ON Semiconductor ON · USD

Note 3: Segments and Revenue SegmentsAs of December 31, 2025, the Company was organized into three operating and reportable segments consisting of PSG, AMG and ISG. These segments represent management's view of the business for which separate financial information is available and evaluated regularly by the Chief Operating Decision Maker ("CODM"), which is the Company’s Chief Executive Officer. The CODM uses segment gross profit for evaluating product pricing, factory utilization, allocation of capital and the assessment of segment profitability. The operating costs of manufacturing facilities which service all business units are reflected in each segment's 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 sell to each other. The Company does not allocate income taxes or interest expense to its operating segments as the operating segments are principally evaluated on gross profit. Additionally, restructuring, asset impairments and other charges and certain other operating expenses, which include corporate research and development costs and miscellaneous nonrecurring expenses, are not allocated to segments. Revenue and gross profit for the Company’s operating and reportable segments were as follows (in millions):PSGAMGISGTotalYear ended December 31, 2025:Revenue from external customers$2,805.1 $2,261.9 $928.4 $5,995.4 Cost of revenue2,117.6 1,105.4 788.5 4,011.5 Segment gross profit$687.5 $1,156.5 $139.9 $1,983.9 Year ended December 31, 2024:Revenue from external customers$3,348.2 $2,609.1 $1,125.0 $7,082.3 Cost of revenue1,963.8 1,302.8 599.6 3,866.2 Segment gross profit$1,384.4 $1,306.3 $525.4 $3,216.1 Year ended December 31, 2023:Revenue from external customers$3,880.4 $3,057.1 $1,315.5 $8,253.0 Cost of revenue2,058.5 1,635.8 675.2 4,369.5 Segment gross profit$1,821.9 $1,421.3 $640.3 $3,883.5 The Company had one customer, a distributor, whose revenue accounted for approximately 11% and 10% of total revenue for the years ended December 31, 2025 and 2024, respectively, with sales across all reportable segments. No customer exceeded 10% of the total revenue for the year ended December 31, 2023. One customer, a distributor, accounted for approximately 10% and 13% of the Company's accounts receivable balance as of December 31, 2025 and 2024, respectively.

Note 13: Commitments and Contingencies Purchase ObligationsThe Company has agreements with suppliers, external manufacturers and other vendors for capital expenditures, inventory purchases, manufacturing services, information technology and other goods and services. The following is a schedule by year of future minimum purchase obligations under non-cancelable arrangements entered into during the ordinary course of business as of December 31, 2025 (in millions):2026$354.3 2027128.5 202853.2 202934.0 203028.3 Thereafter7.4 Total$605.7 Environmental Contingencies The Company currently leases its headquarters in Scottsdale, Arizona on Salt River Maricopa Indian Community property. Though the Company has encountered and dealt with a number of environmental issues over time relating to the various locations that comprise its operations, any costs to the Company in connection with such matters have not been, and, based on the information available, are not expected to be material.The following presents a summary of such environmental contingencies:•East Greenwich, Rhode Island. The Company’s design center in East Greenwich, Rhode Island is located on property that has localized soil contamination. In connection with the purchase of the facility, the Company entered into a Settlement Agreement and Covenant Not to Sue with the State of Rhode Island. This agreement requires that remedial actions be undertaken and a quarterly groundwater monitoring program be initiated by the former owners of the property. •Santa Clara, California. As a result of the acquisition of AMIS in 2008, the Company is a "primary responsible party" to an environmental remediation and clean-up plan at AMIS’s former corporate headquarters in Santa Clara, California. Costs incurred by AMIS include implementation of the clean-up plan, operations and maintenance 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 clean-up activities at this location. This facility was divested to Lincoln Property Company Commercial, Inc. in 2022.•South Portland, Maine. Through its acquisition of Fairchild, the Company acquired a facility in South Portland, Maine. This facility was divested to Diodes, Inc. in 2022.

Note 9: Long-Term DebtThe Company's long-term debt consists of the following (annualized interest rates, dollars in millions): As of December 31,20252024Revolving Credit Facility due 2028$— $375.0 0.50% Notes due 2029 (1)1,500.0 1,500.0 0% Notes due 2027804.9 804.9 3.875% Notes due 2028 (2)700.0 700.0 Gross long-term debt, including current maturities3,004.9 3,379.9 Less: Unamortized debt discount (3)(2.5)(3.4)Less: Unamortized debt issuance costs (4)(21.9)(30.6) Net long-term debt$2,980.5 $3,345.9 (1)Interest is payable on March 1 and September 1 of each year at 0.50% annually.(2)Fixed rate note due September 1, 2028 with interest payable on March 1 and September 1 of each year at 3.875% annually. (3)Debt discount of $2.5 million and $3.4 million for the 3.875% Notes as of December 31, 2025 and December 31, 2024, respectively. (4)Debt issuance costs of $16.5 million and $21.7 million for the 0.50% Notes, $4.5 million and $7.7 million for the 0% Notes, $0.9 million and $1.2 million for the 3.875% Notes, in each case as of December 31, 2025 and December 31, 2024, respectively.The Company’s long-term debt instruments are senior unsecured obligations and are fully and unconditionally guaranteed, on a joint and several basis, by each of the Company’s subsidiaries that is a borrower or guarantor under the Revolving Credit Facility. MaturitiesExpected maturities of gross long-term debt as of December 31, 2025 are as follows (in millions): ExpectedMaturities2026$— 2027804.9 2028700.0 20291,500.0 2030— Thereafter— Total$3,004.9 Revolving Credit FacilityIn 2023, the Company entered into a new $1.5 billion Revolving Credit Facility. On December 31, 2025, the Company repaid $375.0 million of borrowings that were outstanding on the Revolving Credit Facility. As of December 31, 2025, the Company had approximately $1.5 billion available under the Revolving Credit Facility for future borrowings, except for amounts utilized for the letters of credit. Future borrowings are available for general corporate purposes, including working capital, capital expenditures, and acquisitions, but also include a $25.0 million sub-limit for the issuance of letters of credit and a foreign currency sub-limit of $75.0 million.The maturity date for the borrowings under the Credit Agreement is June 22, 2028.

Note 16: Income TaxesThe Company's geographic sources of income before income taxes were as follows (in millions):Year ended December 31,202520242023United States$(102.2)$1,584.3 $2,222.2 Foreign233.5 253.1 313.6 Income before income taxes$131.3 $1,837.4 $2,535.8 The Company's provision for income taxes was as follows (in millions):Year ended December 31,202520242023Current:Federal$110.1 $276.6 $372.7 State and local8.7 20.4 21.6 Foreign59.5 52.0 76.9 Total178.3 349.0 471.2 Deferred:Federal(177.2)(58.2)(107.9)State and local(7.1)(18.1)13.2 Foreign13.7 (9.9)(26.3)Total(170.6)(86.2)(121.0)Total provision$7.7 $262.8 $350.2 As further provided in Note 4: ''Recent Accounting Pronouncements and Other Developments,'' the Company has elected to prospectively adopt the guidance in ASU 2023-09. The following table is a reconciliation of the U.S. federal statutory income tax rate to the Company's effective tax rate for the year ended December 31, 2025 in accordance with the guidance in ASU 2023-09 (in millions):Year ended December 31,2025AmountPercentU.S. federal statutory rate$27.5 21.0 %State and local income taxes, net of federal income tax effect (1)(1.2)(0.9)%Foreign tax effects:Japan:Withholding taxes5.4 4.1 %Change in valuation allowance7.6 5.8 %Other4.7 3.6 %Malaysia:Investment credit expiration30.8 23.4 %Change in valuation allowance(27.1)(20.7)%Other0.6 0.4 %Korea:Currency translation gain (loss) 11.2 8.5 %Other4.0 3.0 %Switzerland:Nontaxable foreign exchange gain(7.0)(5.3)%Foreign tax rate differential (5.2)(4.0)%Other1.7 1.3 %Other foreign jurisdictions(1.7)(1.2)%Effect of cross-border tax laws:Foreign-derived intangible income (34.7)(26.4)%Subpart F 31.0 23.6 %Foreign tax credits(57.3)(43.6)%Other (1.9)(1.4)%Tax credits:Federal research and development credit(12.0)(9.1)%Change in valuation allowance (0.4)(0.3)%Nontaxable or nondeductible items:Stock-based compensation11.3 8.6 %Non-deductible officer compensation8.5 6.4 %Other5.7 4.4 %Changes in unrecognized tax benefits6.1 4.6 %Other adjustments0.1 0.1 %Effective tax rate$7.7 5.9 %(1)State taxes in Arizona and Minnesota make up the majority (greater than 50 percent) of the tax effect in this category.A reconciliation of the U.S. federal statutory income tax rate to the Company's effective income tax rate for the years ended December 31, 2024 and 2023 in accordance with the guidance prior to the adoption of ASU 2023-09 is as follows:Year ended December 31,20242023U.S. federal statutory rate21.0 %21.

Note 11: Share-Based Compensation Total share-based compensation expense related to the Company's RSUs, stock grant awards and ESPP was recorded within the Consolidated Statements of Operations and Comprehensive Income as follows (in millions):Year ended December 31,202520242023Cost of revenue$27.0 $24.6 $18.1 Research and development27.5 24.7 20.5 Selling and marketing20.8 21.3 18.6 General and administrative69.0 65.5 63.9 Share-based compensation expense144.3 136.1 121.1 Income tax benefit(30.3)(28.6)(25.4)Share-based compensation expense, net of taxes$114.0 $107.5 $95.7 As of December 31, 2025, total unrecognized share-based compensation expense, net of estimated forfeitures, related to non-vested RSUs with service, performance and market conditions was $153.0 million, which is expected to be recognized over a weighted-average period of 1.7 years. Upon vesting of RSUs, stock grant awards or completion of a purchase under the ESPP, the Company issues new shares of common stock.Share-Based Compensation InformationThe fair value per unit of each RSU and stock grant award is determined on the grant date. Share-based compensation expense is based on awards ultimately expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The annualized pre-vesting forfeitures for RSUs were estimated to be approximately 8% for the years ended December 31, 2025, 2024 and 2023.Plan and Award DescriptionsOn March 23, 2010, the Company adopted the Amended and Restated SIP which has been subsequently amended over the years primarily to increase the number of shares of common stock subject to all awards. Generally, RSUs granted under the Amended and Restated SIP vest ratably over three years for awards with service conditions and over two, three, or five years for awards with performance or market conditions, or a combination thereof, and are settled in shares of the Company's common stock upon vesting. Generally, upon the termination of an RSU holder's employment, all unvested RSUs will immediately cancel, except under circumstances where the service condition has been fulfilled.On May 20, 2021, the Company's stockholders approved certain amendments to the Amended and Restated SIP to extend the expiration date from 2022 to 2031 and to increase the number of shares of common stock subject to all awards by 22.5 million to 109.5 million.

Note 5: AcquisitionsThe Company pursues acquisitions and divestitures from time to time to leverage its existing capabilities and further expand its business to achieve certain strategic goals. Acquisition costs are not included as components of consideration transferred and instead are accounted for as expenses in the period in which the costs are incurred. During the years ended December 31, 2025 and 2024, the Company incurred acquisition and divestiture-related costs of approximately $3.7 million and $13.1 million, respectively, and the Company incurred an immaterial amount during the year ended 2023. Such costs were included in operating expenses in the Consolidated Statements of Operations and Comprehensive Income.2025 Acquisitions SiC JFET acquisition On January 14, 2025, the Company acquired all of the outstanding equity of the SiC JFET technology business from Qorvo US, Inc., and certain of its subsidiaries, for $118.8 million in cash, subject to working capital adjustments. The Company believes the acquired SiC JFET technology complements the Company's EliteSiC power portfolio within the PSG reportable segment and enables the Company to help address the need for high energy efficiency and power density in the AC-DC stage in power supply units for AI data centers.The final allocation of the purchase price to the assets acquired and liabilities assumed, based on their relative fair values, was as follows (in millions):Purchase Price AllocationCash$1.3 Inventories20.8 Property, plant and equipment4.5 Intangible assets64.0 Goodwill53.7 Other assets3.0 Total assets acquired147.3 Accounts payable and other accrued liabilities20.6 Deferred tax liabilities7.9 Total liabilities assumed28.5 Net assets acquired/purchase price$118.8 Acquired intangible assets consisted of developed technology of $56.0 million, customer relationships of $7.0 million and a trade name of $1.0 million. The acquired intangible assets will be amortized over a weighted average useful life of 8 years. The Company calculated the fair values of the intangible assets using the multi-period excess earnings method for the acquired developed technology, the distributor method for the customer relationships, and the relief-from-royalty method for the trade name. Significant assumptions used in management's estimates included discount rates, revenue growth, projected gross margins, and operating expenses.

The secure processing, maintenance and transmission of sensitive data, including confidential and other proprietary information about our business and our employees, customers, suppliers and business partners, is important to our operations and business strategy. As a result, cybersecurity and data protection are key components of our long-term strategy. We use various processes to inform our assessment, identification and management of risk from cybersecurity threats. Key areas of our cybersecurity risk management processes and strategy currently include:•Cross-Functional Collaboration and Coordination. Our Enterprise Cybersecurity Services (“ECS”) team, led by our Chief Information Security Officer (“CISO”), has first line responsibility for our cybersecurity risk management processes. The ECS team works in partnership with other internal teams to coordinate efforts, priorities and oversight. These include:◦our Cybersecurity Executive Council (the “Council”), which is composed of key leaders from stakeholder groups throughout the Company, including the CISO and certain members of senior management;◦our Enterprise Risk Management (“ERM”) team, which is responsible for evaluating and assessing overall enterprise risk, including cybersecurity risk, and advising senior management and the Board regarding our overall risk profile and priorities as they evolve;◦our Internal Audit Department (“IAD”), which monitors certain IT systems controls that are integrated into our larger Sarbanes-Oxley control environment; and ◦our Cyber Incident Response Team (“CIRT”), a cross-functional team of subject matter experts from across the Company and certain third-party support providers that we have on retainer.•Ongoing Evaluation and Assessment of Systems and Processes. We update our information security management system from time to time as appropriate and we employ standards and frameworks as we deem necessary to assist us in monitoring compliance with regulatory, industry and evolving data privacy requirements. In addition to periodic in-depth evaluations of our systems and processes, we monitor our IT systems and processes on an ongoing basis with the goal of identifying and remediating real and potential threats as they arise. We adjust our systems, procedures and policies regularly as we deem necessary in response to identified threats and risks.•Security Awareness Program to Train and Test Personnel.

Note 15: Financial Instruments Foreign CurrenciesAs a multinational business, the Company's transactions are denominated in a variety of currencies. When appropriate, the Company uses forward foreign currency contracts to reduce its overall exposure to the effects of currency fluctuations on its results of operations and cash flows. The Company's policy prohibits trading in currencies for which there are no underlying exposures and entering into trades for any currency to intentionally increase the underlying exposure. The Company primarily hedges existing assets and liabilities associated with transactions currently on its balance sheet, which are undesignated hedges for accounting purposes. As of December 31, 2025 and 2024, the Company had outstanding foreign exchange contracts with notional amounts of $190.5 million and $256.8 million, respectively. Such contracts were obtained through financial institutions and were scheduled to mature within two months from the time of purchase. Management believes that these financial instruments should not subject the Company to increased risks from foreign exchange movements because gains and losses on these contracts should offset gains and losses on the underlying assets, liabilities and transactions to which they are related. The following schedule summarizes the Company's net foreign exchange positions in U.S. dollars (in millions): As of December 31,20252024Buy (Sell)Notional AmountBuy (Sell)Notional AmountEuro$44.8 $44.8 $71.1 $71.1 Philippine Peso36.5 36.5 41.0 41.0 Korean Won(46.0)46.0 (39.5)39.5 Japanese Yen— — 35.0 35.0 Czech Koruna20.3 20.3 24.0 24.0 Other currencies - Buy42.9 42.9 39.6 39.6 Other currencies - Sell— — (6.6)6.6 Total$98.5 $190.5 $164.6 $256.8 Amounts receivable or payable under the contracts were not material as of December 31, 2025 and 2024, and are included in other current assets or accrued expenses and other current liabilities in the accompanying Consolidated Balance Sheets. Realized and unrealized foreign currency transactions totaled a loss of $5.5 million, a gain of $0.9 million, and a loss of $7.9 million for the years ended December 31, 2025, 2024, and 2023, respectively. The realized and unrealized foreign currency transactions are included in other income (expense) in the Company's Consolidated Statements of Operations and Comprehensive Income.