels are as follows (in millions): Year Ended December 31, 2018 PowerSolutionsGroup AnalogSolutionsGroup IntelligentSensingGroup Total Geographic Location Singapore $1,086.6 $704.2 $164.2 $1,955.0 Hong Kong 847.9 496.5 144.7 1,489.1 United Kingdom 488.5 319.8 138.2 946.5 United States 398.5 339.2 125.0 862.7 Other 216.7 211.5 196.8 625.0 Total $3,038.2 $2,071.2 $768.9 $5,878.3 Sales Channel Distributors $2,011.1 $1,066.4 $464.2 $3,541.7 OEM 846.8 860.7 263.4 1,970.9 Electronic Manufacturing Service Providers 180.3 144.1 41.3 365.7 Total $3,038.2 $2,071.2 $768.9 $5,878.3 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.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 revenue on the basis of product costs. Because operating segments are generally defined by the products they design and sell, they do not makesales to each other. The Company does not discretely allocate assets to its operating segments, nor does management evaluate operating segmentsusing discrete asset information. The Company’s consolidated assets are not specifically ascribed to its individual reporting segments. Rather, assetsused in operations are generally shared across the Company’s operating and reporting segments.Property, plant and equipment, net by geographic location, are summarized as follows (in millions): As of December 31, 2018 2017 United States $616.9 $547.9 Philippines 474.5 439.5 Korea 383.1 380.5 China 248.4 246.0 Malaysia 229.1 230.0 Other 597.6 435.2 $ 2,549.6 $ 2,279.1 110Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued The following table illustrates the product technologies under each of the Company’s reportable segments based on the Company’s operating strategy.Because many products are sold into different end-markets, the total revenue reported for a segment is not indicative of actual sales in the end-marketassociated with that segment, but rather is the sum of the revenue from the product lines assigned to that segment. These segments represent theCompany’s view of the business and as such are used to evaluate progress of major initiatives and allocation of resources. Power Solutions Group Analog Solutions Group Intelligent Sensing GroupAnalog products Analog products LSI productsDiscrete products ASIC products SensorsHD products ECL products IPM products Foundry products / services Memory products LSI products PIM products Standard logic products Sensors TMOS products Standard logic products TMOS products WBG products Note 4: Recent Accounting PronouncementsASUs Adopted:New Revenue StandardThe Company adopted the New Revenue Standard on a modified retrospective basis on January 1, 2018. The cumulative-effect adjustment related tothe timing of revenue recognition on certain product development agreements recorded to beginning retained earnings and accrued expenses as ofJanuary 1, 2018, was $2.1 million. The Company expects the ongoing impact of the New Revenue Standard to be immaterial to the consolidatedfinancial 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. The Company adopted ASU 2017-09 during the first quarter of 2018. Theadoption of this standard did not have a material impact on the consolidated financial statements.ASU No 2017-07The Company adopted ASU 2017-07 during the first quarter of 2018, applying the standard retrospectively to all periods presented. The adoption ofthis standard did not have a material impact on the current period or prior period consolidated financial statements. 111Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 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. The Company adopted ASU 2016-18 during the first quarter of 2018, applying the standard retrospectively to all periods presented. Theadoption of this standard did not have a material impact on the current period or prior period consolidated financial statements. See Note 18:“Supplemental Disclosures” for further information on the adoption of ASU 2016-18.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 recognizedat the time of the transfer. The new guidance does not apply to intra-entity transfers of inventory. The income tax consequences from the sale ofinventory from one member of a consolidated entity to another will continue to be deferred until the inventory is sold to a third-party. The amendmentsare effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company adopted ASU2016-16 during the first quarter of 2018 and recorded the cumulative-effect adjustment of $1.4 million as a reduction to the beginning retainedearnings.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. The Company adopted ASU 2016-15 during the first quarter of 2018. The adoption of this standard did not have a material impact on theconsolidated financial statements. 112Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 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 effectiveness throughout the term of thehedge. An initial quantitative test to establish that the hedge relationship is highly effective is still required. The amendments are effective for fiscalyears beginning after December 15, 2018. Early adoption is permitted. The Company does not anticipate the adoption of ASU 2017-12 will have amaterial impact on its consolidated financial statements.ASU No. 2016-02 - Leases (Topic 842) (“ASU 2016-02”), ASU No. 2018-10 - Codification improvements to Topic 842, Leases (“ASU 2018-10”),ASU No. 2018-11 - Leases (Topic 842) (“ASU 2018-11”) (collectively, the “New Leasing Standard”)In February 2016, the FASB issued ASU 2016-02, which amended the accounting treatment for leases. ASU 2016-02 requires that a lessee shouldrecognize on its balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlyingasset for the lease term. Lessees must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of theearliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting forleases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. In July2018, the FASB issued ASU 2018-10 and ASU 2018-11. ASU 2018-10 provides certain areas for improvement in ASU 2016-02 and ASU 2018-11provides an additional optional transition method by allowing entities to initially apply the New Leasing Standard at the adoption date and recognizea cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The New Leasing Standard is effective for fiscalyears beginning after December 15, 2018, including interim periods within those fiscal years and early adoption is permitted. The Company will adoptthe standard beginning January 1, 2019 utilizing the modified retrospective transition method through a cumulative-effect adjustment at the beginningof the first quarter of 2019.The Company currently plans to apply the package of practical expedients to leases that commenced before the effective date whereby we will elect tonot reassess the following: (i) whether any expired or existing contracts contain leases; (ii) the lease classification for any expired or existing leases;and (iii) initial direct costs for any existing leases. The Company expects the adoption of this standard will result in the inclusion of a significantcomponent of the Company’s future minimum lease obligations, as disclosed in Note 13: “Commitments and Contingencies” on its ConsolidatedBalance Sheets, as right-of-use assets and lease liabilities with no material impact to its Consolidated Statements of Operations and ComprehensiveIncome. The Company is continuing to assess the potential impacts of the New Leasing Standard. We anticipate disclosing additional information, asnecessary, to comply with the New Leasing Standard. 113Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Note 5: 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.Acquisition costs are not included as components of consideration transferred and instead are accounted for as expenses in the period in which thecosts are incurred. During the years ended December 31, 2018 and 2017, the Company incurred acquisition and divestiture related costs ofapproximately $4.5 million and $3.2 million, respectively, which are included in operating expenses on the Company’s Consolidated Statements ofOperations and Comprehensive Income.2018 AcquisitionOn May 8, 2018, the Company acquired 100% of the outstanding shares of SensL Technologies Ltd. (“SensL”), a company specializing in siliconphotomultipliers, single photon avalanche diode and LiDAR sensing products for the automotive, medical, industrial and consumer markets, for$71.6 million, funded with cash on hand. This acquisition positions the Company to extend its products in automotive sensing applications for ADASand autonomous driving by adding LiDAR capabilities to the Company’s existing capabilities in imaging and radar.The following table presents the allocation of the purchase price of SensL for the assets acquired and liabilities assumed based on their fair values (inmillions): PurchasePriceAllocation Current assets (including cash and cash equivalents of $0.7) $4.2 Property, plant and equipment and other non-current assets 1.8 Goodwill 18.9 Intangible assets (excluding IPRD) 31.4 IPRD 20.0 Total assets acquired 76.3 Current liabilities 0.7 Other non-current liabilities 4.0 Total liabilities assumed 4.7 Net assets acquired/purchase price $71.6 Acquired intangible assets of $31.4 million include developed technology of $30.0 million (which are estimated to have a seven year weighted-average useful life). The total weighted average amortization period for the acquired intangibles is seven years. IPRD assets are amortized over theestimated useful life of the assets upon successful completion of the related projects. The value assigned to IPRD was determined by estimating the netcash flows from the projects when completed and discounting the net cash flows to their present value using a discount rate of 30.0%. The cash flowsfrom IPRD’s significant products are expected to commence in 2019. 114Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued The acquisition produced $18.9 million of goodwill, which was allocated to the Intelligent Sensing Group. Goodwill is attributable to a combinationof SensL’s assembled workforce, expectations regarding a more meaningful engagement by the customers due to the scale of the combined companyand other product and operating synergies. Goodwill will not be amortized but instead tested for impairment at least annually (more frequently ifcertain indicators are present). Goodwill arising from the SensL acquisition is not deductible for tax purposes.Unaudited pro-forma consolidated results of operations for the years ended December 31, 2018 and 2017 are not included considering the significanceof the acquisition to the results of the Company.2018 DivestitureOn June 25, 2018, the Company divested the transient voltage suppressing diodes business it acquired from Fairchild to TSC America, Inc. for$5.6 million in cash and recorded a gain of $4.6 million after writing off the carrying values of the assets and liabilities disposed. There were certainother immaterial transactions resulting in a total gain of $5.0 million during the year ended December 31, 2018.Licensing TransactionsDuring 2016 and 2017, the Company entered into an Asset Purchase Agreement with Huaian Imaging Device Manufacturer Corporation (“HIDM”)pursuant to which the Company received $52.5 million in cash in 2017 and provided perpetual, non-exclusive licenses relating to certain technologiesto HIDM. Of this amount, $10.0 million was recorded as deferred licensing income to be recognized in the period in which certain qualificationrequirements of the technologies are achieved (or refunded to HIDM, if such qualification did not occur by June 21, 2018). Prior to this date, theCompany achieved such qualification requirements for the technologies transferred and recognized $10.0 million as licensing income.On November 29, 2017, the Company and QST Co. Ltd (“QST”) entered into an IP license and technology transfer agreement (“IP Agreement”) to grantQST patent licenses and IP rights to certain of the Company’s technologies. Pursuant to the IP Agreement, QST receives perpetual, worldwide,nonexclusive and nontransferable patents licenses and IP rights upon the payment of license fees of $13.0 million and other fees of $8.5 million in itsentirety. Such amounts were paid by QST during the years ended December 31, 2017 and 2018. As a result, the Company recognized licensing incomeof $22.7 million relating to licensing and other fees and certain other aspects of the transaction during the year ended December 31, 2018. TheCompany also recognized certain immaterial amounts of licensing income relating to other transactions during the year ended December 31, 2018. 115Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 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 current assets in the Consolidated Balance Sheet as of December 31, 2018. The escrow amount will bereleased to the Company upon satisfaction of any pending claims eighteen months after the date on which the Xsens Transaction closed. The Companyrecorded a gain 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.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 9: “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. 116Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued The following table presents the allocation of the purchase price for the acquisition of Fairchild for the assets acquired and liabilities assumed based ontheir 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 IPRD 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 of $3.0 million (six month useful life). The total weighted-averageamortization 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. 117Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued See Note 13: “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 years ended December 31, 2018 and 2017 are not required because the results ofFairchild are included in the Consolidated Statements of Operations and Comprehensive Income for these periods. The following unaudited pro-formaconsolidated results of operations for the year ended December 31, 2016 has been prepared as if the acquisition of Fairchild had occurred on January 1,2015 and includes adjustments for depreciation expense, amortization of intangibles, interest expense from financing, and the effect of purchaseaccounting adjustments, including the step-up of inventory (in millions, except per share data): Year EndedDecember 31,2016 Revenue $ 4,912.8 Net Income 196.6 Net income attributable to ON Semiconductor Corporation 194.2 Net income per common share attributable to ON Semiconductor Corporation: Basic 0.47 Diluted 0.46 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 on divestiture of $92.2 million after, among other things, transferring inventory of $4.1 million to Littelfuse, writing offgoodwill of $3.4 million and deferring $4.3 million of the proceeds representing the fair value of manufacturing services which has been recognized inthe Consolidated Statements of Operations and Comprehensive Income through December 31, 2018.Note 6: 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 performedqualitative assessments for the annual impairment analysis during the fourth quarters of 2018 and 2017 and concluded that it is more likely than notthat the fair value of its reporting units exceed their carrying amounts and a quantitative impairment test was not required. 118Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued The following table summarizes goodwill by relevant reportable segment (in millions): As of December 31, 2018 As of December 31, 2017 Goodwill AccumulatedImpairmentLosses CarryingValue Goodwill AccumulatedImpairmentLosses CarryingValue Operating Segment Analog Solutions Group $836.7 $(418.9) $417.8 $836.7 $(418.9) $417.8 Intelligent Sensing Group 114.4 — 114.4 95.5 — 95.5 Power Solutions Group 432.2 (31.9) 400.3 432.2 (28.6) 403.6 Total $ 1,383.3 $(450.8) $ 932.5 $1,364.4 $(447.5) $ 916.9 The following table summarizes the change in goodwill (in millions): 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 Addition due to business combination 18.9 Goodwill Impairment (3.3) Net balance as of December 31, 2018 $ 932.5 The goodwill impairment charge of $3.3 million in 2018 was the result of the licensing transaction with QST and represented the entire goodwillassigned to a reporting unit within the Power Solutions Group. The measurement period adjustment of $1.3 million in 2017 was related to animmaterial acquisition that occurred on December 29, 2016. 119Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Intangible AssetsIntangible assets, net, were as follows (in millions): As of December 31, 2018 OriginalCost AccumulatedAmortization AccumulatedImpairmentLosses CarryingValue Customer relationships $556.7 $(359.1) $(20.1) $177.5 Developed technology 698.0 (356.4) (2.6) 339.0 IPRD 64.1 — (22.5) 41.6 Other intangibles 82.3 (58.8) (15.2) 8.3 Total intangible assets $ 1,401.1 $(774.3) $(60.4) $ 566.4 As of December 31, 2017 OriginalCost AccumulatedAmortization AccumulatedImpairmentLosses CarryingValue Customer relationships $555.9 $(328.5) $(20.1) $207.3 Developed technology 657.6 (278.2) (2.6) 376.8 IPRD 54.5 — (19.0) 35.5 Other intangibles 79.8 (55.9) (15.2) 8.7 Total intangible assets $ 1,347.8 $(662.6) $(56.9) $ 628.3 During the year ended December 31, 2018, the Company determined that the value of one of its IPRD projects under the Intelligent Sensing Group wasimpaired and recorded a charge of $3.5 million, and the Company also completed certain of its IPRD projects resulting in the reclassification of$10.4 million from IPRD to developed technology.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, the Company determined that the value of certain of itsprojects under the Analog Solutions Group were impaired and recorded charges of $5.4 million. During the year ended December 31, 2017, theCompany also completed certain of its IPRD projects, resulting in the reclassification of $99.4 million from IPRD to developed technology and,disposed of $8.7 million of intangible assets as part of the Xsens Transaction.During the year ended December 31, 2016, the Company canceled certain of its previously capitalized IPRD projects under the Intelligent SensingGroup and recorded impairment losses of $2.2 million, and the Company also completed certain of its IPRD projects resulting in the reclassification of$21.6 million from IPRD to developed technology. 120Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Amortization expense for intangible assets for the years ended December 31, 2018, 2017 and 2016 amounted to $111.7 million, $123.8 million and$104.8 million, respectively. Amortization expense for intangible assets, with the exception of the $41.6 million of IPRD assets that will be amortizedonce the corresponding projects have been completed, is expected to be as follows over the next five years, and thereafter (in millions): Total 2019 $106.2 2020 95.8 2021 78.7 2022 63.8 2023 47.0 Thereafter 133.3 Total estimated amortization expense $ 524.8 121Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Note 7: 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, 2018, 2017 and 2016 is as follows (in millions): Restructuring AssetImpairments (1) Other (2) Total Year Ended December 31, 2018 Other $3.9 $4.6 $(4.2) $4.3 Total $3.9 $4.6 $(4.2) $4.3 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 (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 gain on sale of certain held-for-sale assets for the year ended December 31, 2018 and charges related to other facilityclosures and asset disposal activities for the year ended December 31, 2017. 122Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Summary of changes in accrued restructuring charges as follows (in millions): Estimatedemployeeseparation charges Estimatedcosts to exit Total 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 Charges 3.9 — 3.9 Usage (5.5) — (5.5) Balance as of December 31, 2018 $ 0.3 $ 0.2 $ 0.5 The Company did not have any significant restructuring activities during the year ended December 31, 2018. Activity related to the Company’ssignificant restructuring programs that were initiated during 2016 or 2017 was 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 exited during 2018. The restructuring expense attributable to severance andtermination 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 this programamounted 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 was $1.8 million as of December 31, 2017, of which $1.3 million was paid during the year endedDecember 31, 2018.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 were paid during 2018. 123Table 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.Note 8: Balance Sheet InformationCertain significant amounts included in the Company’s Consolidated Balance Sheets consist of the following (in millions): As of December 31,2018 December 31,2017 Inventories: Raw materials $137.3 $117.7 Work in process 760.7 660.8 Finished goods 327.2 311.0 $1,225.2 $1,089.5 Property, plant and equipment, net: Land $125.5 $148.4 Buildings 820.4 744.0 Machinery and equipment 3,980.2 3,454.6 Property, plant and equipment, gross 4,926.1 4,347.0 Less: Accumulated depreciation (2,376.5) (2,067.9) $2,549.6 $2,279.1 Accrued expenses: Accrued payroll and related benefits $240.8 $201.8 Sales related reserves 294.8 280.0 Income taxes payable 38.2 29.9 Other 85.3 101.1 $ 659.1 $ 612.8 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, 2018 and 2017 was $1.4 million and $5.3 million, respectively, and is reported as othercurrent assets on the Company’s Consolidated Balance Sheet. The Company sold the assets held-for-sale at December 31, 2017 in January 2018 for$5.5 million.Depreciation expense for property, plant and equipment, including amortization of capital leases, totaled $359.3 million, $325.2 million and$239.6 million for 2018, 2017 and 2016, respectively.As of December 31, 2018 and 2017, total property, plant and equipment included $0.9 million and $4.2 million, respectively, of assets financed undercapital leases. Accumulated depreciation associated with these assets is included in total accumulated depreciation in the table above. 124Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Warranty ReservesThe activity related to the Company’s warranty reserves are as follows (in millions): 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 Provision 0.4 Usage (3.2) Balance as of December 31, 2018 $ 5.2 Note 9: Long-Term DebtThe Company’s long-term debt consists of the following (annualized interest rates, in millions): As of December 31,2018 December 31,2017 Amended Credit Agreement: Revolving Credit Facility due 2021, interest payable monthly at 3.77% and 3.07%, respectively $400.0 $400.0 Term Loan “B” Facility due 2023, interest payable monthly at 4.27% and 3.57%, respectively 1,134.5 1,204.5 1.00% Notes due 2020 (1) 690.0 690.0 1.625% Notes due 2023 (2) 575.0 575.0 Note payable to SMBC due 2018, interest payable quarterly at 0% and 3.09%, respectively (3) — 122.7 Other long-term debt (4) 139.5 182.8 Gross long-term debt, including current maturities 2,939.0 3,175.0 Less: Debt discount (5) (139.4) (178.8) Less: Debt issuance costs (6) (33.5) (44.4) Net long-term debt, including current maturities 2,766.1 2,951.8 Less: Current maturities (138.5) (248.1) Net long-term debt $ 2,627.6 $ 2,703.7 (1)Interest is payable on June 1 and December 1 of each year at 1.00% anually. (2)Interest is payable on April 15 and October 15 of each year at 1.625% annually. (3)This loan represented SCI LLC’s non-collateralized loan with SMBC, which was guaranteed by the Company. 125Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (4)Consists of U.S. real estate mortgages, term loans, revolving lines of credit, notes payable and other facilities at certain internationallocations where interest is payable weekly, monthly or quarterly, with interest rates between 1.00% and 4.00% and maturity dates between2019 and 2020. (5)Debt discount of $41.6 million and $61.9 million for the 1.00% Notes, $88.5 million and $104.4 million for the 1.625% Notes and$9.3 million and $12.5 million for the Term Loan “B” Facility, in each case as of December 31, 2018 and December 31, 2017, respectively. (6)Debt issuance costs of $5.8 million and $8.6 million for the 1.00% Notes, $8.5 million and $10.0 million for the 1.625% Notes and$19.2 million and $25.8 million for the Term Loan “B” Facility, in each case as of December 31, 2018 and December 31, 2017, respectively.MaturitiesExpected maturities relating to the Company’s gross long-term debt (including current maturities) as of December 31, 2018 are as follows (in millions): AnnualMaturities 2019 $138.5 2020 690.9 2021 400.0 2022 — 2023 1,709.6 Thereafter — Total $ 2,939.0 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 proceeds from the Term Loan “B” Facility, along with$67.7 million funded by the Company, were deposited into escrow accounts until the close of the Fairchild Transaction. Upon the close of theFairchild Transaction, the Company’s then current senior revolving credit facility was terminated and replaced by the Revolving Credit Facility, whichbecame 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. Borrowings under the Amended Credit Agreement maybe incurred in U.S. Dollars, Euros, Pounds Sterling, Japanese Yen or any other currency approved by the Agent and the lenders under the RevolvingCredit Facility, subject to certain qualifications described in the Amended Credit Agreement. Regardless of currency, all borrowings under theAmended Credit Agreement may, at the Company’s option, be incurred as either eurocurrency loans (“Eurocurrency Loans”) or alternate base rate loans(“ABR Loans”). 126Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Amendments to the Amended Credit AgreementOn September 30, 2016, the Company, and certain of the Company’s subsidiaries, as guarantors (the “Guarantors”), entered into the First Amendmentto the Amended Credit Agreement with the several lenders party thereto and Deutsche Bank AG New York Branch, as the administrative agent (the“Agent”). The First Amendment reduced the applicable margins on Eurocurrency Loans to 2.75% and 3.25% for borrowings under the RevolvingCredit Facility and the Term Loan “B” Facility, respectively, and reduced applicable margins on ABR Loans to 1.75% and 2.25% for borrowings underthe Revolving Credit Facility and the Term Loan “B” Facility, respectively. Additionally, under the First Amendment: (i) the Term Loan “B” Facilitywas increased to $2.4 billion; (ii) certain restructuring transactions and intercompany intellectual property transfers were permitted in order to achieveefficient integration of the Company, its subsidiaries and acquired entities; and (iii) certain changes were made to the provisions regarding hedgeagreements to allow the Company and each of the Guarantors to enter into certain hedge arrangements that shall be deemed to be “obligations” forpurposes of the Amended Credit Agreement which may be collateralized by the collateral granted pursuant to the Guarantee and Collateral Agreement.The Company used the additional $200.0 million proceeds under the Term Loan “B” Facility to pay off the outstanding balance under the RevolvingCredit Facility.On March 31, 2017, the Company, the Guarantors, the several lenders party thereto and the Agent entered into the Second Amendment to the AmendedCredit Agreement (the “Second Amendment”). The Second Amendment provided for, among other things, modifications to the Amended CreditAgreement to allow the 1.625% Notes to rank pari passu with borrowings under the Amended Credit Agreement and to reduce the interest rates payableunder the Term Loan “B” Facility and the Revolving Credit Facility. The Second Amendment reduced the applicable margins on Eurocurrency Loansto 1.75% and 2.25% for borrowings under the Revolving Credit Facility and the Term Loan “B” Facility, respectively, and reduced the applicablemargins on ABR Loans to 0.75% and 1.25% for borrowings under the Revolving Credit Facility and the Term Loan “B” Facility, respectively.On November 30, 2017, the Company, the Guarantors, the several lenders party thereto and the Agent entered into the Third Amendment to theAmended Credit Agreement (the “Third Amendment”). The Third Amendment provided for, among other things, modifications to the Amended CreditAgreement to reduce the interest rate payable under the Term Loan “B” Facility and to increase the amount that may be borrowed pursuant to theRevolving Credit Facility to $1.0 billion. The Third Amendment reduced the applicable margins on Eurocurrency Loans to 1.50% and 2.00% forborrowings under the Revolving Credit Facility and the Term Loan “B” Facility, respectively, and reduced applicable margins on ABR Loansto 0.50% and 1.00% for borrowings under the Revolving Credit Facility and the Term Loan “B” Facility, respectively. 127Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued On May 31, 2018, the Company, the Guarantors, the several lenders party thereto and the Agent entered into the Fourth Amendment to the AmendedCredit Agreement (the “Fourth Amendment”). Pursuant to the Fourth Amendment, for any interest period ending after the date of the FourthAmendment, Eurocurrency Loans will accrue interest at (i) a base rate per annum equal to the Adjusted LIBO Rate (as defined in the Amended CreditAgreement) plus (ii) an applicable margin equal to (x) 1.25% with respect to borrowings under the Revolving Credit Facility (with step-downs andstep-ups as set forth in the Amended Credit Agreement) or (y) 1.75% with respect to borrowings under the Term Loan “B” Facility. Pursuant to theFourth Amendment, ABR Loans will accrue interest at (i) a base rate per annum equal to the highest of (x) the Federal funds rate plus 0.50%, (y) theprime commercial lending rate announced by the Agent from time to time as its prime lending rate and (z) the Adjusted LIBO Rate for a one monthinterest 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 LIBO Rate, subject to the interest rate floors set forth in theAmended Credit Agreement, plus (ii) an applicable margin equal to (x) 0.25% with respect to borrowings under the Revolving Credit Facility (withstep-downs and step-ups as set forth in the Amended Credit Agreement) or (y) 0.75% with respect to borrowings under the Term Loan “B” Facility.The obligations under the Amended Credit Agreement are guaranteed by the Guarantors and collateralized by a pledge of substantially all of the assetsof the Company and the Guarantors, including a pledge of the equity interests in certain of the Company’s domestic and first tier foreign subsidiaries,subject to customary exceptions. The obligations under the Amended Credit Agreement are also collateralized by mortgage on certain real propertyassets of the Company and its domestic subsidiaries.The Amended Credit Agreement includes financial maintenance covenants, including, among others, a maximum total net leverage ratio and aminimum interest coverage ratio. It also contains other customary affirmative and negative covenants and events of default. The Company was incompliance with its covenants as of December 31, 2018. The Term Loan “B” Facility will mature on March 31, 2023 and the Revolving Credit Facilitywill mature on September 19, 2021.Debt Refinancing and PrepaymentsThe Company incurred third-party, legal and other fees of $1.1 million related to the Fourth Amendment and recorded debt extinguishment charges of$2.6 million, which included a write-off of $1.5 million of unamortized debt discount and issuance costs and $1.1 million in third-party fees. TheCompany also prepaid $70.0 million of borrowings under the Term Loan “B” Facility during the year ended December 31, 2018 and expensed$2.0 million of unamortized debt discount and issuance costs attributed to the partial pay-down as loss on debt refinancing and prepayment.The Company incurred third-party, legal and other fees of $3.3 million related to the Third Amendment and capitalized $1.9 million of closing costsrelating to the Revolving Credit Facility which will be amortized straight-line over its term and expensed $1.4 million of third-party fees and expensesrelating to the Term Loan “B” Facility. The Company also expensed $12.9 million of unamortized debt discount and issuance costs attributed to thepartial pay down of $400.0 million of the Term Loan “B” Facility. The Company prepaid $200.0 million of borrowings under the Term Loan “B”Facility during the year ended December 31, 2017 and expensed $6.7 million of unamortized debt discount and issuance costs attributed to the partialpay-down as loss on debt refinancing and prepayment. 128Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued The Company incurred legal and other fees of $2.4 million related to the Second Amendment and recorded debt extinguishment charges 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, theCompany 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 debt discount 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 and recorded debt extinguishment charges of $4.7 million during the year endedDecember 31, 2016. The Company incurred debt issuance costs consisting of legal, underwriting and other fees of $8.2 million for the RevolvingCredit Facility and accounted for the termination and replacement of its senior revolving credit facility by the Revolving Credit Facility as a debtmodification and wrote off $1.6 million in unamortized debt issuance costs.As a result of the above, the Company recorded debt refinancing and prepayment charges of $4.6 million, $47.2 million and $6.3 million for the yearsended December 31, 2018, 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.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. 129Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 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 10:“Earnings Per 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, ranks 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 1.00%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. 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’ equity. The resulting debt discount is being amortized to interest expense at an effective interest rate of 4.29% over thecontractual terms of the 1.00% Notes. 130Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 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 reduce the potential dilution from the conversionof the 1.00% Notes. As these transactions meet certain accounting criteria, the convertible note hedges and warrants are recorded in stockholders’equity and are not accounted for as derivatives. The net cost incurred in connection with the convertible note hedge and warrant transactions wasrecorded as a reduction to additional paid-in capital in the Consolidated Balance Sheet. All of the shares subject to the conversion of the 1.00% Notesand hedging transactions were reserved in the form of the Company’s treasury stock.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.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. 131Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 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 10: “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. ON Semiconductor was the sole issuer of the 1.625% Notes.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’ equity. The resulting debt discount is being amortized to interest expense at an effective interest rate of 5.38% overthe contractual terms of the notes. 132Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 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 reduce the potential dilution from the conversion ofthe 1.625% 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 1.625% 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 as of December 31, 2017. The entire balancewas repaid on the due date of January 2, 2018.Other Long-term DebtNote Payable to FujitsuOn October 1, 2018, the Company assumed a yen-denominated non-collateralized loan obligation amounting to $50.6 million as a result of theCompany acquiring a majority ownership in OSA. See Note 10: “Earnings Per Share and Equity” for more information on the acquisition of OSA.Amortization and maturity of the loan is at the request of the lender, FSL. The loan bears a variable interest rate which is payable monthly and theending balance amounting to $51.6 million has been classified as current portion of long-term debt in the Consolidated Balance Sheet as ofDecember 31, 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 bank for approximately$49.4 million, which was collateralized by real estate, including certain of the Company’s facilities in California, Oregon, and Idaho. The balance as ofDecember 31, 2018 was $29.5 million and the loan bears interest which is payable monthly at a rate of approximately 3.12% per annum, with a balloonpayment of approximately $26.7 million in 2019. 133Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 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 $50.0 million availableunder the term loans and the balance was repaid in full during the year ended December 31, 2018. Borrowings under the loans bear interest based onthe 3-month LIBO Rate plus 2.0% per annum, with interest payable quarterly in arrears. The total borrowed amount must be repaid within five yearsover 17 equal quarterly principal installments starting at the end 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, 2018 was $25.0 million. Borrowingsunder the Malaysia Line of Credit bear interest based on the 3-month LIBO Rate, as established at the commencement of each borrowing period, plus1.45% 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, 2018, the Company’s Vietnamese subsidiary had anoutstanding balance of $10.7 million under the Vietnam Line of Credit. Borrowings under the Vietnam Line of Credit bear interest based on the3-month LIBO Rate and 12-month LIBO Rate, as established at the commencement of each borrowing period, plus 1.45% per annum, with interestpayable quarterly and annually. The outstanding amount is payable within 5 business days of demand.Capital Lease ObligationsThe Company has various capital lease obligations primarily for buildings, which, as of December 31, 2018, totaled $0.9 million, with interest ratesranging from 1.0% to 5.2% and maturities from the first quarter of 2019 until the fourth quarter of 2022. Future payments for the Company’s capitallease obligations are included in the annual maturities table. 134Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Note 10: 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): Year ended December 31, 2018 2017 2016 Net income attributable to ON Semiconductor Corporation $ 627.4 $810.7 $182.1 Basic weighted average common shares outstanding 423.8 421.9 415.2 Add: Incremental shares for: Dilutive effect of share-based awards 4.3 5.5 3.8 Dilutive effect of convertible notes 7.8 0.9 1.0 Diluted weighted average common shares outstanding 435.9 428.3 420.0 Net income per common share attributable to ON Semiconductor Corporation: Basic $1.48 $1.92 $0.44 Diluted $ 1.44 $ 1.89 $ 0.43 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.To calculate the diluted weighted-average common shares outstanding, the number of incremental shares from the assumed exercise of stock optionsand assumed issuance of shares relating to RSUs is calculated by applying the treasury stock method. Share-based awards whose impact is consideredto be anti-dilutive under the treasury stock method were excluded from the diluted net income per share calculation. The excluded number of anti-dilutive share-based awards was approximately 0.6 million, 0.2 million and 1.7 million for the years ended December 31, 2018, 2017 and 2016,respectively.The dilutive impact related to the Company’s 1.00% Notes and 1.625% Notes is determined in accordance with the net share settlement requirements,under which the Company’s convertible notes are assumed to be convertible into cash up to the par value, with the excess of par value beingconvertible into common stock. Additionally, if the average price 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, during the relevant reporting period, the effect of the additional potential shares that maybe issued related to the warrants that were issued concurrently with the issuance of the convertible notes will also be included in the calculation ofdiluted weighted-average common shares outstanding. Prior to conversion, the convertible note hedges are not considered for purposes of the earningsper share calculations, as their effect would be anti-dilutive. Upon conversion, the convertible note hedges are expected to offset the dilutive effect ofthe 1.00% Notes and 1.625% Notes, respectively, when the stock price is above $18.50 per share, with respect to the 1.00% Notes, and $20.72 pershare, with respect to the 1.625% Notes. 135Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued EquityShare Repurchase ProgramsOn December 1, 2014, the Company announced the “Capital Allocation Policy” under which the Company intends to return to stockholdersapproximately 80 percent of free cash flow, less repayments of long-term debt, subject to a variety of factors, including the strategic plans, market andeconomic conditions and the discretion of the Company’s board of directors. For the purposes of the Capital Allocation Policy, the Company defines“free cash flow” as net cash provided by operating activities less purchases of property, plant and equipment.On December 1, 2014, the Company announced the 2014 Share Repurchase Program pursuant to the Capital Allocation Policy. Under the Company’s2014 Share Repurchase Program, the Company had the ability to repurchase up to $1.0 billion (exclusive of fees, commissions and other expenses) ofthe Company’s common stock over a period of four years from December 1, 2014, subject to certain contingencies. The 2014 Share RepurchaseProgram, which did not require the Company to purchase any particular amount of common stock and was subject to the discretion of the board ofdirectors, expired on November 30, 2018 with approximately $288.2 million remaining unutilized.The Company repurchased common stock worth approximately $315.0 million under the 2014 Share Repurchase Program during the year endedDecember 31, 2018. The Company repurchased shares worth $25.0 million of the Company’s common stock under the 2014 Share Repurchase Programin connection with the offering of the 1.625% Notes during the year ended December 31, 2017.On November 15, 2018, the Company announced the 2018 Share Repurchase Program pursuant to the Capital Allocation Policy. Under the 2018 ShareRepurchase Program, the Company is authorized to repurchase up to $1.5 billion of its common shares over a four-year period, exclusive of any fees,commissions or other expenses. The Company may repurchase its common stock from time to time in privately negotiated transactions or open markettransactions, including pursuant to a trading plan in accordance with Rule 10b5-1 and Rule 10b-18 of the Exchange Act, or by any combination ofsuch methods or other methods. The timing of any repurchases and the actual number of shares repurchased will depend on a variety of factors,including the Company’s stock price, corporate and regulatory requirements, restrictions under the Company’s debt obligations and other market andeconomic conditions. The 2018 Share Repurchase Program became effective on December 1, 2018. There were no repurchases made under the 2018Share Repurchase Program during the year ended December 31, 2018.The Company repurchased 4.2 million shares of its common stock for $71.7 million under the 2018 Share Repurchase Program subsequent toDecember 31, 2018 through February 15, 2019. 136Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Information relating to the Company’s Share Repurchase Programs is as follows (in millions, except per share data): Year ended December 31, 2018 2017 2016 Number of repurchased shares (1) 16.8 1.6 — Beginning accrued share repurchases (2) $— $— $— Aggregate purchase price 315.0 25.0 $— Fees, commissions and other expenses 0.3 — $— Less: ending accrued share repurchases (3) — — — Total cash used for share repurchases $315.3 $25.0 $— Weighted-average purchase price per share (4) $18.78 $15.35 $— Available for future purchases at period end $ 1,500.0 $603.2 $ 628.2 (1)None of these shares had been reissued or retired as of December 31, 2018, 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. (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.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 amount of the employee withholding taxes due are withheld by the Company upon the vestingof RSUs to pay the applicable amount of employee withholding taxes and are considered common stock repurchases. The Company then pays theapplicable amount of withholding taxes in cash. The amounts remitted in the years ended December 31, 2018 and 2017 were $31.6 million and$28.1 million, respectively, for which the Company withheld approximately 1.3 million and 1.8 million shares of common stock, respectively, thatwere underlying the RSUs that vested. None of these shares had been reissued or retired as of December 31, 2018, but may be reissued or retired by theCompany at a later date. These deemed repurchases do not count against the Company’s Share Repurchase Programs.Non-Controlling InterestThe Company owns 80% of the outstanding equity interests in Leshan, and the results of Leshan have been consolidated in the Company’s financialstatements. Leshan operates assembly and test operations in Leshan, China.At December 31, 2018, the Leshan non-controlling interest balance was $22.5 million. This balance included the Leshan non-controlling interest’s$2.5 million share of the earnings for the year ended December 31, 2018 offset by $2.2 million of dividends paid to the non-controlling shareholder ofLeshan. 137Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued At December 31, 2017, the Leshan non-controlling interest balance was $22.2 million. This balance included the Leshan non-controlling interest’s$2.3 million share of the earnings for the year ended December 31, 2017 offset by $1.9 million of dividends paid to the non-controlling shareholder ofLeshan.As of December 31, 2017, the Company owned 10% of the equity interest in OSA. During 2018, the Company acquired an incremental 50% equityinterest for approximately $24.6 million, net of cash acquired. OSA operates a front-end wafer fabrication facility in Aizuwakamatsu, Japan. As theCompany acquired a controlling financial interest on October 1, 2018, the results of OSA have been consolidated in the Company’s financialstatements. This acquisition has been accounted for as an acquisition of assets. Due to the terms of the agreement with FSL, the former parent of OSA,there is no non-controlling interest balance recorded for the remaining 40% held by FSL. Subject to the fulfillment of certain conditions, the Companyis required to increase its ownership in OSA to 100% between nine and eighteen months following the date it acquired the controlling financialinterest.Note 11: Share-Based CompensationTotal share-based compensation expense related to the Company’s stock options, RSUs, stock grant awards and ESPP were recorded within theConsolidated Statements of Operations and Comprehensive Income as follows (in millions): Year Ended December 31, 2018 2017 2016 Cost of revenue $7.0 $6.0 $8.0 Research and development 14.3 12.5 11.1 Selling and marketing 14.1 11.7 9.8 General and administrative 42.9 39.6 27.2 Share-based compensation expense before income taxes 78.3 69.8 56.1 Related income tax benefits (1) (16.4) (24.4) — Share-based compensation expense, net of taxes $61.9 $45.4 $56.1 (1)Recognition of related income tax benefits are the result of the adoption of ASU 2016-09 during the first quarter of 2017 through a cumulativeeffect adjustment of $68.1 million recorded as a credit to retained earnings as of January 1, 2017. Tax benefit is calculated using the federalstatutory rate of 21% and 35% during the years ended December 31, 2018 and December 31, 2017, respectively.At December 31, 2018, total unrecognized share-based compensation expense, net of estimated forfeitures, related to non-vested RSUs with time-basedservice conditions and performance-based vesting criteria was $78.8 million, which is expected to be recognized over a weighted-average period of 1.4years. The total intrinsic value of stock options exercised during the year ended December 31, 2018 was $12.5 million. The Company received cash of$5.7 million and $24.9 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. 138Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 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, 2018, 2017 and2016.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. The annualized pre-vesting forfeitures for RSUs were estimated to beapproximately 5% for the years ended December 31, 2018, 2017 and 2016.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 seven 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). 139Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 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, 2018, there was an aggregate of 33.7 million shares of common stock available for grant under the Amended and Restated SIP.Stock OptionsThe number of options outstanding at December 31, 2017 was 1.1 million at a weighted average exercise price of $6.95 per option, of which0.8 million options were exercised at a weighted average exercise price of $7.13 per option during the year ended December 31, 2018. The number ofoptions outstanding at December 31, 2018 was 0.3 million, at a weighted average exercise price of $6.41 per option and had an aggregate intrinsicvalue of $2.8 million. All outstanding options had exercise prices below $16.51 per share, the closing price of the Company’s common stock atDecember 31, 2018, and will expire at varying times between 2019 and 2021.Restricted Stock UnitsA summary of the RSU transactions for the year ended December 31, 2018 are as follows (number of shares in millions): Number of Shares Weighted-AverageGrant Date FairValue Nonvested shares of RSUs at December 31, 2017 9.8 $12.63 Granted 3.2 23.90 Achieved 0.7 15.26 Released (4.5) 13.09 Canceled (0.6) 15.48 Nonvested shares of RSUs at December 31, 2018 8.6 16.59 During 2018, the Company awarded 1.1 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, 2018, 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 $56.7 million and $22.1 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$70.3 million for the year ended December 31, 2018, which included $42.1 million for RSUs with time-based service conditions that were granted in2018 and prior that are expected to vest. 140Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Stock Grant AwardsDuring the year ended December 31, 2018, 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 $25.51 per share. Total compensation expense related to stock grantawards for the year ended December 31, 2018 was approximately $1.8 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; or (ii) the number of shares equal to $6,250divided by the fair market value of the stock on the first day of the offering period. During the year ended December 31, 2018, employees purchasedapproximately 1.5 million shares under the ESPP. During the years ended December 31, 2017 and 2016, employees purchased approximately1.9 million and 1.8 million shares, respectively, under the ESPP. Through May 2013, stockholders had approved amendments to the ESPP, whichincreased the number of shares of the Company’s common stock issuable thereunder to 18.0 million shares. On May 20, 2015, stockholders approvedan amendment to the Company’s ESPP which increased the number of shares reserved and available to be issued pursuant to the ESPP by 5.5 million toa total of 23.5 million. Again on May 17, 2017 stockholders approved an amendment to the Company’s ESPP which increased the number of sharesreserved and available to be issued pursuant to the ESPP by 5.0 million to a total of 28.5 million. As of December 31, 2018, there were approximately6.5 million shares available for issuance under the ESPP.Note 12: Employee Benefit PlansDefined Benefit Pension PlansThe Company maintains defined benefit pension plans for employees of certain of its foreign subsidiaries. Such plans conform to local practice interms of providing minimum benefits mandated by law, collective agreements or customary practice. The Company recognizes the aggregate amountof all overfunded plans as assets and the aggregate amount of all underfunded plans as liabilities in its financial statements. The Company’s expectedlong-term rate of return on plan assets is updated at least annually, taking into consideration its asset allocation, historical returns on similar types ofassets and the current economic environment. For estimation purposes, the Company assumes its long-term asset mix will generally be consistent withthe current 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. 141Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 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.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, 2018 2017 2016 Service cost $9.6 $10.0 $9.0 Interest cost 4.7 4.3 4.5 Expected return on plan assets (6.1) (5.5) (3.9) Curtailment gain (0.3) — — Actuarial and other loss 6.1 1.9 10.1 Total net periodic pension cost $ 14.0 $ 10.7 $ 19.7 Weighted average assumptions Discount rate 1.56% 1.66% 1.60% Expected return on plan assets 3.18% 3.22% 3.20% Rate of compensation increase 3.22% 3.22% 3.05% 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. 2018 2017 Change in projected benefit obligation (PBO) Projected benefit obligation at the beginning of the year $292.7 $261.8 Service cost 9.6 10.0 Interest cost 4.7 4.3 Net actuarial (gain) loss (6.1) 6.4 Benefits paid by plan assets (5.6) (4.7) Benefits paid by the Company (1.7) (4.2) Curtailments and settlements (0.6) — Translation and other (gain) loss (2.2) 19.1 Projected benefit obligation at the end of the year $290.8 $292.7 Accumulated benefit obligation at the end of the year $249.2 $245.8 Change in plan assets Fair value of plan assets at the beginning of the year $183.4 $159.7 Actual return on plan assets (6.1) 10.0 Benefits paid from plan assets (5.6) (4.7) Employer contributions 5.0 6.0 Settlements (0.3) — Translation and other gain (loss) (1.5) 12.4 Fair value of plan assets at the end of the year $ 174.9 $ 183.4 142Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued As of December 31, 2018 2017 Plans with underfunded or non-funded projected benefit obligation Projected benefit obligation $282.6 $283.3 Fair value of plan assets 166.2 173.7 Plans with underfunded or non-funded accumulated benefit obligation Accumulated benefit obligation $181.4 $174.8 Fair value of plan assets 102.1 104.3 Amounts recognized in the balance sheet consist of Non-current assets $0.3 $0.1 Current liabilities (0.2) (0.2) Non-current liabilities (116.0) (109.2) Funded status $(115.9) $(109.3) As of December 31, 2018 and 2017, respectively, the assets of the Company’s foreign plans were invested 18% and 20% in equity securities, 19% and18% in debt securities, including corporate bonds, 46% and 45% in insurance and investment contracts, 3% and 3% in cash and 14% and 14% in otherinvestments, including foreign government securities, equity securities and mutual funds. This asset allocation is based on the anticipated requiredfunding 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. 143Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 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): As of December 31, 2018 Total Quoted Prices inActive Marketsfor IdenticalAssets (Level 1) SignificantObservableInputs (Level 2) SignificantUnobservableInputs (Level 3) Asset Category Cash/Money Markets $4.6 $4.6 — — Foreign Government/TreasurySecurities (1) 17.3 17.3 — — Corporate Bonds, Debentures (2) 33.3 — 33.3 — Equity Securities (3) 32.3 — 32.3 — Mutual Funds 7.3 — 7.3 — Investment and Insurance Annuity Contracts (4) 80.1 — 29.5 50.6 $ 174.9 $ 21.9 $ 102.4 $ 50.6 As ofDecember 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 (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. 144Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 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, 2018 and 2017, respectively for plan assets with fair value measurement using significant unobservable inputs(Level 3) were as follows (in millions): Investmentand InsuranceContracts Balance at December 31, 2016 $47.2 Actual return on plan assets 1.5 Purchase, sales and settlements (0.3) Foreign currency impact 6.8 Balance at December 31, 2017 $55.2 Actual return on plan assets (0.5) Purchase, sales and settlements (2.0) Foreign currency impact (2.1) Balance at December 31, 2018 $50.6 The expected benefit payments for the Company’s defined benefit plans by year from 2019 through 2023 and the five years thereafter are as follows (inmillions): 2019 $4.7 2020 6.4 2021 10.6 2022 12.0 2023 15.6 Five years thereafter 95.9 Total $145.2 The total underfunded status was $115.9 million at December 31, 2018. The Company expects to contribute $15.3 million during 2019 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 $11,000. The Company recognized$19.2 million, $18.4 million and $14.0 million of expense relating to matching contributions in 2018, 2017 and 2016, respectively. 145Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Certain foreign subsidiaries have defined contribution plans in which eligible employees participate. The Company recognized compensation expenseof $20.5 million, $16.8 million and $8.9 million relating to these plans for the years ended 2018, 2017 and 2016, respectively.Note 13: Commitments and ContingenciesLeasesThe following is a schedule by year of future minimum lease obligations under non-cancelable operating leases as of December 31, 2018 (in millions): Year Ending December 31, 2019 $36.8 2020 27.6 2021 21.9 2022 16.8 2023 12.3 Thereafter 45.4 Total (1) $160.8 (1)Excludes $12.3 million of expected sublease income.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 2018, 2017, and2016 was $43.6 million, $45.3 million, and $31.1 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, 2018 (in millions): Year Ending December 31, 2019 $373.7 2020 38.2 2021 23.0 2022 9.3 2023 8.2 Thereafter 10.9 Total $463.3 146Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 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 the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). Motorolaand Freescale (acquired by NXP Semiconductors N.V.) have been involved in the cleanup of on-site solvent contaminated soil and groundwater andoff-site contaminated groundwater pursuant to consent decrees with the State of Arizona. As part of the Company’s separation from Motorola in 1999,Motorola retained responsibility for this contamination, and Motorola and Freescale have agreed to indemnify the Company with respect toremediation 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 undergone remediation to respond to releases of hazardous substances that occurredduring the years that this facility was operated by government-owned entities. The remediation projects consisted 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 the Company and its respective subsidiaries, subject to specified limitations, for remediation costs associatedwith this historical contamination. We have completed remediation on this project, and accordingly, have ceased all related monitoring efforts. Anycosts to the Company in connection with this matter have not been, and, based on the information available, are not expected to be, material.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. 147Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 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 Incorporated. Although the Company may incur certainliabilities with respect to these remediation projects, pursuant to the asset purchase agreement entered into in connection with the Fairchildrecapitalization, National Semiconductor Corporation agreed to indemnify Fairchild, without limitation and for an indefinite period of time, for allfuture costs related to these projects. Under a 1999 asset purchase agreement pursuant to which Fairchild purchased the power device business ofSamsung, Samsung agreed to indemnify Fairchild in an amount up to $150.0 million for remediation costs and other liabilities related to historicalcontamination at Samsung’s Bucheon, South Korea operations. Any costs to the Company in connection with this matter have not been, and, based onthe information available, 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.(subsequently acquired by Renesas Electronics Corporation) agreed to indemnify Fairchild for remediation costs and other liabilities related tohistorical contamination at the facility. Any costs to the Company incurred to respond to the above conditions and projects have not been, and are notexpected to be, material, and any future payments the Company makes in connection with such liabilities are not expected to be material.The Company was notified by the Environmental Protection Agency (“EPA”) that it has 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 the Company in the past. The EPA is pursuing Chemetco customers for contribution to the sitecleanup activities. The Company has joined a PRP group which is cooperating with the EPA in the evaluation and funding of the cleanup. Any costs tothe 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 and other guarantee instruments to certain parties initiated by eitherthe Company or its subsidiaries, as required for transactions such as, but not limited to, material purchase commitments, agreements to mitigatecollection risk, leases, utilities or customs guarantees. As of December 31, 2018, the Company’s Revolving Credit Facility included $15.0 million ofavailability for the issuance of letters of credit. There were $1.0 million letters of credit outstanding under the Revolving Credit Facility as ofDecember 31, 2018, which reduces the Company’s borrowing capacity. The Company also had outstanding guarantees and letters of credit outside ofits Revolving Credit Facility totaling $6.1 million as of December 31, 2018.As part of obtaining financing in the ordinary course of business, the Company has issued guarantees related to certain of its subsidiaries’ capital leaseobligations, equipment financing, lines of credit and real estate mortgages, which totaled $68.6 million as of December 31, 2018. 148Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 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.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. 149Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 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 agreement and plan of merger relating to the acquisition of Fairchild (the “Fairchild Agreement”) provides for indemnification and insurancerights in favor of Fairchild’s then current and former directors, officers and employees. Specifically, the Company has agreed that, for no fewer than sixyears following the Fairchild acquisition, the Company will: (a) indemnify and hold harmless each such indemnitee against losses and expenses(including advancement of attorneys’ fees and expenses) in connection with any proceeding asserted against the indemnified party in connection withsuch person’s servings as a director, officer, employee or other fiduciary of Fairchild or its subsidiaries prior to the effective time of the acquisition;(b) maintain in effect all provisions of the certificate of incorporation or bylaws of Fairchild or any of its subsidiaries or any other agreements ofFairchild or any of its subsidiaries with any indemnified party regarding elimination of liability, indemnification of officers, directors and employeesand advancement of expenses in existence on the date of the Fairchild Agreement for acts or omissions occurring prior to the effective time of theacquisition; and (c) subject to certain qualifications, provide to Fairchild’s then current directors and officers an insurance and indemnification policythat provides coverage for events occurring prior to the effective time of the acquisition that is no less favorable than Fairchild’s then-existing policy,or, if insurance coverage that is no less favorable is unavailable, the best available 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 intellectual property rights, claims of alleged non-compliance with contractprovisions and claims related to alleged violations of laws and regulations. The Company regularly evaluates the status of the legal proceedings inwhich it is involved to assess whether a loss is probable or there is a reasonable possibility that a loss, or an additional loss, may have been incurredand determine if accruals are appropriate. If accruals are not appropriate, the Company further evaluates each legal proceeding to assess whether anestimate of possible loss or range of possible loss can be made for disclosure. Although litigation is inherently unpredictable, the Company believesthat it has adequate provisions for any probable and estimable losses. It is possible, nevertheless, that the Company’s consolidated financial position,results of operations or liquidity could be materially and adversely affected in any particular period by the resolution of a legal proceeding. TheCompany’s estimates do not represent its maximum exposure. Legal expenses related to defense, negotiations, settlements, rulings and advice ofoutside legal counsel are expensed as incurred. 150Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 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 United States Patent and Trademark Office (the “USPTO”) are inherently uncertain, and the Company cannot guarantee that the outcome of thesematters will be favorable to it.Patent Litigation with Power Integrations, Inc.There are eight outstanding civil litigation proceedings with Power Integrations, Inc. (“PI”), five of which were pending between PI and variousFairchild entities (including Fairchild Semiconductor International, Inc., Fairchild Semiconductor Corporation, and Fairchild (Taiwan) Corporation,f/k/a System General Corporation (collectively referred to in this sub-section as “Fairchild”)), prior to the acquisition of Fairchild. The Company isvigorously defending the lawsuits filed by PI and believes that it has strong defenses. There are also numerous outstanding administrative proceedingsbetween the parties at 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 has been offering replacement products since 2006. In December 2008, the judgeoverseeing 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 ofwillfulness. Following the new trial held in June 2009, the court found Fairchild’s infringement to have been willful, and in January 2011 the courtawarded PI final damages in the amount of $12.2 million. Fairchild appealed 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 of Appeals vacated substantially all of the damages award, ruling that there was nobasis upon which a reasonable jury could find Fairchild liable for induced infringement. The Court of Appeals also vacated the earlier judgment ofwillful patent infringement. The full Court of Appeals and the Supreme Court of the United States later denied PI’s request to review the Court ofAppeals ruling. The Court of Appeals instructed the lower court to conduct further proceedings to determine damages based on approximately$750,000 worth of sales and imports of affected products, and to re-assess its finding that the infringement was willful. In December 2017, the lowercourt reinstated the willfulness finding but stayed resolution of the other 151Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued outstanding issues, including damages. In June 2018, the Supreme Court of the United States decided WesternGeco LLC v. ION Geophysical Corp., inwhich the Court determined that certain extraterritorial conduct may be relevant to some United States patent litigation. On October 4, 2018, the lowercourt issued an order finding that WesternGeco implicitly overruled the Court of Appeals’ 2013 decision in this case and stated that PI would beallowed to seek recovery of worldwide damages in a future retrial on damages. The lower court also, however, certified its October 4, 2018 order forinterlocutory review by the Court of Appeals. The Court of Appeals has accepted the interlocutory appeal, and briefing in that appeal is underway.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. A second jury trial was held in this matter from November 5-9, 2018, with the jury finding that Fairchild induced infringement of bothremaining PI patents and that Fairchild’s infringement was willful. The jury also awarded PI damages in the amount of $24.3 million. In the parties’post-trial motions, PI is seeking a trebling of the jury verdict in view of the jury’s willfulness finding, pre- and post- judgment interest, and itsattorneys’ fees, whereas Fairchild is seeking judgment as a matter of law in its favor, or a new trial, on inducement, willfulness, and damages.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 court ruledthat the jury lacked sufficient evidence on which to base its damages award and, consequently, vacated the $105.0 million verdict and ordered asecond 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 anumber of post-trial motions challenging the second damages verdict, but the court ruled against Fairchild on these motions and awarded PIapproximately $7.0 million in pre-judgment interest. Following the court’s rulings on these issues, PI 152Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued moved the court to reinstate the jury’s willfulness finding and sought enhanced damages and attorneys’ fees. On January 23, 2017, the court reinstatedthe jury’s willful infringement finding, but denied PI’s motion for enhanced damages and attorneys’ fees in its entirety. The Company appealed theinfringement and damages judgments, and in July 2018, the U.S. Court of Appeals for the Federal Circuit affirmed the judgment with respect toinfringement of both PI patents but vacated the damages judgment because PI had presented legally insufficient evidence to support its damages claim.The appellate court thus remanded the case back to the lower court for a new trial on damages. In August 2018, PI requested that the Federal Circuitrehear, en banc, the issues of the vacated damages award, but this request was denied in September 2018. In December 2018, PI filed a petition forcertiorari in the United States Supreme Court for review of the Federal Circuit’s decision, to which the Company responded in January 2019. Allclaims of the two PI patents found to be infringed by Fairchild have since been determined to be unpatentable in several inter partes reviewadministrative proceedings described below. The impact of the USPTO’s unpatentability determinations on the district court judgment is uncertain atthis 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. A jury trial was held inNovember 2018 to resolve several outstanding issues prior to appeal in this case. The jury in that trial found that Fairchild induced infringement of thesole PI patent Fairchild had previously been found to infringe and awarded PI damages in the amount of $719,029.10. In the parties’ post-trial motions,PI is seeking pre- and post-judgment interest and a permanent injunction, whereas Fairchild is seeking judgment as a matter of law in its favor, or a newtrial, on inducement and damages.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, which are described below, to the two PI patents asserted against Fairchild. 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 referred to in thissubsection as “ON Semi”) filed a lawsuit against PI in the U.S. District Court for the District of Arizona, alleging that PI infringed six patents andseeking a permanent injunction and money damages for the alleged infringement. The lawsuit also sought a claim for a declaratory judgment that ONSemi does not infringe several of PI’s patents. Rather than 153Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued responding to ON Semi’s lawsuit in Arizona, PI filed a separate lawsuit in the U.S. District Court for the Northern District of California in November2016, alleging that ON Semi infringes six PI patents, including two of the three PI patents in ON Semi’s declaratory judgment claims from Arizona. PIalso moved the Arizona court to dismiss ON Semi’s lawsuit, or in the alternative to transfer the lawsuit to California. Following various proceduralmotions, ON Semi’s Arizona action has been transferred to the U.S. District Court for the Northern District of California and consolidated with PI’sNovember 2016 lawsuit, in which PI has subsequently asserted a claim for infringement on the last of the three PI patents in ON Semi’s originaldeclaratory judgment claims. In late 2018, the parties received a claim construction order, which included a finding that claims from several of PI’sasserted patents are invalid. Fact discovery is ongoing and will be followed by infringement, validity, and damages expert discovery. The trial isscheduled for December 2019.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. One of those seven patents was dropped by PI because it is asserted against ON Semi in aseparate litigation. Both parties seek money damages and a permanent injunction. In late 2018, the parties received a claim construction order,following which ON Semi was forced to stipulate to non-infringement of two of ON Semi’s original six patents. PI also voluntarily dropped their claimsof infringement on two of PI’s patents, leaving both parties with four asserted patents each as of January 2019. Fact discovery is ongoing and will befollowed by infringement, validity, and damages expert discovery. The trial is scheduled for February 2020.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 Taiwanese IP Court has held hearings concerning ON Semi’s claim of infringementagainst PI for all three patents and is now evaluating PI’s claims concerning the validity of those three patents. A first-instance judgment concerninginfringement and validity in this matter is expected by April 2019. In January 2019, ON Semi withdrew its claim for damages under Taiwanese law inorder to expedite injunctive relief in the event that relief is granted in a first-instance judgment.Administrative Challenges to PI’s PatentsIn addition to the eight court proceedings described above, there are presently numerous inter partes review administrative proceedings between PI andON Semi/Fairchild. Each of these administrative proceedings seeks to invalidate certain claims asserted in the various court proceedings. For the twoproceedings filed by ON Semi involving claims asserted in the case filed in 2009 in the Northern District of California, the USPTO has issued a FinalWritten Decision finding that all of the claims challenged in those proceedings are unpatentable, and PI filed a notice of appeal for those decisions.The USPTO has also issued Final Written Decisions in seven additional proceedings initiated by ON Semi, all in ON Semi’s favor. PI’s appeals in allbut one of those cases are ongoing, and PI failed to appeal one such Final Written Decision. In five of the proceedings initiated by PI, the USPTO hasinstituted a review of five ON Semi/Fairchild patents that are being asserted against PI. In two of those five proceedings, the USPTO recently found allof the claims challenged by PI to be unpatentable. In one of those two cases, ON Semi has filed an appeal to challenge the unpatentability finding, butelected to forego an appeal in the other case. With regard to a third instituted proceeding initiated by PI, the USPTO found one 154Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued challenged patent claim unpatentable over the prior art and two claims patentable. PI is pursuing an appeal for this third administrative proceeding, butON Semi decided to forego an appeal with respect to the claim that was found unpatentable. All of the other administrative proceedings between PI andthe Company remain pending or were terminated without institution of an administrative trial by the USPTO.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. Acbel appealed the Court’s ruling and on September 11, 2018,the U.S. Court of Appeals for the First Circuit heard arguments in this matter from Fairchild and Acbel.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. Such letters may request royalty payments from theCompany, that the Company cease and desist using certain intellectual property or other remedies.Note 14: 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 (inmillions): Fair Value Hierarchy Description As ofDecember 31,2018 Level 1 Level 2 Level 3 Assets: Cash, cash equivalents: Demand and time deposits $21.2 $ 21.2 — — Money market funds 0.2 0.2 — — Fair Value Hierarchy Description 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 155Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued During the year ended December 31, 2018, the contingent consideration payable relating to the second earn-out for the AXSEM acquisition wasreduced to zero due to a revision in the Company’s expectations regarding the likelihood that the earn-out would be achieved. During the year endedDecember 31, 2017, the Company paid the first earn-out amount of approximately $3.9 million relating to the contingent consideration for theAXSEM acquisition and increased the second earn-out amount by $1.7 million due to the revision of the Company’s expectations of the earn-outachievement.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.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) are as follows (in millions): As of December 31, 2018 December 31, 2017 CarryingAmount Fair Value CarryingAmount Fair Value Long-term debt, including current portion Convertible notes (1) $1,120.6 $1,368.5 $1,080.1 $1,596.7 Long-term debt (1) 1,615.1 1,585.9 1,833.2 1,845.4 (1) Carrying amount shown is net of debt discounts and debt issuance costs. See Note 9: “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, 2018 and December 31, 2017.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 6: “Goodwill and Intangible Assets” for a discussion of certain asset impairments. 156Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued As of December 31, 2018 and December 31, 2017, 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 (in millions): Year Ended December 31,2018 December 31,2017 December 31,2016 Nonrecurring fair value measurements Impairment of property, plant and equipment held-for-sale or disposal (Level 3) $2.4 $7.9 $0.5 Goodwill and IPRD (Level 3) 6.8 13.1 2.2 $9.2 $21.0 $2.7 See Note 6: “Goodwill and Intangible Assets” and Note 7: “Restructuring, Asset Impairments and Other, Net” for additional information with respect toimpairment charges.Cost Method InvestmentsThe Company accounts for investments in companies that it does not control, or have significant influence over, under the cost method, as applicable.As of each of December 31, 2018 and 2017, the Company’s cost method investments had a carrying value of $7.5 million and $12.6 million,respectively.Note 15: 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 and 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.As of December 31, 2018 and 2017, the Company had net outstanding foreign exchange contracts with net notional amounts of $157.3 million and$130.5 million, respectively. Such contracts were obtained through financial institutions and were scheduled to mature within one to three monthsfrom the time of purchase. Management believes that these financial instruments should not subject the Company to increased risks from foreignexchange movements because gains and losses on these contracts should offset losses and gains on the underlying assets, liabilities and transactions towhich they are related. 157Table 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 (in millions): As of December 31, 2018 2017 Buy (Sell) Notional Amount Buy (Sell) Notional Amount Euro $13.1 $13.1 $(22.9) $22.9 Japanese Yen 29.9 29.9 (40.0) 40.0 Philippine Peso 30.1 30.1 26.4 26.4 Chinese Yuan 20.4 20.4 5.3 5.3 Czech Koruna 9.2 9.2 7.6 7.6 Other currencies - Buy 47.1 47.1 18.0 18.0 Other currencies - Sell (7.5) 7.5 (10.3) 10.3 $ 142.3 $157.3 $(15.9) $130.5 Amounts receivable or payable under the contracts are included in other current assets or accrued expenses in the accompanying Consolidated BalanceSheets. For the years ended December 31, 2018, 2017 and 2016, realized and unrealized foreign currency transactions totaled a $8.0 million loss, a$6.3 million loss and a $0.7 million gain, respectively. The realized and unrealized foreign currency transactions are included in other income andexpenses 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. These contracts effectively hedge some of the future variable LIBORate interest expense to a fixed rate interest expense. The derivative instruments qualified for accounting as a cash flow hedge in accordance with ASC815, and the Company designated it as such. The notional amounts of the interest rate swap agreements outstanding as of December 31, 2018 andDecember 31, 2017 amounted to $1.0 billion and $750.0 million, respectively. The Company performed effectiveness assessments and concluded thatthere was no ineffectiveness during the year ended December 31, 2018.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.The Company did not have outstanding derivatives for its foreign currency exposure designated as cash flow hedges as of December 31, 2018 and2017. 158Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued See Note 17: “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, 2018.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 9: “Long-TermDebt” for further details.OtherAt December 31, 2018, 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. The Company is exposed tocredit-related losses if counterparties to hedge contracts fail to perform their obligations. As of December 31, 2018, the counterparties to theCompany’s hedge contracts are held at financial institutions which the Company believes to be highly rated, and no credit related losses areanticipated.Note 16: Income TaxesThe Company’s geographic sources of income before income taxes and non-controlling interest are as follows (in millions): Year ended December 31, 2018 2017 2016 United States $(181.8) $(270.1) $(287.0) Foreign 936.8 817.6 467.6 $755.0 $547.5 $180.6 The Company’s provision (benefit) for income taxes is as follows (in millions): Year ended December 31, 2018 2017 2016 Current: Federal $(2.0) $26.3 $(0.1) State and local (2.2) 0.2 0.1 Foreign 55.3 53.1 34.4 51.1 79.6 34.4 Deferred: Federal 99.4 (356.3) 60.8 State and local — 0.4 — Foreign (25.4) 10.8 (99.1) 74.0 (345.1) (38.3) Total provision (benefit) $125.1 $(265.5) $(3.9) 159Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued On December 22, 2017, the U.S. enacted comprehensive tax legislation, (the “Tax Act”). The Tax Act reduced the U.S. federal corporate tax rate from35% to 21%, and required companies to pay a one-time mandatory repatriation tax on earnings of certain foreign subsidiaries that were previously taxdeferred and created 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 allowed 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 had not completed its accountingfor the tax effects of the enactment of the Tax Act; however, in certain cases, specifically as follows, the Company had 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 had 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 reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate table.The Company completed its accounting for the provisions of the Tax Act as of December 22, 2018, which marked the end of the measurement periodpursuant to SAB 118. With respect to (i) the effects on its existing deferred tax asset balances, the Company recognized an additional tax expense of$31.8 million related to the Company’s deferred tax liability for undistributed prior years’ earnings of the Company’s foreign subsidiaries and$1.8 million for the impact to deferred taxes related to an increase in the limitation on deductibility of prior years’ executive compensation. Withrespect to (ii) the tax effects of the one-time mandatory repatriation tax, the Company recognized an additional expense of $1.5 million. The Companyhas concluded on the policy to record Global Intangible Low Tax Income (“GILTI”) as a period cost. The Company has also concluded on the policyof tax law ordering for reflecting the realization of the net operating losses related to GILTI as a permanent adjustment.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, 2018 2017 2016 U.S. federal statutory rate 21.0% 35.0% 35.0% Increase (decrease) resulting from: State and local taxes, net of federal tax benefit (1.0) 2.2 (3.6) Impact of U.S. Tax Reform and related effects (1) 4.7 (82.2) — Impact of foreign operations (1.2) (1.5) (8.1) Reversal of prior years’ indefinite reinvestment assertion — — 172.1 Impact of U.S. tax method changes (2) (6.4) — — Change in valuation allowance and related effects (3) (4) 0.6 0.4 (190.7) Non-deductible acquisition costs — — 1.9 Non-deductible share-based compensation costs (0.5) (1.6) 0.7 U.S. federal R&D credit (1.1) (1.5) (10.1) Other 0.5 0.7 0.6 Total 16.6% (48.5)% (2.2)% 160Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (1)For the year ended December 31, 2018, this primarily includes expense of $31.8 million, or 4.2%, related to the recognition of the Company’sdeferred tax liability for undistributed prior years’ earnings of the Company’s foreign subsidiaries, $1.8 million, or 0.3% related to the limitationon deductibility of prior years’ executive compensation, and $1.5 million, or 0.2% related to the impact of the mandatory repatriation tax. Theseadjustments were made pursuant to SAB 118. For the year ended December 31, 2017, this included the benefit of $744.1 million, or 135.9% forthe reduction in the Company’s deferred tax liability for undistributed current and prior years’ earnings of the Company’s foreign subsidiariesand the benefit of $33.0 million, or 6.0% for the release of valuation allowance on federal foreign tax credit carryforwards which were utilizedagainst the mandatory repatriation tax. These benefits were offset by the expense for the mandatory repatriation tax, net of unrecognized taxbenefits, 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 theCompany’s remaining net federal deferred tax asset balances. (2)For the year ended December 31, 2018, this includes a one-time benefit of $48.2 million, or 6.4%, related to U.S. tax method changes madeduring the year that impacted the Company’s GILTI inclusion. (3)For the year ended December 31, 2018, this includes an expense of $135.2 million, or 17.9%, primarily related to the expiration of Japan netoperating losses, netted with the offsetting benefit of $135.2 million, or 17.9%, primarily for the write-off of the valuation allowance for thosesame Japan net operating losses. See Note 19: “Supplementary Financial Information—Selected Quarterly Financial Data (Unaudited).” (4)For the year ended December 31, 2017, the Company included the benefit related to the change in valuation allowance on federal foreign taxcredits which were previously set to expire unutilized but were utilized against the expense related to the mandatory repatriation tax$33.0 million 6.0%, in the line “Impact of U.S. Tax Reform and related effects”The Company’s effective tax rate for 2018 was 16.6%, which differs from the U.S. federal statutory income tax rate of 21% primarily due to a one-timebenefit of U.S. tax method changes made during the year that impacted the Company’s GILTI inclusion. The Company’s effective tax rate for 2017 wasa benefit of 48.5%, which differs from the U.S. federal statutory income tax rate of 35% primarily due to U.S. tax reform codified under the Tax Act. TheCompany’s effective tax rate for 2016 was a benefit of 2.2%, which differs from the U.S. federal statutory income tax rate of 35% primarily due to therelease of its U.S. and Japan valuation allowances, partially offset by the reversal of the prior years’ indefinite reinvestment assertion. 161Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 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) are as follows (in millions): As of December 31, 2018 2017 Net operating loss and tax credit carryforwards $584.9 $738.4 Tax-deductible goodwill and amortizable intangibles (29.4) (29.1) Reserves and accruals 57.4 49.8 Property, plant and equipment (63.5) (42.8) Inventories 20.2 24.5 Undistributed earnings of foreign subsidiaries (48.7) (32.5) Share-based compensation 7.7 9.2 Pension 24.3 21.1 Debt financing costs (8.5) (9.9) Other 14.5 17.6 Deferred tax assets and liabilities before valuation allowance 558.9 746.3 Valuation allowance (347.5) (462.3) Net deferred tax asset $ 211.4 $ 284.0 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, 2018 and 2017, the Company had approximately $768.9 million and $1,198.6 million, respectively, of federal NOL carryforwards,before reduction for unrecognized tax benefits, which are subject to annual limitations prescribed in Section 382 of the Internal Revenue Code. Thedecrease is due to NOL utilization in 2018. If not utilized, a portion of the NOLs will expire in varying amounts from 2024 to 2036.As of December 31, 2018 and 2017, the Company had approximately $83.7 million and $46.0 million, respectively, of federal credit carryforwards,before consideration of valuation allowance or reduction for unrecognized tax benefits, which are subject to annual limitations prescribed inSection 383 of the Internal Revenue Code. The increase is primarily due to research and development credits and foreign tax credits generated during2018. If not utilized, the credits will expire in varying amounts from 2028 to 2038.As of December 31, 2018 and 2017, the Company had approximately $801.0 million and $790.3 million, respectively, of state NOL carryforwards,before consideration of valuation allowance or reduction for unrecognized tax benefits. The increase is due to NOL generated during 2018 partiallyoffset by expiration. If not utilized, a portion of the NOLs will expire in varying amounts starting in 2019. Certain states have adopted the federal ruleallowing unlimited NOL carryover for NOLs generated in tax years beginning after December 31, 2017. Therefore, a portion of the state NOLsgenerated during 2018 carry forward indefinitely. As of December 31, 2018 and 2017, the Company had $115.8 million and $107.2 million,respectively, of state credit carryforwards before consideration of valuation allowance or reduction for unrecognized tax benefits. If not utilized, aportion of the credits will begin to expire in varying amounts starting in 2019. 162Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued As of December 31, 2018 and 2017, the Company had approximately $734.4 million and $1,103.0 million, respectively, of foreign NOL carryforwards,before consideration of valuation allowance. The decrease is primarily due to the expiration of $369.2 million of NOL carryforwards in Japan. If notutilized, a portion of the NOLs will begin to expire in varying amounts starting in 2019. A significant portion of these NOLs will expire by 2025. As ofDecember 31, 2018 and 2017, the Company had $68.8 million and $65.3 million, respectively, of foreign credit carryforwards before consideration ofvaluation allowance. If not utilized, the majority of these credits will expire by 2026.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 $172.6 million, which expire in varying amounts from 2019 to 2024.In addition to the valuation allowance mentioned above on Japan NOLs, as of December 31, 2018 and 2017, 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.At December 31, 2018, the Company is not indefinitely reinvested with respect to the earnings of its foreign subsidiaries and has therefore accruedwithholding taxes that would be owed upon future distributions of such earnings. In 2017, substantially all of the Company’s foreign earnings werealso not indefinitely reinvested. After the adjustments made during 2018 pursuant to SAB118, the Company was not indefinitely reinvested withrespect to any of its foreign earnings from prior years.The Company maintains liabilities for unrecognized tax benefits. 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. 163Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued The activity for unrecognized gross tax benefits is as follows (in millions): 2018 2017 2016 Balance at beginning of year $ 114.8 $ 136.7 $33.5 Acquired balances — — 86.9 Additions for tax benefits related to the current year 7.4 23.6 4.6 Additions for tax benefits of prior years 2.8 4.7 13.7 Reductions for tax benefits of prior years (1.9) (1.6) (0.4) Lapse of statute (10.9) (16.3) (1.6) Settlements — (4.9) — Change in rate due to U.S. Tax Reform — (27.4) — Balance at end of year $112.2 $114.8 $ 136.7 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 unrecognized tax benefits related to the outcome of the prioryear study was also recorded.Included in the December 31, 2018 balance of $112.2 million is $82.6 million related to unrecognized tax benefits that, if recognized, would impactthe annual effective tax rate. Also included in the balance of unrecognized tax benefits as of December 31, 2018 is $29.6 million of benefit that, ifrecognized, would result in adjustments to other tax accounts, primarily deferred taxes. Although the Company cannot predict the timing of resolutionwith taxing authorities, if any, the Company believes it is reasonably possible that its unrecognized tax benefits will be reduced by $3.3 million in thenext 12 months due to settlement with tax authorities or expiration 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 $0.8 million of tax benefit for interest and penalties during the year ended December 31, 2018, and recognized approximately$1.5 million and $0.5 million of tax expenses for interest and penalties during the years ended December 31, 2017 and 2016, respectively. TheCompany had approximately $5.1 million, $5.9 million, and $4.4 million of accrued interest and penalties at December 31, 2018, 2017, and 2016,respectively.Tax years prior to 2015 are generally not subject to examination by the IRS except for items involving tax attributes that have been carried forward totax years whose statute of limitations remains open. The Company is not currently under IRS examination. For state returns, the Company is generallynot subject to income tax examinations for years prior to 2014. The Company is also subject to routine examinations by various foreign taxjurisdictions in which it operates. With respect to major jurisdictions outside the United States, the Company’s subsidiaries are no longer subject toincome tax audits for years prior to 2008. The Company is currently under audit in the following significant jurisdictions: China, the Czech Republic,Japan, Malaysia, Mauritius, Philippines and Singapore. 164Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Note 17: Changes in Accumulated Other Comprehensive LossAmounts comprising the Company’s accumulated other comprehensive loss and reclassifications are as follows (in millions): ForeignCurrencyTranslationAdjustments Effects of CashFlow Hedges Total Balance as of December 31, 2016 $(50.2) — $(50.2) Other comprehensive income prior to reclassifications 7.0 2.2 9.2 Amounts reclassified from accumulated other comprehensive loss — 0.4 0.4 Net current period other comprehensive income (1) 7.0 2.6 9.6 Balance as of December 31, 2017 $(43.2) $2.6 $ (40.6) Other comprehensive income prior to reclassifications 0.7 (1.3) (0.6) Amounts reclassified from accumulated other comprehensive loss — 3.3 3.3 Net current period other comprehensive income (1) 0.7 2.0 2.7 Balance as of December 31, 2018 $(42.5) $4.6 $(37.9) (1)Effects of cash flow hedges are net of tax of $0.5 million and $0.7 million of tax expense for the years ended December 31, 2018 andDecember 31, 2017, respectively.Amounts which were reclassified from accumulated other comprehensive loss to the Company’s Consolidated Statements of Operations andComprehensive Income were as follows (net of tax of $0.8 million and $0.2 million in 2018 and 2017, respectively, in millions): Amounts Reclassified from Accumulated OtherComprehensive Loss—Year Ended December 31,2018 December 31,2017 Statement of Operations andComprehensive Income Line ItemInterest rate swaps $(3.3) $(0.4) Other income and expenseTotal reclassifications $ (3.3) $ (0.4) 165Table of ContentsON SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Note 18: Supplemental DisclosuresSupplemental Disclosure of Cash Flow InformationThe Company’s non-cash financing activities and cash payments for interest and income taxes are as follows (in millions): Year ended December 31, 2018 2017 2016 Non-cash financing activities: Debt issuance costs paid directly from escrow accounts $— $— $46.0 Capital expenditures in accounts payable and other liabilities 233.9 165.6 105.9 Debt assumed through purchase of equity interest and assets 50.6 — — Cash (received) paid for: Interest income $(6.1) $(3.0) $(4.5) Interest expense 80.0 92.1 106.7 Income taxes 53.2 67.8 27.3 The Company adopted ASU 2016-18 on a retrospective basis during the quarter ended March 30, 2018. The following is a reconciliation of thecaptions in the Consolidated Balance Sheets to the Consolidated Statements of Cash Flows (in millions): As of December 31, 2018 2017 2016 Consolidated Balance Sheets: Cash and cash equivalents $1,069.6 $949.2 $1,028.1 Restricted cash (included in other current assets) 17.5 17.4 17.7 Cash, cash equivalents and restricted cash in Consolidated Statements of Cash Flows $1,087.1 $966.6 $1,045.8 The restricted cash balance relates to the consideration held in escrow for the Aptina acquisition that occurred in 2014 to be released upon satisfactionof certain outstanding items contained in the merger agreement. 166Table 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 is as follows (in millions, except per share data): Quarters ended in 2018 March 30 June 29 September 28 December 31 Revenue $1,377.6 $1,455.9 $1,541.7 $1,503.1 Gross Profit (exclusive of the amortization of acquisition-relatedintangible assets) 517.4 555.0 596.6 569.7 Net income attributable to ON Semiconductor Corporation 139.6 155.3 166.9 165.6 Diluted net income per common share attributable to ONSemiconductor Corporation 0.31 0.35 0.38 0.39 Quarters ended in 2017 March 31 June 30 September 29 December 31 Revenue $1,436.7 $1,338.0 $1,390.9 $1,377.5 Gross Profit (exclusive of the amortization of acquisition-relatedintangible assets) 503.1 492.0 524.0 516.5 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 167Table 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 deferred tax assets 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 Year ended December 31, 2018 462.3 4.6 15.8(2) (135.2)(3) 347.5 (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) Primarily represents the effects of cumulative translation adjustments.(3) Primarily relates to the expiration of Japan net operating losses. See Note 16: “Income Taxes”. 168Exhibit 10.20EMPLOYMENT AGREEMENTEMPLOYMENT AGREEMENT, dated January 1, 2019 (the “Agreement”), between Semiconductor Components Industries, LLC (the“Company”), with offices at 5005 East McDowell Road, Phoenix, Arizona 85008, and Simon Keeton (the “Executive”).RECITALSWHEREAS, the Executive has been employed by the Company since July 16, 2007 and has been employed by the Company in a key officerposition since October 11, 2010;WHEREAS, in connection with the Executive’s employment, the Executive and Company executed a Key Officer and Severance and Change ofControl Agreement dated June 1, 2017 (the “Severance and CoC Agreement”);WHEREAS, in connection with the Executive’s Promotion (as defined below), the Executive and the Company will enter into this Agreementwhich will supersede the Severance and CoC Agreement.NOW, THEREFORE, it is hereby agreed as follows:1. Employment, Duties and Agreements.(a) The Company hereby agrees to employ the Executive via a promotion (the “Promotion”) as its Executive Vice President and GeneralManager of the Power Solutions Group effective January 1, 2019, and the Executive hereby accepts such positions and agrees to serve the Company insuch capacity during the employment period described in Section 3 hereof (the “Employment Period”). The Executive shall report to the Office of theChief Executive Officer (the “Office of the CEO”) of the Company and shall have such duties and responsibilities as the Office of the CEO mayreasonably determine from time to time as are consistent with the Executive’s position as Executive Vice President and General Manager of the PowerSolutions Group. During the Employment Period, the Executive shall be subject to, and shall act in accordance with, all reasonable instructions anddirections 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 the Executive is entitled, the Executive shalldevote his full working time, energy and attention to the performance of his duties and responsibilities hereunder and shall faithfully and diligentlyendeavor to promote the business and best interests of the Company.(c) During the Employment Period, the Executive may not, without the prior written consent of the Company, directly or indirectly, operate,participate in the management, operations or control of, or act as an executive, officer, consultant, agent or representative of, any type of business orservice (other than as an executive of the Company), provided that it shall not be a violation of the foregoing for the Executive to manage his personal,financial and legal affairs so long as such activities do not interfere with the performance of his duties and responsibilities to the Company as providedhereunder. 12. Compensation. (a) As compensation for the agreements made by the Executive herein and the performance by the Executive of his obligations hereunder,during the Employment Period, the Company shall pay the Executive, pursuant to the Company’s normal and customary payroll procedures, a basesalary at the rate of $385,000 per annum (the “Base Salary”). The Board of Directors of the Company and/or its Compensation Committee (both oreither herein may be referred to as the “Board”) shall review the Executive’s Base Salary from time to time.(b) In addition to the Base Salary, during the Employment Period, the Executive shall be eligible to participate in a discretionary bonusprogram established and approved by the Board for employees of the Company or its affiliates in similar positions to the Executive (the “Program”)and, pursuant to the Program, the Executive may earn a bonus (the “Bonus”) on an annual or other performance period basis (a “Performance Cycle”)up to 70% of Base Salary earned and paid during the applicable Performance Cycle or an additional amount as approved by the Board under theProgram and in each case based on certain performance criteria; provided that the Executive is actively employed by the Company on the date theBonuses are paid under the Program, except as provided in Section 5(a) herein. The Bonus may be paid annually or more frequently depending uponthe Performance Cycle, as determined by the Board and pursuant to the Program. The Bonus will be specified by the Board, and the Bonus will bereviewed at least annually by the Board.(c) During the Employment Period: (i) except as specifically provided herein, the Executive shall be entitled to participate in all savings andretirement plans, practices, policies and programs of the Company which are made available generally to other senior executive officers of theCompany; and (ii) except as specifically provided herein, the Executive and/or the Executive’s family, as the case may be, shall be eligible forparticipation in, and shall receive all benefits under, all welfare benefit plans, practices, policies and programs provided by the Company which aremade available generally to other senior executive officers of the Company (for the avoidance of doubt, such plans, practices, policies or programsshall not include any plan, practice, policy or program which provides benefits in the nature of severance or continuation pay).(d) During the Employment Period, the Company shall provide the Executive with a car allowance of $1,200 per month.(e) During the Employment Period, the Company shall reimburse the Executive up to $10,000 annually for actual financial planning expenses,without any tax gross-ups.(f) During the Employment Period, the Executive shall be entitled to at least four (4) weeks of paid vacation time for each calendar year inaccordance with the Company’s normal and customary policies and procedures now in force or as such policies and procedures may be modified withrespect to senior executive officers of the Company.(g) During the Employment Period, the Company shall reimburse the Executive for all reasonable business expenses upon the presentation ofstatements of such expenses in accordance with the Company’s normal and customary policies and procedures now in force or as such policies andprocedures may be modified with respect to senior executive officers of the Company.3. 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 executionof this Agreement (the “Effective Date”). Executive shall be considered an “at-will” employee, which means that Executive’s employment may be 2terminated by the Company or by the Executive at any time for any reason or no reason at all. The period during which Executive is employed by theCompany pursuant to this Agreement shall be referred to as the “Employment Period.” The Executive’s employment hereunder may be terminatedduring the Employment 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 his 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 toperform his duties hereunder for a period of ninety (90) consecutive days, and within thirty (30) days after Notice of Termination (as defined inSection 4 below) for Disability 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, the term “Cause”shall mean: (i) a material breach by the Executive of this Agreement; (ii) the failure by the Executive to reasonably and substantially perform his 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; and (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 believesconstitute Cause hereunder and, if such breach or failure is reasonably susceptible to cure, provide the Executive with a reasonable period of time (notto 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 good faith by the Board that the Executive’s employment could have been terminated for Cause (except for a termination under(ii) of the above definition of Cause), the Executive’s employment shall, at the election of the Board, be deemed to have been terminated for Causeretroactively to the date the 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 his employment hereunder (other than for Good Reason), provided that the Executiveprovides the Company with notice of his intent to terminate his employment at least three months in advance of the Date of Termination (as defined inSection 4 below).(f) For Good Reason. The Executive may terminate his employment hereunder for Good Reason and any such termination shall be deemed atermination by the Company without Cause. For purposes of this Agreement, “Good Reason” shall mean: (i) a material breach of this Agreement by theCompany; (ii) without the Executive’s written consent, reducing the Executive’s salary, as in effect immediately prior to such reduction, while at thesame time not proportionately reducing the salaries of the other comparable officers of the Company; or (iii) without the Executive’s written consent, amaterial and continued diminution of the Executive’s duties and responsibilities hereunder, unless the Executive is provided with comparable dutiesand 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 Executive believes constitute GoodReason 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. 34. Termination Procedure.(a) Notice of Termination. Any termination of the Executive’s employment by the Company or by the Executive during the EmploymentPeriod (other than a termination on account of the death of Executive) shall be communicated by written “Notice of Termination” to the other partyhereto in accordance with Section 11(a).(b) Date of Termination. “Date of Termination” shall mean: (i) if the Executive’s employment is terminated by his death, the date of his death;(ii) if the Executive’s employment is terminated pursuant to Section 3(b), thirty (30) days after Notice of Termination, provided that the Executive shallnot have returned to the performance of his duties hereunder on a full-time basis within such thirty (30) day period; (iii) if the Executive voluntarilyterminates his employment, the date specified in the notice given pursuant to Section 3(e) herein which shall not be less than three months after theNotice of Termination is delivered to the Company; (iv) if the Executive terminates his employment for Good Reason pursuant to Section 3(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 ofTermination 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 the Executive’s employment during the Employment Period by the Company withoutCause (including a deemed termination without Cause as provided in Section 3(f) herein), the Executive shall be entitled to: (i) any accrued but unusedvacation; (ii) Base Salary through the Date of Termination (to the extent not theretofore paid); (iii) the continuation of Base Salary (as in effectimmediately prior to the termination) for twelve (12) months following the Date of Termination which, subject to the restrictions set forth below, shallbe paid in accordance with the Company’s ordinary payroll practices in effect from time to time and which shall begin on the first payroll periodimmediately following the date on which the general release and waiver described below in this Section 5(a) becomes irrevocable; (iv) any earned butnot paid Bonus for the Performance Cycle immediately preceding the Date of Termination; and (v) a pro-rata portion of the Bonus, if any, for thePerformance Cycle in which the Date of Termination occurs (based on the achievement of the applicable performance criteria and related to theapplicable Performance Cycle as described in Section 2(b)). Notwithstanding the foregoing, the amount of payment set forth in (iii) above during thesix-month period following the Date of Termination shall not exceed the severance pay exception limitation amount set forth in Treasury RegulationSection 1.409A-1(b)(9)(iii)(A) (any amount that is payable during such six-month period that is in excess of the separation pay exception limitationshall be paid in a single lump sum on the six-month anniversary of the Date of Termination). If the Company determines in good faith that theseparation 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 forthin (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 six-monthanniversary of the Date of Termination 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 shallbe paid as soon as is reasonably practicable after the close of the accounting books and records of the Company for the relevant performance period atthe same time bonuses are paid to other active employees, but in no event will payment be made for any performance period ending on December 31before January 1 or after March 15 of the year following the year in which the performance period ends. If payment by such date is administrativelyimpracticable, payment may be made at a later date as permitted under Treasury Regulation Section 1.409A-1(b)(4)(ii). In addition, in the event of atermination by the Company without Cause under this Section 5(a) (including a deemed termination without Cause as provided in Section 3(f) herein):(1) if the Executive elects to continue the Company’s 4group health plans pursuant to his rights under COBRA, the Company shall pay 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) theCompany will provide the Executive with outplacement services from vendors designated by the Company for a period of six (6) months following theDate of Termination, at a cost not to exceed $5,000. Notwithstanding the foregoing, to receive the termination related payments and benefits describedin this Section 5, within the time periods described below, the Executive must execute (and not revoke) a general release and waiver (in a formreasonably acceptable to the Company) waiving all 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 beforethe date that is five (5) days following the Date of Termination and the Executive shall have twenty-one (21) days following the date on which therelease is given to the Executive to sign and return the release to the Company. The release must be executed and returned to the Company within thetime period described in the release and it must not be revoked by the Executive during the seven (7) day revocation period that will be described inthe release. Notwithstanding anything in this Agreement to the contrary, if the Company concludes that the severance payments described inSection 5(a) constitute a “deferral of compensation” within the meaning of the Section 409A Regulations, and if the consideration period that will bedescribed 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. Except as provided in this Section 5(a), the Company shall have no additional obligationsunder this Agreement.(b) Cause, Disability, Death or Voluntarily other than for Good Reason. If the Executive’s employment is terminated during the EmploymentPeriod by: (i) the Company for Cause; (ii) voluntarily by the Executive other than for Good Reason; or (iii) as a result of the Executive’s death orDisability, the Company shall pay the Executive or the Executive’s estate, as the case may be, within thirty (30) days following the Date ofTermination the Executive’s accrued but unused vacation and 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 no additional 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 theExecutive’s employment without Cause or (ii) the Executive terminates employment with the Company for Good Reason, then, in addition to all of thebenefits provided to the Executive under Section 5(a) of this Agreement, notwithstanding any provision in any applicable option grant agreement orrestricted 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 5the Company for the relevant Performance Cycle at the same time bonuses are paid to other active employees, but in no event will payment be made forany Performance Cycle ending on December 31 before January 1 or 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 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.6. 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.7. 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, directlyor indirectly, solicit or assist any other person or entity in soliciting any employee of ON Semiconductor Corporation (the “Parent”), the Company orany of their subsidiaries to perform services for any entity (other than the Parent, the Company or their subsidiaries), or attempt to induce any suchemployee to leave the employment of the Parent, the Company or their subsidiaries.8. 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 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 tothe extent, (i) Company provides its express prior written consent to such disclosure; (ii) it is necessary to perform the duties of the Executive’s 6employment; 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 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 Executivemay disclose Confidential Information or trade secrets related to the suspected violation of law or alleged retaliation to the Executive’s attorney anduse the Confidential 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.(f) Upon the termination of the Employment Period, the Executive shall not take, without the prior written consent of the Company, anydrawing, blueprint, specification or other document (in whatever form) of the Parent, the Company or their affiliates, which is of a confidential naturerelating to 7the 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.9. 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 7 and 8 hereof. In the event that the Executive breaches any such restrictive covenant, the Company shall be entitled toan injunction restraining the Executive from violating such restrictive covenant (without posting any bond or other security). If the Company shallinstitute any action or proceeding to enforce any such restrictive covenant, the Executive hereby waives the claim or defense that the Company has anadequate remedy at law 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 not prejudice the Company’s right to require the Executive to account for and pay over to the Company, and the Executive herebyagrees to account for and pay over, the compensation, profits, monies, accruals or other benefits derived or received by the Executive as a result of anytransaction constituting a breach of any of the restrictive covenants provided in Sections 7 or 8 hereof. If the Executive is in breach of any of theprovisions of Section 7 or 8 above, then the time periods set forth in Sections 7 or 8 will be extended by the length of time during which the Executiveis 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 the Executive hereby represents tothe Company that the execution of, and performance of duties under, this Agreement shall not constitute a breach of or otherwise violate any otheragreement to which the Executive is a party.(b) The Executive hereby represents to the Company that he will not utilize or disclose any confidential information obtained by the Executivein connection with his former employment with respect to this duties and responsibilities hereunder. 811. 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 days after it is mailed by registered or certified mail, postage prepaid, return receipt requested or one dayafter it is sent by a reputable overnight courier service and, in each case, addressed as follows (or if it is sent through any other method agreed upon bythe parties):If to the Company:Semiconductor Components Industries, LLCAttention: General Counsel5005 East McDowell RoadPhoenix, Arizona 85008If 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 may designate 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 including, but notlimited to, the Severance and CoC Agreement (it being understood that, except as otherwise expressly stated in this Agreement, stock options andrestricted stock units awards granted to the Executive shall be governed by the relevant plan and any other related grant or award agreement and anyother 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 waivedonly by an instrument in writing signed by the party or parties against whom or which enforcement of such waiver is sought. The failure of any partyhereto at any time to require the performance by any other party hereto of any provision hereof shall in no way affect the full right to require suchperformance at any time thereafter, nor shall the waiver by any party hereto of a breach of any provision hereof be taken or held to be a waiver of anysucceeding breach of such provision 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 draftingparty shall not be employed in the interpretation of this Agreement. Rather, the terms of this Agreement shall be construed fairly as to both partieshereto and not in favor 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 Companywould have been required to perform it if no such succession had taken place. As used in the Agreement, the “Company” shall mean both the Companyas defined above 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 way theremaining 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 andenforceable. No waiver of any provision or violation of this Agreement by Company shall be implied by Company’s forbearance or failure to takeaction. 9(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 toSection 409A of the Code (“Section 409A Regulations”) shall be paid unless and until the Executive has incurred a “separation from service” withinthe meaning of the Section 409A Regulations. Furthermore, to the extent that the Executive is a “specified employee” within the meaning of theSection 409A Regulations as of the date of the Executive’s separation from service, no amount that constitutes a deferral of compensation that ispayable on account of the Executive’s separation from service shall be paid to the Executive before the date (“Delayed Payment Date”) which is thefirst day of the seventh month after the date of the Executive’s separation from service or, if earlier, the date of the Executive’s death following suchseparation from service. All such amounts that would, but for this subsection, become payable prior to the Delayed Payment Date will be accumulatedand 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 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. However, the Company does not guarantee any particular tax effect for income providedto Executive pursuant to this Agreement. In any event, except for the Company’s responsibility to withhold applicable income and employment taxesfrom compensation paid or provided to the Executive, the Company shall not be responsible for the payment of any applicable taxes on compensationpaid or provided to the Executive pursuant to this Agreement. Notwithstanding the foregoing, in the event this Agreement or any benefit paid toExecutive hereunder is deemed to be subject to Section 409A of the Code, the Executive consents to the Company adopting such conformingamendments as the Company deems necessary, in its sole discretion, to comply with Section 409A, without reducing the amounts of any benefits dueto the Executive hereunder.(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 oneand the same instrument.(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. 1012. 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 thetotal payments made to the Executive due to certain change in control events described in Section 280G of the Internal Revenue Code (the “TotalChange in Control Payments”) equal or exceed the Executive’s 280G Cap. For this purpose, the Executive’s “280G Cap” is equal to the Executive’saverage annual compensation in the five (5) calendar years preceding the calendar year in which the change in control event occurs (the “Base PeriodIncome Amount”) times three (3). If the Total Change in Control Payments equal or exceed the 280G Cap, Section 4999 of the Internal Revenue Codeimposes a 20% excise tax (the “Excise Tax”) on all amounts in excess of one (1) times the Executive’s Base Period Income Amount. In determiningwhether the Total Change in Control Payments will equal or exceed the 280G Cap and result in the imposition of an Excise Tax, the provisions ofSections 280G and 4999 of the Internal Revenue Code and the applicable Treasury Regulations will control over the general provisions of thisSection 12. All determinations and calculations required to implement the rules set forth in this Section 12 shall take into account all applicablefederal, state, and local income taxes and employment taxes (and for purposes of such calculations, the Executive shall be deemed to pay income taxesat 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 towhich the Executive is entitled under this Agreement or otherwise will be reduced to the extent necessary to avoid equaling or exceeding the 280GCap, with such reduction first applied to the cash severance payments that the Executive would otherwise be entitled to receive pursuant to thisAgreement and thereafter applied in a manner that will not subject the Executive to tax and penalties under Section 409A of the Internal RevenueCode.(c) If the Executive’s Total Change in Control Payments minus the Excise Tax and the Assumed Taxes (payable with respect to the amount ofthe Total Change in Control Payments) exceeds the 280G Cap minus the Assumed Taxes (payable with respect to the amount of the 280G Cap), thenthe total 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 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. 11IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. Semiconductor Components Industries, LLC/s/ KEITH JACKSON Name: Keith JacksonTitle: Chief Executive Officer/s/ SIMON KEETON Simon Keeton 12Exhibit 21.1ON SEMICONDUCTOR CORPORATIONList of Subsidiaries as of 12/31/2018 (1)AMI Semiconductor Canada Company {Nova Scotia, Canada}AMIS Foreign Holdings, Inc. {Delaware}Aptina Holdings (Cayman) Inc. {Cayman Islands}Aptina Imaging Corporation {Cayman Islands}Aptina India Private Limited {India}Aptina, LLC {Delaware}Aptina (Mauritius) Limited {Mauritius}Aptina Pte. Ltd. {Singapore}Axsem AG {Switzerland}Bestcyber Developments Limited {Samoa}Fairchild (Taiwan) Corporation {Taiwan}Fairchild Energy, LLC {Maine}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 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}Kota Microcircuits, Inc. {Colorado}Leshan-Phoenix Semiconductor Company Limited {China (PRC)}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 Aizu Co., Ltd. {Japan}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 Korea, Ltd. {South Korea}ON Semiconductor Leasing BVBA {Belgium}ON Semiconductor Limited {United Kingdom}ON Semiconductor, LLC {Delaware}ON Semiconductor Malaysia Sdn. Bhd. {Malaysia}ON Semiconductor Netherlands BV {Netherlands}ON Semiconductor Netherlands Coöperatief U.A. {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}ROCTOV, LLC {Delaware}SANYO LSI Technology India Private Limited {India}SANYO Semiconductor (H.K.) Co., Ltd. {Hong Kong, China (PRC)}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 Singapore Pte Ltd {Singapore}Semiconductor Components Industries, LLC {Delaware}SensL Technologies Limited {Ireland}SensL Technologies USA 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}VALIM Semiconductor Limited {Ireland} { }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.”Exhibit 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. 333-118814, No. 333-71336, and No. 333-34130) of ON Semiconductor Corporation of our report dated February 20, 2019 relating to the financialstatements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K./s/ PricewaterhouseCoopers LLPPhoenix, ArizonaFebruary 20, 2019Exhibit 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 ofsubstitution, to sign for me as a Director of ON Semiconductor Corporation (the “Corporation”) and file with the Securities and Exchange Commissionthe Corporation’s Annual Report on Form 10-K for 2018, and any amendments.Dated: February 20, 2019 /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 ofsubstitution, to sign for me as a Director of ON Semiconductor Corporation (the “Corporation”) and file with the Securities and Exchange Commissionthe Corporation’s Annual Report on Form 10-K for 2018, and any amendments.Dated: February 20, 2019 /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 ofsubstitution, to sign for me as a Director of ON Semiconductor Corporation (the “Corporation”) and file with the Securities and Exchange Commissionthe Corporation’s Annual Report on Form 10-K for 2018, and any amendments.Dated: February 20, 2019 /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 ofsubstitution, to sign for me as a Director of ON Semiconductor Corporation (the “Corporation”) and file with the Securities and Exchange Commissionthe Corporation’s Annual Report on Form 10-K for 2018, and any amendments.Dated: February 20, 2019 /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 ofsubstitution, to sign for me as a Director of ON Semiconductor Corporation (the “Corporation”) and file with the Securities and Exchange Commissionthe Corporation’s Annual Report on Form 10-K for 2018, and any amendments.Dated: February 20, 2019 /s/ EMMANUEL T. HERNANDEZEmmanuel T. HernandezPOWER OF ATTORNEY(Paul A. 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 ofsubstitution, to sign for me as a Director of ON Semiconductor Corporation (the “Corporation”) and file with the Securities and Exchange Commissionthe Corporation’s Annual Report on Form 10-K for 2018, and any amendments.Dated: February 20, 2019 /s/ PAUL A. MASCARENASPaul A. 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 ofsubstitution, to sign for me as a Director of ON Semiconductor Corporation (the “Corporation”) and file with the Securities and Exchange Commissionthe Corporation’s Annual Report on Form 10-K for 2018, and any amendments.Dated: February 20, 2019 /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 ofsubstitution, to sign for me as a Director of ON Semiconductor Corporation (the “Corporation”) and file with the Securities and Exchange Commissionthe Corporation’s Annual Report on Form 10-K for 2018, and any amendments.Dated: February 20, 2019 /s/ TERESA M. RESSELTeresa M. ResselPOWER OF ATTORNEY(Christine Y. Yan)I hereby appoint Bernard Gutmann, George H. Cave and Mark N. Rogers, and each of them, my attorneys-in-fact, each with full power ofsubstitution, to sign for me as a Director of ON Semiconductor Corporation (the “Corporation”) and file with the Securities and Exchange Commissionthe Corporation’s Annual Report on Form 10-K for 2018, and any amendments.Dated: February 20, 2019 /s/ CHRISTINE Y. YANChristine Y. YanExhibit 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 20, 2019 /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 20, 2019 /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 Actof 2002, 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, 2018 (the “Form 10-K”) of the Company fully complies with therequirements of 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-Kfairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: February 20, 2019 /s/ KEITH D. JACKSON Keith D. Jackson President and Chief Executive OfficerDated: February 20, 2019 /s/ BERNARD GUTMANN Bernard Gutmann Executive Vice President, Chief Financial Officer, and Treasurer

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