Earnings Per Share and Equity

12 Months Ended

Dec. 31, 2020

Note 10: Earnings Per Share and Equity

Earnings Per Share

Net income per share of common stock attributable to ON Semiconductor Corporation is shown below (in millions, except per share data):


	Year ended December 31,
	2020		2019		2018
Net income attributable to ON Semiconductor Corporation	$	234.2	$	211.7	$	627.4
Basic weighted-average shares of common stock outstanding	410.7		410.9		423.8
Add: Incremental shares for:
Dilutive effect of share-based awards	1.9		1.9		4.3
Dilutive effect of convertible notes and warrants	6.2		3.2		7.8
Diluted weighted average shares of common stock outstanding	418.8		416.0		435.9

Net income per share of common stock attributable to ON Semiconductor Corporation:
Basic	$	0.57	$	0.52	$	1.48
Diluted	$	0.56	$	0.51	$	1.44

Basic income per share of common stock is computed by dividing net income attributable to the Company by the weighted average number of shares of common stock outstanding during the period.

To calculate the diluted weighted-average shares of common stock outstanding, treasury stock method has been applied to calculate the number of incremental shares from the assumed issuance of shares relating to RSUs. Share-based awards of approximately 0.8 million, 0.8 million and 0.6 million for the years ended December 31, 2020, 2019 and 2018, respectively, were excluded as the impact was considered to be anti-dilutive.

The dilutive impact related to the Company’s 1.00% Notes and 1.625% Notes, for the period such notes were outstanding, has

been 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 being convertible into common stock. The 1.00% Notes matured and were repaid and settled on December 1, 2020. While the dilutive impact of the warrants that were issued concurrently with the issuance of the 1.00% Notes which have an exercise price of $25.96 have been included in the calculation of diluted weighted-average common shares outstanding, the warrants issued concurrently with the issuance of the 1.625% Notes which have an exercise price of $30.70 were still anti-dilutive and excluded. Prior to conversion, the convertible note hedges are not considered for purposes of the earnings per share calculations, as their effect would be anti-dilutive. Upon conversion, the convertible note hedges are expected to offset the dilutive effect of the 1.625% Notes when the stock price is above $20.72 per share.

Equity

Share Repurchase Programs

On December 1, 2014, the Company announced the "Capital Allocation Policy" under which the Company intends to return to stockholders approximately 80 percent of free cash flow, less repayments of long-term debt, subject to a variety of factors, including the strategic plans, market and economic conditions and the discretion of the 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’s 2014 Share Repurchase Program, the Company had the ability to repurchase up to $1.0 billion (exclusive of fees, commissions and other expenses) of the Company’s common stock over a period of four years from December 1, 2014, subject to certain contingencies. The 2014 Share Repurchase Program, which did not require the Company to purchase any particular amount of common stock and was subject to the discretion of the Board of Directors, expired on November 30, 2018 with approximately $288.2 million remaining unutilized. The Company repurchased common stock for an aggregate purchase price of approximately $315.0 million under the 2014 Share Repurchase Program during the year ended December 31, 2018.

On November 15, 2018, the Company announced the 2018 Share Repurchase Program pursuant to the Capital Allocation Policy. Under the 2018 Share Repurchase Program, the Company is authorized to repurchase up to $1.5 billion of its common shares from December 1, 2018 through December 31, 2022, 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 market transactions, including pursuant to a trading plan in accordance with Rule 10b5-1 and Rule 10b-18 of the Exchange Act, or by any combination of such methods or 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 and economic conditions. There were $65.3 million and $138.9 million in repurchases of the Company's common stock under the 2018 Share Repurchase Program during the years ended December 31, 2020 and December 31, 2019, respectively. As of December 31, 2020, the remaining authorized amount under the 2018 Share Repurchase Program was $1,295.8 million.

Information relating to the Company's 2018 and 2014 Share Repurchase Programs is as follows (in millions, except per share data):


	Year ended December 31,
	2020		2019		2018
Number of repurchased shares (1)	3.6		7.8		16.8

Aggregate purchase price	$	65.3	$	138.9	$	315.0
Fees, commissions and other expenses	0.1		0.1		0.3

Total cash used for share repurchases	$	65.4	$	139.0	$	315.3

Weighted-average purchase price per share (2)	$	18.08	$	17.89	$	18.78
Available under the 2018 Share Repurchase Program	$	1,295.8	$	1,361.1	$	1,500.0

_______________________

(1) None of these shares had been reissued or retired as of December 31, 2020, but may be reissued or retired later.

(2) Exclusive of fees, commission or other expenses

Reissuance of shares held in treasury stock

In connection with the maturity of the 1.00% Notes, the Company reissued shares of common stock held in treasury to settle the excess over the principal amount. This was the first time the Company reissued shares held in treasury stock and accounted for such reissuance on a first-in, first-out basis. Pursuant to the hedge transactions entered concurrently with the issuance of the 1.00% Notes, the Company repurchased an equivalent number of shares of its common stock at the prevailing fair market value, to effectively offset the reissuance from treasury stock. This repurchase did not reduce the authorized amount remaining under the 2018 Share Repurchase Program.

Shares for Restricted Stock Units Tax Withholding

Treasury 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 upon the vesting of RSUs to pay the applicable amount of employee withholding taxes and are considered common stock repurchases. The Company then pays the applicable amount of withholding taxes in cash. The amounts remitted during the years ended December 31, 2020, 2019 and 2018 were $20.0 million, $33.5 million and $31.6 million, respectively, for which the Company withheld approximately 1.1 million, 1.6 million and 1.3 million shares of common stock, respectively, that were underlying the RSUs that vested. None of these shares had been reissued or retired as of December 31, 2020, but may be reissued or retired later. These deemed repurchases in connection with tax withholding upon vesting were not made under the 2018 Share Repurchase Program or 2014 Share Repurchase Program, and the amounts spent in connection with such deemed repurchases did not reduce the authorized amount remaining under the 2018 Share Repurchase Program.

Non-Controlling Interest

Leshan operates assembly and test operations in Leshan, China. The Company owns 80% of the outstanding equity interests in Leshan, and the results of Leshan have been consolidated in the Company's financial statements. At December 31, 2020, the Leshan non-controlling interest balance was $19.6 million. This balance included the Leshan non-controlling interest's $2.2 million share of the earnings for the year ended December 31, 2020 offset by $5.0 million of dividends paid to the non-controlling shareholder. At December 31, 2019, the Leshan non-controlling interest balance was $22.4 million. This balance included the Leshan non-controlling interest's $2.2 million share of the earnings for the year ended December 31, 2019 offset by $2.3 million of dividends paid to the non-controlling shareholder.

OSA operates a front-end wafer fabrication facility in Aizuwakamatsu, Japan. During 2018, the Company acquired an incremental 50% equity interest in OSA for approximately $24.6 million, net of cash acquired, to increase its ownership to 60% of the outstanding equity interest. During 2020, the Company acquired the remaining 40% of the equity interest in OSA from FSL, whereby OSA became a wholly-owned subsidiary of the Company. The purchase price payable to FSL for the remaining 40% equity, offset by the purchase price adjustment, resulted in the Company receiving $26.0 million in settlement of the purchase price from FSL during the year ended December 31, 2020. The results of OSA have been consolidated in the Company’s financial statements since 2018 when the Company became the majority owner.

Stockholders' Rights Plan

On June 7, 2020, the Board of Directors authorized and declared a dividend of one preferred share purchase right (a "Right") to be issued as of 5:00 p.m. New York City time on June 18, 2020 for each outstanding share of common stock to the stockholders of record on that date. In connection with the Rights, the Company and Computershare Trust Company, N.A., as rights agent, entered into a Rights Agreement, dated as of June 8, 2020 (the "Rights Agreement"). Each Right entitles the registered holder of common stock to purchase from the Company one one-hundred-thousandth of a share (a "Unit") of Series B Junior Participating Preferred Stock, par value $0.01 per share, at a purchase price of $100.80 per Unit (the "Purchase Price"), subject to adjustment as provided in the Rights Agreement. Subject to certain exceptions, if a person or group becomes the beneficial owner of more than 15% of the Company’s outstanding shares of common stock, the Rights will become exercisable for that number of shares of Common Stock having a market value of two times the Purchase Price. The Rights, which have a de minimis value as of December 31, 2020, expire on the earlier of (i) the close of business on June 7, 2021, (ii) the time at which the Rights are redeemed pursuant to the Rights Agreement, (iii) the closing of any merger or other acquisition transaction involving the Company that has been approved by the Board of Directors, at which time the Rights are terminated, and (iv) the time at which the Rights are exchanged pursuant to the Rights Agreement. The Rights are in all respects subject to and governed by the provisions of the Rights Agreement.