ON Semiconductor Corp. (NASDAQ:ON)

The analysis of the annual current and deferred income tax expenses over the five-year period reveals significant fluctuations and notable trends.

Current Income Tax Expense

The current income tax expense shows a general increasing trend from 2019 through 2023, with a slight exception in 2022. The values increased moderately from 49,700 thousand USD in 2019 to 56,100 thousand USD in 2021. A sharp rise is observed in 2022, where the current tax expense surged significantly to 437,500 thousand USD, maintaining a high level in 2023 at 471,200 thousand USD. This indicates a substantial increase in taxable income or changes in tax rates or regulations impacting current tax liabilities in the later years.

Deferred Income Tax Expense

The deferred income tax expense exhibits considerable volatility over the years. It started at 13,000 thousand USD in 2019, followed by a dramatic negative shift to -114,500 thousand USD in 2020, suggesting a deferred tax benefit or reversal of previously recorded liabilities. The deferred tax expense rebounded to a positive value of 90,500 thousand USD in 2021, then decreased significantly to 20,900 thousand USD in 2022. In 2023, another substantial negative value of -121,000 thousand USD was recorded, indicating a complex pattern of deferred tax asset and liability adjustments. This volatility may be attributed to changes in temporary differences, tax planning strategies, or adjustments in tax legislation impacting deferred taxes.

Total Provision (Benefit) for Income Taxes

The total income tax provision, which combines current and deferred taxes, reflects the observed fluctuations in its components. The provision was positive at 62,700 thousand USD in 2019 but turned negative to -59,800 thousand USD in 2020, driven primarily by the large deferred tax benefit. It surged to a high of 146,600 thousand USD in 2021, peaked dramatically at 458,400 thousand USD in 2022, and decreased to 350,200 thousand USD in 2023. These sharp changes indicate significant year-to-year variability in tax expense recognition, potentially tied to changes in earnings before tax, deferred tax balances, and external tax factors.

Overall, the financial data reveals that while the current income tax expense generally increased over the period, the deferred income tax expense fluctuated considerably, producing significant swings in the total income tax provision. This suggests an environment of dynamic tax-related adjustments and possibly evolving tax policies influencing the reported tax expenses annually.

U.S. federal statutory income tax rate

Remained stable at 21% throughout the observed five-year period, indicating no changes in the base federal tax legislation affecting the company.

State and local taxes, net of federal tax benefit

Showed considerable fluctuation, starting at negative 2.6% in 2019, improving to negative 1.4% in 2020, then shifting to positive values with 1.4% in 2021, 1.7% in 2022, before decreasing to 0.7% in 2023. This variation indicates changes in state and local tax liabilities or benefits that impacted the overall tax expense.

Impact of foreign operations

Demonstrated variability over time, increasing from 3.8% in 2019 to 7.6% in 2020, then declining sharply to negative 2% in 2021, and recovering slightly to 1.7% in 2022 and 0.3% in 2023. This pattern suggests shifting profitability or tax effects related to the company's international business activities.

Foreign derived intangible income benefit

Absent for the first two years, then presented a consistent negative impact on the tax rate from 2021 to 2023, with values around negative 7%. This indicates a recurring tax benefit linked to intangible income derived from foreign operations during the later years.

Nondeductible goodwill

Reported a positive 3.1% impact only in 2022, indicating an unusual or one-time effect related to goodwill that affected taxable income or deductions in that year alone.

Impact of the Domestication

Significantly influenced the tax rate in 2020 with a large negative impact of approximately 35.7%, suggesting a major restructuring or corporate relocation event occurred that year, with no impact reported in other years.

Change in valuation allowance and related effects

Exhibited notable volatility, starting at a positive 1.8% in 2019, plummeting to negative 24.4% in 2020, and stabilizing near zero from 2021 through 2023. This indicates a substantial tax impact from valuation allowances primarily in 2020, which was largely resolved in subsequent years.

Share-based compensation costs

Fluctuated around zero, with slight positive or negative impacts ranging between -0.5% and 1.7% over the years, representing minimal influence on the overall effective tax rate.

U.S. federal R&D credit

Consistently contributed to tax reductions across all years, with a diminishing effect from around -3.7% in 2019 and 2020 to less than -0.5% in later years, implying a reduction in the tax credit benefit over time.

Non-deductible officer compensation

Demonstrated a decreasing trend, starting at 1.5% in 2019 and stabilizing at 0.3% from 2021 to 2023, indicating a minor but consistent upward adjustment to taxable income related to executive compensation.

Impact of audit settlement

Only occurred in 2023, reducing the effective tax rate by 1.8%, reflecting the resolution of prior tax audits with a favorable outcome for the company.

Other

Presented minor fluctuations around zero throughout the period, denoting small miscellaneous effects that slightly influenced the tax rate in some years.

Effective income tax rate

Varied significantly over the five years: starting at 22.7% in 2019, dropping dramatically to -33.8% in 2020, rebounding to 12.7% in 2021, rising further to 19.4% in 2022, then decreasing to 13.8% in 2023. This volatility reflects the combined influences of major events such as the Domestication, changes in valuation allowances, and foreign operations, demonstrating an unstable effective tax position during this timeframe.

NOL and tax credit carryforwards

There has been a consistent and significant decline in net operating loss (NOL) and tax credit carryforwards from 612,900 thousand USD in 2019 to 221,600 thousand USD in 2022, with a slight increase to 227,600 thousand USD in 2023. This indicates a reduction in deferred tax benefits over time, though the modest uptick in 2023 may suggest the recognition of additional carryforwards or revisions in tax positions.

163 (j) interest expense carryforward

This item exhibits a marked decrease over the period, dropping from 49,300 thousand USD in 2019 to 4,600 thousand USD in 2023. The steady decline reflects amortization or utilization of interest expense carryforwards, suggesting a diminishing ability to offset taxable income with past interest expenses.

Lease liabilities and ROU asset

Lease liabilities have increased notably from 22,100 thousand USD in 2019, peaking at 65,000 thousand USD in 2022 before slightly decreasing to 59,700 thousand USD in 2023. Correspondingly, the Right of Use (ROU) asset, recorded as a negative amount, mirrors this trend, moving from -22,100 thousand USD to -58,900 thousand USD over the same period. This pattern indicates growing lease obligations and capitalization of lease assets, with some reduction in lease liabilities in the most recent year.

Tax-deductible goodwill and amortizable intangibles

This item fluctuates across the years, with an initial decrease from -48,600 thousand USD in 2019 to -38,000 thousand USD in 2020, a drop to -57,500 thousand USD in 2021, followed by improvement to -32,200 thousand USD in 2023. The inconsistent pattern may be attributable to changing amortization schedules or acquisitions impacting intangible asset bases.

Capitalization of research and development expenses

A sharp and continuous increase is observed, rising from 42,700 thousand USD in 2019 to 419,900 thousand USD in 2023. This suggests growing capitalization of internally developed intangible assets related to R&D, reflecting intensified investment in innovation or changes in accounting treatment supporting deferred recognition of these costs.

Reserves and accruals

Reserves and accruals expanded significantly from 27,500 thousand USD in 2019 to a peak of 109,200 thousand USD in 2021, then receded to 60,200 thousand USD in 2023. This volatility may point to adjustments in contingent liabilities or timing differences in expense recognition.

Property, plant and equipment (PP&E)

Total net PP&E shows a downward trajectory, from -81,200 thousand USD to -165,100 thousand USD over five years, indicating increasing accumulation of depreciation or impairment charges, or possibly asset disposals exceeding additions.

Inventories

Inventories increased substantially in 2023 to 134,200 thousand USD, up from 22,000 thousand USD in 2019, with some volatility across years. This growth may reflect stockpiling strategies, increased production capacity, or shifts in demand forecasts.

Undistributed earnings of foreign subsidiaries

The balance consistently grew in negative territory from -63,700 thousand USD in 2019 to -67,700 thousand USD in 2023, indicating sustained unrepatriated earnings abroad or changes in foreign tax considerations.

Share-based compensation

Share-based compensation remains relatively stable with minor fluctuations, showing a slight decline from 10,300 thousand USD in 2019 to 7,500 thousand USD in 2022, then rising to 9,700 thousand USD in 2023, suggesting relatively steady employee stock compensation expenses.

Pension

The pension liability decreased significantly from 26,300 thousand USD in 2019 to 5,800 thousand USD in 2023, indicating benefit payments or actuarial gains reducing pension obligations over time.

Convertible Debt

This liability appears only in 2023 at 108,100 thousand USD, suggesting new issuance of convertible debt or reclassification of existing debt in that year, adding to the company's long-term obligations.

Other

The "Other" category shows variability with no clear trend, moving from 8,000 thousand USD in 2019, peaking at 36,800 thousand USD in 2022 before falling to 6,500 thousand USD in 2023, possibly reflecting miscellaneous or non-recurring items.

Deferred tax assets and liabilities before valuation allowance

This aggregate value declined from 605,500 thousand USD in 2019 to a low of 495,000 thousand USD in 2022, but rebounded sharply to 712,400 thousand USD in 2023. The rebound may be linked to changes in tax positions or timing differences impacting recognition of deferred taxes.

Valuation allowance

The valuation allowance decreased from -357,900 thousand USD in 2019 to -150,300 thousand USD in 2023, suggesting enhanced confidence in the realization of deferred tax assets or a reduction in uncertain tax benefits.

Net deferred tax asset (liability)

The net deferred tax asset increased progressively, from 247,600 thousand USD in 2019 to 562,100 thousand USD in 2023, reflecting improved tax asset recoverability and possibly favorable changes in tax rates or company profitability enabling utilization of deferred tax assets.

Deferred Tax Assets

The deferred tax assets exhibit a generally upward trend over the five-year period observed. Starting at approximately 307.8 million USD in 2019, these assets increased significantly to 429.0 million USD in 2020. Subsequently, there was a decline in 2021 to 366.3 million USD, followed by a moderate increase in 2022 to 376.7 million USD. The largest increase is seen in 2023, with a sharp rise to 600.8 million USD, representing the highest value in the period. This substantial growth in 2023 may indicate expanded future deductible temporary differences or enhanced recognition of tax benefits.

Deferred Tax Liabilities

Deferred tax liabilities demonstrate a decreasing trend over the period from 2019 to 2023. Starting at 60.2 million USD in 2019, there is a gradual reduction to 57.3 million USD in 2020 and a further decline to 43.2 million USD in 2021. The decreasing pattern continues in 2022, reaching 34.1 million USD, the lowest point in the timeframe. In 2023, there is a slight increase to 38.7 million USD, though this is still significantly lower compared to the initial years. Overall, the reduction in deferred tax liabilities suggests either a settlement or reversal of taxable temporary differences or changes in tax regulations affecting liabilities.

Assets

The reported total assets of the company showed a steady increase over the five-year period, rising from approximately $8.43 billion at the end of 2019 to about $13.22 billion by the end of 2023. Similarly, the adjusted total assets followed a consistent upward trend, growing from around $8.12 billion in 2019 to roughly $12.61 billion in 2023. The adjusted figures are consistently lower than the reported figures but maintain a similar pattern of growth, indicating adjustments slightly reduce asset valuations without altering the overall growth trajectory.

Liabilities

Reported total liabilities remained relatively stable, fluctuating marginally between approximately $5.10 billion and $5.77 billion over the period. There was a slight peak in 2022 at $5.77 billion, followed by a decrease to about $5.41 billion in 2023. Adjusted total liabilities mirror the reported liabilities closely, with values slightly lower each year, showing a subtle dip in 2023 consistent with the reported data. Overall, liabilities exhibit limited volatility and do not demonstrate significant growth or reduction trends during this timeframe.

Stockholders’ Equity

Reported stockholders’ equity increased significantly, nearly doubling from $3.30 billion at the end of 2019 to $7.78 billion by the end of 2023. The adjusted equity figures also reflect strong growth, rising from approximately $3.05 billion in 2019 to $7.22 billion in 2023. This steady increase in equity indicates an accumulation of retained earnings and possibly other equity-related gains, contributing positively to the company’s financial stability and shareholder value. The difference between reported and adjusted equity narrows in later years but remains consistent, showing the impact of deferred income tax adjustments.

Net Income

Reported net income attributable to the company experienced notable volatility and significant growth over the examined years. Initially at $211.7 million in 2019, it slightly increased to $234.2 million in 2020 before surging to $1.01 billion in 2021, and further to $1.90 billion in 2022, reaching $2.18 billion in 2023. Adjusted net income data shows some fluctuations in the earlier years, with a decline from $224.7 million in 2019 to $119.7 million in 2020, before rising to $1.10 billion in 2021 and further climbing to $1.92 billion in 2022. In 2023, adjusted net income reduced slightly to $2.06 billion from its 2022 peak. The divergence in adjusted and reported net income in 2020 suggests significant tax-related adjustments or one-time effects that impacted the net income calculation. The overall trend points to strong profitability growth over the long term.

Profitability Margins

The reported net profit margin exhibited a steady and significant increase over the five-year period, rising from 3.84% in 2019 to 26.46% in 2023. Similarly, the adjusted net profit margin showed a more variable path but ultimately increased from 4.07% in 2019 to 24.99% in 2023, peaking in 2022 at 23.1%. This indicates an overall enhancement in profitability, with some fluctuations observed in adjusted metrics likely due to the effect of deferred income tax adjustments.

Total Asset Turnover

Both reported and adjusted total asset turnover ratios experienced marginal fluctuations throughout the period. The reported ratio started at 0.65 in 2019, dipped to 0.61 in 2020, rose to 0.7 in 2021 and 2022, and decreased again to 0.62 in 2023. Adjusted total asset turnover followed a similar pattern but consistently remained slightly higher than the reported figures, suggesting a modest improvement in the efficiency of asset utilization after adjusting for income tax effects.

Financial Leverage

A clear declining trend was evident in financial leverage ratios. The reported financial leverage dropped steadily from 2.55 in 2019 to 1.7 in 2023, while the adjusted financial leverage mirrored this downward movement, decreasing from 2.66 to 1.75 during the same period. This reduction indicates a conservative approach towards debt financing or a build-up of equity, implying reduced financial risk over time.

Return on Equity (ROE)

The reported ROE showed a substantial increase, moving from a low 6.41% in 2019 to a peak of 30.74% in 2022 before a slight decline to 28.06% in 2023. Adjusted ROE displayed more volatility but generally followed the same trend, starting at 7.36% in 2019, rising sharply to 32.9% in 2022, and then decreasing to 28.57% in 2023. These figures underscore a strong improvement in shareholder profitability, tempered by adjustments for deferred tax considerations.

Return on Assets (ROA)

The reported ROA increased significantly from 2.51% in 2019 to 16.52% in 2023, with steady growth each year. The adjusted ROA showed a more irregular pattern, starting at 2.77% in 2019, dropping notably to 1.45% in 2020, then rising to 11.88% in 2021 and reaching 16.35% by 2023. Overall, the upward trajectory indicates enhanced efficiency in asset utilization to generate profits, with adjustments reflecting the impact of deferred income tax.

Reported Net Income

The reported net income attributable to the corporation exhibited an overall upward trend from 2019 to 2023. Starting at approximately $211.7 million in 2019, the figure increased modestly to $234.2 million in 2020 before experiencing substantial growth in 2021, reaching about $1.01 billion. The growth accelerated in 2022, nearly doubling to $1.9 billion, and continued to rise to approximately $2.18 billion in 2023.

Adjusted Net Income

Adjusted net income displayed greater fluctuation within the same period. It started higher than reported income at $224.7 million in 2019 but fell sharply to $119.7 million in 2020. From 2021 onwards, it surged significantly to about $1.1 billion, closely tracking the reported net income growth in 2022 and 2023. The adjusted net income peaked at roughly $1.92 billion in 2022 and slightly decreased to $2.06 billion in 2023, still reflecting strong profitability.

Reported Net Profit Margin

The reported net profit margin exhibited strong improvement over the five-year span. It increased gradually from 3.84% in 2019 to 4.46% in 2020. From 2021, the margin expanded sharply, reaching 14.98%, followed by a notable rise to 22.85% in 2022 and further increasing to 26.46% in 2023. This upward trend indicates enhanced profitability relative to sales.

Adjusted Net Profit Margin

The adjusted net profit margin showed a more variable pathway. From 4.07% in 2019, it decreased significantly to 2.28% in 2020. However, it rebounded strongly beginning in 2021, climbing to 16.32%, then increasing further to 23.1% in 2022. In 2023, it experienced a slight reduction to 24.99%, though still maintaining a high profit margin level.

Overall Observations

The data reflects significant growth in both reported and adjusted net incomes and profit margins over the five-year period, especially from 2021 onwards. While adjusted figures showed more pronounced volatility earlier in the period, they converged toward reported figures in recent years, indicating consistent underlying profitability after tax adjustments. The rising net profit margins suggest improved operational efficiency and cost management contributing to enhanced earnings quality.

Asset Trends

There is a consistent upward trend in both reported and adjusted total assets from 2019 to 2023. Reported total assets increased from US$8,425,500 thousand in 2019 to US$13,215,200 thousand in 2023, representing significant growth over the five-year period. Adjusted total assets follow a similar pattern, rising from US$8,117,700 thousand in 2019 to US$12,614,400 thousand in 2023, though always remaining slightly below the reported figures.

Total Asset Turnover Trends

Both reported and adjusted total asset turnover demonstrate fluctuations during the period. Reported total asset turnover declined from 0.65 in 2019 to a low of 0.61 in 2020, improved to 0.70 in 2021 and remained stable in 2022, before decreasing again to 0.62 in 2023. Adjusted total asset turnover exhibits a similar pattern, starting at 0.68 in 2019, dropping to 0.64 in 2020, then increasing to 0.73 in 2021 and slightly decreasing to 0.72 in 2022, before falling to 0.65 in 2023.

Insights

The growth in total assets indicates ongoing expansion or investment in asset base. However, the fluctuations and recent declines in asset turnover ratios suggest varying efficiency in utilizing these assets to generate revenue. The turnover ratios peaked in 2021, pointing to a period of relatively higher asset utilization, but the subsequent declines in 2022 and 2023 may indicate declining operational efficiency or slower revenue growth relative to asset expansion. Adjusted data consistently show slightly higher turnover ratios than reported data, implying that adjustments for reported and deferred income tax have an impact on the measurement of asset efficiency.

The company's financial position exhibits a consistent upward trajectory in both its reported and adjusted total assets over the analyzed five-year period ending in 2023. Specifically, reported total assets increased from approximately US$8.43 billion in 2019 to roughly US$13.22 billion in 2023. Similarly, adjusted total assets showed a comparable growth pattern, rising from about US$8.12 billion to US$12.61 billion in the same period. This steady asset growth suggests expanding business scale and capital investment.

Concurrently, stockholders’ equity has also displayed significant growth. Reported total equity increased from approximately US$3.30 billion in 2019 to about US$7.78 billion in 2023. Adjusted equity figures similarly rose from roughly US$3.05 billion to US$7.22 billion. The growth in equity indicates an accumulation of retained earnings and possibly equity issuances, contributing to a stronger capital base and improved financial stability.

Financial leverage ratios, both reported and adjusted, show a clear declining trend throughout the period, signaling a gradual reduction in reliance on debt financing relative to equity. The reported financial leverage ratio decreased from 2.55 in 2019 to 1.7 in 2023, while the adjusted ratio fell from 2.66 to 1.75. The downward trend in leverage reflects a strengthening equity position relative to debt, which could imply lower financial risk and enhanced creditworthiness.

Assets

Both reported and adjusted total assets increased steadily, indicating expanding asset base and growth strategy execution.

Equity

Strong growth in reported and adjusted stockholders’ equity reflects improved financial health and capital accumulation.

Financial Leverage

The decline in financial leverage ratios suggests a strategic shift towards a more conservative capital structure with reduced debt dependency.

Net Income Trends

The reported net income attributable to the corporation displayed a general upward trend from 2019 through 2023, increasing from $211.7 million in 2019 to $2.18 billion in 2023. There was a noticeable acceleration in growth starting in 2021, where net income exceeded $1 billion and continued to rise significantly over the following two years. The adjusted net income figures followed a similar pattern, though the 2020 adjusted net income was considerably lower than the reported figure for the same year, indicating adjustments had a substantial downward effect that year. From 2021 onward, adjusted net income values closely tracked the reported numbers with moderate variances.

Stockholders’ Equity Evolution

Both reported and adjusted total stockholders’ equity showed consistent growth over the five-year period. Reported equity increased steadily from approximately $3.3 billion in 2019 to over $7.7 billion in 2023, reflecting a strong capital base expansion. Adjusted equity followed the same upward direction but began at a lower base and remained consistently below the reported equity values, suggesting certain deductions or adjustments lowered the equity figures. The growth rate accelerated notably after 2020, evidencing enhanced capital accumulation or retained earnings growth.

Return on Equity (ROE) Analysis

Reported ROE increased gradually from 6.41% in 2019 to a peak of 30.74% in 2022 before slightly declining to 28.06% in 2023. Adjusted ROE demonstrated more variability, starting lower than reported ROE in 2019 and 2020, with a significant dip to 3.78% in 2020 compared to reported 6.62%. From 2021 onward, adjusted ROE sharply increased, peaking at 32.9% in 2022 and then slightly decreasing to 28.57% in 2023. This pattern suggests effective operational and financial leverage improvements that translated into higher profitability on adjusted equity, particularly after 2020.

General Insights

The data indicates a substantial improvement in profitability and capital structure over the analyzed period, especially from 2021 onward. Adjustments applied to income and equity appear to have more pronounced effects in the earlier years, with the gap between reported and adjusted figures narrowing substantially by 2023. The high ROE levels in the latest years suggest efficient utilization of equity to generate profits. The trends collectively point to enhanced financial performance and potentially successful strategic initiatives implemented since 2020.

The data reveals a clear upward trajectory in both reported and adjusted net income attributable to the corporation over the five-year period. Starting from approximately 212 million USD in 2019, the reported net income rose steadily to over 2.18 billion USD by 2023, with a significant jump noted between 2020 and 2021. Adjusted net income exhibited a similar growth pattern, although it dipped sharply in 2020 before rebounding strongly in subsequent years. The year 2021 marks a pivotal point with a substantial increase in adjusted net income, which then stabilized somewhat through 2023.

Total assets, both reported and adjusted, also show a consistent expansion year over year. Reported total assets grew from about 8.43 billion USD in 2019 to 13.22 billion USD in 2023, indicating considerable asset base growth that may support the rising income levels. Adjusted total assets follow a similar trend, although slightly lower in magnitude, suggesting that adjustments reduce total assets moderately but do not affect the overall growth trajectory.

Return on Assets (ROA), a key measure of profitability relative to asset base, exhibits notable improvement across the timeframe examined. Reported ROA increased from 2.51% in 2019 to a peak of 16.52% in 2023, indicating increasing efficiency in asset utilization to generate profits. Adjusted ROA shows a slightly more volatile pattern, dropping to 1.45% in 2020, then climbing sharply to 16.35% by 2023. This volatility could reflect the impact of adjustments on profit and asset measures in specific years but ultimately corroborates a strong improvement in underlying profitability.

Net Income Trends

Reported net income grows steadily, with a major increase between 2020 and 2021. Adjusted net income shows more fluctuation but achieves comparable growth by 2023.

Total Assets Growth

Both reported and adjusted total assets increase consistently, indicating expansion of the company’s asset base that supports growing profitability.

Return on Assets (ROA)

ROA improves significantly over five years, reflecting enhanced profitability and asset efficiency. Adjusted ROA shows sharper volatility but converges close to reported ROA by the end of the period.

Overall Financial Health

The combined trends in net income, asset growth, and ROA suggest strengthening financial performance and operational efficiency over the period analyzed.