Acquisitions - (Notes)

6 Months Ended

Jun. 28, 2019

Note 4: Acquisitions

Acquisition of Quantenna

On June 19, 2019, the Company acquired 100% of the outstanding shares of Quantenna Communications, Inc. ("Quantenna"), a global leader and innovator of high performance Wi-Fi solutions, whereby Quantenna became a wholly-owned subsidiary of the Company. The acquisition of Quantenna creates a strong platform for addressing connectivity solutions for industrial IoT by combining the Company's expertise in power management and bluetooth technologies with Quantenna's Wi-Fi technologies and software capabilities.

The purchase price consideration for the acquisition totaled $1,039.3 million, of which $1,000.4 million was paid in cash during the quarter ended June 28, 2019. The remaining amount of $38.9 million associated with Quantenna employees' prior equity awards, will be paid in multiple intervals through 2023. The acquisition was funded by a draw of $900.0 million against the Company's Revolving Credit Facility, as well as with cash on hand. See Note 8: ''Long-Term Debt'' for further information on the Revolving Credit Facility.

From the closing date of the Quantenna acquisition through June 28, 2019, the Company recognized approximately $2.2 million in revenue and $17.2 million in net loss relating to Quantenna, which included the amortization of fair market value step-up of inventory and intangible assets and restructuring charges.

Following the acquisition, Quantenna changed its name to ON Semiconductor Connectivity Solutions, Inc.

The following table presents the provisional allocation of the purchase price of Quantenna for the assets acquired and liabilities assumed based on their relative fair values (in millions):



	Initial Estimate
Cash and cash equivalents	$	133.4
Receivables	21.2
Inventories	45.0
Other current assets	4.3
Property, plant and equipment	16.3
Goodwill	620.0
Intangible assets (excluding IPRD)	180.9
IPRD	55.5
Deferred tax assets	3.3
Other non-current assets	10.5
Total assets acquired	1,090.4
Accounts payable	22.6
Other current liabilities	16.8
Deferred tax liabilities	3.9
Other non-current liabilities	7.8
Total liabilities assumed	51.1
Net assets acquired/purchase price	$	1,039.3

Acquired intangible assets of $236.4 million include developed technology of $150.0 million (which are estimated to have an useful life of ten years). The total weighted average amortization period for the acquired intangibles is ten years.

IPRD assets are amortized over the estimated useful life of the assets upon successful completion of the related projects. The value assigned to IPRD was determined by estimating the net cash flows from the projects when completed and discounting the net cash flows to their present value using a discount rate of approximately 12%. The cash flows from IPRD’s significant products are expected to commence from 2020 onwards.

The acquisition produced $620.0 million of goodwill, which has been assigned to a reporting unit within ASG. The goodwill is attributable to a combination of Quantenna's assembled workforce, expectations regarding a more meaningful engagement by the customers due to the scale of the combined company and other product and operating synergies. Goodwill arising from the Quantenna acquisition is not deductible for tax purposes.

The initial estimated purchase price allocation is subject to change as the Company finalizes its determination relating to the valuation of assets and liabilities and finalizes key assumptions, approaches and judgments with respect to intangible assets acquired from Quantenna and the related tax effects. Accordingly, future adjustments may impact the initial estimated amount of goodwill and other allocated amounts represented in the table above.

Pro-Forma Results of Operations

The following unaudited pro-forma consolidated results of operation for the quarters and six months ended June 28, 2019 and June 29, 2018 have been prepared as if the acquisition of Quantenna had occurred on January 1, 2018 and includes adjustments for amortization of intangibles, interest expense from financing, restructuring, and the effect of purchase accounting adjustments including the step-up of inventory (in millions):



	Quarters Ended				Six Months Ended
	June 28, 2019		June 29, 2018		June 28, 2019		June 29, 2018
Revenue	$	1,385.3	$	1,509.3	$	2,829.6	$	2,932.0
Net income	96.7		135.7		198.5		241.7
Net income attributable to ON Semiconductor Corporation	95.6		134.7		197.4		239.8
Net income per common share attributable to ON Semiconductor Corporation:
Basic	$	0.23	$	0.32	$	0.48	$	0.56
Diluted	$	0.23	$	0.30	$	0.47	$	0.54

Pending Acquisition of Manufacturing Facility and Related Assets

On April 22, 2019, through SCI LLC, the Company entered into an Asset Purchase Agreement (the "Asset Purchase Agreement") with GLOBALFOUNDRIES U.S. Inc. (“GFUS”) and GLOBALFOUNDRIES Inc., pursuant to which the Company will acquire GFUS’s East Fishkill, New York site and fabrication facilities, including a post-fabrication facility, support buildings and related assets (the “Transferred Assets”), and assume certain liabilities, including those relating to Company's ownership and operation of the Transferred Assets (collectively, the “Asset Purchase”). The closing of the Asset Purchase is expected to occur on or around December 31, 2022, subject to the satisfaction or waiver of the conditions to closing as specified in the Asset Purchase Agreement. The aggregate purchase price for the Asset Purchase is $400.0 million in cash, subject to adjustment as described in the Asset Purchase Agreement, of which a non-refundable deposit of $70.0 million, subject to downward adjustment, was paid by SCI LLC to GFUS in cash on April 22, 2019. The remaining $330.0 million will be paid on or around the closing date of the Asset Purchase.

In connection with the Asset Purchase Agreement, the parties entered into certain ancillary agreements (the "Ancillary Agreements") pursuant to which SCI LLC will be provided with technology transfer and development services as well as foundry services prior to the closing date, and GFUS will be provided foundry services for a limited period of time following the closing date. Pursuant to the Ancillary Agreements, on April 22, 2019, SCI LLC paid GFUS a license fee in the amount of $30.0 million in cash, subject to upward adjustment, for certain technology. This amount has been recorded as an intangible asset in our Consolidated Balance Sheet as of June 28, 2019 and will be amortized when the revenue from the sale of products under the Ancillary Agreement commences.

The Company incurred approximately $4.0 million of expenses in connection with these transactions and expects to incur an additional $5.0 million in legal fees, advisory fees and other third party costs on or around the closing date.