UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
| |
þ☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| |
For the quarterly period ended September 28, 2019
or
| For the quarterly period ended December 29, 2018 |
or | |
¨
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| |
| For the transition period from _____ to _____
|
For the transition period from _____to _____
Commission File Number 001-36801
Qorvo, Inc.
(Exact name of registrant as specified in its charter)
|
| | | |
Delaware | | 46-5288992 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.employer identification no.) |
| | |
7628 Thorndike Road Greensboro, North Carolina 27409-9421 |
(Address of principal executive offices) |
(Zip Code) |
| | |
(336) 664-1233Greensboro | North Carolina | | 27409-9421 |
(Address of principal executive office) | | (Registrant's telephone number, including areaZip code) |
(336) 664-1233
Registrant's telephone number, including area code
|
| | | | |
Securities registered pursuant to Section 12(b) of the Act: |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, $0.0001 par value | | QRVO | | The Nasdaq Stock Market LLC |
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 preceding 12 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 90 days. Yesþ 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). Yesþ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
| | | | |
Large accelerated filerþ | þ | | Accelerated filer¨ | ☐ |
Non-accelerated filer¨ | ☐ | | Smaller reporting company¨ | Emerging growth company ¨ ☐ |
|
| | Emerging growth company | ☐ |
If an 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 financial accounting 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 þ
As of January 30,October 23, 2019, there were 122,788,565116,174,131 shares of the registrant’s common stock outstanding.
QORVO, INC. AND SUBSIDIARIES
INDEX
PART I — FINANCIAL INFORMATION
ITEM 1.
QORVO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
| | | December 29, 2018 | | March 31, 2018 | September 28, 2019 | | March 30, 2019 |
ASSETS | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | $ | 649,711 |
| | $ | 926,037 |
| $ | 586,794 |
| | $ | 711,035 |
|
Accounts receivable, less allowance of $159 and $134 as of December 29, 2018 and March 31, 2018, respectively | 420,903 |
| | 345,957 |
| |
Accounts receivable, less allowance of $43 and $40 as of September 28, 2019 and March 30, 2019, respectively | | 405,108 |
| | 378,172 |
|
Inventories (Note 3) | 464,949 |
| | 472,292 |
| 485,284 |
| | 511,793 |
|
Prepaid expenses | 23,961 |
| | 23,909 |
| 27,286 |
| | 25,766 |
|
Other receivables | 21,899 |
| | 44,795 |
| 14,137 |
| | 21,934 |
|
Other current assets | 34,113 |
| | 30,815 |
| 33,205 |
| | 36,141 |
|
Total current assets | 1,615,536 |
| | 1,843,805 |
| 1,551,814 |
| | 1,684,841 |
|
Property and equipment, net of accumulated depreciation of $1,159,495 at December 29, 2018 and $911,910 at March 31, 2018 | 1,397,589 |
| | 1,374,112 |
| |
Goodwill | 2,173,889 |
| | 2,173,889 |
| |
Intangible assets, net of accumulated amortization of $2,110,694 at December 29, 2018 and $1,711,520 at March 31, 2018 (Note 4) | 463,359 |
| | 860,336 |
| |
Property and equipment, net of accumulated depreciation of $1,322,103 at September 28, 2019 and $1,218,507 at March 30, 2019 | | 1,296,103 |
| | 1,366,513 |
|
Goodwill (Note 4) | | 2,305,136 |
| | 2,173,889 |
|
Intangible assets, net (Note 4) | | 451,788 |
| | 408,210 |
|
Long-term investments (Note 5) | 90,696 |
| | 63,765 |
| 97,549 |
| | 97,786 |
|
Other non-current assets | 65,222 |
| | 65,612 |
| |
Other non-current assets (Note 6) | | 146,181 |
| | 76,785 |
|
Total assets | $ | 5,806,291 |
| | $ | 6,381,519 |
| $ | 5,848,571 |
| | $ | 5,808,024 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | |
Current liabilities: | | | | | | |
Accounts payable | $ | 229,266 |
| | $ | 213,193 |
| $ | 213,936 |
| | $ | 233,307 |
|
Accrued liabilities | 137,573 |
| | 167,182 |
| 172,345 |
| | 160,516 |
|
Other current liabilities | 47,093 |
| | 60,904 |
| |
Current portion of long-term debt (Note 7) | | 4,233 |
| | 80 |
|
Other current liabilities (Note 6) | | 59,115 |
| | 41,711 |
|
Total current liabilities | 413,932 |
| | 441,279 |
| 449,629 |
| | 435,614 |
|
Long-term debt (Note 6 ) | 714,402 |
| | 983,290 |
| |
Deferred tax liabilities (Note 11) | 6,978 |
| | 63,084 |
| |
Other long-term liabilities | 93,659 |
| | 118,302 |
| |
Long-term debt (Note 7) | | 1,016,063 |
| | 920,935 |
|
Other long-term liabilities (Note 6) | | 117,385 |
| | 91,796 |
|
Total liabilities | 1,228,971 |
| | 1,605,955 |
| 1,583,077 |
| | 1,448,345 |
|
Stockholders’ equity: | | | | | | |
Preferred stock, $.0001 par value; 5,000 shares authorized; no shares issued and outstanding | — |
| | — |
| — |
| | — |
|
Common stock and additional paid-in capital, $.0001 par value; 405,000 shares authorized; 123,001 and 126,322 shares issued and outstanding at December 29, 2018 and March 31, 2018, respectively | 4,966,059 |
| | 5,237,085 |
| |
Common stock and additional paid-in capital, $.0001 par value; 405,000 shares authorized; 116,294 and 119,063 shares issued and outstanding at September 28, 2019 and March 30, 2019, respectively | | 4,471,656 |
| | 4,687,455 |
|
Accumulated other comprehensive loss, net of tax | (6,070 | ) | | (2,752 | ) | (7,658 | ) | | (6,624 | ) |
Accumulated deficit | (382,669 | ) | | (458,769 | ) | (198,504 | ) | | (321,152 | ) |
Total stockholders’ equity | 4,577,320 |
| | 4,775,564 |
| 4,265,494 |
| | 4,359,679 |
|
Total liabilities and stockholders’ equity | $ | 5,806,291 |
| | $ | 6,381,519 |
| $ | 5,848,571 |
| | $ | 5,808,024 |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
QORVO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSINCOME
(In thousands, except per share data)
(Unaudited)
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Six Months Ended |
| December 29, 2018 | | December 30, 2017 | | December 29, 2018 | | December 30, 2017 | September 28, 2019 | | September 29, 2018 | | September 28, 2019 | | September 29, 2018 |
Revenue | $ | 832,330 |
| | $ | 845,739 |
| | $ | 2,409,443 |
| | $ | 2,308,153 |
| $ | 806,698 |
| | $ | 884,443 |
| | $ | 1,582,296 |
| | $ | 1,577,113 |
|
Cost of goods sold | 493,967 |
| | 508,812 |
| | 1,480,833 |
| | 1,413,827 |
| 483,116 |
| | 530,929 |
| | 964,425 |
| | 986,866 |
|
Gross profit | 338,363 |
| | 336,927 |
| | 928,610 |
| | 894,326 |
| 323,582 |
| | 353,514 |
| | 617,871 |
| | 590,247 |
|
Operating expenses: | | | | | | | | | | | | | | |
Research and development | 109,985 |
| | 106,411 |
| | 337,636 |
| | 334,308 |
| 115,614 |
| | 116,748 |
| | 234,534 |
| | 227,651 |
|
Selling, general and administrative | 125,604 |
| | 126,555 |
| | 401,041 |
| | 404,853 |
| 88,274 |
| | 139,507 |
| | 177,253 |
| | 275,437 |
|
Other operating expense (Note 9) | 21,617 |
| | 23,641 |
| | 37,514 |
| | 53,110 |
| |
Other operating expense (Notes 4 and 10) | | 6,927 |
| | 6,782 |
| | 38,091 |
| | 15,897 |
|
Total operating expenses | 257,206 |
| | 256,607 |
| | 776,191 |
| | 792,271 |
| 210,815 |
| | 263,037 |
| | 449,878 |
| | 518,985 |
|
Income from operations | 81,157 |
| | 80,320 |
| | 152,419 |
| | 102,055 |
| 112,767 |
| | 90,477 |
| | 167,993 |
| | 71,262 |
|
Interest expense (Note 6) | (9,562 | ) | | (16,338 | ) | | (33,604 | ) | | (43,387 | ) | |
Interest expense (Note 7) | | (12,693 | ) | | (9,689 | ) | | (24,557 | ) | | (24,042 | ) |
Interest income | 2,814 |
| | 2,215 |
| | 7,788 |
| | 4,039 |
| 2,292 |
| | 1,580 |
| | 5,238 |
| | 4,974 |
|
Other expense (Note 6) | (3,520 | ) | | (757 | ) | | (85,007 | ) | | (1,883 | ) | |
Other expense (Note 7) | | (300 | ) | | (49,532 | ) | | (1,411 | ) | | (81,487 | ) |
| | | | | | | | | | | | | | |
Income before income taxes | 70,889 |
| | 65,440 |
| | 41,596 |
| | 60,824 |
| |
Income (loss) before income taxes | | 102,066 |
| | 32,836 |
| | 147,263 |
| | (29,293 | ) |
| | | | | | | | | | | | | | |
Income tax (expense) benefit (Note 11) | (1,372 | ) | | (98,522 | ) | | 30,012 |
| | (88,611 | ) | |
Net income (loss) | $ | 69,517 |
| | $ | (33,082 | ) | | $ | 71,608 |
| | $ | (27,787 | ) | |
Income tax (expense) benefit (Note 12) | | (19,028 | ) | | (752 | ) | | (24,684 | ) | | 31,384 |
|
Net income | | $ | 83,038 |
| | $ | 32,084 |
| | $ | 122,579 |
| | $ | 2,091 |
|
| | | | | | | | | | | | | | |
Net income (loss) per share (Note 12): | | | | | | | | |
Net income per share (Note 13): | | | | | | | | |
Basic | $ | 0.56 |
| | $ | (0.26 | ) | | $ | 0.57 |
| | $ | (0.22 | ) | $ | 0.71 |
| | $ | 0.26 |
| | $ | 1.04 |
| | $ | 0.02 |
|
Diluted | $ | 0.55 |
| | $ | (0.26 | ) | | $ | 0.56 |
| | $ | (0.22 | ) | $ | 0.70 |
| | $ | 0.25 |
| | $ | 1.02 |
| | $ | 0.02 |
|
| | | | | | | | | | | | | | |
Weighted average shares of common stock outstanding (Note 12): | | | | | | | | |
Weighted average shares of common stock outstanding (Note 13): | | | | | | | | |
Basic | 124,308 |
| | 127,034 |
| | 125,437 |
| | 127,084 |
| 117,294 |
| | 125,643 |
| | 117,945 |
| | 125,859 |
|
Diluted | 126,842 |
| | 127,034 |
| | 128,360 |
| | 127,084 |
| 119,429 |
| | 128,550 |
| | 120,196 |
| | 128,977 |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
QORVO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| December 29, 2018 | | December 30, 2017 | | December 29, 2018 | | December 30, 2017 |
Net income (loss) | $ | 69,517 |
| | $ | (33,082 | ) | | $ | 71,608 |
| | $ | (27,787 | ) |
Other comprehensive (loss) income: | | | | | | | |
Unrealized (loss) gain on marketable securities, net of tax | (5 | ) | | 57 |
| | 85 |
| | 156 |
|
Foreign currency translation adjustment, including intra-entity foreign currency transactions that are of a long-term investment nature | (1,079 | ) | | 795 |
| | (3,448 | ) | | 1,517 |
|
Reclassification adjustments, net of tax: | | | | | | | |
Foreign currency gain included in net income (loss) | — |
| | — |
| | — |
| | (581 | ) |
Amortization of pension actuarial loss | 22 |
| | 45 |
| | 45 |
| | 132 |
|
Other comprehensive (loss) income | (1,062 | ) | | 897 |
| | (3,318 | ) | | 1,224 |
|
Total comprehensive income (loss) | $ | 68,455 |
| | $ | (32,185 | ) | | $ | 68,290 |
| | $ | (26,563 | ) |
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| September 28, 2019 | | September 29, 2018 | | September 28, 2019 | | September 29, 2018 |
Net income | $ | 83,038 |
| | $ | 32,084 |
| | $ | 122,579 |
| | $ | 2,091 |
|
Other comprehensive loss: | | | | | | | |
Unrealized gain on marketable securities, net of tax | — |
| | 85 |
| | — |
| | 90 |
|
Foreign currency translation adjustment, including intra-entity foreign currency transactions that are of a long-term investment nature | (1,242 | ) | | (181 | ) | | (1,455 | ) | | (2,394 | ) |
Reclassification adjustments, net of tax: | | | | | | | |
Foreign currency loss included in net income | 231 |
| | — |
| | 353 |
| | — |
|
Amortization of pension actuarial loss | 34 |
| | 24 |
| | 68 |
| | 48 |
|
Other comprehensive loss | (977 | ) | | (72 | ) | | (1,034 | ) | | (2,256 | ) |
Total comprehensive income (loss) | $ | 82,061 |
| | $ | 32,012 |
| | $ | 121,545 |
| | $ | (165 | ) |
See accompanying Notes to Condensed Consolidated Financial Statements.
QORVO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | |
| | | | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | |
| Common Stock | | | | |
Three Months Ended | Shares | | Amount | | | | Total |
Balance, June 29, 2019 | 117,943 |
| | $ | 4,625,566 |
| | $ | (6,681 | ) | | $ | (281,542 | ) | | $ | 4,337,343 |
|
Net income | — |
| | — |
| | — |
| | 83,038 |
| | 83,038 |
|
Other comprehensive loss | — |
| | — |
| | (977 | ) | | — |
| | (977 | ) |
Exercise of stock options and vesting of restricted stock units, net of shares withheld for employee taxes | 652 |
| | (12,033 | ) | | — |
| | — |
| | (12,033 | ) |
Repurchase of common stock, including transaction costs | (2,301 | ) | | (165,032 | ) | | — |
| | — |
| | (165,032 | ) |
Stock-based compensation | — |
| | 23,155 |
| | — |
| | — |
| | 23,155 |
|
Balance, September 28, 2019 | 116,294 |
| | $ | 4,471,656 |
| | $ | (7,658 | ) | | $ | (198,504 | ) | | $ | 4,265,494 |
|
| | | | | | | | | |
Balance, June 30, 2018 | 125,598 |
| | $ | 5,167,311 |
| | $ | (4,936 | ) | | $ | (484,270 | ) | | $ | 4,678,105 |
|
Net income | — |
| | — |
| | — |
| | 32,084 |
| | 32,084 |
|
Other comprehensive loss | — |
| | — |
| | (72 | ) | | — |
| | (72 | ) |
Exercise of stock options and vesting of restricted stock units, net of shares withheld for employee taxes | 552 |
| | (15,284 | ) | | — |
| | — |
| | (15,284 | ) |
Repurchase of common stock, including transaction costs | (1,104 | ) | | (86,678 | ) | | — |
| | — |
| | (86,678 | ) |
Stock-based compensation | — |
| | 23,982 |
| | — |
| | — |
| | 23,982 |
|
Balance, September 29, 2018 | 125,046 |
| | $ | 5,089,331 |
| | $ | (5,008 | ) | | $ | (452,186 | ) | | $ | 4,632,137 |
|
QORVO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | |
| | | | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | |
| Common Stock | | | | |
Six Months Ended | Shares | | Amount | | | | Total |
Balance, March 30, 2019 | 119,063 |
| | $ | 4,687,455 |
| | $ | (6,624 | ) | | $ | (321,152 | ) | | $ | 4,359,679 |
|
Net income | — |
| | — |
| | — |
| | 122,579 |
| | 122,579 |
|
Other comprehensive loss | — |
| | — |
| | (1,034 | ) | | — |
| | (1,034 | ) |
Exercise of stock options and vesting of restricted stock units, net of shares withheld for employee taxes | 837 |
| | (15,609 | ) | | — |
| | — |
| | (15,609 | ) |
Issuance of common stock in connection with employee stock purchase plan | 239 |
| | 14,948 |
| | — |
| | — |
| | 14,948 |
|
Cumulative-effect adoption of ASU 2016-02 | — |
| | — |
| | — |
| | 69 |
| | 69 |
|
Repurchase of common stock, including transaction costs | (3,845 | ) | | (265,105 | ) | | — |
| | — |
| | (265,105 | ) |
Stock-based compensation | — |
| | 49,967 |
| | — |
| | — |
| | 49,967 |
|
Balance, September 28, 2019 | 116,294 |
| | $ | 4,471,656 |
| | $ | (7,658 | ) | | $ | (198,504 | ) | | $ | 4,265,494 |
|
| | | | | | | | | |
Balance, March 31, 2018 | 126,322 |
| | $ | 5,237,085 |
| | $ | (2,752 | ) | | $ | (458,769 | ) | | $ | 4,775,564 |
|
Net income | — |
| | — |
| | — |
| | 2,091 |
| | 2,091 |
|
Other comprehensive loss | — |
| | — |
| | (2,256 | ) | | — |
| | (2,256 | ) |
Exercise of stock options and vesting of restricted stock units, net of shares withheld for employee taxes | 818 |
| | (19,859 | ) | | — |
| | — |
| | (19,859 | ) |
Issuance of common stock in connection with employee stock purchase plan | 249 |
| | 14,282 |
| | — |
| | — |
| | 14,282 |
|
Cumulative-effect adoption of ASU 2014-09
| — |
| | — |
| | — |
| | 4,492 |
| | 4,492 |
|
Repurchase of common stock, including transaction costs | (2,343 | ) | | (186,682 | ) | | — |
| | — |
| | (186,682 | ) |
Stock-based compensation | — |
| | 44,505 |
| | — |
| | — |
| | 44,505 |
|
Balance, September 29, 2018 | 125,046 |
| | $ | 5,089,331 |
| | $ | (5,008 | ) | | $ | (452,186 | ) | | $ | 4,632,137 |
|
QORVO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
| | | | | | | |
| Six Months Ended |
| September 28, 2019 | | September 29, 2018 |
Cash flows from operating activities: | | | |
Net income | $ | 122,579 |
| | $ | 2,091 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation | 118,622 |
| | 90,214 |
|
Intangible assets amortization (Note 4) | 114,837 |
| | 266,708 |
|
Loss on debt extinguishment (Note 7) | — |
| | 82,152 |
|
Deferred income taxes | (9,517 | ) | | (42,962 | ) |
Stock-based compensation expense | 45,829 |
| | 40,250 |
|
Other, net | 5,153 |
| | (1,714 | ) |
Changes in operating assets and liabilities: | | | |
Accounts receivable, net | (20,990 | ) | | (145,874 | ) |
Inventories | 41,874 |
| | 556 |
|
Prepaid expenses and other current and non-current assets | 8,380 |
| | 1,589 |
|
Accounts payable and accrued liabilities | (4,201 | ) | | 23,980 |
|
Income tax payable and receivable | 5,072 |
| | (20,965 | ) |
Other liabilities | 2,892 |
| | (6,229 | ) |
Net cash provided by operating activities | 430,530 |
| | 289,796 |
|
Investing activities: | | | |
Purchase of property and equipment | (88,338 | ) | | (113,666 | ) |
Purchase of available-for-sale debt securities | — |
| | (132,729 | ) |
Purchase of a business, net of cash acquired (Note 4) | (299,673 | ) | | — |
|
Proceeds from sales and maturities of available-for-sale debt securities | 1,950 |
| | 133,132 |
|
Other investing activities | (1,242 | ) | | (19,492 | ) |
Net cash used in investing activities | (387,303 | ) | | (132,755 | ) |
Financing activities: | | | |
Repurchase of debt (Note 7) | — |
| | (954,745 | ) |
Proceeds from borrowings (Note 7) | 100,000 |
| | — |
|
Proceeds from debt issuances (Note 7) | — |
| | 631,300 |
|
Repurchase of common stock, including transaction costs (Note 8) | (265,105 | ) | | (186,682 | ) |
Proceeds from the issuance of common stock | 20,205 |
| | 18,406 |
|
Tax withholding paid on behalf of employees for restricted stock units | (20,545 | ) | | (24,181 | ) |
Other financing activities | (832 | ) | | (7,057 | ) |
Net cash used in financing activities | (166,277 | ) | | (522,959 | ) |
| | | |
Effect of exchange rate changes on cash | (1,091 | ) | | (2,216 | ) |
Net decrease in cash, cash equivalents and restricted cash | (124,141 | ) | | (368,134 | ) |
Cash, cash equivalents and restricted cash at the beginning of the period | 711,382 |
| | 926,402 |
|
Cash, cash equivalents and restricted cash at the end of the period | $ | 587,241 |
| | $ | 558,268 |
|
Non-cash investing information: | | | |
Capital expenditure adjustments included in accounts payable and accrued liabilities | $ | 30,052 |
| | $ | 44,634 |
|
| | | |
Reconciliation of cash, cash equivalents and restricted cash | | | |
Cash and cash equivalents | $ | 586,794 |
| | $ | 557,924 |
|
Restricted cash included in "Other non-current assets" | 447 |
| | 344 |
|
Total cash, cash equivalents and restricted cash | 587,241 |
| | 558,268 |
|
|
| | | | | | | |
| Nine Months Ended |
| December 29, 2018 | | December 30, 2017 |
Cash flows from operating activities: | | | |
Net income (loss) | $ | 71,608 |
| | $ | (27,787 | ) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
Depreciation | 143,008 |
| | 132,879 |
|
Intangible assets amortization (Note 4) | 399,200 |
| | 406,375 |
|
Loss on debt extinguishment (Note 6) | 84,004 |
| | — |
|
Deferred income taxes | (58,216 | ) | | (36,657 | ) |
Foreign currency adjustments | (1,603 | ) | | 3,244 |
|
Asset impairment (Note 9) | 14,913 |
| | — |
|
Stock-based compensation expense | 58,874 |
| | 58,299 |
|
Other, net | 5,094 |
| | 12,276 |
|
Changes in operating assets and liabilities: | | | |
Accounts receivable, net | (74,844 | ) | | (91,051 | ) |
Inventories | 7,474 |
| | 6,974 |
|
Prepaid expenses and other current and non-current assets | 14,914 |
| | 26,130 |
|
Accounts payable and accrued liabilities | (9,810 | ) | | (338 | ) |
Income tax payable and receivable | (26,574 | ) | | 94,566 |
|
Other liabilities | (5,023 | ) | | 8,652 |
|
Net cash provided by operating activities | 623,019 |
| | 593,562 |
|
Investing activities: | | | |
Purchase of property and equipment | (185,627 | ) | | (237,658 | ) |
Purchase of debt securities | (132,729 | ) | | — |
|
Proceeds from sales and maturities of debt securities | 133,132 |
| | — |
|
Other investing activities | (20,238 | ) | | (8,713 | ) |
Net cash used in investing activities | (205,462 | ) | | (246,371 | ) |
Financing activities: | | | |
Payment of debt (Note 6) | (977,498 | ) | | — |
|
Proceeds from debt issuances (Note 6) | 631,300 |
| | 100,000 |
|
Repurchase of common stock, including transaction costs (Note 7) | (338,675 | ) | | (168,935 | ) |
Proceeds from the issuance of common stock | 25,452 |
| | 42,121 |
|
Tax withholding paid on behalf of employees for restricted stock units | (24,595 | ) | | (24,343 | ) |
Other financing activities | (7,510 | ) | | (1,903 | ) |
Net cash used in financing activities | (691,526 | ) | | (53,060 | ) |
| | | |
Effect of exchange rate changes on cash | (2,369 | ) | | 1,771 |
|
Net (decrease) increase in cash, cash equivalents and restricted cash | (276,338 | ) | | 295,902 |
|
Cash, cash equivalents and restricted cash at the beginning of the period | 926,402 |
| | 545,779 |
|
Cash, cash equivalents and restricted cash at the end of the period | $ | 650,064 |
| | $ | 841,681 |
|
Non-cash investing information: | | | |
Capital expenditure adjustments included in accounts payable and accrued liabilities | $ | 37,206 |
| | $ | 26,743 |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying Condensed Consolidated Financial Statements of Qorvo, Inc. and Subsidiaries (together, the "Company" or "Qorvo") have been prepared in conformity with accounting principles generally accepted in the United States ("U.S. GAAP"). The preparation of these financial statements requires management to make estimates and assumptions, which could differ materially from actual results. In addition, certain information or footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed, or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, the financial statements include all adjustments (which are of a normal and recurring nature) necessary for the fair presentation of the results of the interim periods presented. These Condensed Consolidated Financial Statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in Qorvo’s Annual Report on Form 10-K for the fiscal year ended March 31, 201830, 2019.
The Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain items in the fiscal 20182019 financial statements have been reclassified to conform with the fiscal 20192020 presentation.
The Company uses a 52- or 53-week fiscal year ending on the Saturday closest to March 31 of each year. The first fiscal quarter of each year ends on the Saturday closest to June 30, the second fiscal quarter of each year ends on the Saturday closest to September 30 and the third fiscal quarter of each year ends on the Saturday closest to December 31. Fiscal years 20192020 and 20182019 are 52-week years.
2.2. RECENT ACCOUNTING PRONOUNCEMENTS
The Company assesses recently issued accounting standards by the Financial Accounting Standards Board ("FASB") to determine the expected impacts on the Company's financial statements. The summary below describes impacts from newly issued standards as well as material updates to our previous assessments, if any, from Qorvo’s Annual Report on Form 10-K for the fiscal year ended March 31, 2018.30, 2019.
In August 2018,February 2016, the FASB issued Accounting Standards Update ("ASU") 2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract." The new guidance clarifies the accounting for implementation costs in cloud computing arrangements. The Company intends to adopt the guidance, prospectively, in the fourth quarter of fiscal 2019 and does not expect any significant impact to the Company's Condensed Consolidated Financial Statements.
In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business." The new guidance clarifies the definition of a business and provides further guidance for evaluating whether a transaction will be accounted for as an acquisition of an asset or a business. The new standard became effective for the Company in the first quarter of fiscal 2019. There was no impact to the Company's Condensed Consolidated Financial Statements.
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the FASB’s Emerging Issues Task Force)." The new guidance addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The new standard became effective for the Company in the first quarter of fiscal 2019. The Company's historical policies were consistent with the new standard, and therefore, there was no impact to the Company's Condensed Consolidated Financial Statements.
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842).," with multiple amendments subsequently issued. The new guidance requires lessees to recognizethat lease arrangements be presented on the lessee's balance sheet by recording a right-of-use asset and a lease liability for all leases with a term longer than 12 months, including those previously described as operating leases. Also, in July 2018,equal to the FASB issued 2018-11, "Leases (Topic 842): Targeted Improvements," to provide clarification on specific topics, including adoption guidance and practical expedients.present value of the related future minimum lease payments. The Company plans to adoptadopted the new guidance utilizingstandard in the first quarter of fiscal 2020, using the modified retrospective method and willapproach which permits lessees to recognize any cumulative effecta cumulative-effect adjustment in retained earnings atto the beginningopening balance of accumulated deficit in the period of adoption. Upon adoption, the Company recorded a right-of-use asset of $70.7 million and a lease liability of $75.0 million. The difference between the right-of-use asset and lease liability is primarily attributed to a deferred rent liability which existed under Accounting Standards Codification ("ASC") 840, "Leases."
The Company also plans to electelected the transition package of three practical expedients, that permitsunder which the Company does not have to maintain its historical conclusions about lease identification,reassess (1) whether any expired or existing contracts are leases, or contain leases, (2) the lease classification for any expired or existing leases, and (3) initial direct costs for any existing leases. Further, the Company elected the practical expedient not to separate lease and non-lease components for substantially all of its classes of leases and to account for the combined lease and non-lease components as a single lease component. In addition, the Company made an accounting policy election to exclude leases with an initial term of 12 months or less from the balance sheet.
The adoption of this standard resulted in a cumulative-effect adjustment to accumulated deficit of less than $0.1 million. This standard did not have a material impact on the Condensed Consolidated Statement of Income or Condensed Consolidated Statement of Cash Flows. See Note 6 for further disclosures resulting from the adoption of this new standard.
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
for leases that exist at the date of adoption. Currently, the Company is assessing the other available practical expedients for potential adoption. The guidance will become effective for the Company in the first quarter of fiscal 2020. The Company expects the valuation of the right-of-use assets and lease liabilities, for leases previously described as operating leases, to be the present value of its forecasted future lease commitments, as determined by the standard. The Company is continuing to assess the overall impacts of the new standard, including the discount rate to be applied in these valuations.
In January 2016, the FASB issued ASU 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities." The new guidance affects the accounting for equity investments, financial liabilities measured under the fair value option and presentation and disclosure requirements for financial instruments. In addition, the FASB clarified guidance related to the assessment of valuation allowances when recognizing deferred tax assets related to unrealized losses on available-for-sale debt securities. The new standard was adopted by the Company in the first quarter of fiscal 2019 and there was no material impact to the Company's Condensed Consolidated Financial Statements.
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," with several amendments subsequently issued. The new guidance provides an updated framework for revenue recognition, resulting in a single revenue model to be applied by reporting companies under U.S. GAAP. Under the new model, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company adopted the standard in the first quarter of fiscal 2019 using the modified retrospective approach, under which the cumulative effect of adoption is recognized at the date of initial application. This standard did not have a material impact on the Company's Condensed Consolidated Financial Statements. The Company has implemented changes to its accounting policies, internal controls and disclosures to support the new standard; however, these changes were not material. See Note 8 for further disclosures resulting from the adoption of this new standard.
3.3. INVENTORIES
The components of inventories, net of reserves, are as follows (in thousands):
|
| | | | | | | |
| September 28, 2019 | | March 30, 2019 |
Raw materials | $ | 106,500 |
| | $ | 118,608 |
|
Work in process | 259,031 |
| | 272,469 |
|
Finished goods | 119,753 |
| | 120,716 |
|
Total inventories | $ | 485,284 |
| | $ | 511,793 |
|
|
| | | | | | | |
| December 29, 2018 | | March 31, 2018 |
Raw materials | $ | 113,660 |
| | $ | 110,389 |
|
Work in process | 222,499 |
| | 221,137 |
|
Finished goods | 128,790 |
| | 140,766 |
|
Total inventories | $ | 464,949 |
| | $ | 472,292 |
|
4. INTANGIBLE ASSETS4. BUSINESS ACQUISITION
Total
On May 6, 2019, the Company completed its acquisition of Active-Semi International, Inc. ("Active-Semi"), a private fabless supplier of programmable analog power solutions. The acquisition expanded the Company's product offerings for existing customers and new customers in power management markets. The purchase price of $309.5 million was allocated to Active-Semi's net tangible assets (approximately $19.8 million) and intangible assets decreased to $463.4 million(approximately $158.4 million) based on their estimated fair values as of December 29, 2018, comparedMay 6, 2019. The excess of the purchase price over the value of the net tangible assets and intangible assets resulted in goodwill of approximately $131.2 million. The more significant intangible assets acquired included developed technology of $76.7 million (being amortized over 5 to $860.39 years), customer relationships of $40.9 million (being amortized over 5 years) and in-process research and development ("IPRD") of $40.6 million. During the six months ended September 28, 2019, $31.0 million of IPRD assets were completed, transferred to finite-lived intangible assets, and are being amortized over their useful lives of 5 to 7 years. The IPRD remaining as of March 31, 2018. This decrease was primarily dueSeptember 28, 2019 is expected to amortizationbe completed during fiscal 2021 with remaining costs to complete of less than $2.0 million.
The Company will continue to evaluate certain assets, liabilities and tax estimates that are subject to change within the measurement period (up to one year from the acquisition date).
The Company recorded postcombination compensation expense foras well as other acquisition and integration related costs during the three and ninesix months ended December 29, 2018September 28, 2019 of $132.5$1.7 million and $399.2$23.0 million, respectively, primarilyin "Other operating expense" in the Condensed Consolidated Statements of Income. In addition, the Company recorded acquisition and integration related to developed technologycosts during the three and customer relationships (which had net book valuessix months ended September 28, 2019 of $324.2$3.5 million and $127.3$4.2 million, respectively, in "Cost of goods sold" in the Condensed Consolidated Statements of Income.
The change in the carrying amount of goodwill for the six months ended September 28, 2019, is as of December 29, 2018).
5. INVESTMENTS AND FAIR VALUE MEASUREMENTS
Debt Securities
The following is a summary of available-for-sale debt securities as of December 29, 2018 and March 31, 2018follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
December 29, 2018 | | | | | | | |
Auction rate securities | $ | 1,950 |
| | $ | — |
| | $ | — |
| | $ | 1,950 |
|
March 31, 2018 | | | | | | | |
Auction rate securities | $ | 1,950 |
| | $ | — |
| | $ | (107 | ) | | $ | 1,843 |
|
|
| | | | | | | | | | | |
| Mobile Products | | Infrastructure and Defense Products | | Total |
Balance as of March 30, 2019 | $ | 1,751,503 |
| | $ | 422,386 |
| | $ | 2,173,889 |
|
Goodwill resulting from Active-Semi acquisition | — |
| | 131,247 |
| | 131,247 |
|
Balance as of September 28, 2019 | $ | 1,751,503 |
| | $ | 553,633 |
| | $ | 2,305,136 |
|
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The estimated fair valuefollowing summarizes information regarding the gross carrying amounts and accumulated amortization of available-for-sale debt securities was based on the prevailing market values on December 29, 2018 and March 31, 2018. The Company determines the cost of an investment sold based on the specific identification method.
The expected maturity distribution of available-for-sale debt securities is as followsintangible assets (in thousands):
|
| | | | | | | | | | | | | | | |
| December 29, 2018 | | March 31, 2018 |
| Cost | | Estimated Fair Value | | Cost | | Estimated Fair Value |
Due in less than one year | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Due after ten years | 1,950 |
| | 1,950 |
| | 1,950 |
| | 1,843 |
|
Total | $ | 1,950 |
| | $ | 1,950 |
| | $ | 1,950 |
| | $ | 1,843 |
|
|
| | | | | | | | | | | | | | | |
| September 28, 2019 | | March 30, 2019 |
| Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
Intangible assets: | | | | | | | |
Developed technology | $ | 871,872 |
| | $ | 557,626 |
| | $ | 1,246,335 |
| | $ | 960,793 |
|
Customer relationships | 426,522 |
| | 309,864 |
| | 1,272,725 |
| | 1,161,735 |
|
Trade names | 200 |
| | 167 |
| | 29,391 |
| | 29,391 |
|
Technology licenses | 3,205 |
| | 1,954 |
| | 14,704 |
| | 13,026 |
|
Non-compete agreement | — |
| | — |
| | 1,026 |
| | 1,026 |
|
IPRD | 19,600 |
| | N/A |
| | 10,000 |
| | N/A |
|
Total | $ | 1,321,399 |
| | $ | 869,611 |
| | $ | 2,574,181 |
| | $ | 2,165,971 |
|
Equity Investment Without a Readily Determinable Fair Value
AsIn the first quarter of December 29, 2018,each fiscal year, the Company has invested $60.0removes the fully amortized balances from the gross asset and accumulated amortization amounts of those intangible assets that were fully amortized as of the prior fiscal year end.
Total intangible assets amortization expense was $56.4 million to acquire preferred shares of a private limited company. This investment was determined to be an equity investment without a readily determinable fair value and is accounted$114.8 million, respectively, for using the measurement alternative in accordance with ASU 2016-01. As of Decemberthree and six months ended September 28, 2019, and $133.4 million and $266.7 million, respectively, for the three and six months ended September 29, 2018, there was no impairment or observable price change for this investment. This investment is classified in "Long-term investments" in the Condensed Consolidated Balance Sheets.2018.
Fair Value of Financial Instruments
Marketable securities are measured at fair value and recorded in "Cash and cash equivalents," "Other current assets" and "Long-term investments" in the Condensed Consolidated Balance Sheets, and the related unrealized gains and losses are included in "Accumulated other comprehensive loss," a component of stockholders’ equity, net of tax (debt securities) and "Other income (expense)" on the Condensed Consolidated Statements of Operations (equity securities).
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
5. INVESTMENTS AND FAIR VALUE MEASUREMENTS
Recurring Fair Value Measurements
The fair value of the financial assets measured at fair value on a recurring basis was determined using the following levels of inputs as of December 29, 2018September 28, 2019 and March 31, 201830, 2019 (in thousands):
|
| | | | | | | | | | | | | | | |
| | | | | Total | | Quoted Prices In Active Markets For Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) |
December 29, 2018 | | | | | |
| Assets | | | | | |
| | Auction rate securities (1) | 1,950 |
| | — |
| | 1,950 |
|
| | Marketable equity securities | 3,207 |
| | 3,207 |
| | — |
|
| | Invested funds in deferred compensation plan (2) | 16,176 |
| | 16,176 |
| | — |
|
| | | | Total assets measured at fair value | $ | 21,333 |
| | $ | 19,383 |
| | $ | 1,950 |
|
| Liabilities | | | | | |
| | Deferred compensation plan obligation (2) | $ | 16,176 |
| | $ | 16,176 |
| | $ | — |
|
| | | | Total liabilities measured at fair value | $ | 16,176 |
| | $ | 16,176 |
| | $ | — |
|
| | | | | | | | | |
March 31, 2018 | | | | | |
| Assets | | | | | |
| | Money market funds | $ | 9 |
| | $ | 9 |
| | $ | — |
|
| | Auction rate securities (1) | 1,843 |
| | — |
| | 1,843 |
|
| | Invested funds in deferred compensation plan (2) | 14,284 |
| | 14,284 |
| | — |
|
| | | | Total assets measured at fair value | $ | 16,136 |
| | $ | 14,293 |
| | $ | 1,843 |
|
| Liabilities | | | | | |
| | Deferred compensation plan obligation (2) | $ | 14,284 |
| | $ | 14,284 |
| | $ | — |
|
| | | | Total liabilities measured at fair value | $ | 14,284 |
| | $ | 14,284 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | |
| | | | | Total | | Quoted Prices In Active Markets For Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) |
September 28, 2019 | | | | | |
| Assets | | | | | |
| | Marketable equity securities | $ | 979 |
| | $ | 979 |
| | $ | — |
|
| | Invested funds in deferred compensation plan (1)
| 20,541 |
| | 20,541 |
| | — |
|
| | | | Total assets measured at fair value | $ | 21,520 |
| | $ | 21,520 |
| | $ | — |
|
| Liabilities | | | | | |
| | Deferred compensation plan obligation (1) | $ | 20,541 |
| | $ | 20,541 |
| | $ | — |
|
| | | | Total liabilities measured at fair value | $ | 20,541 |
| | $ | 20,541 |
| | $ | — |
|
| | | | | | | | | |
March 30, 2019 | | | | | |
| Assets | | | | | |
| | Money market funds | $ | 13 |
| | $ | 13 |
| | $ | — |
|
| | Marketable equity securities | 901 |
| | 901 |
| | — |
|
| | Auction rate securities (2)
| 1,950 |
| | — |
| | 1,950 |
|
| | Invested funds in deferred compensation plan (1)
| 18,737 |
| | 18,737 |
| | — |
|
| | | | Total assets measured at fair value | $ | 21,601 |
| | $ | 19,651 |
| | $ | 1,950 |
|
| Liabilities | | | | | |
| | Deferred compensation plan obligation (1) | $ | 18,737 |
| | $ | 18,737 |
| | $ | — |
|
| | | | Total liabilities measured at fair value | $ | 18,737 |
| | $ | 18,737 |
| | $ | — |
|
(1) The Company's Level 2 auction rate securities are debt instruments with interest rates that reset through periodic short-term auctions and are valued based on quoted prices for identical or similar instruments in markets that are not active.
(2) The Company's non-qualified deferred compensation plan provides eligible employees and members of the Board of Directors with the opportunity to defer a specified percentage of their cash compensation. The Company includes the assets deferred by the participants in the “Other current assets” and “Other non-current assets” line items of its Condensed Consolidated Balance Sheets and the Company's obligation to deliver the deferred compensation in the "Other current liabilities" and “Other long-term liabilities” line items of its Condensed Consolidated Balance Sheets.
(2) The Company's Level 2 auction rate securities were debt instruments with interest rates that reset through periodic short-term auctions and were valued based on quoted prices for identical or similar instruments in markets that were not active. During the first quarter of fiscal 2020, the Company sold its auction rate securities at par value.
As of December 29, 2018September 28, 2019 and March 31, 2018,30, 2019, the Company did not have any Level 3 assets or liabilities.
Equity Investment Without a Readily Determinable Fair Value
As of September 28, 2019, the Company has invested $60.0 million to acquire preferred shares of Cavendish Kinetics Limited (“Cavendish”). This investment was determined to be an equity investment without a readily determinable fair value and is accounted for using the measurement alternative in accordance with ASC 321, "Investments - Equity Securities." As of September 28, 2019, there was no impairment or observable price change for this investment. This investment is classified in "Long-term investments" in the Condensed Consolidated Balance Sheets. See Note 15 for additional disclosures related to the subsequent acquisition of the entire issued and outstanding capital of Cavendish.
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Fair Value of Financial Instruments
Marketable securities are measured at fair value and recorded in "Cash and cash equivalents," "Other current assets" and "Long-term investments" in the Condensed Consolidated Balance Sheets, and the related unrealized gains and losses are included in "Accumulated other comprehensive loss," a component of stockholders’ equity, net of tax (debt securities) and "Other income (expense)" in the Condensed Consolidated Statements of Income (equity securities).
Other Fair Value Disclosures
The carrying values of cash and cash equivalents, accounts receivable, accounts payable and other accrued liabilities approximate fair values because of the relatively short-term maturities of these instruments. See Note 67 for further disclosures related to the fair value of the Company's long-term debt.
6. LEASES
The Company leases certain of its corporate, manufacturing and other facilities from multiple third-party real estate developers. The Company also leases various machinery and office equipment. These operating leases expire at various dates through 2036, and some of these leases have renewal options, with the longest ranging up to two, ten-year periods.
In fiscal 2018, the Company entered into a finance lease which is expected to commence in fiscal 2021 and is not recorded in the Condensed Consolidated Balance Sheet as of September 28, 2019. The Company’s other finance lease, which is classified in "Property and equipment" in the Condensed Consolidated Balance Sheets, is immaterial for disclosure.
The Company determines that a contract contains a lease at lease inception if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. In evaluating whether the right to control an identified asset exists, the Company assesses whether it has the right to direct the use of the identified asset and obtain substantially all of the economic benefit from the use of the identified asset.
Right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The Company uses its estimated incremental borrowing rate in determining the present value of lease payments considering the term of the lease, which is derived from information available at the lease commencement date. The lease term includes renewal options when it is reasonably certain that the option will be exercised, and excludes termination options. To the extent that the Company's agreements have variable lease payments, the Company includes variable lease payments that depend on an index or a rate and excludes those that depend on facts or circumstances occurring after the commencement date, other than the passage of time.
The components of lease expense for operating leases for the three and six months ended September 28, 2019, are as follows:
|
| | | | | | | |
| September 28, 2019 |
| Three Months Ended | | Six Months Ended |
Operating lease expense | $ | 3,963 |
| | $ | 7,417 |
|
Short-term lease expense | 1,187 |
| | 3,152 |
|
Variable lease expense | 1,181 |
| | 1,595 |
|
Total lease expense | $ | 6,331 |
| | $ | 12,164 |
|
Supplemental cash information and non-cash activities related to operating leases are as follows (in thousands):
|
| | | |
| Six Months Ended |
| September 28, 2019 |
Cash paid for amounts included in measurement of lease liabilities: | |
Operating cash flows from operating leases | $ | 8,377 |
|
| |
Non-cash activities: | |
Operating lease assets obtained in exchange for new lease liabilities | $ | 2,486 |
|
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
6.Supplemental balance sheet information related to operating leases is as follows (in thousands):
|
| | | | | | |
| | Classification on the Condensed Consolidated Balance Sheet | | September 28, 2019 |
Assets | | | | |
Operating lease assets | | Other non-current assets | | $ | 61,693 |
|
| | | | |
Liabilities | | | | |
Operating lease current liabilities | | Other current liabilities | | $ | 12,965 |
|
Operating lease non-current liabilities | | Other long-term liabilities | | $ | 56,923 |
|
Weighted-average remaining lease term and discount rate related to operating leases are as follows:
|
| | |
| September 28, 2019 |
Weighted-average remaining lease term (years) - operating leases | 8.70 |
|
Weighted-average discount rate - operating leases | 4.24 | % |
Maturities of lease liabilities under operating leases by fiscal year as of September 28, 2019 are as follows (in thousands):
|
| | | |
| September 28, 2019 |
2020 | $ | 7,575 |
|
2021 | 14,980 |
|
2022 | 11,823 |
|
2023 | 9,167 |
|
2024 | 7,802 |
|
Thereafter | 32,011 |
|
Total lease payments | 83,358 |
|
Less imputed interest | (13,470 | ) |
Present value of lease liabilities | $ | 69,888 |
|
7. DEBT
Long-term debt as of December 29, 2018September 28, 2019 and March 31, 201830, 2019 is as follows (in thousands):
|
| | | | | | | |
| September 28, 2019 | | March 30, 2019 |
Term loan | $ | 100,000 |
| | $ | — |
|
7.00% senior notes due 2025 | 23,404 |
| | 23,404 |
|
5.50% senior notes due 2026 | 900,000 |
| | 900,000 |
|
Finance leases | 2,123 |
| | 1,745 |
|
Less unamortized premium and issuance costs | (5,231 | ) | | (4,134 | ) |
Less current portion of long-term debt | (4,233 | ) | | (80 | ) |
Total long-term debt | $ | 1,016,063 |
| | $ | 920,935 |
|
|
| | | | | | | |
| December 29, 2018 | | March 31, 2018 |
6.75% Senior Notes due 2023 | $ | — |
| | $ | 444,464 |
|
7.00% Senior Notes due 2025 | 91,009 |
| | 548,500 |
|
5.50% Senior Notes due 2026 | 630,000 |
| | — |
|
Less unamortized premium and issuance costs | (6,607 | ) | | (9,674 | ) |
Total long-term debt | $ | 714,402 |
| | $ | 983,290 |
|
Senior Notes due 2023 and 2025
On November 19, 2015, the Company issued $450.0 million aggregate principal amount 6.75% senior notes due December 1, 2023 (the "2023 Notes") and $550.0 million aggregate principal amount 7.00% senior notes due December 1, 2025 (the "2025 Notes"). The 2023 Notes were, and the 2025 Notes are, senior unsecured obligations of the Company and guaranteed, jointly and severally, by the Company and certain of its U.S. subsidiaries (the "Guarantors"). The 2023 Notes and the 2025 Notes were issued pursuant to an indenture dated as of November 19, 2015 (the "2015 Indenture"), by and among the Company, the Guarantors and MUFG Union Bank, N.A., as trustee. The 2015 Indenture contains customary events of default, including payment default, failure to provide certain notices and certain provisions related to bankruptcy events.
On June 15,QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
In fiscal years 2018 and 2019, the Company commenced cash tender offers for any andretired all of the issued and outstanding 2023 Notes (the “2023 Tender Offer”) and up to $150.0 million of the 2025 Notes (the "2025 Tender Offer"). On June 29, 2018, the Company completed the purchase of $429.2 million aggregate principal amount of the 2023 Notes at a price equal to 106.75% of the principal amount of the 2023 Notes purchased, plus accrued and unpaid interest. On July 19, 2018, the Company redeemed the remaining $15.3 million principal amount of the 2023 Notes at a redemption price equal to 100.0% of the principal amount, plus a make-whole premium and accrued and unpaid interest.
On July 10, 2018, the Company increased the tender cap for the 2025 Tender Offer to $300.0 million, and on July 16, 2018, the Company completed the purchase of $300.0 million aggregate principal amount of the 2025 Notes at a price equal to 109.63% of the principal amount of the 2025 Notes purchased, plus accrued and unpaid interest.
On August 14, 2018, the Company commenced a cash tender offer for up to $130.0$526.6 million of the 2025 Notes. On August 28, 2018, following an increase of the tender cap to $140.0 million, the Company completed the purchase of $136.4 million aggregate principal amount of the 2025 Notes at a price equal to 110.00% of the principal amount of the 2025 Notes purchased, plus accrued and unpaid interest.
On November 28, 2018 and December 11, 2018, the Company repurchased $1.1 million and $20.0 million, respectively, of the 2025 Notes, at prices equal to 107.25% and 107.63%, respectively, of the principal amount of the 2025 Notes purchased, plus accrued and unpaid interest. As of December 29, 2018, 2025 Notes with an aggregate principal amount of $91.0 million remained outstanding.
During the three and ninesix months ended DecemberSeptember 29, 2018, the Company recognized a loss on debt extinguishment of $1.8$48.8 million and $84.0$82.2 million, respectively, as "Other expense" in the Company’s Condensed Consolidated Statements of Operations.
At any time prior to December 1, 2020,Income in connection with certain purchases of the Company may redeem all or part2023 Notes and the 2025 Notes. As of September 28, 2019, an aggregate principal amount of $23.4 million of the 2025 Notes at a redemption price equal to their principal amount, plus a “make whole” premium as of the redemption date, and accrued and unpaid interest. In addition, at any time on or after December 1, 2020, the Company may redeem the 2025 Notes, in whole or in part, at the redemption prices specified in the 2015 Indenture, plus accrued and unpaid interest.remained outstanding.
With respect to the 2023 Notes, interest was payable on June 1 and December 1 of each year at a rate of 6.75% per annum, and with respect to the 2025 Notes, interest is payable on June 1 and December 1 of each year at a rate of 7.00% per annum. InterestThe Company paid 0 interest on the 2025 Notes during the three months ended December 29, 2018 was $4.0September 28, 2019 and paid interest of $0.8 million and interest paid on the
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
2023 Notes and the 2025 Notes during the ninesix months ended December 29, 2018 was $45.5 million.September 28, 2019. Interest paid on the 2023 Notes and the 2025 Notes during the three and ninesix months ended December 30, 2017September 29, 2018 was $34.5$7.3 million and $68.9$41.5 million, respectively.
Senior Notes due 2026
On July 16, 2018, the Company completed an offering ofissued $500.0 million aggregate principal amount 5.50% Senior Notessenior notes due 2026 (the “Initial 2026 Notes”). On August 28, 2018 and March 5, 2019, the Company completed an offering ofissued an additional $130.0 million and $270.0 million, respectively, aggregate principal amount of such notes (the(together, the "Additional 2026 Notes", and together with the "InitialInitial 2026 Notes",Notes, the "2026 Notes"). The 2026 Notes pay interest semi-annually on January 15 and July 15 at a rate of 5.50% per annum. The 2026 Notes will mature on July 15, 2026, unless earlier redeemed in accordance with their terms. The 2026 Notes are senior unsecured obligations of the Company and are initially guaranteed, jointly and severally, by itsthe Guarantors.
The Initial 2026 Notes were issued pursuant to an indenture, dated as of July 16, 2018 by and among the Company, the Guarantors and MUFG Union Bank, N.A., as trustee, and the Additional 2026 Notes were issued pursuant to a supplemental indenture,indentures, dated as of August 28, 2018 (together,and March 5, 2019, respectively (such indenture and supplemental indentures, collectively, the "2018 Indenture"). The 2018 Indenture contains customary events of default, including payment default, exchange default, failure to provide certain notices thereunder and certain provisions related to bankruptcy events and also contains customary negative covenants.
TheIn connection with the offerings of the 2026 Notes, the Company agreed to provide the holders of the 2026 Notes with an opportunity to exchange the 2026 Notes for registered notes having terms substantially identical to the 2026 Notes. On June 25, 2019, the Company completed the exchange offer, in which all of the privately placed 2026 Notes were sold in a private offering to certain institutionsexchanged for new notes that then resold the 2026 Notes in the United States to qualified institutional buyers pursuant to Rule 144Ahave been registered under the Securities Act of 1933, as amended (the "Securities Act"), and to certain non-U.S. persons in accordance with Regulation S under the Securities Act. The Company used a portion of the net proceeds of the 2026 Notes to fund the tender offers for the 2025 Notes and to pay related fees and expenses of the offering and will use the remaining net proceeds for general corporate purposes.
At any time prior to July 15, 2021, the Company may redeem all or part of the 2026 Notes, at a redemption price equal to their principal amount, plus a “make-whole” premium as of the redemption date, and accrued and unpaid interest. In addition, at any time prior to July 15, 2021, the Company may redeem up to 35% of the original aggregate principal amount of the 2026 Notes with the proceeds of one or more equity offerings, at a redemption price equal to 105.50% of the principal amount of the 2026 Notes redeemed, plus accrued and unpaid interest. Furthermore, at any time on or after July 15, 2021, the Company may redeem the 2026 Notes, in whole or in part, at the redemption prices specified in the 2018 Indenture, plus accrued and unpaid interest.
The 2026 Notes have not been registered under the Securities Act, or any state securities laws, and, unless so registered, may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act and applicable state securities laws.
In connection with the offering of the 2026 Notes, the Company entered into a registration rights agreement, dated as of July 16, 2018, by and among the Company and the Guarantors, on the one hand, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representative of the initial purchasers of the Initial 2026 Notes, on the other hand, and a substantially similar agreement, dated as of August 28, 2018 with respect to the Additional 2026 Notes (together, the "Registration Rights Agreements").
Under the Registration Rights Agreements, the Company and the Guarantors have agreed to use their commercially reasonable efforts to (i) file with the SEC a registration statement (the "Exchange Offer Registration Statement") relating to the registered exchange offer (the "Exchange Offer") to exchange the 2026 Notes for a new series of the Company’s exchange notes having terms substantially identical in all material respects to, and in the same aggregate principal amount as, the 2026 Notes; (ii) cause the Exchange Offer Registration Statement to be declared effective by the SEC; and (iii) cause the Exchange Offer to be consummated no later than the 360th day after July 16, 2018 (in the case of the Initial 2026 Notes) or August 28, 2018 (in the case of the Additional 2026 Notes) (or if such 360th dayInterest is not a business day, the next succeeding business day). The Company and the Guarantors have also agreed to use their commercially reasonable efforts to cause the Exchange Offer Registration Statement to be effective continuously and keep the Exchange Offer open for a period of not less than the minimum period required under applicable federal and state securities laws to consummate the Exchange Offer.
Under certain circumstances, the Company and the Guarantors have agreed to use their commercially reasonable efforts to (i) file a shelf registration statement relating to the resale of the 2026 Notes as promptly as practicable, and (ii) cause the shelf
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
registration statement to be declared effective by the SEC as promptly as practicable. The Company and the Guarantors have also agreed to use their commercially reasonable efforts to keep the shelf registration statement continuously effective until one year after its effective date (or such shorter period that will terminate when all the 2026 Notes covered thereby have been sold pursuant thereto).
If the Company fails to meet any of these targets, the annual interest ratepayable on the 2026 Notes will increase by 0.25% during the 90-day period following the default,on January 15 and will increase by an additional 0.25% forJuly 15 of each subsequent 90-day period during which the default continues, up toyear at a maximum additional interest rate of 1.00%5.50% per year. If the Company cures the default, the interest rateannum. Interest paid on the 2026 Notes will revert toduring the original rate.three and six months ended September 28, 2019 was $24.8 million.
Credit Agreement
On December 5, 2017, the Company and the Guarantors entered into a five-year unsecured senior credit facility pursuant to a credit agreement with Bank of America, N.A., as administrative agent (in such capacity, the “Administrative Agent”), swing line lender and L/C issuer, and a syndicate of lenders (the "Credit Agreement"). On June 5, 2018, the Company and the Guarantors entered into the First Amendment (the "First Amendment") to the Credit Agreement, and on December 17, 2018, the Company and the Guarantors entered into the Second Amendment (the "Second Amendment") to the Credit Agreement. The Credit Agreement includes a senior delayed draw term loan of up to $400.0 million (the "Term Loan") and a $300.0 million senior revolving line of credit (the "Revolving Facility", together with the Term Loan, the "Credit Facility"). On the closing date, $100.0 million of the Term Loan was funded (and subsequently repaid in March 2018),. On June 17, 2019, the Company drew $100.0 million of the Term Loan, with the remainderremaining $200.0 million available, at the discretion of the Company, in upa final draw. Subsequent amendments to two draws. The First Amendment,the Credit Agreement have, among other things, extended the delayed draw availability period from June 5, 2018 to January 3, 2019, and the Second Amendment, among other things, further extended such period to June 30,December 31, 2019. The Revolving Facility includes a $25.0 million sublimit for the issuance of standby letters of credit and a $10.0 million sublimit for swing line loans. The Company may request that the Credit Facility be increased by up to $300.0 million, subject to securing additional funding commitments from the existing or new lenders. The Credit Facility is available to finance working capital, capital expenditures and other corporate purposes. Outstanding amounts are due in full on the maturity date of December 5, 2022 (with amounts borrowed under the swingline option due in full no later than ten business days after such loan is made), subject to scheduled amortization of the Term Loan principal as set forth in the Credit Agreement prior to the maturity date. During the ninesix months ended December 29, 2018,September 28, 2019, there were no0 borrowings under the Revolving FacilityFacility. Interest paid on the Term Loan during the three and the Company had no outstanding amounts under the Credit Facility as of December 29, 2018.six months ended September 28, 2019 was $0.9 million.
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The Credit Agreement contains various conditions, covenants and representations with which the Company must be in compliance in order to borrow funds and to avoid an event of default. As of December 29, 2018,September 28, 2019, the Company was in compliance with these covenants.
Fair Value of Long-Term Debt
The Company's long-term debt is carried at amortized cost and is measured at fair value quarterly for disclosure purposes. The estimated fair value of the 2025 Notes and the 2026 Notes as of December 29, 2018 and March 31, 2018September 28, 2019 was $97.8$25.1 million and $596.5$954.8 million, respectively (compared to a carrying value of $91.0$23.4 million and $548.5$900.0 million, respectively). The estimated fair value of the 2025 Notes and the 2026 Notes as of December 29, 2018March 30, 2019 was $601.7$25.8 million (compared to a carrying value of $630.0 million).and $929.3 million, respectively. The Company considers its long-term debt to be Level 2 in the fair value hierarchy. Fair values are estimated based on quoted market prices for identical or similar instruments. The 2025 Notes and 2026 Notes trade over the counter, and their fair values were estimated based upon the value of their last trade at the end of the period.
The Company had no outstanding amounts under the Revolving Facility as of September 28, 2019. The Term Loan carries a variable interest rate set at current market rates, and as such, the fair value of the Term Loan approximated book value as of September 28, 2019.
Interest Expense
During the three and six months ended DecemberSeptember 28, 2019, the Company recognized $13.6 million and $26.5 million, respectively, of interest expense related to the 2025 Notes, the 2026 Notes and the Term Loan, which was partially offset by $1.3 million and $3.0 million, respectively, of interest capitalized to property and equipment. During the three and six months ended September 29, 2018, the Company recognized $10.8$10.9 million and $28.0 million, respectively, of interest expense related to the 2023 Notes, the 2025 Notes and the 2026 Notes, which was partially offset by $1.9 million of interest capitalized to property and equipment. During the nine months ended December 29, 2018, the Company recognized $38.8 million of interest expense related to the 2023 Notes, 2025 Notes and the 2026 Notes, which was partially offset by $7.2 million of interest capitalized to property and equipment. During the three and nine months ended December 30, 2017, the Company recognized $17.7$1.8 million and $52.3 million, respectively, of interest expense related to the 2023 Notes and the 2025 Notes, which was partially offset by $2.0 million and $10.8$5.3 million, respectively, of interest capitalized to property and equipment.
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
7.8. STOCK REPURCHASES
On May 23, 2018, the Company announced that its Board of Directors authorized a share repurchase program to repurchase up to $1.0 billion of the Company's outstanding stock, which included approximately $126.3 million authorized under athe prior share repurchase program which was terminated concurrent with the new authorization. Under this program, share repurchases are made in accordance with applicable securities laws on the open market or in privately negotiated transactions. The extent to which the Company repurchases its shares, the number of shares and the timing of any repurchases depends on general market conditions, regulatory requirements, alternative investment opportunities and other considerations. The program does not require the Company to repurchase a minimum number of shares, does not have a fixed term, and may be modified, suspended or terminated at any time without prior notice.
During the three and six months ended December 29, 2018,September 28, 2019, the Company repurchased approximately 2.3 million shares and 3.8 million shares, respectively, of its common stock for approximately $152.0$165.0 million under the current share repurchase program. During the nine months ended December 29, 2018, the Company repurchased approximately 4.6and $265.1 million, shares of its common stock for approximately $338.7 million (which included 0.4 million shares of its common stock for approximately $35.9 million under a prior share repurchase program).respectively. As of December 29, 2018, $697.2September 28, 2019, $132.8 million remains available for repurchases under the current share repurchase program. See Note 15 for information regarding the new share repurchase program which was announced by the Company on October 31, 2019.
During the three and ninesix months ended December 30, 2017,September 29, 2018, the Company repurchased approximately 1.1 million shares and 2.3 million shares, respectively, of its common stock for approximately $80.0$86.7 million and $168.9$186.7 million, respectively, under a prior share repurchase program.respectively.
8. REVENUE
Adoption of Accounting Policy
The Company adopted ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," in the first quarter of fiscal 2019 for open contracts using the modified retrospective approach through a cumulative adjustment to "Accumulated deficit" in the Condensed Consolidated Balance Sheet for the fiscal year beginning April 1, 2018. The impact from the cumulative-effect adjustment was immaterial (less than 1% of revenue in the quarter of adoption), related to over-time revenue recognition for customer-controlled inventory and point in time revenue recognition for intellectual property with a right to use. As the adoption of ASU 2014-09 did not have a material impact, comparative financial information for prior periods has not been restated and continues to be presented under the accounting standards in effect for the respective periods.
Revenue Recognition Policy
The Company generates revenue primarily from the sale of semiconductor products, either directly to a customer or to a distributor, or at completion of a consignment process. Revenue is recognized when control of the promised goods or services is transferred to the Company's customers, in an amount that reflects the consideration it expects to be entitled in exchange for those goods or services. A majority of the Company's revenue is recognized at a point in time, either on shipment or delivery of the product, depending on individual customer terms and conditions. Revenue from sales to the Company’s distributors is recognized upon shipment of the product to the distributors (sell-in). Revenue is recognized from the Company’s consignment programs at a point in time when the products are pulled from consignment inventory by the customer. Revenue recognized for products and services over-time is immaterial (less than 2% of overall revenue). The Company applies a five-step approach as defined in the new standard in determining the amount and timing of revenue to be recognized: (1) identifying the contract with a customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations in the contract; and (5) recognizing revenue when the corresponding performance obligation is satisfied.
Sales agreements are in place with certain customers 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 a customer's purchase order, which is governed by a sales agreement or the Company’s standard terms and conditions, to be the contract with the customer.
The Company’s pricing terms are negotiated independently, on a stand-alone basis. In determining the transaction price, the Company evaluates whether the price is subject to refund or adjustment to determine the net consideration to which the Company expects to be entitled. Variable consideration in the form of rebate programs is offered to certain customers,
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
including distributors. A majority of these rebates are accrued and classified as a contra accounts receivable, and represent less than 5% of net revenue. The Company determines variable consideration by estimating the most likely amount of consideration it expects to receive from the customer. The Company's terms and conditions do not give its customers a right of return associated with the original sale of its products. However, the Company may authorize sales returns under certain circumstances, which include courtesy returns and like-kind exchanges. Sales returns are classified as a refund liability. The Company reduces revenue and records reserves for product returns and allowances, rebate programs and scrap allowance based on historical experience or specific identification depending on the contractual terms of the arrangement.9. REVENUE
The Company’s accounts receivable balance is from contracts with customers and represents the Company’s unconditional right to receive consideration from its customers. Payments are due upon completion of the performance obligation and subsequent invoicing. Substantially all payments are collected within the Company’s standard terms, which do not include any financing components. To date, there have been no material impairment losses on accounts receivable. Contract assets and contract liabilities recorded on the Condensed Consolidated Balance Sheets were immaterial in the periods presented.
The Company invoices customers upon shipment and recognizes revenues in accordance with delivery terms. As of December 29, 2018, the Company had $34.7 million in remaining unsatisfied performance obligations with an original duration greater than one year, of which the majority is expected to be recognized as income over the next twelve months.
The Company includes shipping charges billed to customers in "Revenue" and includes the related shipping costs in "Cost of goods sold" in the Condensed Consolidated Statements of Operations. Taxes assessed by government authorities on revenue-producing transactions, including tariffs, value-added and excise taxes, are excluded from revenue in the Condensed Consolidated Statements of Operations.
The Company incurs commission expense that is incremental to obtaining contracts with customers. Sales commissions (which are recorded in the "Selling, general and administrative" expense line item in the Condensed Consolidated Statements of Operations) are expensed when incurred because such commissions are not owed until the performance obligation is satisfied, which coincides with the end of the contract term, and therefore no remaining period exists over which to amortize the commissions.
The following table presents the Company's revenue disaggregated by geography, based on the billing addresseslocation of its customersthe customers' headquarters (in thousands):
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Six Months Ended |
| December 29, 2018 | | December 30, 2017 | | December 29, 2018 | | December 30, 2017 | September 28, 2019 | | September 29, 2018 | | September 28, 2019 | | September 29, 2018 |
Revenue: | | | | | | | | |
United States | | $ | 452,926 |
| | $ | 423,844 |
| | $ | 720,422 |
| | $ | 693,298 |
|
China | $ | 474,844 |
| | $ | 446,721 |
| | $ | 1,390,226 |
| | $ | 1,226,494 |
| 199,945 |
| | 304,115 |
| | 561,088 |
| | 588,273 |
|
Other Asia | | 78,606 |
| | 60,438 |
| | 148,615 |
| | 113,930 |
|
Taiwan | 127,104 |
| | 157,725 |
| | 443,110 |
| | 417,795 |
| 38,044 |
| | 54,199 |
| | 79,033 |
| | 106,895 |
|
United States | 117,724 |
| | 131,107 |
| | 332,484 |
| | 397,364 |
| |
Europe | 72,866 |
| | 24,257 |
| | 119,804 |
| | 70,026 |
| 37,177 |
| | 41,847 |
| | 73,138 |
| | 74,717 |
|
Other Asia | 34,839 |
| | 82,126 |
| | 108,649 |
| | 183,202 |
| |
Other | 4,953 |
| | 3,803 |
| | 15,170 |
| | 13,272 |
| |
Total Revenue | $ | 832,330 |
| | $ | 845,739 |
| | $ | 2,409,443 |
| | $ | 2,308,153 |
| |
Total revenue | | $ | 806,698 |
| | $ | 884,443 |
| | $ | 1,582,296 |
| | $ | 1,577,113 |
|
During the first quarter of fiscal 2020, the Company changed its presentation of net revenue based on the "sold to" address of the customer to the above presentation of net revenue based on the location of the customers' headquarters. The September 29, 2018 information above has been reclassified to reflect this change. The Company believes that the disaggregation of revenue based on the location of the customers' headquarters is more representative of how its revenue and cash flows are impacted by geographically-sensitive changes in economic factors.
The Company also disaggregates revenue by operating segments (see Note 10)11).
9.10. RESTRUCTURING
In the third quarter of fiscal 2019, the Company initiated restructuring actions to reduce operating expenses and improve its manufacturing cost structure, including the phased closure of a wafer fabrication facility in Florida and idling production at a wafer fabrication facility in Texas. As a result of these actions, in the third quarter of fiscal 2019, the Company recorded impairmentexpects to record total restructuring charges of $14.9approximately $95.0 million, (to adjust the carrying value of certain of its property and equipment to reflect its fair value) andincluding accelerated depreciation of $3.1$49.0 million (to reflect changes in estimated useful lives of certain property and equipment), impairment charges of $16.0 million (to adjust the carrying value of certain property and equipment to reflect its fair value), employee termination benefits of $16.0 million, and other exit costs of $14.0 million. As of the end of the second quarter of fiscal 2020, the Company has recorded cumulative expenses of approximately $42.9 million, $16.0 million, $12.3 million and $6.9 million for accelerated depreciation, impairment charges, employee termination benefits and other exit costs, respectively, as a result of these restructuring actions (which are expected to be substantially completed by the end of fiscal 2020).
During fiscal 2018, the Company initiated restructuring actions to improve operating efficiencies. As of the end of the second quarter of fiscal 2020, the Company has recorded cumulative expenses of $46.3 million, $23.4 million and $0.2 million for impairment charges, employee termination benefits and other exit costs, respectively, as a result of these restructuring actions. The Company believes these amounts approximate the total costs to be recognized as these restructuring actions are substantially complete.
In addition, the Company recorded immaterial restructuring expenses in the three and six months ended September 28, 2019 and September 29, 2018, related to exited leased facilities associated with other restructuring events.
The Company does not allocate restructuring costs to its reportable segments.
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
equipment), which were recorded in "Other operating expense" and "Cost of goods sold," respectively, in the Company’s Condensed Consolidated Statements of Operations.
The fair valuefollowing table summarizes the restructuring activity primarily resulting from these restructuring events:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 28, 2019 | | Three Months Ended September 29, 2018 |
| Cost of Goods Sold | | Other Operating Expense | | Total | | Cost of Goods Sold | | Other Operating Expense | | Total |
One-time employee termination benefits | $ | — |
| | $ | 1,414 |
| | $ | 1,414 |
| | $ | — |
| | $ | 497 |
| | $ | 497 |
|
Contract termination and other associated costs | 1,035 |
| | 1,414 |
| | 2,449 |
| | — |
| | 13 |
| | 13 |
|
Accelerated depreciation | 5,578 |
| | — |
| | 5,578 |
| | — |
| | — |
| | — |
|
Total | $ | 6,613 |
| | $ | 2,828 |
| | $ | 9,441 |
| | $ | — |
| | $ | 510 |
| | $ | 510 |
|
| | | | | | | | | | | |
| Six Months Ended September 28, 2019 | | Six Months Ended September 29, 2018 |
| Cost of Goods Sold | | Other Operating Expense | | Total | | Cost of Goods Sold | | Other Operating Expense | | Total |
One-time employee termination benefits | $ | — |
| | $ | 4,809 |
| | $ | 4,809 |
| | $ | — |
| | $ | 3,135 |
| | $ | 3,135 |
|
Contract termination and other associated costs | 2,870 |
| | 4,215 |
| | 7,085 |
| | — |
| | 177 |
| | 177 |
|
Accelerated depreciation | 21,516 |
| | — |
| | 21,516 |
| | — |
| | — |
| | — |
|
Total | $ | 24,386 |
| | $ | 9,024 |
| | $ | 33,410 |
| | $ | — |
| | $ | 3,312 |
| | $ | 3,312 |
|
The following table presents a roll-forward of the real property was derived based upon a market approach with substantial input from market participants, including brokers, investors, developers and appraisers. The fair value ofCompany's restructuring liabilities for the personal property was determined using a market approach based upon quoted market prices from auction data for comparable assets. Factors such as age, condition, capacity and manufacturer were considered to adjust the auction price and determine an orderly liquidation value of the personal property assets. The significant inputs related to valuing these assets are classified as Level 2 in the fair value measurement hierarchy.six months ended September 28, 2019:
|
| | | | | | | | | | | | | | | |
| One-Time Employee Termination Benefits | | Accelerated Depreciation | | Contract Termination and Other Associated Costs | | Total |
Accrued restructuring balance as of March 30, 2019 | $ | 6,988 |
| | $ | — |
| | $ | 1,626 |
| | $ | 8,614 |
|
Costs incurred and charged to expense | 4,809 |
| | 21,516 |
| | 7,085 |
| | 33,410 |
|
Transfer to right-of-use asset | — |
| | — |
| | (1,248 | ) | | (1,248 | ) |
Cash payments | (5,115 | ) | | — |
| | (4,269 | ) | | (9,384 | ) |
Non-cash activity | — |
| | (21,516 | ) | | (2,870 | ) | | (24,386 | ) |
Accrued restructuring balance as of September 28, 2019 | $ | 6,682 |
| | $ | — |
| | $ | 324 |
| | $ | 7,006 |
|
Over the next four quarters, the Company expects to record additional charges associated with these restructuring actions, including $60.0 million to $70.0 million related to accelerated depreciation, $10.0 million to $20.0 million related to employee termination benefits and $5.0 million to $10.0 million related to other exit costs.
10.11. OPERATING SEGMENT INFORMATION
The Company's operating segments as of December 29, 2018September 28, 2019 are Mobile Products (MP) and Infrastructure and Defense Products (IDP) based on the organizational structure and information reviewed by the Company's Chief Executive Officer, who is the Company's chief operating decision maker ("CODM"), and these segments are managed separately based on the end markets and applications they support. The CODM allocates resources and assesses the performance of each operating segment primarily based on non-GAAP income from operations.operating income.
MP is a leading global supplier of cellular radio frequency ("RF") and Wi-Fi solutions for a variety of mobile devices, including smartphones, notebook computers, wearables, laptops, tablets and cellular-based applications for the Internet of Things ("IoT"). Mobile device manufacturers and mobile network operators are adopting new technologies to address the growing demand for data-intensive, increasingly cloud-based distributed applications and for mobile devices with smaller form factors, improved signal quality, less heat and longer talk and standby times. New wireless communications standards are being deployed, and new frequency bands are being added. Carrier aggregation, Multiple Input Multiple Output ("MIMO") and 5G are being implemented to support wider bandwidths, increase data rates and improve network performance. These trends increase the complexity of smartphones, require more RF content and place a premium on performance, integration, systems-level expertise, and product and technology portfolio breadth, all of which are MP strengths. MP offers a comprehensive product portfolio of bulk acoustic wave ("BAW") and surface acoustic wave ("SAW") filters, power amplifiers ("PAs"), low noise amplifiers ("LNAs"), switches, multimode multi-band PAs and transmit modules, RF power management integrated circuits, diversity receive modules, antenna switch modules, antenna tuning and control solutions, modules incorporating PAs and duplexers and modules incorporating switches, PAs and duplexers.
IDP is a leading global supplier of RF, system-on-a-chip and power management solutions with a diverse portfolio of solutions that "connect and protect," spanning communications and defense applications. These applications include high performance defense systems such as radar, electronic warfare and communication systems, Wi-Fi customer premises equipment for cellular base station, smart home, and work, high speed connectivity in Long-Term Evolution ("LTE") and 5G base stations, cloud connectivity via data center communications and telecom transport, automotive connectivityIoT and other IoT, including smart home solutions. IDP products include highwireless communications, defense, automotive and multiple analog power gallium arsenide ("GaAs") and gallium nitride ("GaN") PAs, LNAs, switches, Complementary Metal Oxide Semiconductor ("CMOS") system-on-a-chip solutions, premium BAW and SAW filter solutions and various multi-chip and hybrid assemblies. management applications.
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The “All other” category includes operating expenses such as stock-based compensation, amortization of intangible assets, acquisition and integration related costs, restructuring costs, start-up costs, asset impairment and accelerated depreciation, (loss) gain on assets, and other miscellaneous corporate overhead expenses that the Company does not allocate to its reportable segments because these expenses are not included in the segment operating performance measures evaluated by the Company’s CODM. The CODM does not evaluate operating segments using discrete asset information. The Company’s operating segments do not record intercompany revenue. The Company does not allocate gains and losses from equity investments, interest and other income, or taxes to operating segments. Except as discussed above regarding the “All other” category, the Company’s accounting policies for segment reporting are the same as for the Company as a whole.
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The following tables present details of the Company’s reportable segments and a reconciliation of the “All other” category (in thousands): |
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| September 28, 2019 | | September 29, 2018 | | September 28, 2019 | | September 29, 2018 |
Revenue: | | | | | | | |
MP | $ | 623,106 |
| | $ | 666,539 |
| | $ | 1,179,359 |
| | $ | 1,152,618 |
|
IDP | 183,592 |
| | 217,904 |
| | 402,937 |
| | 424,495 |
|
Total revenue | $ | 806,698 |
| | $ | 884,443 |
| | $ | 1,582,296 |
| | $ | 1,577,113 |
|
Operating income (loss): | | | | | | | |
MP | $ | 193,431 |
| | $ | 196,948 |
| | $ | 333,366 |
| | $ | 286,119 |
|
IDP | 14,969 |
| | 56,311 |
| | 65,093 |
| | 111,515 |
|
All other | (95,633 | ) | | (162,782 | ) | | (230,466 | ) | | (326,372 | ) |
Operating income | 112,767 |
| | 90,477 |
| | 167,993 |
| | 71,262 |
|
Interest expense | (12,693 | ) | | (9,689 | ) | | (24,557 | ) | | (24,042 | ) |
Interest income | 2,292 |
| | 1,580 |
| | 5,238 |
| | 4,974 |
|
Other expense (Note 7) | (300 | ) | | (49,532 | ) | | (1,411 | ) | | (81,487 | ) |
Income (loss) before income taxes | $ | 102,066 |
| | $ | 32,836 |
| | $ | 147,263 |
| | $ | (29,293 | ) |
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| December 29, 2018 | | December 30, 2017 | | December 29, 2018 | | December 30, 2017 |
Revenue: | | | | | | | |
MP | $ | 602,312 |
| | $ | 642,089 |
| | $ | 1,754,930 |
| | $ | 1,728,709 |
|
IDP | 230,018 |
| | 202,680 |
| | 654,513 |
| | 576,534 |
|
All other (1) | — |
| | 970 |
| | — |
| | 2,910 |
|
Total revenue | $ | 832,330 |
| | $ | 845,739 |
| | $ | 2,409,443 |
| | $ | 2,308,153 |
|
Income (loss) from operations | | | | | | | |
MP | $ | 180,394 |
| | $ | 190,990 |
| | $ | 466,513 |
| | $ | 451,689 |
|
IDP | 80,861 |
| | 63,281 |
| | 192,376 |
| | 170,516 |
|
All other | (180,098 | ) | | (173,951 | ) | | (506,470 | ) | | (520,150 | ) |
Income from operations | 81,157 |
| | 80,320 |
| | 152,419 |
| | 102,055 |
|
Interest expense | (9,562 | ) | | (16,338 | ) | | (33,604 | ) | | (43,387 | ) |
Interest income | 2,814 |
| | 2,215 |
| | 7,788 |
| | 4,039 |
|
Other expense (Note 6) | (3,520 | ) | | (757 | ) | | (85,007 | ) | | (1,883 | ) |
Income before income taxes | $ | 70,889 |
| | $ | 65,440 |
| | $ | 41,596 |
| | $ | 60,824 |
|
(1) "All other" revenue relates to royalty income that is not allocated to MP or IDP for the three and nine months ended December 30, 2017. As a result of the adoption of ASU 2014-09, income related to a right-to-use license of intellectual property was recognized at a point-in-time and, therefore, was included as a transition adjustment impacting retained earnings. |
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| September 28, 2019 | | September 29, 2018 | | September 28, 2019 | | September 29, 2018 |
Reconciliation of “All other” category: | | | | | | | |
Stock-based compensation expense | $ | (20,876 | ) | | $ | (20,905 | ) | | $ | (45,829 | ) | | $ | (40,250 | ) |
Amortization of intangible assets | (56,288 | ) | | (133,116 | ) | | (114,470 | ) | | (266,291 | ) |
Acquisition and integration related costs | (7,549 | ) | | (1,098 | ) | | (30,679 | ) | | (2,180 | ) |
Restructuring costs | (3,863 | ) | | (510 | ) | | (11,894 | ) | | (3,312 | ) |
Start-up costs | (4 | ) | | (5,883 | ) | | (100 | ) | | (11,244 | ) |
Asset impairment and accelerated depreciation | (6,635 | ) | | — |
| | (22,573 | ) | | — |
|
Other (including (loss) gain on assets and other miscellaneous corporate overhead) | (418 | ) | | (1,270 | ) | | (4,921 | ) | | (3,095 | ) |
Loss from operations for “All other” | $ | (95,633 | ) | | $ | (162,782 | ) | | $ | (230,466 | ) | | $ | (326,372 | ) |
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| December 29, 2018 | | December 30, 2017 | | December 29, 2018 | | December 30, 2017 |
Reconciliation of “All other” category: | | | | | | | |
Stock-based compensation expense | $ | (18,624 | ) | | $ | (13,715 | ) | | $ | (58,874 | ) | | $ | (58,299 | ) |
Amortization of intangible assets | (132,227 | ) | | (135,743 | ) | | (398,518 | ) | | (406,068 | ) |
Acquisition and integration related costs | (3,700 | ) | | (2,723 | ) | | (5,880 | ) | | (8,113 | ) |
Restructuring costs | (1,510 | ) | | (8,958 | ) | | (4,822 | ) | | (16,942 | ) |
Start-up costs | (6,791 | ) | | (5,415 | ) | | (18,035 | ) | | (19,168 | ) |
Asset impairment and accelerated depreciation | (17,994 | ) | | — |
| | (17,994 | ) | | — |
|
Other (including (loss) gain on assets and other miscellaneous corporate overhead) | 748 |
| | (7,397 | ) | | (2,347 | ) | | (11,560 | ) |
Loss from operations for “All other” | $ | (180,098 | ) | | $ | (173,951 | ) | | $ | (506,470 | ) | | $ | (520,150 | ) |
11.12. INCOME TAXES
U.S. Tax Reform
On December 22, 2017, the Tax Cuts and Jobs Act ("Tax Act") was enacted into law. This new law included significant changes to the U.S. corporate income tax system, including a permanent reduction in the corporate income tax rate from 35% to 21%, full expensing for investments in new and used qualified property, limitations on the deductibility of interest expense and executive compensation and the transition of U.S. international taxation from a worldwide tax system to a territorial tax system.
In December 2017, the SEC staff issued Staff Accounting Bulletin 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC Topic 740 - Income Taxes (“ASC 740”). During
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
the third quarter of fiscal 2019, the Company completed its analysis within the measurement period provided by SAB 118, and the adjustments during this measurement period have been included in net earnings from operations as an adjustment to income tax expense.
As described in Note 12 Income Taxes in our 2018 Annual Report on Form 10-K, the Company was able to reasonably estimate certain effects of the Tax Act provisions that became effective during fiscal 2018 and, therefore, recorded provisional amounts, including a $116.4 million expense related to the one-time transition tax on certain unrepatriated earnings of foreign subsidiaries (the “Transitional Repatriation Tax”) and a $39.1 million benefit from the remeasurement of U.S. deferred tax assets and liabilities. For the nine months ended December 29, 2018, the Company made a $17.7 million SAB 118 measurement period adjustment consisting of a $2.6 million reduction in the tax expense related to the previously recorded provisional amount for the Transitional Repatriation Tax and a $15.1 million increase in U.S. deferred tax assets.
The Global Intangible Low-Taxed Income (“GILTI”) provisions create a new requirement that certain income earned by foreign subsidiaries be currently included in the gross income of the U.S. shareholder. No adjustments related to the potential GILTI impact on deferred taxes have been recorded as the Company made its accounting policy choice during the third quarter of fiscal 2019 to treat taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”).
The GILTI and executive compensation limitation provisions in the Tax Act became effective for the Company in fiscal 2019. Provisional estimates for the current year impact of these new provisions are included in the calculation of the fiscal 2019 annual effective tax rate applied to year-to-date income (loss) before taxes.
Income Tax Expense
The Company’s provision for income taxes for the three and ninesix months ended DecemberSeptember 28, 2019 and September 29, 2018 and December 30, 2017 was calculated by applying an estimate of the annual effective tax rate for the full fiscal year to “ordinary” income or loss (pre-tax(pre-
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
tax income or loss excluding unusual or infrequently occurring discrete items) to year-to-date income (loss) to determine the amounts for the three and ninesix months ended DecemberSeptember 28, 2019 and September 29, 2018 and December 30, 2017.2018.
The Company’s income tax expense was $1.4$19.0 million and $24.7 million, respectively, for the three and six months ended September 28, 2019, and the Company’s income tax expense was $0.8 million and income tax benefit was $30.0$31.4 million, for the three and ninesix months ended DecemberSeptember 29, 2018, respectively, and the Company's income tax expense was $98.5 million and $88.6 million for the three and nine months ended December 30, 2017, respectively. The Company’s effective tax rate was 1.9%18.6% and (72.2)%16.8% for the three and ninesix months ended December 29, 2018,September 28, 2019, respectively, and 150.6%2.3% and 145.7%107.1% for the three and ninesix months ended December 30, 2017,September 29, 2018, respectively.
The Company's effective tax rate for the three and ninesix months ended DecemberSeptember 28, 2019 differed from the statutory rate primarily due to tax rate differences in foreign jurisdictions, global intangible low tax income (“GILTI”), domestic tax credits generated, foreign permanent differences, the discrete treatment of postcombination compensation expenses related to the Active-Semi acquisition, and a discrete expense related to the Company’s change in its permanent reinvestment assertion for certain unrepatriated foreign earnings previously subject to U.S. federal taxation. The Company's effective tax rate for the three and six months ended September 29, 2018 differed from the statutory rate primarily due to tax rate differences in foreign jurisdictions, foreign permanent differences, state income taxes, domestic tax credits generated, changes in unrecognized tax benefits, GILTI, a discrete tax benefit for changes in provisional estimates related to the Transitional Repatriationone-time transition tax on certain unrepatriated earnings of foreign subsidiaries enacted in the Tax Cuts and for the nine months only,Jobs Act and a discrete tax benefits of $8.3 millionbenefit resulting from a retroactive incentive allowing previously non-deductible payments to be amortized andamortized.
Management has concluded that it can no longer support an assertion that certain earnings which have previously been subject to U.S. federal taxation at its foreign subsidiaries are permanently reinvested. During the SAB 118 increase in U.S deferred tax assets. The Company's effective tax rate for the three and nine months ended December 30, 2017 differed from the statutory rate primarily due to a net discrete provisional tax expense of $95.9 million resulting from the enactment of the Tax Act, tax rate differences in foreign jurisdictions, foreign permanent differences, state income taxes, domestic tax credits generated, changes in unrecognized tax benefits, a discrete tax benefit for excess stock compensation deductions in accordance with ASU 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" (adopted in the firstsecond quarter of fiscal 2018),2020, the Company updated forecasts of cash balances and forcash flow outside the nine months only,U.S. and began to implement a more centralized approach to cash management. As a result, the Company recorded $4.0 million discrete tax expense associated with intra-entity transfers in accordance with ASU 2016-16, "Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory" (adopted induring the firstsecond quarter of fiscal 2018).
Deferred Taxes
A valuation allowance remained against certain domestic and foreign net deferred tax assets as it is more likely than not that the related deferred tax assets will not be realized.
2020. The Company has domestic federal and state tax net operating loss ("NOL") and credit carry-forwards that expirehad previously released in fiscal years 2019 to 2038 if unused. The use of the NOLs that were acquired in prior year acquisitions is subject to certain annual limitations under Internal Revenue Code Section 382 and similar state income tax provisions.
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Uncertain Tax Positions
The Company’s gross unrecognized tax benefits decreased from $122.8 million as of the end of fiscal 2018 to $116.4 million as of the end of the third quarter of fiscal 2019, primarily due to lapses of statutes of limitations and the impact of the Tax Act reduction2018 its permanent reinvestment assertion on its operating subsidiary in tax rates.Singapore, Qorvo International Pte. Ltd.
12.13. NET INCOME (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except per share data):
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| September 28, 2019 | | September 29, 2018 | | September 28, 2019 | | September 29, 2018 |
Numerator: | | | | | | | |
Numerator for basic and diluted net income per share — net income available to common stockholders | $ | 83,038 |
| | $ | 32,084 |
| | $ | 122,579 |
| | $ | 2,091 |
|
Denominator: | | | | | | | |
Denominator for basic net income per share — weighted average shares | 117,294 |
| | 125,643 |
| | 117,945 |
| | 125,859 |
|
Effect of dilutive securities: | | | | | | | |
Stock-based awards | 2,135 |
| | 2,907 |
| | 2,251 |
| | 3,118 |
|
Denominator for diluted net income per share — adjusted weighted average shares and assumed conversions | 119,429 |
| | 128,550 |
| | 120,196 |
| | 128,977 |
|
Basic net income per share | $ | 0.71 |
| | $ | 0.26 |
| | $ | 1.04 |
| | $ | 0.02 |
|
Diluted net income per share | $ | 0.70 |
| | $ | 0.25 |
| | $ | 1.02 |
| | $ | 0.02 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| December 29, 2018 | | December 30, 2017 | | December 29, 2018 | | December 30, 2017 |
Numerator: | | | | | | | |
Numerator for basic and diluted net income (loss) per share — net income (loss) available to common stockholders | $ | 69,517 |
| | $ | (33,082 | ) | | $ | 71,608 |
| | $ | (27,787 | ) |
Denominator: | | | | | | | |
Denominator for basic net income (loss) per share — weighted average shares | 124,308 |
| | 127,034 |
| | 125,437 |
| | 127,084 |
|
Effect of dilutive securities: | | | | | | | |
Stock-based awards | 2,534 |
| | — |
| | 2,923 |
| | — |
|
Denominator for diluted net income (loss) per share — adjusted weighted average shares and assumed conversions | 126,842 |
| | 127,034 |
| | 128,360 |
| | 127,084 |
|
Basic net income (loss) per share | $ | 0.56 |
| | $ | (0.26 | ) | | $ | 0.57 |
| | $ | (0.22 | ) |
Diluted net income (loss) per share | $ | 0.55 |
| | $ | (0.26 | ) | | $ | 0.56 |
| | $ | (0.22 | ) |
In the computation of diluted net income per share for the three and ninesix months ended December 29, 2018,September 28, 2019, approximately 0.4 million and 0.2 million outstanding options to purchase 0.5 million shares and 0.3 million shares, respectively, were excluded because the effect of their inclusion would have been anti-dilutive. In the computation of diluted net lossincome per share for the three and ninesix months ended December 30, 2017,September 29, 2018,
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
approximately 0.3 million and 0.2 million outstanding options to purchase 3.4 million shares and 3.8 million shares, respectively, were excluded because the effect of their inclusion would have been anti-dilutive.
13.14. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
In accordance with the applicable indentures governing the 2025 Notes and 2026 Notes, the Company's obligations under the 2025 Notes and 2026 Notes are fully and unconditionally guaranteed on a joint and several basis by each Guarantor, each of which is 100% owned, directly or indirectly, by Qorvo, Inc. (the "Parent Company"). A Guarantor can be released in certain customary circumstances.
The following presents the condensed consolidating financial information separately for:
| |
(i) | Parent Company, the issuer of the guaranteed obligations; |
| |
(ii) | Guarantor subsidiaries, on a combined basis, as specified in the applicable indenture; |
| |
(iii) | Non-guarantor subsidiaries, on a combined basis; |
| |
(iv) | Consolidating entries, eliminations and reclassifications representing adjustments to (a) eliminate intercompany transactions between or among the Parent Company, the Guarantor subsidiaries and the non-guarantor subsidiaries, (b) eliminate intercompany profit in inventory, (c) eliminate the investments in the Company’s subsidiaries and (d) record consolidating entries; and |
| |
(v) | The Company, on a consolidated basis. |
Each entity in the condensed consolidating financial information follows the same accounting policies as described in the consolidated financial statements, except for the use by the Parent Company and Guarantor subsidiaries of the equity method of accounting to reflect ownership interests in subsidiaries that are eliminated upon consolidation. The financial information may
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
not necessarily be indicative of the financial position, results of operations, comprehensive (loss) income, and cash flows, had the Parent Company, Guarantor or non-guarantor subsidiaries operated as independent entities.
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
| | | Condensed Consolidating Balance Sheet | Condensed Consolidating Balance Sheet |
| December 29, 2018 | September 28, 2019 |
(in thousands) | Parent Company | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations and Reclassifications | | Consolidated | Parent Company | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations and Reclassifications | | Consolidated |
ASSETS | | | | | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | 43,695 |
| | $ | 606,016 |
| | $ | — |
| | $ | 649,711 |
| $ | — |
| | $ | 80,065 |
| | $ | 506,729 |
| | $ | — |
| | $ | 586,794 |
|
Accounts receivable, less allowance | — |
| | 64,962 |
| | 355,941 |
| | — |
| | 420,903 |
| — |
| | 43,952 |
| | 361,156 |
| | — |
| | 405,108 |
|
Intercompany accounts and notes receivable | — |
| | 368,130 |
| | 70,924 |
| | (439,054 | ) | | — |
| — |
| | 473,809 |
| | 4,624 |
| | (478,433 | ) | | — |
|
Inventories | — |
| | 226,781 |
| | 259,394 |
| | (21,226 | ) | | 464,949 |
| — |
| | 165,456 |
| | 341,741 |
| | (21,913 | ) | | 485,284 |
|
Prepaid expenses | — |
| | 18,245 |
| | 5,716 |
| | — |
| | 23,961 |
| — |
| | 20,793 |
| | 6,493 |
| | — |
| | 27,286 |
|
Other receivables | — |
| | 4,730 |
| | 17,169 |
| | — |
| | 21,899 |
| — |
| | 1,799 |
| | 12,338 |
| | — |
| | 14,137 |
|
Other current assets | — |
| | 30,618 |
| | 4,556 |
| | (1,061 | ) | | 34,113 |
| — |
| | 29,930 |
| | 3,275 |
| | — |
| | 33,205 |
|
Total current assets | — |
| | 757,161 |
| | 1,319,716 |
| | (461,341 | ) | | 1,615,536 |
| — |
| | 815,804 |
| | 1,236,356 |
| | (500,346 | ) | | 1,551,814 |
|
Property and equipment, net | — |
| | 1,114,250 |
| | 276,093 |
| | 7,246 |
| | 1,397,589 |
| — |
| | 1,059,674 |
| | 233,337 |
| | 3,092 |
| | 1,296,103 |
|
Goodwill | — |
| | 1,122,629 |
| | 1,051,260 |
| | — |
| | 2,173,889 |
| — |
| | 1,122,629 |
| | 1,182,507 |
| | — |
| | 2,305,136 |
|
Intangible assets, net | — |
| | 245,049 |
| | 218,310 |
| | — |
| | 463,359 |
| — |
| | 154,482 |
| | 297,306 |
| | — |
| | 451,788 |
|
Long-term investments | — |
| | 4,970 |
| | 85,726 |
| | — |
| | 90,696 |
| — |
| | 5,537 |
| | 92,012 |
| | — |
| | 97,549 |
|
Long-term intercompany accounts and notes receivable | — |
| | 1,135,377 |
| | 124,264 |
| | (1,259,641 | ) | | — |
| — |
| | 1,341,488 |
| | 220,231 |
| | (1,561,719 | ) | | — |
|
Investment in subsidiaries | 6,352,350 |
| | 2,460,118 |
| | — |
| | (8,812,468 | ) | | — |
| 6,716,288 |
| | 2,591,241 |
| | — |
| | (9,307,529 | ) | | — |
|
Other non-current assets | 122,683 |
| | 33,278 |
| | 30,065 |
| | (120,804 | ) | | 65,222 |
| 6,635 |
| | 101,258 |
| | 43,286 |
| | (4,998 | ) | | 146,181 |
|
Total assets | $ | 6,475,033 |
| | $ | 6,872,832 |
| | $ | 3,105,434 |
| | $ | (10,647,008 | ) | | $ | 5,806,291 |
| $ | 6,722,923 |
| | $ | 7,192,113 |
| | $ | 3,305,035 |
| | $ | (11,371,500 | ) | | $ | 5,848,571 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
| | | | | | | | |
|
Current liabilities: | | | | | | | | |
| | | | | | | | |
|
Accounts payable | $ | — |
| | $ | 96,252 |
| | $ | 133,014 |
| | $ | — |
| | $ | 229,266 |
| $ | — |
| | $ | 70,435 |
| | $ | 143,501 |
| | $ | — |
| | $ | 213,936 |
|
Intercompany accounts and notes payable | — |
| | 70,924 |
| | 368,130 |
| | (439,054 | ) | | — |
| — |
| | 4,624 |
| | 473,809 |
| | (478,433 | ) | | — |
|
Accrued liabilities | 16,505 |
| | 69,780 |
| | 50,546 |
| | 742 |
| | 137,573 |
| 10,854 |
| | 114,289 |
| | 45,578 |
| | 1,624 |
| | 172,345 |
|
Current portion of long-term debt | | 3,750 |
| | — |
| | 483 |
| | — |
| | 4,233 |
|
Other current liabilities | — |
| | — |
| | 48,154 |
| | (1,061 | ) | | 47,093 |
| — |
| | 10,167 |
| | 48,948 |
| | — |
| | 59,115 |
|
Total current liabilities | 16,505 |
| | 236,956 |
| | 599,844 |
| | (439,373 | ) | | 413,932 |
| 14,604 |
| | 199,515 |
| | 712,319 |
| | (476,809 | ) | | 449,629 |
|
Long-term debt | 714,402 |
| | — |
| | — |
| | — |
| | 714,402 |
| 1,014,423 |
| | — |
| | 1,640 |
| | — |
| | 1,016,063 |
|
Deferred tax liabilities | — |
| | 39,235 |
| | 939 |
| | (33,196 | ) | | 6,978 |
| |
Long-term intercompany accounts and notes payable | 1,166,806 |
| | 92,835 |
| | — |
| | (1,259,641 | ) | | — |
| 1,428,402 |
| | 133,317 |
| | — |
| | (1,561,719 | ) | | — |
|
Other long-term liabilities | — |
| | 48,607 |
| | 45,052 |
| | — |
| | 93,659 |
| — |
| | 114,388 |
| | 28,440 |
| | (25,443 | ) | | 117,385 |
|
Total liabilities | 1,897,713 |
| | 417,633 |
| | 645,835 |
| | (1,732,210 | ) | | 1,228,971 |
| 2,457,429 |
| | 447,220 |
| | 742,399 |
| | (2,063,971 | ) | | 1,583,077 |
|
Total stockholders’ equity | 4,577,320 |
| | 6,455,199 |
| | 2,459,599 |
| | (8,914,798 | ) | | 4,577,320 |
| 4,265,494 |
| | 6,744,893 |
| | 2,562,636 |
| | (9,307,529 | ) | | 4,265,494 |
|
Total liabilities and stockholders’ equity | $ | 6,475,033 |
| | $ | 6,872,832 |
| | $ | 3,105,434 |
| | $ | (10,647,008 | ) | | $ | 5,806,291 |
| $ | 6,722,923 |
| | $ | 7,192,113 |
| | $ | 3,305,035 |
| | $ | (11,371,500 | ) | | $ | 5,848,571 |
|
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | |
| Condensed Consolidating Balance Sheet |
| March 30, 2019 |
(in thousands) | Parent Company | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations and Reclassifications | | Consolidated |
ASSETS | | | | | | | | | |
Current assets: | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | 231,865 |
| | $ | 479,170 |
| | $ | — |
| | $ | 711,035 |
|
Accounts receivable, less allowance | — |
| | 47,181 |
| | 330,991 |
| | — |
| | 378,172 |
|
Intercompany accounts and notes receivable | — |
| | 381,558 |
| | 62,640 |
| | (444,198 | ) | | — |
|
Inventories | — |
| | 173,885 |
| | 359,252 |
| | (21,344 | ) | | 511,793 |
|
Prepaid expenses | — |
| | 24,087 |
| | 1,679 |
| | — |
| | 25,766 |
|
Other receivables | — |
| | 5,121 |
| | 16,813 |
| | — |
| | 21,934 |
|
Other current assets | — |
| | 33,956 |
| | 2,354 |
| | (169 | ) | | 36,141 |
|
Total current assets | — |
| | 897,653 |
| | 1,252,899 |
| | (465,711 | ) | | 1,684,841 |
|
Property and equipment, net | — |
| | 1,090,171 |
| | 268,040 |
| | 8,302 |
| | 1,366,513 |
|
Goodwill | — |
| | 1,122,629 |
| | 1,051,260 |
| | — |
| | 2,173,889 |
|
Intangible assets, net | — |
| | 214,348 |
| | 193,862 |
| | — |
| | 408,210 |
|
Long-term investments | — |
| | 4,969 |
| | 92,817 |
| | — |
| | 97,786 |
|
Long-term intercompany accounts and notes receivable | — |
| | 1,239,474 |
| | 93,923 |
| | (1,333,397 | ) | | — |
|
Investment in subsidiaries | 6,540,081 |
| | 2,321,170 |
| | — |
| | (8,861,251 | ) | | — |
|
Other non-current assets | 17,245 |
| | 46,784 |
| | 28,234 |
| | (15,478 | ) | | 76,785 |
|
Total assets | $ | 6,557,326 |
| | $ | 6,937,198 |
| | $ | 2,981,035 |
| | $ | (10,667,535 | ) | | $ | 5,808,024 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
|
Current liabilities: | | | | | | | | |
|
Accounts payable | $ | — |
| | $ | 95,089 |
| | $ | 138,218 |
| | $ | — |
| | $ | 233,307 |
|
Intercompany accounts and notes payable | — |
| | 62,640 |
| | 381,558 |
| | (444,198 | ) | | — |
|
Accrued liabilities | 11,174 |
| | 96,238 |
| | 51,781 |
| | 1,323 |
| | 160,516 |
|
Current portion of long-term debt | — |
| | — |
| | 80 |
| | — |
| | 80 |
|
Other current liabilities | — |
| | — |
| | 41,880 |
| | (169 | ) | | 41,711 |
|
Total current liabilities | 11,174 |
| | 253,967 |
| | 613,517 |
| | (443,044 | ) | | 435,614 |
|
Long-term debt | 919,270 |
| | — |
| | 1,665 |
| | — |
| | 920,935 |
|
Long-term intercompany accounts and notes payable | 1,267,203 |
| | 66,195 |
| | — |
| | (1,333,398 | ) | | — |
|
Other long-term liabilities | — |
| | 76,955 |
| | 45,202 |
| | (30,361 | ) | | 91,796 |
|
Total liabilities | 2,197,647 |
| | 397,117 |
| | 660,384 |
| | (1,806,803 | ) | | 1,448,345 |
|
Total stockholders’ equity | 4,359,679 |
| | 6,540,081 |
| | 2,320,651 |
| | (8,860,732 | ) | | 4,359,679 |
|
Total liabilities and stockholders’ equity | $ | 6,557,326 |
| | $ | 6,937,198 |
| | $ | 2,981,035 |
| | $ | (10,667,535 | ) | | $ | 5,808,024 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Condensed Consolidating Balance Sheet |
| March 31, 2018 |
(in thousands) | Parent Company | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations and Reclassifications | | Consolidated |
ASSETS | | | | | | | | | |
Current assets: | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | 629,314 |
| | $ | 296,723 |
| | $ | — |
| | $ | 926,037 |
|
Accounts receivable, less allowance | — |
| | 76,863 |
| | 269,094 |
| | — |
| | 345,957 |
|
Intercompany accounts and notes receivable | — |
| | 272,409 |
| | 53,363 |
| | (325,772 | ) | | — |
|
Inventories | — |
| | 154,651 |
| | 339,434 |
| | (21,793 | ) | | 472,292 |
|
Prepaid expenses | — |
| | 17,530 |
| | 6,379 |
| | — |
| | 23,909 |
|
Other receivables | — |
| | 5,959 |
| | 38,836 |
| | — |
| | 44,795 |
|
Other current assets | — |
| | 29,627 |
| | 1,188 |
| | — |
| | 30,815 |
|
Total current assets | — |
| | 1,186,353 |
| | 1,005,017 |
| | (347,565 | ) | | 1,843,805 |
|
Property and equipment, net | — |
| | 1,085,255 |
| | 289,146 |
| | (289 | ) | | 1,374,112 |
|
Goodwill | — |
| | 1,121,941 |
| | 1,051,948 |
| | — |
| | 2,173,889 |
|
Intangible assets, net | — |
| | 395,317 |
| | 465,019 |
| | — |
| | 860,336 |
|
Long-term investments | — |
| | 1,847 |
| | 61,918 |
| | — |
| | 63,765 |
|
Long-term intercompany accounts and notes receivable | — |
| | 543,127 |
| | 116,494 |
| | (659,621 | ) | | — |
|
Investment in subsidiaries | 6,198,885 |
| | 2,388,222 |
| | — |
| | (8,587,107 | ) | | — |
|
Other non-current assets | 72,122 |
| | 31,011 |
| | 32,516 |
| | (70,037 | ) | | 65,612 |
|
Total assets | $ | 6,271,007 |
| | $ | 6,753,073 |
| | $ | 3,022,058 |
| | $ | (9,664,619 | ) | | $ | 6,381,519 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
|
Current liabilities: | | | | | | | | |
|
Accounts payable | $ | — |
| | $ | 78,278 |
| | $ | 134,915 |
| | $ | — |
| | $ | 213,193 |
|
Intercompany accounts and notes payable | — |
| | 53,363 |
| | 272,409 |
| | (325,772 | ) | | — |
|
Accrued liabilities | 23,102 |
| | 101,286 |
| | 43,163 |
| | (369 | ) | | 167,182 |
|
Other current liabilities | — |
| | 3,882 |
| | 57,022 |
| | — |
| | 60,904 |
|
Total current liabilities | 23,102 |
| | 236,809 |
| | 507,509 |
| | (326,141 | ) | | 441,279 |
|
Long-term debt | 983,290 |
| | — |
| | — |
| | — |
| | 983,290 |
|
Deferred tax liabilities | — |
| | 83,449 |
| | 16,366 |
| | (36,731 | ) | | 63,084 |
|
Long-term intercompany accounts and notes payable | 489,051 |
| | 116,494 |
| | 54,076 |
| | (659,621 | ) | | — |
|
Other long-term liabilities | — |
| | 62,417 |
| | 55,885 |
| | — |
| | 118,302 |
|
Total liabilities | 1,495,443 |
| | 499,169 |
| | 633,836 |
| | (1,022,493 | ) | | 1,605,955 |
|
Total stockholders’ equity | 4,775,564 |
| | 6,253,904 |
| | 2,388,222 |
| | (8,642,126 | ) | | 4,775,564 |
|
Total liabilities and stockholders’ equity | $ | 6,271,007 |
| | $ | 6,753,073 |
| | $ | 3,022,058 |
| | $ | (9,664,619 | ) | | $ | 6,381,519 |
|
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
| | | Condensed Consolidating Statement of Income and Comprehensive Income | Condensed Consolidating Statement of Income and Comprehensive Income |
| Three Months Ended December 29, 2018 | Three Months Ended September 28, 2019 |
(in thousands) | Parent Company | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations and Reclassifications | | Consolidated | Parent Company | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations and Reclassifications | | Consolidated |
Revenue | $ | — |
| | $ | 271,671 |
| | $ | 762,484 |
| | $ | (201,825 | ) | | $ | 832,330 |
| $ | — |
| | $ | 215,097 |
| | $ | 749,581 |
| | $ | (157,980 | ) | | $ | 806,698 |
|
Cost of goods sold | — |
| | 225,156 |
| | 447,084 |
| | (178,273 | ) | | 493,967 |
| — |
| | 193,994 |
| | 423,834 |
| | (134,712 | ) | | 483,116 |
|
Gross profit | — |
| | 46,515 |
| | 315,400 |
| | (23,552 | ) | | 338,363 |
| — |
| | 21,103 |
| | 325,747 |
| | (23,268 | ) | | 323,582 |
|
Operating expenses: | | | | | | | | |
| | | | | | | | |
|
Research and development | 8,122 |
| | 10,218 |
| | 94,114 |
| | (2,469 | ) | | 109,985 |
| 7,113 |
| | (4,054 | ) | | 113,453 |
| | (898 | ) | | 115,614 |
|
Selling, general and administrative | 10,327 |
| | 53,131 |
| | 82,581 |
| | (20,435 | ) | | 125,604 |
| 13,763 |
| | 44,710 |
| | 51,819 |
| | (22,018 | ) | | 88,274 |
|
Other operating expense | 173 |
| | 21,477 |
| | 499 |
| | (532 | ) | | 21,617 |
| — |
| | 4,497 |
| | 2,418 |
| | 12 |
| | 6,927 |
|
Total operating expenses | 18,622 |
| | 84,826 |
| | 177,194 |
| | (23,436 | ) | | 257,206 |
| 20,876 |
| | 45,153 |
| | 167,690 |
| | (22,904 | ) | | 210,815 |
|
Income (loss) from operations | (18,622 | ) | | (38,311 | ) | | 138,206 |
| | (116 | ) | | 81,157 |
| (20,876 | ) | | (24,050 | ) | | 158,057 |
| | (364 | ) | | 112,767 |
|
Interest expense | (9,235 | ) | | (516 | ) | | (206 | ) | | 395 |
| | (9,562 | ) | (12,496 | ) | | (577 | ) | | (103 | ) | | 483 |
| | (12,693 | ) |
Interest income | — |
| | 269 |
| | 2,941 |
| | (396 | ) | | 2,814 |
| — |
| | 648 |
| | 2,128 |
| | (484 | ) | | 2,292 |
|
Other (expense) income | (1,852 | ) | | (2,566 | ) | | 898 |
| | — |
| | (3,520 | ) | — |
| | (679 | ) | | 379 |
| | — |
| | (300 | ) |
Income (loss) before income taxes | (29,709 | ) | | (41,124 | ) | | 141,839 |
| | (117 | ) | | 70,889 |
| (33,372 | ) | | (24,658 | ) | | 160,461 |
| | (365 | ) | | 102,066 |
|
Income tax (expense) benefit | 6,147 |
| | (23,051 | ) | | 15,532 |
| | — |
| | (1,372 | ) | 7,359 |
| | (4,183 | ) | | (22,204 | ) | | — |
| | (19,028 | ) |
Income in subsidiaries | 93,079 |
| | 157,371 |
| | — |
| | (250,450 | ) | | — |
| 109,051 |
| | 138,256 |
| | — |
| | (247,307 | ) | | — |
|
Net income | $ | 69,517 |
| | $ | 93,196 |
| | $ | 157,371 |
| | $ | (250,567 | ) | | $ | 69,517 |
| $ | 83,038 |
| | $ | 109,415 |
| | $ | 138,257 |
| | $ | (247,672 | ) | | $ | 83,038 |
|
| | | | | | | | | | | | | | | | | | |
Comprehensive income | $ | 68,455 |
| | $ | 92,520 |
| | $ | 156,974 |
| | $ | (249,494 | ) | | $ | 68,455 |
| $ | 82,061 |
| | $ | 109,510 |
| | $ | 136,942 |
| | $ | (246,452 | ) | | $ | 82,061 |
|
| | | Condensed Consolidating Statement of Income and Comprehensive (Loss) Income | Condensed Consolidating Statement of Income and Comprehensive Income |
| Three Months Ended December 30, 2017 | Three Months Ended September 29, 2018 |
(in thousands) | Parent Company | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations and Reclassifications | | Consolidated | Parent Company | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations and Reclassifications | | Consolidated |
Revenue | $ | — |
| | $ | 301,077 |
| | $ | 751,995 |
| | $ | (207,333 | ) | | $ | 845,739 |
| $ | — |
| | $ | 236,631 |
| | $ | 825,844 |
| | $ | (178,032 | ) | | $ | 884,443 |
|
Cost of goods sold | — |
| | 212,574 |
| | 473,330 |
| | (177,092 | ) | | 508,812 |
| — |
| | 207,221 |
| | 476,256 |
| | (152,548 | ) | | 530,929 |
|
Gross profit | — |
| | 88,503 |
| | 278,665 |
| | (30,241 | ) | | 336,927 |
| — |
| | 29,410 |
| | 349,588 |
| | (25,484 | ) | | 353,514 |
|
Operating expenses: | | | | | | | | | | | | | | | | | | |
Research and development | 7,101 |
| | 6,842 |
| | 97,842 |
| | (5,374 | ) | | 106,411 |
| 6,910 |
| | 7,340 |
| | 103,671 |
| | (1,173 | ) | | 116,748 |
|
Selling, general and administrative | 6,381 |
| | 57,166 |
| | 88,016 |
| | (25,008 | ) | | 126,555 |
| 13,876 |
| | 58,924 |
| | 91,399 |
| | (24,692 | ) | | 139,507 |
|
Other operating expense | 234 |
| | 15,799 |
| | 7,466 |
| | 142 |
| | 23,641 |
| |
Other operating expense (income) | | 119 |
| | (2,192 | ) | | 8,458 |
| | 397 |
| | 6,782 |
|
Total operating expenses | 13,716 |
| | 79,807 |
| | 193,324 |
| | (30,240 | ) | | 256,607 |
| 20,905 |
| | 64,072 |
| | 203,528 |
| | (25,468 | ) | | 263,037 |
|
Income (loss) from operations | (13,716 | ) | | 8,696 |
| | 85,341 |
| | (1 | ) | | 80,320 |
| (20,905 | ) | | (34,662 | ) | | 146,060 |
| | (16 | ) | | 90,477 |
|
Interest expense | (16,001 | ) | | (557 | ) | | (393 | ) | | 613 |
| | (16,338 | ) | (9,400 | ) | | (522 | ) | | (160 | ) | | 393 |
| | (9,689 | ) |
Interest income | — |
| | 614 |
| | 2,214 |
| | (613 | ) | | 2,215 |
| — |
| | 477 |
| | 1,495 |
| | (392 | ) | | 1,580 |
|
Other expense | — |
| | (549 | ) | | (208 | ) | | — |
| | (757 | ) | |
Other (expense) income | | (48,779 | ) | | 798 |
| | (1,551 | ) | | — |
| | (49,532 | ) |
Income (loss) before income taxes | (29,717 | ) | | 8,204 |
| | 86,954 |
| | (1 | ) | | 65,440 |
| (79,084 | ) | | (33,909 | ) | | 145,844 |
| | (15 | ) | | 32,836 |
|
Income tax expense | (30,116 | ) | | (59,974 | ) | | (8,432 | ) | | — |
| | (98,522 | ) | |
Income tax (expense) benefit | | 25,920 |
| | (20,470 | ) | | (6,202 | ) | | — |
| | (752 | ) |
Income in subsidiaries | 26,751 |
| | 78,522 |
| | — |
| | (105,273 | ) | | — |
| 85,248 |
| | 139,642 |
| | — |
| | (224,890 | ) | | — |
|
Net (loss) income | $ | (33,082 | ) | | $ | 26,752 |
| | $ | 78,522 |
| | $ | (105,274 | ) | | $ | (33,082 | ) | |
Net income | | $ | 32,084 |
| | $ | 85,263 |
| | $ | 139,642 |
| | $ | (224,905 | ) | | $ | 32,084 |
|
| | | | | | | | | | | | | | | | | | |
Comprehensive (loss) income | $ | (32,185 | ) | | $ | 28,630 |
| | $ | 82,312 |
| | $ | (110,942 | ) | | $ | (32,185 | ) | |
Comprehensive income | | $ | 32,012 |
| | $ | 85,347 |
| | $ | 139,472 |
| | $ | (224,819 | ) | | $ | 32,012 |
|
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
| | | Condensed Consolidating Statement of Income and Comprehensive (Loss) Income | Condensed Consolidating Statement of Income and Comprehensive Income |
| Nine Months Ended December 29, 2018 | Six Months Ended September 28, 2019 |
(in thousands) | Parent Company | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations and Reclassifications | | Consolidated | Parent Company | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations and Reclassifications | | Consolidated |
Revenue | $ | — |
| | $ | 740,241 |
| | $ | 2,214,289 |
| | $ | (545,087 | ) | | $ | 2,409,443 |
| $ | — |
| | $ | 472,039 |
| | $ | 1,474,695 |
| | $ | (364,438 | ) | | $ | 1,582,296 |
|
Cost of goods sold | — |
| | 622,688 |
| | 1,333,037 |
| | (474,892 | ) | | 1,480,833 |
| — |
| | 437,864 |
| | 843,949 |
| | (317,388 | ) | | 964,425 |
|
Gross profit | — |
| | 117,553 |
| | 881,252 |
| | (70,195 | ) | | 928,610 |
| — |
| | 34,175 |
| | 630,746 |
| | (47,050 | ) | | 617,871 |
|
Operating expenses: | | | | | | | | | | | | | | | | | | |
Research and development | 21,433 |
| | 20,837 |
| | 300,233 |
| | (4,867 | ) | | 337,636 |
| 14,002 |
| | 11,529 |
| | 210,721 |
| | (1,718 | ) | | 234,534 |
|
Selling, general and administrative | 36,998 |
| | 170,011 |
| | 260,359 |
| | (66,327 | ) | | 401,041 |
| 31,827 |
| | 94,992 |
| | 95,643 |
| | (45,209 | ) | | 177,253 |
|
Other operating expense | 442 |
| | 27,225 |
| | 10,011 |
| | (164 | ) | | 37,514 |
| — |
| | 19,321 |
| | 18,960 |
| | (190 | ) | | 38,091 |
|
Total operating expenses | 58,873 |
| | 218,073 |
| | 570,603 |
| | (71,358 | ) | | 776,191 |
| 45,829 |
| | 125,842 |
| | 325,324 |
| | (47,117 | ) | | 449,878 |
|
Income (loss) from operations | (58,873 | ) | | (100,520 | ) | | 310,649 |
| | 1,163 |
| | 152,419 |
| (45,829 | ) | | (91,667 | ) | | 305,422 |
| | 67 |
| | 167,993 |
|
Interest expense | (32,677 | ) | | (1,575 | ) | | (527 | ) | | 1,175 |
| | (33,604 | ) | (24,085 | ) | | (1,069 | ) | | (278 | ) | | 875 |
| | (24,557 | ) |
Interest income | — |
| | 3,152 |
| | 5,811 |
| | (1,175 | ) | | 7,788 |
| — |
| | 1,406 |
| | 4,707 |
| | (875 | ) | | 5,238 |
|
Other (expense) income | (84,004 | ) | | (1,440 | ) | | 437 |
| | — |
| | (85,007 | ) | |
Other expense | | — |
| | (107 | ) | | (1,304 | ) | | — |
| | (1,411 | ) |
Income (loss) before income taxes | (175,554 | ) | | (100,383 | ) | | 316,370 |
| | 1,163 |
| | 41,596 |
| (69,914 | ) | | (91,437 | ) | | 308,547 |
| | 67 |
| | 147,263 |
|
Income tax benefit (expense) | 43,521 |
| | (26,717 | ) | | 13,208 |
| | — |
| | 30,012 |
| |
Income tax (expense) benefit | | 15,165 |
| | (1,443 | ) | | (38,406 | ) | | — |
| | (24,684 | ) |
Income in subsidiaries | 203,641 |
| | 329,578 |
| | — |
| | (533,219 | ) | | — |
| 177,328 |
| | 270,140 |
| | — |
| | (447,468 | ) | | — |
|
Net income | $ | 71,608 |
| | $ | 202,478 |
| | $ | 329,578 |
| | $ | (532,056 | ) | | $ | 71,608 |
| $ | 122,579 |
| | $ | 177,260 |
| | $ | 270,141 |
| | $ | (447,401 | ) | | $ | 122,579 |
|
| | | | | | | | | | | | | | | | | | |
Comprehensive income | $ | 68,290 |
| | $ | 201,891 |
| | $ | 326,701 |
| | $ | (528,592 | ) | | $ | 68,290 |
| $ | 121,545 |
| | $ | 177,355 |
| | $ | 268,833 |
| | $ | (446,188 | ) | | $ | 121,545 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Condensed Consolidating Statement of Income and Comprehensive (Loss) Income |
| Six Months Ended September 29, 2018 |
(in thousands) | Parent Company | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations and Reclassifications | | Consolidated |
Revenue | $ | — |
| | $ | 468,570 |
| | $ | 1,451,805 |
| | $ | (343,262 | ) | | $ | 1,577,113 |
|
Cost of goods sold | — |
| | 397,532 |
| | 885,953 |
| | (296,619 | ) | | 986,866 |
|
Gross profit | — |
| | 71,038 |
| | 565,852 |
| | (46,643 | ) | | 590,247 |
|
Operating expenses: | | | | | | | | | |
Research and development | 13,311 |
| | 10,619 |
| | 206,119 |
| | (2,398 | ) | | 227,651 |
|
Selling, general and administrative | 26,671 |
| | 116,880 |
| | 177,778 |
| | (45,892 | ) | | 275,437 |
|
Other operating expense | 269 |
| | 5,748 |
| | 9,512 |
| | 368 |
| | 15,897 |
|
Total operating expenses | 40,251 |
| | 133,247 |
| | 393,409 |
| | (47,922 | ) | | 518,985 |
|
Income (loss) from operations | (40,251 | ) | | (62,209 | ) | | 172,443 |
| | 1,279 |
| | 71,262 |
|
Interest expense | (23,442 | ) | | (1,059 | ) | | (321 | ) | | 780 |
| | (24,042 | ) |
Interest income | — |
| | 2,883 |
| | 2,870 |
| | (779 | ) | | 4,974 |
|
Other (expense) income | (82,152 | ) | | 1,126 |
| | (461 | ) | | — |
| | (81,487 | ) |
(Loss) income before income taxes | (145,845 | ) | | (59,259 | ) | | 174,531 |
| | 1,280 |
| | (29,293 | ) |
Income tax benefit (expense) | 37,374 |
| | (3,666 | ) | | (2,324 | ) | | — |
| | 31,384 |
|
Income in subsidiaries | 110,562 |
| | 172,207 |
| | — |
| | (282,769 | ) | | — |
|
Net income | $ | 2,091 |
| | $ | 109,282 |
| | $ | 172,207 |
| | $ | (281,489 | ) | | $ | 2,091 |
|
| | | | | | | | | |
Comprehensive (loss) income | $ | (165 | ) | | $ | 109,371 |
| | $ | 169,727 |
| | $ | (279,098 | ) | | $ | (165 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| Condensed Consolidating Statement of Income and Comprehensive (Loss) Income |
| Nine Months Ended December 30, 2017 |
(in thousands) | Parent Company | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations and Reclassifications | | Consolidated |
Revenue | $ | — |
| | $ | 829,625 |
| | $ | 2,108,231 |
| | $ | (629,703 | ) | | $ | 2,308,153 |
|
Cost of goods sold | — |
| | 592,928 |
| | 1,346,505 |
| | (525,606 | ) | | 1,413,827 |
|
Gross profit | — |
| | 236,697 |
| | 761,726 |
| | (104,097 | ) | | 894,326 |
|
Operating expenses: | | | | | | | | | |
Research and development | 20,600 |
| | 34,728 |
| | 292,926 |
| | (13,946 | ) | | 334,308 |
|
Selling, general and administrative | 37,252 |
| | 190,336 |
| | 268,072 |
| | (90,807 | ) | | 404,853 |
|
Other operating expense | 448 |
| | 39,659 |
| | 12,764 |
| | 239 |
| | 53,110 |
|
Total operating expenses | 58,300 |
| | 264,723 |
| | 573,762 |
| | (104,514 | ) | | 792,271 |
|
Income (loss) from operations | (58,300 | ) | | (28,026 | ) | | 187,964 |
| | 417 |
| | 102,055 |
|
Interest expense | (42,367 | ) | | (1,689 | ) | | (1,161 | ) | | 1,830 |
| | (43,387 | ) |
Interest income | — |
| | 1,439 |
| | 4,430 |
| | (1,830 | ) | | 4,039 |
|
Other (expense) income | — |
| | 207 |
| | (2,090 | ) | | — |
| | (1,883 | ) |
Income (loss) before income taxes | (100,667 | ) | | (28,069 | ) | | 189,143 |
| | 417 |
| | 60,824 |
|
Income tax (expense) benefit | 5,657 |
| | (76,149 | ) | | (18,119 | ) | | — |
| | (88,611 | ) |
Income in subsidiaries | 67,223 |
| | 171,024 |
| | — |
| | (238,247 | ) | | — |
|
Net (loss) income | $ | (27,787 | ) | | $ | 66,806 |
| | $ | 171,024 |
| | $ | (237,830 | ) | | $ | (27,787 | ) |
| | | | | | | | | |
Comprehensive (loss) income | $ | (26,563 | ) | | $ | 68,783 |
| | $ | 172,528 |
| | $ | (241,311 | ) | | $ | (26,563 | ) |
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
| | | Condensed Consolidating Statement of Cash Flows | Condensed Consolidating Statement of Cash Flows |
| Nine Months Ended December 29, 2018 | Six Months Ended September 28, 2019 |
(in thousands) | Parent Company | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations and Reclassifications | | Consolidated | Parent Company | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations and Reclassifications | | Consolidated |
Net cash provided by (used in) operating activities | $ | 691,479 |
| | $ | (688,262 | ) | | $ | 619,802 |
| | $ | — |
| | $ | 623,019 |
| $ | 166,127 |
| | $ | (144,146 | ) | | $ | 408,549 |
| | $ | — |
| | $ | 430,530 |
|
Investing activities: | | | | | | | | | | | | | | | | | | |
Purchase of property and equipment | — |
| | (155,006 | ) | | (30,621 | ) | | — |
| | (185,627 | ) | — |
| | (75,365 | ) | | (12,973 | ) | | — |
| | (88,338 | ) |
Purchase of debt securities | — |
| | (132,729 | ) | | — |
| | — |
| | (132,729 | ) | |
Proceeds from sales and maturities of debt securities | — |
| | 133,132 |
| | — |
| | — |
| | 133,132 |
| |
Purchase of a business, net of cash acquired | | — |
| | — |
| | (299,673 | ) | | — |
| | (299,673 | ) |
Proceeds from sale of available-for-sale debt securities | | — |
| | 1,950 |
| | — |
| | — |
| | 1,950 |
|
Other investing activities | — |
| | (3,829 | ) | | (16,409 | ) | | — |
| | (20,238 | ) | — |
| | (1,748 | ) | | 506 |
| | — |
| | (1,242 | ) |
Net transactions with related parties | — |
| | 260,047 |
| | — |
| | (260,047 | ) | | — |
| — |
| | 28,086 |
| | — |
| | (28,086 | ) | | — |
|
Net cash (used in) provided by investing activities | — |
| | 101,615 |
| | (47,030 | ) | | (260,047 | ) | | (205,462 | ) | |
Net cash used in investing activities | | — |
| | (47,077 | ) | | (312,140 | ) | | (28,086 | ) | | (387,303 | ) |
Financing activities: | | | | | | | | |
| | | | | | | | |
|
Payment of debt | (977,498 | ) | | — |
| | — |
| | — |
| | (977,498 | ) | |
Proceeds from debt issuances | 631,300 |
| | — |
| | — |
| | — |
| | 631,300 |
| |
Proceeds from borrowings | | 100,000 |
| | — |
| | — |
| | — |
| | 100,000 |
|
Repurchase of common stock, including transaction costs | (338,675 | ) | | — |
| | — |
| | — |
| | (338,675 | ) | (265,105 | ) | | — |
| | — |
| | — |
| | (265,105 | ) |
Proceeds from the issuance of common stock | 25,452 |
| | — |
| | — |
| | — |
| | 25,452 |
| 20,205 |
| | — |
| | — |
| | — |
| | 20,205 |
|
Tax withholding paid on behalf of employees for restricted stock units | (24,595 | ) | | — |
| | — |
| | — |
| | (24,595 | ) | (20,545 | ) | | — |
| | — |
| | — |
| | (20,545 | ) |
Other financing activities | (7,463 | ) | | — |
| | (47 | ) | | — |
| | (7,510 | ) | (682 | ) | | — |
| | (150 | ) | | — |
| | (832 | ) |
Net transactions with related parties | — |
| | 1,028 |
| | (261,075 | ) | | 260,047 |
| | — |
| — |
| | 39,423 |
| | (67,509 | ) | | 28,086 |
| | — |
|
Net cash (used in) provided by financing activities | (691,479 | ) | | 1,028 |
| | (261,122 | ) | | 260,047 |
| | (691,526 | ) | (166,127 | ) | | 39,423 |
| | (67,659 | ) | | 28,086 |
| | (166,277 | ) |
Effect of exchange rate changes on cash | — |
| | — |
| | (2,369 | ) | | — |
| | (2,369 | ) | — |
| | — |
| | (1,091 | ) | | — |
| | (1,091 | ) |
Net (decrease) increase in cash, cash equivalents and restricted cash | — |
| | (585,619 | ) | | 309,281 |
| | — |
| | (276,338 | ) | — |
| | (151,800 | ) | | 27,659 |
| | — |
| | (124,141 | ) |
Cash, cash equivalents and restricted cash at the beginning of the period | — |
| | 629,314 |
| | 297,088 |
| | — |
| | 926,402 |
| — |
| | 231,865 |
| | 479,517 |
| | — |
| | 711,382 |
|
Cash, cash equivalents and restricted cash at the end of the period | $ | — |
| | $ | 43,695 |
| | $ | 606,369 |
| | $ | — |
| | $ | 650,064 |
| $ | — |
| | $ | 80,065 |
| | $ | 507,176 |
| | $ | — |
| | $ | 587,241 |
|
| | | | | | | | | | | | | | | | | | |
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | |
| Condensed Consolidating Statement of Cash Flows |
| Six Months Ended September 29, 2018 |
(in thousands) | Parent Company | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations and Reclassifications | | Consolidated |
Net cash provided by (used in) operating activities | $ | 522,959 |
| | $ | (548,315 | ) | | $ | 315,152 |
| | $ | — |
| | $ | 289,796 |
|
Investing activities: | | | | | | | | | |
Purchase of property and equipment | — |
| | (95,897 | ) | | (17,769 | ) | | — |
| | (113,666 | ) |
Purchase of available-for-sale debt securities | — |
| | (132,729 | ) | | — |
| | — |
| | (132,729 | ) |
Proceeds from maturities and sales of available-for-sale debt securities | — |
| | 133,132 |
| | — |
| | — |
| | 133,132 |
|
Other investing activities | — |
| | (1,086 | ) | | (18,406 | ) | | — |
| | (19,492 | ) |
Net transactions with related parties | — |
| | 110,047 |
| | — |
| | (110,047 | ) | | — |
|
Net cash (used in) provided by investing activities | — |
| | 13,467 |
| | (36,175 | ) | | (110,047 | ) | | (132,755 | ) |
Financing activities: | | | | | | | | |
|
Repurchase of debt | (954,745 | ) | | — |
| | — |
| | — |
| | (954,745 | ) |
Proceeds from debt issuances | 631,300 |
| | — |
| | — |
| | — |
| | 631,300 |
|
Repurchase of common stock, including transaction costs | (186,682 | ) | | — |
| | — |
| | — |
| | (186,682 | ) |
Proceeds from the issuance of common stock | 18,406 |
| | — |
| | — |
| | — |
| | 18,406 |
|
Tax withholding paid on behalf of employees for restricted stock units | (24,181 | ) | | — |
| | — |
| | — |
| | (24,181 | ) |
Other financing activities | (7,057 | ) | | — |
| | — |
| | — |
| | (7,057 | ) |
Net transactions with related parties | — |
| | 686 |
| | (110,733 | ) | | 110,047 |
| | — |
|
Net cash (used in) provided by financing activities | (522,959 | ) | | 686 |
| | (110,733 | ) | | 110,047 |
| | (522,959 | ) |
Effect of exchange rate changes on cash | — |
| | — |
| | (2,216 | ) | | — |
| | (2,216 | ) |
Net (decrease) increase in cash, cash equivalents and restricted cash | — |
| | (534,162 | ) | | 166,028 |
| | — |
| | (368,134 | ) |
Cash, cash equivalents and restricted cash at the beginning of the period | — |
| | 629,314 |
| | 297,088 |
| | — |
| | 926,402 |
|
Cash, cash equivalents and restricted cash at the end of the period | $ | — |
| | $ | 95,152 |
| | $ | 463,116 |
| | $ | — |
| | $ | 558,268 |
|
15. SUBSEQUENT EVENTS
Senior Notes due 2029
On September 30, 2019, the Company issued $350.0 million aggregate principal amount of its 4.375% senior notes due 2029 (the “2029 Notes”). The 2029 Notes pay interest semi-annually on April 15 and October 15 at a rate of 4.375% per annum. The 2029 Notes will mature on October 15, 2029, unless earlier redeemed in accordance with their terms.
The 2029 Notes were sold in a private offering to certain institutions that then resold the 2029 Notes in the United States to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act, and to certain non-U.S. persons in accordance with Regulation S under the Securities Act. The Company intends to use the net proceeds of the offering for general corporate purposes. The 2029 Notes are senior unsecured obligations of the Company and are initially guaranteed, jointly and severally, by each of the Guarantors.
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | |
| Condensed Consolidating Statement of Cash Flows |
| Nine Months Ended December 30, 2017 |
(in thousands) | Parent Company | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations and Reclassifications | | Consolidated |
Net cash provided by operating activities | $ | 53,060 |
| | $ | 175,303 |
| | $ | 365,199 |
| | $ | — |
| | $ | 593,562 |
|
Investing activities: | | | | | | | | | |
Purchase of property and equipment | — |
| | (198,517 | ) | | (39,141 | ) | | — |
| | (237,658 | ) |
Other investing activities | — |
| | 21,534 |
| | (30,247 | ) | | — |
| | (8,713 | ) |
Net transactions with related parties | — |
| | 24,100 |
| | (24,100 | ) | | — |
| | — |
|
Net cash used in investing activities | — |
| | (152,883 | ) | | (93,488 | ) | | — |
| | (246,371 | ) |
Financing activities: | | | | | | | | |
|
Proceeds from debt issuances | 100,000 |
| | — |
| | — |
| | — |
| | 100,000 |
|
Repurchase of common stock, including transaction costs | (168,935 | ) | | — |
| | — |
| | — |
| | (168,935 | ) |
Proceeds from the issuance of common stock | 42,121 |
| | — |
| | — |
| | — |
| | 42,121 |
|
Tax withholding paid on behalf of employees for restricted stock units | (24,343 | ) | | — |
| | — |
| | — |
| | (24,343 | ) |
Other financing activities | (1,903 | ) | | — |
| | — |
| | — |
| | (1,903 | ) |
Net transactions with related parties | — |
| | 1,031 |
| | (1,031 | ) | | — |
| | — |
|
Net cash (used in) provided by financing activities | (53,060 | ) | | 1,031 |
| | (1,031 | ) | | — |
| | (53,060 | ) |
Effect of exchange rate changes on cash | — |
| | — |
| | 1,771 |
| | — |
| | 1,771 |
|
Net increase in cash, cash equivalents and restricted cash | — |
| | 23,451 |
| | 272,451 |
| | — |
| | 295,902 |
|
Cash, cash equivalents and restricted cash at the beginning of the period | — |
| | 226,186 |
| | 319,593 |
| | — |
| | 545,779 |
|
Cash, cash equivalents and restricted cash at the end of the period | $ | — |
| | $ | 249,637 |
| | $ | 592,044 |
| | $ | — |
| | $ | 841,681 |
|
The 2029 Notes were issued pursuant to an indenture, dated as of September 30, 2019 (the “2019 Indenture”), by and among the Company, the Guarantors and MUFG Union Bank, N.A., as trustee. The 2019 Indenture contains customary events of default, including payment default, exchange default, failure to provide certain notices thereunder and certain provisions related to bankruptcy events. The 2019 Indenture also contains customary negative covenants.
At any time prior to October 15, 2024, the Company may redeem all or part of the 2029 Notes, at a redemption price equal to their principal amount, plus a “make-whole” premium as of the redemption date, and accrued and unpaid interest. In addition, at any time prior to October 15, 2024, the Company may redeem up to 35% of the original aggregate principal amount of the 2029 Notes with the proceeds of one or more equity offerings, at a redemption price equal to 104.375%, plus accrued and unpaid interest. Furthermore, at any time on or after October 15, 2024, the Company may redeem the 2029 Notes, in whole or in part, at the redemption prices specified in the 2019 Indenture, plus accrued and unpaid interest.
The 2029 Notes have not been registered under the Securities Act, or any state securities laws, and, unless so registered, may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act and applicable state securities laws.
In connection with the offering of the 2029 Notes, the Company entered into a Registration Rights Agreement, dated as of September 30, 2019 (the “Registration Rights Agreement”), by and among the Company and the Guarantors, on the one hand, and BofA Securities, Inc., as representative of the initial purchasers of the 2029 Notes, on the other hand.
Under the Registration Rights Agreement, the Company and the Guarantors have agreed to use their commercially reasonable efforts to (i) file with the SEC a registration statement (the “Exchange Offer Registration Statement”) relating to the registered exchange offer (the “Exchange Offer”) to exchange the 2029 Notes for a new series of the Company’s exchange notes having terms substantially identical in all material respects to, and in the same aggregate principal amount as, the 2029 Notes; (ii) cause the Exchange Offer Registration Statement to be declared effective by the SEC; and (iii) cause the Exchange Offer to be consummated no later than the 360th day after September 30, 2019 (or if such 360th day is not a business day, the next succeeding business day). The Company and the Guarantors have also agreed to use their commercially reasonable efforts to cause the Exchange Offer Registration Statement to be effective continuously and keep the Exchange Offer open for a period of not less than the minimum period required under applicable federal and state securities laws to consummate the Exchange Offer.
Under certain circumstances, the Company and the Guarantors have agreed to use their commercially reasonable efforts to (i) file a shelf registration statement relating to the resale of the 2029 Notes as promptly as practicable, and (ii) cause the shelf registration statement to be declared effective by the SEC as promptly as practicable. The Company and the Guarantors have also agreed to use their commercially reasonable efforts to keep the shelf registration statement continuously effective until one year after its effective date (or such shorter period that will terminate when all the 2029 Notes covered thereby have been sold pursuant thereto).
If the Company fails to meet any of these targets, the annual interest rate on the 2029 Notes will increase by 0.25% during the 90-day period following the default, and will increase by an additional 0.25% for each subsequent 90-day period during which the default continues, up to a maximum additional interest rate of 1.00% per year. If the Company cures the default, the interest rate on the 2029 Notes will revert to the original level.
Cavendish Kinetics Limited Acquisition
On October 4, 2019, the Company completed the acquisition of the entire issued and outstanding capital of Cavendish for a cash purchase price of approximately $203.0 million, subject to customary purchase price adjustments. Cavendish is a private supplier of high-performance RF microelectromechanical system ("MEMS") technology for antenna tuning applications and will become part of the Company's MP operating segment. As a result of the acquisition, RF MEMS technology will be advanced for applications across the Company's products and the technology will be transitioned into high-volume manufacturing for mobile devices and other markets.
Share Repurchase Program
On October 31, 2019, the Company announced that its Board of Directors authorized a new share repurchase program to repurchase up to $1.0 billion of the Company's outstanding common stock, which includes approximately $117.0 million authorized under the prior program terminated concurrent with the new authorization. Under this new program, share
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
repurchases will be made in accordance with applicable securities laws on the open market or in privately negotiated transactions. The extent to which the Company repurchases its shares, the number of shares and the timing of any repurchases will depend on general market conditions, regulatory requirements, alternative investment opportunities and other considerations. The program does not require the Company to repurchase a minimum number of shares, does not have a fixed term, and may be modified, suspended or terminated at any time without prior notice.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statementsincludes "forward-looking statements" within the meaning of Section 27Athe safe harbor provisions of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that relate to our plans, objectives, estimates and goals. Statements expressing expectations regarding our future and projections relating to products, sales, revenues and earnings are typical of such statements and are made under the Private Securities Litigation Reform Act of 1995. WordsThese forward-looking statements include, but are not limited to, statements about our plans, objectives, representations and contentions, and are not historical facts and typically are identified by use of terms such as "may," "will," "should," "could," "expect," "anticipate,"plan," "intend," "plan,"anticipate," "believe," "estimate," "forecast," and "predict," and variations of such words"potential," "continue" and similar expressions, identify suchwords, although some forward-looking statements are expressed differently. You should be aware that the forward-looking statements included herein represent management's current judgment and expectations, but our actual results, events and performance could differ materially from those expressed or implied by forward-looking statements. We do not intend to update any of these forward-looking statements or publicly announce the results of any revisions to these forward-looking statements, other than as is required under U.S. federal securities laws. Our business is subject to numerous risks and uncertainties, including but not limitedthose relating to the factors listed below:
business, political, and macroeconomic changes, including trade disputes and downturnsfluctuations in the semiconductor industry and the overall global economy;
our ability to introduce new products that are competitive and can be manufactured at lower costs or that command higher prices basedoperating results; our substantial dependence on superior performance;
our ability to forecast our customers' demand for our products accurately;
our customers’ and distributors’ ability to manage the inventory they hold and accurately forecast their demand for our products;
our ability to successfully integrate acquired businesses, operations, product technologies and personnel as well as achieve expected synergies;
our ability to achieve cost savings and improve yields and margins on our new and existing products;
our ability to utilize our capacity efficiently, or to acquire or source additional capacity, in response to customer demand;
our ability to continue to improve our product designs, developdeveloping new products and achieveachieving design wins as our industry's product life cycles are short and our customers’ requirements change rapidly;
wins; our dependence on a limited number offew large customers for a substantial portion of our revenue;
our reliance on a loss of revenue if contracts with the U.S.United States government and on U.S. government sponsored programs (principally foror defense and aerospace applications) for a portion of our revenue;
our ability to bring new products to market in response to market shifts and to use technological innovation to shorten time-to-market for our products;
our ability to efficiently and successfully operate our wafer fabrication, assembly and test and tape and reel facilities;
variability in manufacturing yields and product quality;
variability in raw material costs and availability of raw materials;
contractors are canceled or delayed or if defense spending is reduced; our dependence on third parties,parties; risks related to sales through distributors; risks associated with the operation of our manufacturing facilities; business disruptions; poor manufacturing yields; increased inventory risks and costs due to timing of customer forecasts; our inability to effectively manage or maintain evolving relationships with platform providers; risks from international sales and operations; economic regulation in China; changes in government trade policies, including distributors, wafer foundries, wafer starting material suppliers, passive component manufacturers, assemblyimposition of tariffs and packaging suppliers and test and tape and reel suppliers;
export restrictions; our ability to manage platform providerimplement innovative technologies; underutilization of manufacturing facilities as a result of industry overcapacity; we may not be able to borrow funds under our credit facility or secure future financing; we may not be able to generate sufficient cash to service all of our debt; restrictions imposed by the agreements governing our debt; volatility in the price of our common stock; damage to our reputation or brand; fluctuations in the amount and customer relationships;
frequency of our stock repurchases; our acquisitions and other strategic investments, including our recent acquisitions of Active-Semi International, Inc. ("Active-Semi") and Cavendish Kinetics Limited ("Cavendish"), could fail to achieve financial or strategic objectives; our ability to procure, commercializeattract, retain and enforcemotivate key employees; our reliance on our intellectual property rights ("IPR") and to operate our business without infringing on the unlicensed IPRportfolio; claims of others;
the risks associated withinfringement of third-party intellectual property rights; security breaches and other similar disruptions or events, which could compromisecompromising our or our customers' proprietary information and expose us to liability and could cause our business and reputation to suffer;
the possibility that we may be subject toinformation; theft, loss or misuse of personal data by or about our employees, customers or other third parties;
currency fluctuations, tariffs, trade barriers, tax warranty claims, product recalls and export license requirementsproduct liability; and health and security issuesrisks associated with our foreign operations;
the impact of environmental, health and safety regulations and climate change;
the impact of changes in generally accepted accounting principles and in tax laws or the interpretation of such tax laws, including the U.S. Tax Cuts and Jobs Act (the "Tax Act");
the impact of the Organisation for Economic Co-operation and Development Base Erosion and Profit Shifting initiative on tax policy and enacted laws in the countries in which we operate;
our ability to attract and retain skilled personnel and develop leaders for key business units and functions; and
the possibility that future acquisitions may dilute our stockholders’ ownership and cause us to incur debt and assume contingent liabilities or adversely affect our results of operations.
change. These and other risks and uncertainties, which are described in more detail in our most recent Annual Report on Form 10-K and in other reports and statements that we file with the SEC, could cause the actual results and developments to be materially different from those expressed or implied by any of these forward-looking statements. Forward-looking statements speak only as of the date they were made, and we undertake no obligation to update or revise such statements, except as required by the federal securities laws.
OVERVIEW
Company
The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help the reader understand the consolidated results of operations and financial condition of Qorvo. MD&A is provided as a supplement to, and should be read in conjunction with, our Condensed Consolidated Financial Statements and accompanying Notes to Condensed Consolidated Financial Statements.
We areQorvo® is a product and technology leader at the forefront of the growing global demand for always-on broadband connectivity. We combine a broad portfolio of innovative radio frequency ("RF") solutions, highly differentiated semiconductor technologies, deep systems-level expertise and global manufacturing scale manufacturing to supply a diverse group of customers in expanding markets, including smartphones and other mobile devices, defense and aerospace, Wi-Fi customer premises equipment, cellular base stations, optical networks, automotive connectivity and multiple Internet of Things ("IoT") applications including the smart home applications.and connected car. Within these markets, our products enable a broad range of leading-edge applications —– from very-high-power wired and wireless infrastructure solutions to ultra-low-power smart home solutions. Our products and technologies help transform how people around the world access their data, transact commerce and interact with their communities.
We employ more than 8,300 people. We have world-class manufacturing facilities, and our fabrication facility in Richardson, Texas, is a U.S. Department of Defense accredited ‘Trusted Source’ (Category 1A) for gallium arsenide ("GaAs"), gallium nitride ("GaN") and bulk acoustic wave ("BAW") technologies. Our design and manufacturing expertise covers many semiconductor process technologies, which we source both internally and through external suppliers. Our primary wafer fabrication facilities are in Florida, North Carolina, Oregon and Texas, and our primary assembly and test facilities are in China, Costa Rica, Germany and Texas. We also operate design, sales and manufacturing facilities throughout Asia, Europe and North America.
We design, develop, manufacture and market our products to leading U.S. and international original equipment manufacturers and original design manufacturers in the following operating segments:
Mobile Products (MP) - MP is a leading global supplier of cellular RF and Wi-Fi solutions for a variety of mobile devices, including smartphones, notebook computers, wearables, tablets and cellular-based applications for the Internet of Things ("IoT"). Mobile device manufacturers and mobile network operators are adopting new technologies to address the growing demand for data-intensive, increasingly cloud-based distributed applications and for mobile devices with smaller form
| |
• | Mobile Products (MP) - MP is a global supplier of cellular RF and Wi-Fi solutions for a variety of mobile devices, including smartphones, wearables, laptops, tablets and cellular-based applications for the IoT. |
| |
• | Infrastructure and Defense Products (IDP) - IDP is a global supplier of RF, system-on-a-chip and power management solutions for cellular base station, smart home, IoT and other wireless communications, defense, automotive and multiple analog power management applications. |
factors, improved signal quality, less heat and longer talk and standby times. New wireless communications standards are being deployed, and new frequency bands are being added. Carrier aggregation, Multiple Input Multiple Output ("MIMO") and 5G are being implemented to support wider bandwidths, increase data rates and improve network performance. These trends increase the complexity of smartphones, require more RF content and place a premium on performance, integration, systems-level expertise, and product and technology portfolio breadth, all of which are MP strengths. We offer a comprehensive product portfolio of BAW and surface acoustic wave ("SAW") filters, power amplifiers ("PAs"), low noise amplifiers ("LNAs"), switches, multimode multi-band PAs and transmit modules, RF power management integrated circuits, diversity receive modules, antenna switch modules, antenna tuning and control solutions, modules incorporating PAs and duplexers ("PADs") and modules incorporating switches, PAs and duplexers.
Infrastructure and Defense Products (IDP) - IDP is a leading global supplier of RF solutions with a diverse portfolio of solutions that "connect and protect," spanning communications and defense applications. These applications include high performance defense systems such as radar, electronic warfare and communication systems, Wi-Fi customer premises equipment for home and work, high speed connectivity in Long-Term Evolution ("LTE") and 5G base stations, cloud connectivity via data center communications and telecom transport, automotive connectivity and other IoT, including smart home solutions. Our IDP products include GaAs and GaN PAs, LNAs, switches, Complementary Metal Oxide Semiconductor ("CMOS") system-on-a-chip solutions, premium BAW and SAW filter solutions and various multi-chip and hybrid assemblies.
As of December 29, 2018,September 28, 2019, our reportable segments are MP and IDP. These business segments are based on the organizational structure and information reviewed by our Chief Executive Officer, who is our chief operating decision maker ("CODM"), and are managed separately based on the end markets and applications they support. The CODM allocates resources and evaluates the performance of each operating segment primarily based on non-GAAP operating income from operations (see Note 1011 of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report for additional information regarding our operating segments).
THIRDSECOND QUARTER FISCAL 20192020 FINANCIAL HIGHLIGHTS:
Quarterly revenue decreased 1.6%8.8% as compared to the thirdsecond quarter of fiscal 2018,2019, primarily due to lower shipments of our mobile products and base station products to Huawei Technologies Co., Ltd. and its affiliates ("Huawei") as well as lower demand for our cellular RF solutionsmobile products in support of our customers based in China. These decreases were partially offset by increased revenue resulting from higher demand for marquee smartphones experienced by our largest end customer and our customers based in Asia, partially offset byas well as higher demand for our base station products.from a Korea-based customer.
Gross margin for the thirdsecond quarter of fiscal 2020 was 40.1% as compared to 40.0% for the second quarter of fiscal 2019, was 40.7% as comparedwith gross margin improvements related to 39.8% for the third quarter of fiscal 2018. The increase was primarily due tolower intangible amortization expense and favorable changes in product mix partiallybeing offset by lower factory utilization in our SAW wafer fabrication facilities.and increased restructuring charges.
During the third quarter of fiscal 2019, we recognized impairment charges on certain property and equipment of $14.9 million related to our planned closure of a wafer fabrication facility in Florida.
Operating income was $81.2$112.8 million for the thirdsecond quarter of fiscal 20192020 as compared to operating income of $80.3$90.5 million for the thirdsecond quarter of fiscal 2018.
Cash flow from operations was $333.2 million for the third quarter of fiscal 2019 as compared to $270.1 million for the third quarter of fiscal 2018. The2019. This increase was primarily due to improved profitability and favorable changes in working capital.lower operating expenses, partially offset by lower revenue.
| |
• | Capital expenditures decreased to $38.0 million for the second quarter of fiscal 2020 as compared to $70.1 million for the second quarter of fiscal 2019. Our capital expenditures in the second quarter of fiscal 2020 were primarily strategic investments in premium filter capacity and gallium nitride ("GaN") technology capabilities. |
Capital expenditures were $72.0 million forDuring the thirdsecond quarter of fiscal 2019 as compared to $45.4 million for the third quarter of fiscal 2018. The increase was primarily related to projects to increase our premium filter and GaN capacities.
During the third quarter of fiscal 2019,2020, we repurchased approximately 2.3 million shares of our common stock for approximately $152.0$165.0 million.
RESULTS OF OPERATIONS
Consolidated
The following table presents a summary of our results of operations for the three and ninesix months ended DecemberSeptember 28, 2019 and September 29, 2018 and December 30, 2017 (in thousands, except percentages):
| | | Three Months Ended | Three Months Ended |
| December 29, 2018 | | % of Revenue | | December 30, 2017 | | % of Revenue | | Increase (Decrease) | | Percentage Change | September 28, 2019 | | % of Revenue | | September 29, 2018 | | % of Revenue | | Increase (Decrease) | | Percentage Change |
Revenue | $ | 832,330 |
| | 100.0 | % | | $ | 845,739 |
| | 100.0 | % | | $ | (13,409 | ) | | (1.6 | )% | $ | 806,698 |
| | 100.0 | % | | $ | 884,443 |
| | 100.0 | % | | $ | (77,745 | ) | | (8.8 | )% |
Cost of goods sold | 493,967 |
| | 59.3 |
| | 508,812 |
| | 60.2 |
| | (14,845 | ) | | (2.9 | ) | 483,116 |
| | 59.9 |
| | 530,929 |
| | 60.0 |
| | (47,813 | ) | | (9.0 | ) |
Gross profit | 338,363 |
| | 40.7 |
| | 336,927 |
| | 39.8 |
| | 1,436 |
| | 0.4 |
| 323,582 |
| | 40.1 |
| | 353,514 |
| | 40.0 |
| | (29,932 | ) | | (8.5 | ) |
Research and development | 109,985 |
| | 13.2 |
| | 106,411 |
| | 12.6 |
| | 3,574 |
| | 3.4 |
| 115,614 |
| | 14.3 |
| | 116,748 |
| | 13.2 |
| | (1,134 | ) | | (1.0 | ) |
Selling, general and administrative | 125,604 |
| | 15.1 |
| | 126,555 |
| | 14.9 |
| | (951 | ) | | (0.8 | ) | 88,274 |
| | 10.9 |
| | 139,507 |
| | 15.8 |
| | (51,233 | ) | | (36.7 | ) |
Other operating expense | 21,617 |
| | 2.6 |
| | 23,641 |
| | 2.8 |
| | (2,024 | ) | | (8.6 | ) | 6,927 |
| | 0.9 |
| | 6,782 |
| | 0.8 |
| | 145 |
| | 2.1 |
|
Operating income | $ | 81,157 |
| | 9.8 | % | | $ | 80,320 |
| | 9.5 | % | | $ | 837 |
| | 1.0 | % | $ | 112,767 |
| | 14.0 | % | | $ | 90,477 |
| | 10.2 | % | | $ | 22,290 |
| | 24.6 | % |
| | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended | Six Months Ended |
| December 29, 2018 | | % of Revenue | | December 30, 2017 | | % of Revenue | | Increase (Decrease) | | Percentage Change | September 28, 2019 | | % of Revenue | | September 29, 2018 | | % of Revenue | | Increase (Decrease) | | Percentage Change |
Revenue | $ | 2,409,443 |
| | 100.0 | % | | $ | 2,308,153 |
| | 100.0 | % | | $ | 101,290 |
| | 4.4 | % | $ | 1,582,296 |
| | 100.0 | % | | $ | 1,577,113 |
| | 100.0 | % | | $ | 5,183 |
| | 0.3 | % |
Cost of goods sold | 1,480,833 |
| | 61.5 |
| | 1,413,827 |
| | 61.3 |
| | 67,006 |
| | 4.7 |
| 964,425 |
| | 61.0 |
| | 986,866 |
| | 62.6 |
| | (22,441 | ) | | (2.3 | ) |
Gross profit | 928,610 |
| | 38.5 |
| | 894,326 |
| | 38.7 |
| | 34,284 |
| | 3.8 |
| 617,871 |
| | 39.0 |
| | 590,247 |
| | 37.4 |
| | 27,624 |
| | 4.7 |
|
Research and development | 337,636 |
| | 14.0 |
| | 334,308 |
| | 14.5 |
| | 3,328 |
| | 1.0 |
| 234,534 |
| | 14.8 |
| | 227,651 |
| | 14.4 |
| | 6,883 |
| | 3.0 |
|
Selling, general and administrative | 401,041 |
| | 16.6 |
| | 404,853 |
| | 17.5 |
| | (3,812 | ) | | (0.9 | ) | 177,253 |
| | 11.2 |
| | 275,437 |
| | 17.5 |
| | (98,184 | ) | | (35.6 | ) |
Other operating expense | 37,514 |
| | 1.6 |
| | 53,110 |
| | 2.3 |
| | (15,596 | ) | | (29.4 | ) | 38,091 |
| | 2.4 |
| | 15,897 |
| | 1.0 |
| | 22,194 |
| | 139.6 |
|
Operating income | $ | 152,419 |
| | 6.3 | % | | $ | 102,055 |
| | 4.4 | % | | $ | 50,364 |
| | 49.3 | % | $ | 167,993 |
| | 10.6 | % | | $ | 71,262 |
| | 4.5 | % | | $ | 96,731 |
| | 135.7 | % |
| | | | | | | | | | | | | | | | | | | | | | |
Revenue decreased for the three months ended December 29, 2018September 28, 2019, as compared to the three months ended December 30, 2017,September 29, 2018, primarily due to lower shipments of our mobile products and base station products to Huawei as well as lower demand for our cellular RF solutions in support of our largest end customer and our customers based in Asia, partially offset by higher demand for our base station products. Revenue increased for the nine months ended December 29, 2018, as compared to the nine months ended December 30, 2017, primarily due to higher demand for our cellular RF solutionsmobile products in support of our customers based in ChinaChina. These decreases were partially offset by increased revenue resulting from higher demand for marquee smartphones experienced by our largest end customer as well as higher demand from a Korea-based customer.
Revenue was flat for the six months ended September 28, 2019, as compared to the six months ended September 29, 2018, with increased revenue resulting from higher demand for marquee smartphones experienced by our largest end customer as well as higher demand from a Korea-based customer, being offset by lower demand for our base stationmobile products in support of customers based in China.
During the six months ended September 28, 2019, we temporarily suspended shipments of products to Huawei after the Bureau of Industry and Wi-Fi products.Security ("BIS") of the U.S. Department of Commerce added Huawei Technologies Co., Ltd. and over 100 of its affiliates to the BIS's Entity List. Eventually, we restarted shipments from outside the U.S. of certain foreign-made products that are not subject to the Export Administration Regulations ("EAR") to Huawei in compliance with the BIS order. We have also applied for a license to ship other products that are subject to the EAR, as required by the rules governing the Entity List.
Gross margin forConsistent with our prior disclosure, we recognized significantly lower sales to Huawei in the three months ended December 29, 2018 was 40.7%, as compared to 39.8% for the three months ended December 30, 2017. The increase was primarily due to favorable changes in product mix, partially offset by lower factory utilization inSeptember 28, 2019 (approximately 5.0% of our SAW wafer fabrication facilities.
Gross margin was flat for the nine months ended December 29, 2018, as compared to the nine months ended December 30, 2017, with favorable changes in product mix within our cellular RF solutions being offset by lower factory utilization in our SAW wafer fabrication facilities.
Operating Expenses
Research and development expense increased for the three months ended December 29, 2018,total revenue) as compared to the three months ended December 30, 2017,June 29, 2019 (approximately 22.0% of our total revenue).
Gross margin was flat for the three months ended September 28, 2019 as compared to the three months ended September 29, 2018, with gross margin improvements related to lower intangible amortization expense and favorable changes in product mix being offset by lower factory utilization and increased restructuring charges.
Gross margin for the six months ended September 28, 2019 was 39.0%, as compared to 37.4% the six months ended September 29, 2018. This increase was primarily due to lower intangible amortization expense, favorable changes in product mix and lower manufacturing costs, partially offset by increased restructuring charges, average selling price erosion and lower factory utilization.
Operating Expenses
Research and development expense was relatively flat for the three months ended September 28, 2019 as compared to the three months ended September 29, 2018, with lower product development spend being partially offset by the addition of Active-Semi expenses. Research and development expense increased $6.9 million, or 3.0%, for the six months ended September 28, 2019 as compared to the six months ended September 29, 2018, primarily due to higher personnel related costs. Researchcosts and development expense increased for the nine months ended December 29, 2018, as compared to the nine months ended December 30, 2017, primarily due to higher personnel related costs,addition of Active-Semi expenses, partially offset by the timing oflower product development spend.
Selling, general and administrative expense decreased $51.2 million, or 36.7%, for the three and nine months ended December 29, 2018,September 28, 2019 as compared to the three and nine months ended December 30, 2017, withSeptember 29, 2018, primarily due to lower intangible amortization. Selling, general and administrative expense decreased $98.2 million, or 35.6%, for the six months ended September 28, 2019 as compared to the six months ended September 29, 2018, primarily due to lower intangible amortization, beingpartially offset by higher personnel related costs.costs and the addition of Active-Semi expenses.
Other operating expense decreasedwas flat for the three and nine months ended December 29, 2018,September 28, 2019 as compared to the three and nine months ended December 30, 2017. We recognized an asset impairment charge in DecemberSeptember 29, 2018. Other operating expense increased $22.2 million for the six months ended September 28, 2019 as compared to the six months ended September 29, 2018, primarily due to expenses related to the acquisition of Active-Semi as well as restructuring actions initiated in December 2018expenses. These costs were partially offset by lower start-up costs as compared to reduce operating expenses and improve our manufacturing cost structure. In the three and ninesix months ended December 30, 2017, we recognized restructuring charges (primarily related to employee termination benefits and impairment charges on held for sale assets) associated with the cost reduction actions initiated in the second quarter of fiscalSeptember 29, 2018.
Segment Product Revenue, Operating Income and Operating Income as a Percentage of Revenue
Mobile Products
| | | | Three Months Ended | | Three Months Ended |
(In thousands, except percentages) | | December 29, 2018 | | December 30, 2017 | | Decrease | | Percentage Change | | September 28, 2019 | | September 29, 2018 | | Decrease | | Percentage Change |
Revenue | | $ | 602,312 |
| | $ | 642,089 |
| | $ | (39,777 | ) | | (6.2 | )% | | $ | 623,106 |
| | $ | 666,539 |
| | $ | (43,433 | ) | | (6.5 | )% |
Operating income | | 180,394 |
| | 190,990 |
| | (10,596 | ) | | (5.5 | ) | | 193,431 |
| | 196,948 |
| | (3,517 | ) | | (1.8 | ) |
Operating income as a % of revenue | | 30.0 | % | | 29.7 | % | | | | | | 31.0 | % | | 29.5 | % | | | | |
| | | | | | | | | | | | | | | | |
| | Nine Months Ended | | Six Months Ended |
(In thousands, except percentages) | | December 29, 2018 | | December 30, 2017 | | Increase | | Percentage Change | | September 28, 2019 | | September 29, 2018 | | Increase | | Percentage Change |
Revenue | | $ | 1,754,930 |
| | $ | 1,728,709 |
| | $ | 26,221 |
| | 1.5 | % | | $ | 1,179,359 |
| | $ | 1,152,618 |
| | $ | 26,741 |
| | 2.3 | % |
Operating income | | 466,513 |
| | 451,689 |
| | 14,824 |
| | 3.3 |
| | 333,366 |
| | 286,119 |
| | 47,247 |
| | 16.5 |
|
Operating income as a % of revenue | | 26.6 | % | | 26.1 | % | | | | | | 28.3 | % | | 24.8 | % | | | | |
MP revenue decreased $43.4 million, or 6.5%, for the three months ended December 29, 2018,September 28, 2019 as compared to the three months ended December 30, 2017,September 29, 2018, primarily due to lower shipments to Huawei as well as lower demand for our cellular RF solutions in support of our largest end customer and our customers based in Asia. MP revenue increased for the nine months ended December 29, 2018, as compared to the nine months ended December 30, 2017, primarily due to higher demand for our cellular RF solutionsmobile products in support of customers based in China. These decreases were partially offset by increased revenue resulting from higher demand for marquee smartphones experienced by our largest end customer as well as higher demand from a Korea-based customer.
MP revenue increased $26.7 million, or 2.3%, for the six months ended September 28, 2019 as compared to the six months ended September 29, 2018, primarily due to increased revenue resulting from higher demand for marquee smartphones experienced by our largest end customer as well as higher demand from a Korea-based customer as well as higher demand from Huawei (which resulted from content expansion). These increases were partially offset by lower demand for our mobile products in support of customers based in China.
MP operating income decreased $10.6 million, or 5.5%,as a percentage of revenue was relatively flat for the three months ended December 29, 2018,September 28, 2019 as compared to the three months ended December 30, 2017,September 29, 2018.
MP operating income increased $47.2 million, or 16.5%, for the six months ended September 28, 2019 as compared to the six months ended September 29, 2018, primarily due to lower revenue, partially offset by higher gross margin.margin, lower operating expenses and higher revenue. Gross margin was positively impacted by favorable changes in product mix within our cellular RF solutions,and lower manufacturing costs, partially offset by average selling price erosion.
MP operating income increased $14.8 million, or 3.3%, for the nine months ended December 29, 2018, as compared to the nine months ended December 30, 2017, primarily due to higher revenueerosion and lower operating expenses.factory utilization. Operating expenses decreased primarily due to timing oflower personnel related costs and lower product development spend.
Infrastructure and Defense Products | | |
| Three Months Ended |
| Three Months Ended |
(In thousands, except percentages) |
| December 29, 2018 |
| December 30, 2017 |
| Increase |
| Percentage Change |
| September 28, 2019 |
| September 29, 2018 |
| Decrease |
| Percentage Change |
Revenue |
| $ | 230,018 |
|
| $ | 202,680 |
|
| $ | 27,338 |
|
| 13.5 | % |
| $ | 183,592 |
|
| $ | 217,904 |
|
| $ | (34,312 | ) |
| (15.7 | )% |
Operating income |
| 80,861 |
|
| 63,281 |
|
| 17,580 |
|
| 27.8 |
|
| 14,969 |
|
| 56,311 |
|
| (41,342 | ) |
| (73.4 | ) |
Operating income as a % of revenue |
| 35.2 | % |
| 31.2 | % |
|
|
|
|
| 8.2 | % |
| 25.8 | % |
|
|
|
|
| | | | | | | | | | | | | | | | |
| | Nine Months Ended | | Six Months Ended |
(In thousands, except percentages) | | December 29, 2018 | | December 30, 2017 | | Increase | | Percentage Change | | September 28, 2019 | | September 29, 2018 | | Decrease | | Percentage Change |
Revenue | | $ | 654,513 |
| | $ | 576,534 |
| | $ | 77,979 |
| | 13.5 | % | | $ | 402,937 |
| | $ | 424,495 |
| | $ | (21,558 | ) | | (5.1 | )% |
Operating income | | 192,376 |
| | 170,516 |
| | 21,860 |
| | 12.8 |
| | 65,093 |
| | 111,515 |
| | (46,422 | ) | | (41.6 | ) |
Operating income as a % of revenue | | 29.4 | % | | 29.6 | % | | | | | | 16.2 | % | | 26.3 | % | | | | |
IDP revenue increaseddecreased $34.3 million, or 15.7%, for the three months ended December 29, 2018,September 28, 2019 as compared to the three months ended December 30, 2017,September 29, 2018, primarily due to higherlower demand for our base station products from Huawei as well as lower demand for our Wi-Fi products. These decreases were partially offset by sales of our programmable power management products as a result of the acquisition of Active-Semi.
IDP revenue increaseddecreased $21.6 million, or 5.1%, for the ninesix months ended
December 29, 2018, September 28, 2019 as compared to the ninesix months ended December 30, 2017,September 29, 2018, primarily due to higherlower demand for our base station and Wi-Fi products.products, partially offset by sales of our programmable power management products as a result of the acquisition of Active-Semi.
IDP operating income increased $17.6decreased $41.3 million, or 27.8%73.4%, for the three months ended December 29, 2018,September 28, 2019 as compared to the three months ended December 30, 2017,September 29, 2018, primarily due to higher revenue.
IDP operating income increased $21.9 million, or 12.8%, for the nine months ended December 29, 2018, as compared to the nine months ended December 30, 2017, primarily due to higherlower revenue, partially offset bylower gross margin and higher operating expenses and lower gross margin. Operating expenses increased primarily due to higher personnel related costs.expenses. Gross margin was negatively impacted by inventory charges and lower factory utilization. The increase in operating expenses was primarily due to higher personnel costs and the addition of Active-Semi expenses.
IDP operating income decreased $46.4 million, or 41.6%, for the six months ended September 28, 2019 as compared to the six months ended September 29, 2018, primarily due to higher operating expenses, lower gross margin and lower revenue. The increase in operating expenses was primarily due to higher personnel costs and the addition of Active-Semi expenses. Gross margin was negatively impacted by inventory charges and lower factory utilization.
See Note 1011 of the Notes to the Condensed Consolidated Financial Statements for a reconciliation of segment operating income to the consolidated operating income (loss) for the three and ninesix months ended DecemberSeptember 28, 2019 and September 29, 2018 and December 30, 2017.2018.
OTHER (EXPENSE) INCOME AND INCOME TAXES
| | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
(In thousands) | | December 29, 2018 | | December 30, 2017 | | December 29, 2018 | | December 30, 2017 | | September 28, 2019 | | September 29, 2018 | | September 28, 2019 | | September 29, 2018 |
Interest expense | | $ | (9,562 | ) | | $ | (16,338 | ) | | $ | (33,604 | ) | | $ | (43,387 | ) | | $ | (12,693 | ) | | $ | (9,689 | ) | | $ | (24,557 | ) | | $ | (24,042 | ) |
Interest income | | 2,814 |
| | 2,215 |
| | 7,788 |
| | 4,039 |
| | 2,292 |
| | 1,580 |
| | 5,238 |
| | 4,974 |
|
Other expense | | (3,520 | ) | | (757 | ) | | (85,007 | ) | | (1,883 | ) | | (300 | ) | | (49,532 | ) | | (1,411 | ) | | (81,487 | ) |
Income tax (expense) benefit | | (1,372 | ) | | (98,522 | ) | | 30,012 |
| | (88,611 | ) | | (19,028 | ) | | (752 | ) | | (24,684 | ) | | 31,384 |
|
Interest Expense
During the three and six months ended DecemberSeptember 28, 2019, we recorded interest expense of $14.0 million and $27.6 million, respectively, primarily related to the 5.50% senior notes due July 15, 2026 (the "2026 Notes"), which was partially offset by $1.3 million and $3.0 million, respectively, of capitalized interest.
During the three and six months ended September 29, 2018, we recorded interest expense of $10.8$11.5 million and $29.3 million, respectively, primarily related to the 6.75% senior notes due December 1, 2023 (the "2023 Notes"), the 7.00% senior notes due December 1, 2025 Notes(the "2025 Notes") and the 2026 Notes, (whichwhich was partially offset by $1.9$1.8 million and $5.3 million of capitalized interest). During the nine months ended December 29, 2018, we recorded interest expense of $38.8 million related to the 2023 Notes, 2025 Notes and the 2026 Notes (which was partially offset by $7.2 million of capitalized interest). During the three and nine months ended December 30, 2017, we recorded interest expense of $17.7 million and $52.3 million, respectively, related to the 2023 Notes and 2025 Notes (which was partially offset by $2.0 million and $10.8 million of capitalized interest, respectively).interest.
During the first half of fiscal 2019, we completed the purchase (via tender offer) of $429.2 million and $436.4 million aggregate principal amounts of our 2023 Notes and 2025 Notes, respectively, and we redeemed the remaining $15.3 million aggregate principal amount of our 2023 Notes. In addition, during the second quarter of fiscal 2019, we completed the issuance of $630.0 million aggregate principal amount of our 2026 Notes. During the third quarter of fiscal 2019, we repurchased $21.1 million of our 2025 Notes. Collectively, compared to our long-term debt portfolio at March 31, 2018, these transactions extended the weighted-average maturity of our outstanding senior notes by an additional seventeen months and are expected to decrease our annual interest expense by approximately $27.4 million.
Other Expense
During the three and ninesix months ended DecemberSeptember 29, 2018, we recorded a loss on debt extinguishment of $1.8$48.8 million and $84.0$82.2 million, respectively, (see Note 6in connection with certain purchases of the 2023 Notes toand the Condensed Consolidated Financial Statements for additional information regarding our debt extinguishment activity).2025 Notes.
Income Taxes
On December 22, 2017, the U.S. enacted the Tax Act that instituted fundamental changes to the taxation of multinational corporations, including a reduction in the U.S. federal corporate tax rate from 35% to 21%, which became effective as of January 1, 2018, and implemented a territorial tax system. As a result of the Tax Act, we recorded, as of March 31, 2018, a provisional tax expense of $77.3 million, which was comprised of a $116.4 million tax expense related to the one-time transition tax on certain unrepatriated earnings of foreign subsidiaries (the “Transitional Repatriation Tax”), offset by a provisional deferred tax benefit of $39.1 million from the remeasurement of U.S. deferred tax assets and liabilities. During the third quarter of fiscal 2019, in accordance with current SEC guidance, we finalized our accounting for the impact of the Tax Act within the SAB 118 measurement period of one year from the date of enactment of the Tax Act.
As of December 29, 2018, we completed accounting for the tax effects of the Tax Act described above, and in the first three quarters of fiscal 2019, we recorded discrete income tax benefits of $17.7 million related to our fiscal 2018 estimated
provisional tax expense, consisting of $2.6 million to reduce the tax expense related to the previously recorded provisional amount for the Transitional Repatriation Tax and a $15.1 million increase in U.S. deferred tax assets. In addition, the new GILTI and limitations on compensation provisions enacted by the Tax Act became effective for the Company in fiscal 2019 and have been accounted for in the calculation of current year taxes. The GILTI provisions result in income earned by certain foreign subsidiaries being included in the gross income of its direct and indirect U.S. shareholders.
Our provision for income taxes for the three and ninesix months ended DecemberSeptember 28, 2019 and September 29, 2018 and December 30, 2017 was calculated by applying an estimate of the annual effective tax rate for the full fiscal year to “ordinary” income or loss (pre-tax income or loss excluding unusual or infrequently occurring discrete items) to year-to-date income (loss) to determine the amounts for the three and nine months ended December 29, 2018 and December 30, 2017.those respective periods.
For the three and ninesix months ended December 29, 2018,September 28, 2019, we recorded an income tax expense of $1.4$19.0 million and income tax benefit of $30.0$24.7 million, respectively, which was comprised primarily of tax benefitsexpense related to international operations generating pre-tax book income and the reversal of the permanent reinvestment assertion with regards to unrepatriated foreign earnings, offset by a tax benefit related to domestic and international operations generating pre-tax book losses and domestic tax credits. For the three and six months ended September 29, 2018, we recorded income tax expense of $0.8 million and income tax benefit of $31.4 million, respectively, which was comprised primarily of tax benefit related to domestic and international operations generating pre-tax book losses, a tax incentive granted in Singapore and adjustments in the provisional estimates required by the Tax Act estimatesCuts and a Singapore tax incentive granted during the second quarter,Jobs Act, offset by a tax expense related to international operations generating pre-tax book income.
For the three and nine months ended December 30, 2017, we had income tax expense of $98.5 million and $88.6 million, respectively, which was comprised primarily of tax expenses related to the Transitional Repatriation Tax, international operations generating pre-tax book income and the adoption of new accounting guidance related to intra-entity transfers of assets, offset by tax benefits from a provisional remeasurement of U.S. deferred tax assets and liabilities for the decrease in the U.S. federal corporate income tax rate from 35% to 21% upon enactment of the Tax Act, domestic operations generating pre-tax book losses and, for the nine months only, tax benefit from the adoption of new accounting guidance related to stock compensation.
A valuation allowance remained against certain domestic and foreign net deferred tax assets as it is more likely than not that the related deferred tax assets will not be realized.
During the second quarter of fiscal 2020, we determined that we could no longer support a permanent reinvestment position on certain earnings previously subject to U.S. federal taxation at our foreign subsidiaries. This change was primarily a result of future cash flow projections outside the U.S. and implementation of a more centralized approach to cash management.
LIQUIDITY AND CAPITAL RESOURCES
Cash generated by operations is our primary source of liquidity. As of December 29, 2018,September 28, 2019, we had working capital of approximately $1,201.6$1,102.2 million, including $649.7$586.8 million in cash and cash equivalents, compared to working capital of approximately $1,402.5$1,249.2 million at March 31, 2018,30, 2019, including $926.0$711.0 million in cash and cash equivalents. The decrease in working capital was primarily due to the retirementacquisition of the 2023 Notes and a majority of the 2025 Notes. These amounts wereActive-Semi. This decrease in working capital was partially offset by the issuance$100.0 million draw on the Term Loan in the first quarter of the 2026 Notes as well as an increase in accounts receivable as of December 29, 2018 as compared to March 31, 2018.fiscal 2020.
Our $649.7$586.8 million of total cash and cash equivalents as of December 29, 2018September 28, 2019 includes approximately $603.7$503.5 million held by our foreign subsidiaries, of which $476.7$424.0 million is held by Qorvo International Pte. Ltd. in Singapore. If the undistributed earnings of our foreign subsidiaries are needed in the U.S., we may be required to accrue and pay state income and/or foreign local withholding taxes to repatriate these earnings. Under our current plans, we may repatriate the foreign earnings of Qorvo International Pte. Ltd. and expect to permanently reinvest the undistributed earnings of our other foreign subsidiaries.
Stock Repurchases
During the ninesix months ended December 29, 2018,September 28, 2019, we repurchased approximately 4.63.8 million shares of our common stock for approximately $338.7$265.1 million under the current and priorour share repurchase programs.program. As of December 29, 2018, $697.2September 28, 2019, $132.8 million remainsremained available for repurchases under the program.
On October 31, 2019, we announced that our currentBoard of Directors authorized a new share repurchase program. See Note 15 of the Notes to Condensed Consolidated Financial Statements for information regarding the new share repurchase program.
Cash Flows from Operating Activities
Operating activities for the ninesix months ended December 29, 2018September 28, 2019 generated cash of $623.0$430.5 million, compared to $593.6$289.8 million for the ninesix months ended December 30, 2017. This year-over-year increase was attributableSeptember 29, 2018, primarily due to improved profitability, primarilyfavorable changes in working capital driven by improvements in days sales outstanding as a resultwell as the timing of higher revenue.sales during the six months ended September 28, 2019.
Cash Flows from Investing Activities
Net cash used in investing activities was $205.5$387.3 million for the ninesix months ended December 29, 2018,September 28, 2019, compared to $246.4$132.8 million for the ninesix months ended December 30, 2017. This year-over-year decrease wasSeptember 29, 2018, primarily due to lower capital expenditures in fiscal 2019.the acquisition of Active-Semi.
Cash Flows from Financing Activities
Net cash used in financing activities was $691.5$166.3 million for the ninesix months ended December 29, 2018,September 28, 2019, compared to $53.1$523.0 million for the ninesix months ended December 30, 2017. This year-over-year increase was primarily due toSeptember 29, 2018. During the six months ended September 29, 2018, cash disbursed in connection with the retirement of all of the 2023 Notes and a majority of the 2025 Notes and higher share repurchase activity in the nine months ended December 29, 2018. The increase was partially offset by thecash proceeds received from the issuance of the 2026 Notes inNotes. During the ninesix months ended December 29, 2018.September 28, 2019, we drew $100.0 million on our Term Loan.
COMMITMENTS AND CONTINGENCIES
2023 Notes Offering 2015and 2025 NotesOn November 19, 2015, we issued $450.0 million aggregate principal amount of the 2023 Notes and $550.0 million aggregate principal amount of the 2025 Notes. The 2023 Notes were, and the 2025 Notes are, senior unsecured obligations of the Company and guaranteed, jointly and severally, by certain of our U.S. subsidiaries (the "Guarantors"). The 2023 Notes and the 2025 Notes were issued pursuant to an indenture dated as of November 19, 2015 containing customary events of default, including payment default, failure to provide certain notices and certain provisions related to bankruptcy events. With respect to the 2023 Notes, interest was payable semi-annually on June 1 and December 1 of each year at a rate of 6.75% per annum, and with respect to the 2025 Notes, interest is payable on June 1 and December 1 of each year at a rate of 7.00% per annum. InterestWe paid no interest on the 2025 Notes during the three months ended December 29, 2018 was $4.0 million. InterestSeptember 28, 2019 and we paid interest of $0.8 million on the 2023 Notes and the 2025 Notes during the ninesix months ended December 29, 2018 was $45.5 million.September 28, 2019. Interest paid on the 2023 Notes and the 2025 Notes during the three and ninesix months ended December 30, 2017September 29, 2018 was $34.5$7.3 million and $68.9$41.5 million, respectively.
In Junefiscal years 2018 and 2019, we completed the purchase (via tender offer) of $429.2 million aggregate principal amountretired all of the issued and outstanding 2023 Notes at a price equal to 106.75% of the principal amount of the 2023 Notes purchased, plus accrued and unpaid interest. In July 2018, we redeemed the remaining $15.3$526.6 million principal amount of the 2023 Notes at a redemption price equal to 100.0% of the principal amount of the 2023 Notes redeemed, plus a make-whole premium and accrued and unpaid interest.
In July 2018, we completed the purchase (via tender offer) of $300.0 million aggregate principal amount of the 2025 Notes at a price equal to 109.63% of the principal amount of the 2025 Notes purchased, plus accrued and unpaid interest. In August 2018, we completed the purchase (via tender offer) of $136.4 million aggregate principal amount of the 2025 Notes at a price equal to 110.00% of the principal amount of the 2025 Notes purchased, plus accrued and unpaid interest.
In November 2018 and December 2018, we repurchased $1.1 million and $20.0 million, respectively, of the 2025 Notes, at prices equal to 107.25% and 107.63%, respectively, of the principal amount of the 2025 Notes purchased, plus accrued and unpaid interest.Notes. As of December 29, 2018, 2025 Notes withSeptember 28, 2019, an aggregate principal amount of $91.0$23.4 million of the 2025 Notes remained outstanding.
See Note 67 of the Notes to the Condensed Consolidated Financial Statements for additional information regarding the 2023 Notes and the 2025 Notes.
2026 Notes Offering 2018 On July 16, 2018, we completed an offering ofissued $500.0 million aggregate principal amount of ourthe 2026 Notes (the "Initial 2026 Notes"). On August 28, 2018 and March 5, 2019, we completed an offeringofferings of an additional $130.0 million and $270.0 million, respectively, aggregate principal amount of such notes (the(together, the "Additional 2026 Notes"). The, and together with the Initial 2026 Notes, were sold in a private offering to certain institutions that then resold the 2026 Notes in the United States to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain non-U.S. persons in accordance with Regulation S under the Securities Act. We used a portion of the net proceeds of the offering of the 2026 Notes to fund the tender offers for the 2025 Notes and to pay related fees and expenses of the offering and will use the remaining net proceeds for general corporate purposes."2026 Notes"). The 2026 Notes are senior unsecured obligations of the Company and are guaranteed, jointly and severally, by each of the Guarantors. Interest on the 2026 Notes is payable on January 15 and July 15 of each year at a rate of 5.50% per annum.
The Initial Interest paid on the 2026 Notes were issued pursuant to an indenture dated as of July 16, 2018 byduring the three and among the Company, the Guarantors and MUFG Union Bank, N.A., as trustee, and the Additional 2026 Notes were issued pursuant to a supplemental indenture, dated as of Augustsix months ended September 28, 2018 (together, the "2018 Indenture"). The 2018 Indenture contains customary events of default, including, among other things, payment default, exchange default, failure to provide certain notices thereunder and certain provisions related to bankruptcy events. The 2018 Indenture also contains customary negative covenants. 2019 was $24.8 million.
In connection with the offeringofferings of the Initial 2026 Notes and the Additional 2026 Notes, we also entered into registration rights agreements, dated as of July 16, 2018 and August 28, 2018, respectively (see Note 6agreed to provide the holders of the 2026 Notes with an opportunity to exchange the 2026 Notes for registered notes having terms substantially identical to the Condensed Consolidated Financial Statements).
The2026 Notes. On June 25, 2019, we completed the exchange offer, in which all of the privately placed 2026 Notes were exchanged for new notes that have not been registered under the Securities Act or any state securities laws and may not be offered orof 1933, as amended (the "Securities Act").
See Note 7 of the Notes to Condensed Consolidated Financial Statements for additional information regarding the 2026 Notes.
2029 Notes On September 30, 2019, we issued $350.0 million aggregate principal amount of the 4.375% senior notes due October 15, 2029 (the "2029 Notes"). The 2029 Notes were sold in a private offering to certain institutions that then resold the 2029 Notes in the United States absent registration or an applicable exemption from such registration requirements.to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain non-U.S. persons in accordance with Regulation S under the Securities Act. We intend to use the net proceeds of the offering for general corporate purposes. The 2029 Notes are senior unsecured obligations of the Company and are guaranteed, jointly and severally, by each of the Guarantors.
Interest on the 2029 Notes is payable on October 15 and April 15 of each year at a rate of 4.375% per annum.
See Note 15 of the Notes to Condensed Consolidated Financial Statements for additional information regarding the 2029 Notes.
Credit AgreementOn December 5, 2017, we and the Guarantors entered into a five-year unsecured senior credit facility with Bank of America, N.A., as administrative agent, swing line lender, and L/C issuer, and a syndicate of lenders (the “Credit Agreement”). On the same date, in connection with the execution of the Credit Agreement, we terminated our prior credit agreement, dated April 7, 2015. On June 5, 2018, we and the Guarantors entered into the First Amendment (the "First Amendment") to the Credit Agreement, and on December 17, 2018, we and the Guarantors entered into the Second Amendment (the "Second Amendment") to the Credit Agreement.
The Credit Agreement includes a senior delayed draw term loan of up to $400.0 million (the "Term Loan") and a $300.0 million revolving line of credit (the "Revolving Facility", together with the Term Loan, the "Credit Facility"). On the closing date, $100.0 million of the Term Loan was funded, and this amount was subsequently repaid in March 2018. The remainderOn June 17, 2019, we drew $100.0 million of the Term Loan, iswith the remaining $200.0 million available, at our discretion, in upa final draw. Subsequent amendments to two draws. The First Amendment,the Credit Agreement have, among other things, extended the delayed draw availability period from June 5, 2018 to January 3, 2019, and the Second Amendment, among other things, further extended such period to June 30,December 31, 2019. The Revolving Facility includes a $25.0 million sublimit for the issuance of standby letters of credit and a $10.0 million sublimit for swing line loans. We may request at any time that the Credit Facility be increased up to $300.0 million. The Credit Facility is available to finance working capital, capital expenditures and other corporate purposes. Our obligations under the Credit Agreement are jointly and severally guaranteed by the Guarantors. Outstanding amounts are due in full on the maturity date of December 5, 2022 (with amounts borrowed under the swing line option due in full no later than ten business days after such loan is made). We hadDuring the three and six months ended September 28, 2019, there were no outstanding amountsborrowings under the Credit Facility as of December 29, 2018.Revolving Facility. Interest paid on the Term Loan during the three and six months ended September 28, 2019 was $0.9 million.
The Credit Agreement contains various conditions, covenants and representations with which we must be in compliance in order to borrow funds and to avoid an event of default. As of December 29, 2018,September 28, 2019, we were in compliance with all the financial covenants under the Credit Agreement.
See Note 7 of the Notes to Condensed Consolidated Financial Statements for additional information regarding the Credit Agreement.
Capital Commitments At December 29, 2018,September 28, 2019, we had capital commitments of approximately $89.0$52.2 million primarily for projects related to projects to increase ourGaN technology capabilities, premium filter capacity projects forand manufacturing cost savings initiatives, as well as for equipment replacements and general corporate purposes.
Future Sources of Funding Our future capital requirements may differ materially from those currently anticipated and will depend on many factors, including but not limited to, market acceptance of and demand for our products, acquisition opportunities, technological advances and our relationships with suppliers and customers. Based on current and projected levels of cash flow from operations, coupled with our existing cash and cash equivalents and our Credit Facility, we believe that we have sufficient liquidity to meet both our short-term and long-term cash requirements. However, if there is a significant decrease in demand for our products, or in the event that growth is faster than we anticipate, operating cash flows may be insufficient to meet our needs. If existing resources and cash from operations are not sufficient to meet our future requirements or if we perceive conditions to be favorable, we may seek additional debt or equity financing. We cannot be sure that any additional equity or debt financing will not be dilutive to holders of our common stock. Further, we cannot be sure that additional equity or debt financing, if required, will be available on favorable terms, if at all.
Legal We are involved in various legal proceedings and claims that have arisen in the ordinary course of business that have not been fully adjudicated. These actions, when finally concluded and determined, will not, in the opinion of management, have a material adverse effect on our consolidated financial position or results of operations.
Taxes We are subject to income and other taxes in the United States and in numerous foreign jurisdictions. Our domestic and foreign tax liabilities are subject to the allocation of revenues and expenses in different jurisdictions. Additionally, the amount of taxes paid is subject to our interpretation of applicable tax laws in the jurisdictions in which we operate. We are subject to audits by tax authorities. While we endeavor to comply with all applicable tax laws, there can be no assurance that a governing tax authority will not have a different interpretation of the law than we do or that we will comply in all respects with applicable tax laws, which could result in additional taxes. There can be no assurance that the outcomes from tax audits will not have an adverse effect on our results of operations in the period during which the review is conducted.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There have been no material changes to our market risk exposures during the thirdsecond quarter of fiscal 20192020. For a discussion of our exposure to market risk, refer to Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” contained in Qorvo's Annual Report on Form 10-K for the fiscal year ended March 31, 201830, 2019.
ITEM 4. CONTROLS AND PROCEDURES.
As of the end of the period covered by this report, the Company’s management, with the participation of the Company’s Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), evaluated the effectiveness of the Company’s disclosure controls and procedures in accordance with Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our CEO and CFO concluded that the Company’s disclosure controls and procedures were effective, as of such date, to enable the Company to record, process, summarize and report in a timely manner the information that the Company is required to disclose in its Exchange Act reports, and to accumulate and communicate such information to management, including the Company’s CEO and the CFO, as appropriate, to allow timely decisions regarding required disclosure.
There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended December 29, 2018September 28, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
ITEM 1A. RISK FACTORS.
In addition to the other information set forth in this report and in our other reports and statements that we file with the SEC, including our quarterly reports on Form 10-Q, careful consideration should be given to the factors discussed in Part I, Item 1A., “Risk Factors” in Qorvo's Annual Report on Form 10-K for the fiscal year ended March 31, 2018,30, 2019, which could materially affect our business, financial condition or future results. The risks described in Qorvo's Annual Report on Form 10-K for the fiscal year ended March 31, 201830, 2019 are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
(c) Issuer Purchases of Equity Securities
Purchases of Equity Securities
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Period | | Total number of shares purchased (in thousands) | | Average price paid per share | | Total number of shares purchased as part of publicly announced plans or programs (in thousands) | | Approximate dollar value of shares that may yet be purchased under the plans or programs |
September 30, 2018 to October 27, 2018 | | 197 |
| | $ | 74.07 |
| | 197 |
| | $834.7 million |
October 28, 2018 to November 24, 2018 | | 706 |
| | $ | 66.97 |
| | 706 |
| | $787.4 million |
November 25, 2018 to December 29, 2018 | | 1,401 |
| | $ | 64.32 |
| | 1,401 |
| | $697.2 million |
Total | | 2,304 |
| | $ | 65.97 |
| | 2,304 |
| | $697.2 million |
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Period | | Total number of shares purchased (in thousands) | | Average price paid per share | | Total number of shares purchased as part of publicly announced plans or programs (in thousands) | | Approximate dollar value of shares that may yet be purchased under the plans or programs |
June 30, 2019 to July 27, 2019 | | 173 |
| | $ | 70.15 |
| | 173 |
| | $285.7 million |
July 28, 2019 to August 24, 2019 | | 1,342 |
| | $ | 71.26 |
| | 1,342 |
| | $190.1 million |
August 25, 2019 to September 28, 2019 | | 786 |
| | $ | 72.78 |
| | 786 |
| | $132.8 million |
Total | | 2,301 |
| | $ | 71.70 |
| | 2,301 |
| | $132.8 million |
On May 23, 2018, we announced that our Board of Directors authorized a share repurchase program to repurchase up to $1.0 billion of our outstanding stock, which included approximately $126.3 million authorized under a prior share repurchase program terminated concurrent with the new authorization.stock. Under this program, share repurchases will be made in accordance with applicable securities laws on the open market or in privately negotiated transactions. The extent to which we repurchase our shares, the number of shares and the timing of any repurchases will depend on general market conditions, regulatory requirements, alternative investment opportunities and other considerations. The program does not require us to repurchase a minimum number of shares, does not have a fixed term, and may be modified, suspended or terminated at any time without prior notice.
On October 31, 2019, we announced that our Board of Directors authorized a new share repurchase program. See Note 15 of the Notes to Condensed Consolidated Financial Statements for information regarding the new share repurchase program.
ITEM 6. EXHIBITS.
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10.131.1 |
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10.2 |
| Second Amendment to Credit Agreement, dated as of December 17, 2018, by and between Qorvo, Inc., certain of its material domestic subsidiaries, the lenders party thereto, and Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on December 18, 2018) |
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31.1 |
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31.2 |
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32.1 |
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32.2 |
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101 |
| The following materials from our Quarterly Report on Form 10-Q for the quarter ended December 29, 2018,September 28, 2019, formatted in XBRL (eXtensibleiXBRL (Inline eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets as of December 29, 2018September 28, 2019 and March 31, 2018;30, 2019; (ii) the Condensed Consolidated Statements of OperationsIncome for the three and ninesix months ended DecemberSeptember 28, 2019 and September 29, 2018 and December 30, 2017;2018; (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and ninesix months ended DecemberSeptember 28, 2019 and September 29, 20182018; (iv) the Condensed Consolidated Statements of Stockholders' Equity for the three and December 30, 2017; (iv)six months ended September 28, 2019 and September 29, 2018; (v) the Condensed Consolidated Statements of Cash Flows for the ninesix months ended DecemberSeptember 28, 2019 and September 29, 20182018; and December 30, 2017; and (v)(vi) the Notes to Condensed Consolidated Financial Statements |
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104 |
| The cover page from our Quarterly Report on Form 10-Q for the quarter ended September 28, 2019, formatted in iXBRL |
Our SEC file number for documents filed with the SEC pursuant to the Securities Exchange Act of 1934, as amended, is 001-36801.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | Qorvo, Inc. |
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Date: | February 7,November 1, 2019 | | /s/ Mark J. Murphy |
| | | Mark J. Murphy |
| | | Chief Financial Officer |
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