|
|
|
|
|
|
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
|
|
|
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
Page
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qorvo, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28, 2020
|
|
March 30, 2019
|
|
ASSETS
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
$
|
714,939
|
|
|
$
|
711,035
|
|
|
Accounts receivable, less allowance of $55 and $40 as of March 28, 2020 and March 30, 2019, respectively
|
367,172
|
|
|
378,172
|
|
|
Inventories
|
517,198
|
|
|
511,793
|
|
|
Prepaid expenses
|
37,872
|
|
|
25,766
|
|
|
Other receivables
|
15,016
|
|
|
21,934
|
|
|
Other current assets
|
38,305
|
|
|
36,141
|
|
|
Total current assets
|
1,690,502
|
|
|
1,684,841
|
|
|
Property and equipment, net
|
1,259,203
|
|
|
1,366,513
|
|
|
Goodwill
|
2,614,274
|
|
|
2,173,889
|
|
|
Intangible assets, net
|
808,892
|
|
|
408,210
|
|
|
Long-term investments
|
22,515
|
|
|
97,786
|
|
|
Other non-current assets
|
165,296
|
|
|
76,785
|
|
|
Total assets
|
$
|
6,560,682
|
|
|
$
|
5,808,024
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Accounts payable
|
$
|
246,954
|
|
|
$
|
233,307
|
|
|
Accrued liabilities
|
217,801
|
|
|
160,516
|
|
|
Current portion of long-term debt
|
6,893
|
|
|
80
|
|
|
Other current liabilities
|
67,355
|
|
|
41,711
|
|
|
Total current liabilities
|
539,003
|
|
|
435,614
|
|
|
Long-term debt
|
1,567,231
|
|
|
920,935
|
|
|
Other long-term liabilities
|
161,783
|
|
|
91,796
|
|
|
Total liabilities
|
2,268,017
|
|
|
1,448,345
|
|
|
Commitments and contingent liabilities
|
|
|
|
|
|
|
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; 114,625 and 119,063 shares issued and outstanding at March 28, 2020 and March 30, 2019, respectively
|
4,290,377
|
|
|
4,687,455
|
|
|
Accumulated other comprehensive income (loss), net of tax
|
2,288
|
|
|
(6,624
|
)
|
|
Accumulated deficit
|
—
|
|
|
(321,152
|
)
|
|
Total stockholders’ equity
|
4,292,665
|
|
|
4,359,679
|
|
|
Total liabilities and stockholders’ equity
|
$
|
6,560,682
|
|
|
$
|
5,808,024
|
|
See accompanying notes.
Qorvo, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
3,239,141
|
|
|
$
|
3,090,325
|
|
|
$
|
2,973,536
|
|
|
Cost of goods sold
|
1,917,378
|
|
|
1,895,142
|
|
|
1,826,570
|
|
|
Gross profit
|
1,321,763
|
|
|
1,195,183
|
|
|
1,146,966
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
Research and development
|
484,414
|
|
|
450,482
|
|
|
445,103
|
|
|
Selling, general and administrative
|
343,569
|
|
|
476,074
|
|
|
527,751
|
|
|
Other operating expense
|
70,564
|
|
|
52,161
|
|
|
103,830
|
|
|
Total operating expenses
|
898,547
|
|
|
978,717
|
|
|
1,076,684
|
|
|
Operating income
|
423,216
|
|
|
216,466
|
|
|
70,282
|
|
|
|
|
|
|
|
|
|
Interest expense
|
(60,392
|
)
|
|
(43,963
|
)
|
|
(59,548
|
)
|
|
Interest income
|
12,066
|
|
|
10,971
|
|
|
7,017
|
|
|
Other income (expense)
|
20,199
|
|
|
(91,682
|
)
|
|
(606
|
)
|
|
Income before income taxes
|
395,089
|
|
|
91,792
|
|
|
17,145
|
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit
|
(60,764
|
)
|
|
41,333
|
|
|
(57,433
|
)
|
|
Net income (loss)
|
$
|
334,325
|
|
|
$
|
133,125
|
|
|
$
|
(40,288
|
)
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
Basic
|
$
|
2.86
|
|
|
$
|
1.07
|
|
|
$
|
(0.32
|
)
|
|
Diluted
|
$
|
2.80
|
|
|
$
|
1.05
|
|
|
$
|
(0.32
|
)
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding:
|
|
|
|
|
|
|
Basic
|
117,007
|
|
|
124,534
|
|
|
126,946
|
|
|
Diluted
|
119,293
|
|
|
127,356
|
|
|
126,946
|
|
|
|
|
|
|
|
|
See accompanying notes.
Qorvo, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
2020
|
|
2019
|
|
2018
|
|
Net income (loss)
|
$
|
334,325
|
|
|
$
|
133,125
|
|
|
$
|
(40,288
|
)
|
|
Total comprehensive income (loss):
|
|
|
|
|
|
|
Unrealized gain on available-for-sale debt securities, net of tax
|
—
|
|
|
85
|
|
|
204
|
|
|
Change in pension liability, net of tax
|
501
|
|
|
(651
|
)
|
|
476
|
|
|
Foreign currency translation adjustment, including intra-entity foreign currency transactions that are of a long-term-investment nature
|
7,923
|
|
|
(3,396
|
)
|
|
1,276
|
|
|
Reclassification adjustments, net of tax:
|
|
|
|
|
|
|
Foreign currency loss (gain) recognized and included in net income (loss)
|
353
|
|
|
—
|
|
|
(581
|
)
|
|
Amortization of pension actuarial loss
|
135
|
|
|
90
|
|
|
179
|
|
|
Other comprehensive income (loss)
|
8,912
|
|
|
(3,872
|
)
|
|
1,554
|
|
|
Total comprehensive income (loss)
|
$
|
343,237
|
|
|
$
|
129,253
|
|
|
$
|
(38,734
|
)
|
See accompanying notes.
Qorvo, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Accumulated Deficit
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
|
|
Total
|
|
Balance, April 1, 2017
|
126,464
|
|
|
$
|
5,357,394
|
|
|
$
|
(4,306
|
)
|
|
$
|
(456,366
|
)
|
|
$
|
4,896,722
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(40,288
|
)
|
|
(40,288
|
)
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
1,554
|
|
|
—
|
|
|
1,554
|
|
|
Exercise of stock options and vesting of restricted stock units, net of shares withheld for employee taxes
|
2,246
|
|
|
4,735
|
|
|
—
|
|
|
—
|
|
|
4,735
|
|
|
Issuance of common stock in connection with employee stock purchase plan
|
541
|
|
|
28,064
|
|
|
—
|
|
|
—
|
|
|
28,064
|
|
|
Cumulative-effect adoption of ASU 2016-09
|
—
|
|
|
—
|
|
|
—
|
|
|
36,684
|
|
|
36,684
|
|
|
Cumulative-effect adoption of ASU 2016-16
|
—
|
|
|
—
|
|
|
—
|
|
|
1,201
|
|
|
1,201
|
|
|
Repurchase of common stock, including transaction costs
|
(2,929
|
)
|
|
(219,907
|
)
|
|
—
|
|
|
—
|
|
|
(219,907
|
)
|
|
Stock-based compensation
|
—
|
|
|
66,799
|
|
|
—
|
|
|
—
|
|
|
66,799
|
|
|
Balance, March 31, 2018
|
126,322
|
|
|
$
|
5,237,085
|
|
|
$
|
(2,752
|
)
|
|
$
|
(458,769
|
)
|
|
$
|
4,775,564
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
133,125
|
|
|
133,125
|
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
(3,872
|
)
|
|
—
|
|
|
(3,872
|
)
|
|
Exercise of stock options and vesting of restricted stock units, net of shares withheld for employee taxes
|
1,368
|
|
|
(10,833
|
)
|
|
—
|
|
|
—
|
|
|
(10,833
|
)
|
|
Issuance of common stock in connection with employee stock purchase plan
|
468
|
|
|
26,817
|
|
|
—
|
|
|
—
|
|
|
26,817
|
|
|
Cumulative-effect adoption of ASU 2014-09
|
—
|
|
|
—
|
|
|
—
|
|
|
4,492
|
|
|
4,492
|
|
|
Repurchase of common stock, including transaction costs
|
(9,095
|
)
|
|
(638,074
|
)
|
|
—
|
|
|
—
|
|
|
(638,074
|
)
|
|
Stock-based compensation
|
—
|
|
|
72,460
|
|
|
—
|
|
|
—
|
|
|
72,460
|
|
|
Balance, March 30, 2019
|
119,063
|
|
|
$
|
4,687,455
|
|
|
$
|
(6,624
|
)
|
|
$
|
(321,152
|
)
|
|
$
|
4,359,679
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
334,325
|
|
|
334,325
|
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
8,912
|
|
|
—
|
|
|
8,912
|
|
|
Exercise of stock options and vesting of restricted stock units, net of shares withheld for employee taxes
|
1,551
|
|
|
(974
|
)
|
|
—
|
|
|
—
|
|
|
(974
|
)
|
|
Issuance of common stock in connection with employee stock purchase plan
|
452
|
|
|
28,657
|
|
|
—
|
|
|
—
|
|
|
28,657
|
|
|
Cumulative-effect adoption of ASU 2016-02
|
—
|
|
|
—
|
|
|
—
|
|
|
69
|
|
|
69
|
|
|
Repurchase of common stock, including transaction costs
|
(6,441
|
)
|
|
(501,868
|
)
|
|
—
|
|
|
(13,263
|
)
|
|
(515,131
|
)
|
|
Stock-based compensation
|
—
|
|
|
77,107
|
|
|
—
|
|
|
—
|
|
|
77,107
|
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
21
|
|
|
21
|
|
|
Balance, March 28, 2020
|
114,625
|
|
|
$
|
4,290,377
|
|
|
$
|
2,288
|
|
|
$
|
—
|
|
|
$
|
4,292,665
|
|
See accompanying notes.
Qorvo, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
2020
|
|
2019
|
|
2018
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net income (loss)
|
$
|
334,325
|
|
|
$
|
133,125
|
|
|
$
|
(40,288
|
)
|
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
Depreciation
|
221,632
|
|
|
208,646
|
|
|
174,425
|
|
|
Intangible assets amortization
|
247,299
|
|
|
454,451
|
|
|
539,790
|
|
|
Loss on debt extinguishment
|
—
|
|
|
90,201
|
|
|
928
|
|
|
Deferred income taxes
|
(11,099
|
)
|
|
(70,169
|
)
|
|
(32,248
|
)
|
|
Foreign currency adjustments
|
(1,300
|
)
|
|
(2,376
|
)
|
|
953
|
|
|
Gain on Cavendish investment
|
(43,008
|
)
|
|
—
|
|
|
—
|
|
|
Loss on impairment of equity investment
|
18,339
|
|
|
—
|
|
|
—
|
|
|
Asset impairment
|
1,057
|
|
|
15,901
|
|
|
46,315
|
|
|
Stock-based compensation expense
|
75,978
|
|
|
71,580
|
|
|
68,158
|
|
|
Other, net
|
10,178
|
|
|
5,087
|
|
|
3,792
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
Accounts receivable, net
|
21,029
|
|
|
(32,119
|
)
|
|
12,906
|
|
|
Inventories
|
10,252
|
|
|
(39,590
|
)
|
|
(41,887
|
)
|
|
Prepaid expenses and other current and non-current assets
|
(14,513
|
)
|
|
13,343
|
|
|
28,310
|
|
|
Accounts payable
|
15,425
|
|
|
15,167
|
|
|
38,952
|
|
|
Accrued liabilities
|
48,670
|
|
|
(3,899
|
)
|
|
(2,623
|
)
|
|
Income taxes payable and receivable
|
12,935
|
|
|
(38,206
|
)
|
|
50,801
|
|
|
Other liabilities
|
(1,553
|
)
|
|
(10,778
|
)
|
|
4,236
|
|
|
Net cash provided by operating activities
|
945,646
|
|
|
810,364
|
|
|
852,520
|
|
|
Investing activities:
|
|
|
|
|
|
|
Purchase of property and equipment
|
(164,104
|
)
|
|
(220,937
|
)
|
|
(269,835
|
)
|
|
Purchase of available-for-sale debt securities
|
—
|
|
|
(132,732
|
)
|
|
—
|
|
|
Proceeds from sales and maturities of available-for-sale debt securities
|
1,950
|
|
|
133,132
|
|
|
—
|
|
|
Purchase of businesses, net of cash acquired
|
(946,043
|
)
|
|
—
|
|
|
—
|
|
|
Other investing
|
2,455
|
|
|
(27,017
|
)
|
|
(7,574
|
)
|
|
Net cash used in investing activities
|
(1,105,742
|
)
|
|
(247,554
|
)
|
|
(277,409
|
)
|
|
Financing activities:
|
|
|
|
|
|
|
Repurchase and payment of debt
|
—
|
|
|
(1,050,680
|
)
|
|
(107,729
|
)
|
|
Proceeds from borrowings and debt issuances
|
659,000
|
|
|
905,350
|
|
|
100,000
|
|
|
Repurchase of common stock, including transaction costs
|
(515,131
|
)
|
|
(638,074
|
)
|
|
(219,907
|
)
|
|
Proceeds from the issuance of common stock
|
50,198
|
|
|
41,289
|
|
|
57,412
|
|
|
Tax withholding paid on behalf of employees for restricted stock units
|
(21,791
|
)
|
|
(24,835
|
)
|
|
(24,708
|
)
|
|
Other financing
|
(6,717
|
)
|
|
(9,714
|
)
|
|
(1,916
|
)
|
|
Net cash provided by (used in) financing activities
|
165,559
|
|
|
(776,664
|
)
|
|
(196,848
|
)
|
|
Effect of exchange rate changes on cash
|
(1,233
|
)
|
|
(1,166
|
)
|
|
2,360
|
|
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
4,230
|
|
|
(215,020
|
)
|
|
380,623
|
|
|
Cash, cash equivalents and restricted cash at the beginning of the period
|
711,382
|
|
|
926,402
|
|
|
545,779
|
|
|
Cash, cash equivalents and restricted cash at the end of the period
|
$
|
715,612
|
|
|
$
|
711,382
|
|
|
$
|
926,402
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
Cash paid during the year for interest
|
$
|
54,445
|
|
|
$
|
64,853
|
|
|
$
|
70,208
|
|
|
Cash paid during the year for income taxes
|
$
|
55,513
|
|
|
$
|
69,453
|
|
|
$
|
41,478
|
|
|
Non-cash investing and financing information:
|
|
|
|
|
|
|
Capital expenditure adjustments included in liabilities
|
$
|
22,904
|
|
|
$
|
37,728
|
|
|
$
|
31,769
|
|
See accompanying notes.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
March 28, 2020
1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
Qorvo, Inc. was formed as the result of a business combination (the "Business Combination") of RF Micro Devices, Inc. ("RFMD") and TriQuint Semiconductor, Inc. ("TriQuint"), which closed on January 1, 2015.
The Company is a leader in the development and commercialization of technologies and products for wireless and wired connectivity. The Company combines a broad portfolio of innovative radio frequency ("RF") solutions, highly differentiated semiconductor technologies, systems-level expertise and global manufacturing scale to supply diverse customers a broad range of products that enable a more connected world.
The Company’s design expertise and manufacturing capabilities span multiple semiconductor process technologies. The Company's primary wafer fabrication facilities are located in North Carolina, Oregon and Texas and its primary assembly and test facilities are located in China, Costa Rica, Germany and Texas. The Company also sources multiple products and materials through external suppliers. The Company operates design, sales and other manufacturing facilities throughout Asia, Europe and North America.
Principles of Consolidation and Basis of Presentation
The 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 years 2019 and 2018 financial statements have been reclassified to conform to the fiscal 2020 presentation.
Accounting Periods
The Company uses a 52- or 53-week fiscal year ending on the Saturday closest to March 31 of each year. The most recent three fiscal years ended on March 28, 2020, March 30, 2019 and March 31, 2018. Fiscal years 2020, 2019 and 2018 were 52-week years.
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and the disclosure of contingent liabilities. The Company evaluates its estimates on an ongoing basis, including those related to revenue recognition, product warranty obligations, valuation of inventories, tax related contingencies, valuation of long-lived and intangible assets, other contingencies and litigation, among others. The Company generally bases its estimates on historical experience, expected future conditions and third-party evaluations. Accounting estimates require difficult and subjective judgments and actual results may differ from the Company’s estimates, particularly in light of the uncertainty relating to the impact of the recent novel coronavirus (COVID-19) outbreak. Certain accounting estimates that generally require consideration of expected future conditions were assessed by taking into account anticipated impacts from the COVID-19 outbreak as of March 28, 2020 and through the date of this Annual Report on Form 10-K using reasonably available information as of those dates.
Cash and Cash Equivalents
Cash and cash equivalents consist of demand deposit accounts, money market funds, and other temporary, highly-liquid investments with original maturities of three months or less when purchased.
Investments
The Company's available-for-sale debt securities (consisting of auction rate securities in fiscal 2019) are carried at fair value with the changes in unrealized gains and losses, net of tax, reported in "Other comprehensive income (loss)." The cost of securities sold is based on the specific identification method and any realized gain or loss is included in "Other income (expense)." The cost of available-for-sale debt securities is adjusted for premiums and discounts, with the amortization or accretion of such amounts included as a portion of interest. Available-for-sale debt securities with an original maturity date greater than three months and less than one year are classified as
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
current investments. Available-for-sale debt securities with an original maturity date exceeding one year are classified as long-term.
Marketable equity securities consist of common stock in publicly-traded companies and are carried at fair value with both the realized and unrealized gains and losses reported in "Other income (expense)." Fair values of publicly-traded equity securities are determined using quoted prices in active markets. The marketable equity securities are classified as short-term based on their highly liquid nature and are recorded in "Other current assets" in the Consolidated Balance Sheets.
The Company invests in limited partnerships which are accounted for using the equity method. These equity method investments are classified as "Long-term investments" in the Consolidated Balance Sheets. The Company records its share of the financial results of the limited partnerships in "Other income (expense)" in the Company's Consolidated Statements of Operations.
The Company also invests in privately-held companies for which the fair value of the investment is not readily determinable. These equity investments without a readily determinable fair value are measured at cost less impairment, adjusted for any changes in observable prices, and are classified as "Long-term investments" in the Consolidated Balance Sheets. The Company assesses these investments for impairment on a quarterly basis and considers both qualitative and quantitative factors that may have a significant impact on the investee's fair value. Qualitative factors considered include the investee's financial condition and business outlook, market for technology and other relevant events and factors affecting the investee. Investments are impaired when their fair value is less than their carrying value.
Fair Value Measurement
The Company measures and reports certain financial assets and liabilities on a recurring basis. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company categorizes its financial instruments carried at fair value into a three-level fair value hierarchy, based on the priority of inputs to the respective valuation technique. The three-level hierarchy for fair value measurement is described as follows:
|
|
|
|
•
|
Level 1 - includes instruments for which inputs are quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
|
|
|
|
|
•
|
Level 2 - includes instruments for which the inputs are other than quoted prices that are observable for the asset or liability, either directly or indirectly, and fair value can be determined through the use of models or other valuation methodologies that do not require significant judgment since the inputs are corroborated by readily observable data.
|
|
|
|
|
•
|
Level 3 - includes instruments for which the valuations are based on inputs that are unobservable and significant to the overall fair value measurement. These inputs are supported by little or no market activity and reflect the use of significant management judgment.
|
The Company also holds assets whose fair value is measured and recorded on a nonrecurring basis. These assets include equity method investments, equity investments without a readily determinable fair value, and certain non-financial assets, such as intangible assets and property and equipment. See Note 7 for further information on equity investments without a readily determinable fair value and Note 12 for further information on impairment of property and equipment.
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 9 for further disclosures related to the fair value of the Company's long-term debt.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Inventories
Inventories are stated at the lower of cost or net realizable value (cost is based on standard cost, which approximates actual average cost). The Company’s business is subject to the risk of technological and design changes. The Company evaluates inventory levels quarterly against sales forecasts on a product family basis to evaluate its overall inventory risk. Reserves are adjusted to reflect inventory values in excess of forecasted sales and management's analysis and assessment of overall inventory risk. In the event the Company sells inventory that had been covered by a specific inventory reserve, the sale is recorded at the actual selling price and the related cost of goods sold is recorded at the full inventory cost, net of the reserve. Abnormal production levels are charged to "Cost of goods sold" in the period incurred rather than as a portion of inventory cost.
Product Warranty
The Company generally sells products with a limited warranty on product quality. The Company accrues for known warranty issues if a loss is probable and can be reasonably estimated and accrues for estimated incurred but unidentified issues based on historical activity. The accrual and the related expense for known product warranty issues were not significant during the periods presented. Due to product testing and the short time typically between product shipment and the detection and correction of product failures and the historical rate of losses, the accrual and related expense for estimated incurred but unidentified issues was also not significant during the periods presented.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the assets, ranging from one year to 39 years. The Company capitalizes interest on borrowings related to eligible capital expenditures. Capitalized interest is added to the cost of qualified assets and depreciated together with that asset cost. The Company’s assets acquired under finance leases and leasehold improvements are amortized over the lesser of the asset life or lease term (which is reasonably assured) and included in depreciation. The Company records capital-related government grants earned as a reduction to property and equipment and depreciates such grants over the estimated useful lives of the associated assets.
The Company periodically evaluates the period over which it expects to recover the economic value of the Company’s property and equipment, considering factors such as changes in machinery and equipment technology, the ability to re-use equipment across generations of process technology and historical usage trends. If the Company determines that the useful lives of its assets are shorter or longer than originally estimated, the rate of depreciation is adjusted to reflect the revised useful lives of the assets.
The Company assesses property and equipment for impairment when events or changes in circumstances indicate that the carrying amount of its assets may not be recoverable. Factors that are considered in deciding when to perform an impairment review include an adverse change in the use of the Company’s assets or an expectation that the assets will be sold or otherwise disposed. The Company assesses the recoverability of the assets held and used by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining estimated useful lives against their respective carrying amounts. Assets identified as "held for sale" are recorded at the lesser of their carrying value or their fair market value less costs to sell. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Leases
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.
Business Acquisitions
The Company records goodwill when the consideration paid for a business acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. Goodwill is assigned to the Company's reporting unit that is expected to benefit from the synergies of the business combination.
A number of assumptions, estimates and judgments are used in determining the fair value of acquired assets and liabilities, particularly with respect to the intangible assets acquired. The valuation of intangible assets requires the Company to use valuation techniques such as the income approach. The income approach includes management’s estimation of future cash flows (including expected revenue growth rates and profitability), the underlying product or technology life cycles and the discount rates applied to future cash flows.
Judgment is also required in estimating the fair values of deferred tax assets and liabilities, uncertain tax positions and tax-related valuation allowances, which are initially estimated as of the acquisition date, as well as inventory, property and equipment, pre-existing liabilities or legal claims, deferred revenue and contingent consideration, each as may be applicable.
While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, the Company’s estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recognized in the Consolidated Statements of Operations.
Goodwill
The Company performs an annual impairment assessment of goodwill at the reporting unit level on the first day of the fourth quarter in each fiscal year, or more frequently if indicators of potential impairment exist. Reporting units, as defined by Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 350, "Intangibles - Goodwill and Other," may be operating segments as a whole or an operation one level below an operating segment, referred to as a component. The Company has determined that its reporting units are its two operating and reportable segments, Mobile Products ("MP") and Infrastructure and Defense Products ("IDP").
In accordance with ASC 350, the Company may assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value, including goodwill.
In performing a qualitative assessment, the Company considers (i) its overall historical and projected future operating results, (ii) if there was a significant decline in the Company’s stock price for a sustained period, (iii) if there was a significant change in the Company’s market capitalization relative to its net book value, and (iv) if there was a prolonged or more significant slowdown in the worldwide economy of the semiconductor industry, as well as
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
other relevant events and factors affecting the reporting unit. If the Company assesses these qualitative factors and concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, or if the Company decides not to perform a qualitative assessment, then a quantitative impairment test is performed.
In fiscal years 2019 and 2018, the Company completed qualitative assessments and concluded that based on the relevant facts and circumstances, it was more likely than not that each reporting unit’s fair value exceeded its related carrying value and no further impairment testing was required.
In fiscal 2020, the Company performed a quantitative impairment test. The Company’s quantitative impairment test considered both the income approach and the market approach to estimate each reporting unit’s fair value. Under the income approach, the fair value of each reporting unit is based on the present value of estimated future cash flows. Cash flow projections are based on the Company's estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rate used to determine the present value of future cash flows is based on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the business's ability to execute on the projected cash flows. The market approach estimates fair value based on market multiples of revenue and earnings derived from comparable publicly traded companies with similar operating and investment characteristics. The resulting fair value, based on the income and market approaches, is then compared to the carrying value to determine if impairment is necessary.
As a result of the quantitative analysis performed in fiscal 2020, it was determined that the fair value of each of the Company’s reporting units substantially exceeded their carrying values. As the assumptions used in the income approach and market approach can have a material impact on the fair value determinations, the Company performed a sensitivity analysis of key assumptions used in the assessment and determined that a one percentage point increase in the discount rate along with a one percentage point decrease in the long-term growth rate would not result in an impairment of goodwill for either reporting unit and their fair values substantially exceeded their carrying values.
Identified Intangible Assets
The Company amortizes finite-lived intangible assets (including developed technology, customer relationships, trade names, technology licenses and backlog) over their estimated useful life. In-process research and development ("IPRD") assets represent the fair value of incomplete research and development ("R&D") projects that had not reached technological feasibility as of the date of the acquisition and are initially not subject to amortization. Upon completion of development, IPRD assets are transferred to developed technology and are amortized over their useful lives. The asset balances relating to abandoned projects are impaired and expensed to R&D. The Company performs a quarterly review of significant intangible assets to determine whether facts and circumstances (including external factors such as industry and economic trends and internal factors such as changes in the Company’s business strategy and forecasts) indicate that the carrying amount of the assets may not be recoverable. If such facts and circumstances exist, the Company assesses the recoverability of identified intangible assets by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Impairments, if any, are based on the excess of the carrying amounts over the fair value of those assets and occur in the period in which the impairment determination was made.
Accrued Liabilities
The "Accrued liabilities" balance as of March 28, 2020 and March 30, 2019, includes accrued compensation and benefits of $126.1 million and $93.2 million, respectively, and interest payable of $22.8 million and $11.2 million, respectively.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Revenue Recognition
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 to which the Company 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 ASC 606, "Revenue from Contracts with Customers," 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, 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.
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 Consolidated Balance Sheets were immaterial as of March 28, 2020 and March 30, 2019.
The Company invoices customers upon shipment and recognizes revenues in accordance with delivery terms. As of March 28, 2020, the Company had $37.8 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 12 months.
The Company includes shipping charges billed to customers in "Revenue" and includes the related shipping costs in "Cost of goods sold" in the 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 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 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.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Research and Development
The Company charges all R&D costs to expense as incurred.
Income Taxes
The Company accounts for income taxes under the liability method, which requires recognition of deferred tax assets and liabilities for the temporary differences between the financial reporting and tax basis of assets and liabilities and for tax carryforwards. Deferred tax assets and liabilities for each tax jurisdiction are measured using the enacted statutory tax rates in effect for the years in which the differences are expected to reverse. A valuation allowance is provided against deferred tax assets to the extent the Company determines it is more likely than not that some portion or all of its deferred tax assets will not be realized.
A more likely than not recognition threshold is required to be met before the Company recognizes the benefit of an income tax position in its financial statements. The Company’s policy is to recognize accrued interest and penalties, if incurred, on any unrecognized tax benefits as a component of income tax expense.
It is the Company’s current intent and policy to repatriate certain previously taxed earnings of foreign subsidiaries from outside the U.S. Accordingly, the Company recognizes a deferred tax liability for income taxes on certain unremitted foreign earnings of foreign subsidiaries. For earnings which remain permanently reinvested, it is not practical to estimate the additional tax that would be incurred, if any, if the permanently reinvested earnings were repatriated.
Stock-Based Compensation
Under ASC 718, "Compensation – Stock Compensation," stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award using an option pricing model for stock options (Black-Scholes) and market price for restricted stock units, and is recognized as expense over the employee's requisite service period.
As of March 28, 2020, total remaining unearned compensation cost related to unvested restricted stock units was $87.4 million, which will be amortized over the weighted-average remaining service period of approximately 1.3 years.
Foreign Currency Translation
The financial statements of foreign subsidiaries have been translated into U.S. dollars in accordance with ASC 830, "Foreign Currency Matters." The functional currency for most of the Company’s international operations is the U.S. dollar. The functional currency for the remainder of the Company’s foreign subsidiaries is the local currency. Assets and liabilities denominated in foreign currencies are translated using the exchange rates on the balance sheet dates. Revenues and expenses are translated using the average exchange rates throughout the year. Translation adjustments are shown separately as a component of "Accumulated other comprehensive income (loss)" within "Stockholders’ equity" in the Consolidated Balance Sheets. Foreign currency transaction gains or losses (transactions denominated in a currency other than the functional currency) are reported in "Other income (expense)" in the Consolidated Statements of Operations.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Recent Accounting Pronouncements
Accounting Pronouncements Not Yet Effective
In June 2016, the FASB issued Accounting Standards Update ("ASU") 2016-13, "Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," which requires a current lifetime expected credit loss methodology to be used to measure impairments of accounts receivable and other financial assets. Using this methodology will result in earlier recognition of losses than under the current incurred loss approach, which requires waiting to recognize a loss until it is probable of being incurred. This standard will be effective for the Company in the first quarter of fiscal 2021 and will be adopted using the modified retrospective transition method. Upon adoption, the standard is expected to only impact the Company's accounting for credit losses related to accounts receivable. In preparation for the adoption of the new standard, the Company has updated certain policies and related processes, but does not expect the adoption of this new guidance will have a material impact on its Consolidated Financial Statements.
Accounting Pronouncements Recently Adopted
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," with multiple amendments subsequently issued. The new guidance required that lease arrangements be presented on the lessee's balance sheet by recording a right-of-use asset and a lease liability equal to the present value of the related future minimum lease payments. The Company adopted the standard in the first quarter of fiscal 2020, using the modified retrospective approach which permits lessees to recognize a cumulative-effect adjustment to the opening 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 ASC 840, "Leases."
The Company elected the transition package of practical expedients, under which the Company did not have to 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 Consolidated Statements of Operations or Consolidated Statements of Cash Flows. See Note 8 for further disclosures resulting from the adoption of this new standard.
2. CONCENTRATIONS OF CREDIT RISK
The Company’s principal financial instrument subject to potential concentration of credit risk is accounts receivable, which is unsecured. The Company provides an allowance for doubtful accounts equal to estimated losses expected to be incurred in the collection of accounts receivable. The Company has adopted credit policies and standards intended to accommodate industry growth and inherent risk and it believes that credit risks are moderated by the financial stability of its major customers, conservative payment terms and the Company’s strict credit policies.
Revenue from significant customers, those representing 10% or more of revenue for the respective periods, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
2020
|
|
2019
|
|
2018
|
|
Apple Inc. ("Apple") (1)
|
33%
|
|
32%
|
|
36%
|
|
Huawei Technologies Co., Ltd. and affiliates ("Huawei")
|
10%
|
|
15%
|
|
8%
|
(1) The Company provided its products to Apple through sales to multiple contract manufacturers.
These customers primarily purchase RF solutions for a variety of mobile devices.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Accounts receivable related to these customers (which includes multiple contract manufacturers) accounted for 35%, 49% and 26% of the Company's total net accounts receivable balance as of March 28, 2020, March 30, 2019 and March 31, 2018, respectively.
On May 16, 2019, the Company suspended shipments of products to Huawei after the Bureau of Industry and 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. Subsequently, the Company restarted shipments from outside the U.S. of certain products that are not subject to the Export Administration Regulations (EAR) to Huawei in compliance with the BIS order. The Company has also applied for a license to ship other products that are subject to the EAR, as required by the rules governing the Entity List. Sales to Huawei will continue to be impacted by trade restrictions.
3. INVENTORIES
The components of inventories, net of reserves, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28, 2020
|
|
March 30, 2019
|
|
Raw materials
|
$
|
112,671
|
|
|
$
|
118,608
|
|
|
Work in process
|
291,028
|
|
|
272,469
|
|
|
Finished goods
|
113,499
|
|
|
120,716
|
|
|
Total inventories
|
$
|
517,198
|
|
|
$
|
511,793
|
|
4. PROPERTY AND EQUIPMENT
The components of property and equipment are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28, 2020
|
|
March 30, 2019
|
|
Land
|
$
|
25,842
|
|
|
$
|
25,996
|
|
|
Building and leasehold improvements
|
404,075
|
|
|
416,209
|
|
|
Machinery and equipment
|
2,145,511
|
|
|
2,025,110
|
|
|
|
2,575,428
|
|
|
2,467,315
|
|
|
Less accumulated depreciation
|
(1,415,397
|
)
|
|
(1,218,507
|
)
|
|
|
1,160,031
|
|
|
1,248,808
|
|
|
Construction in progress
|
99,172
|
|
|
117,705
|
|
|
Total property and equipment, net
|
$
|
1,259,203
|
|
|
$
|
1,366,513
|
|
5. BUSINESS ACQUISITIONS
During fiscal 2020, the Company completed the acquisitions of Active-Semi International, Inc. ("Active-Semi"), Cavendish Kinetics Limited ("Cavendish"), Custom MMIC Design Services, Inc. ("Custom MMIC") and Decawave Limited ("Decawave"). The goodwill resulting from these acquisitions is attributed to synergies and other benefits that are expected to be generated from these transactions.
The operating results of these companies, which were not material either individually or in the aggregate for fiscal 2020, have been included in the Company's consolidated financial statements as of their acquisition dates.
Active-Semi International, Inc.
On May 6, 2019, the Company acquired all of the outstanding equity interests of Active-Semi, a private fabless supplier of programmable analog power management solutions, for a total purchase price of $307.9 million. The acquisition expanded the Company's product offerings for existing customers and new customers in power management markets.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The purchase price was allocated based on the estimated fair values of the assets acquired and liabilities assumed as follows (in thousands):
|
|
|
|
|
|
|
|
|
Net tangible assets (1)
|
|
$
|
22,876
|
|
|
Intangible assets
|
|
158,400
|
|
|
Goodwill
|
|
130,802
|
|
|
Deferred tax liability, net
|
|
(4,184
|
)
|
|
|
|
$
|
307,894
|
|
(1) Includes cash acquired of $10.0 million.
The more significant intangible assets acquired included developed technology of $76.7 million, customer relationships of $40.9 million and IPRD of $40.6 million.
The fair values of the Active-Semi developed technology and IPRD acquired were determined based on an income approach using the "excess earnings method," which estimated the values of the intangible assets by discounting the future projected earnings of the asset to present value as of the valuation date. The acquired developed technology assets are being amortized on a straight-line basis over their estimated useful lives of 5 to 9 years.
During fiscal 2020, $31.0 million of IPRD assets were completed, transferred to finite-lived intangible assets, and are being amortized over their estimated useful lives of 5 to 7 years. The IPRD remaining as of March 28, 2020 is expected to be completed during fiscal 2021 with remaining costs to complete of less than $2.0 million.
The fair value of Active-Semi customer relationships acquired was determined based on an income approach using the "with and without method," in which the value of the asset is determined by the difference in discounted cash flows of the profitability of the Company "with" the asset and the profitability of the Company "without" the asset. These customer relationships are being amortized on a straight-line basis over their estimated useful lives of 5 years.
The Company will continue to evaluate certain assets, liabilities and tax estimates over the measurement period (up to one year from the acquisition date). Goodwill recognized from the acquisition of Active-Semi is not deductible for income tax purposes.
During fiscal 2020, the Company recorded post-combination compensation expense as well as other acquisition and integration related costs associated with the acquisition of Active-Semi of $25.3 million and $4.2 million in "Other operating expense" and "Cost of goods sold," respectively, in the Consolidated Statement of Operations.
Cavendish Kinetics Limited
As of September 28, 2019, the Company had an investment in preferred shares in Cavendish, a private supplier of high-performance RF microelectromechanical system ("MEMS") technology for antenna tuning applications, with a carrying value of $59.4 million. The Company accounted for this investment as an equity investment without a readily determinable fair value using the measurement alternative in accordance with ASC 321, "Investments–Equity Securities."
On October 4, 2019, the Company acquired the remaining issued and outstanding capital of Cavendish for cash consideration of $198.4 million. The acquisition advances RF MEMS technology for applications across the Company's products and the technology will be transitioned into high-volume manufacturing for mobile devices and other markets.
The purchase of the remaining equity interest in Cavendish was considered to be an acquisition achieved in stages, whereby the previously held equity interest was remeasured at its acquisition-date fair value. The Company determined that the fair value of its previously held equity investment was $102.4 million based on the purchase consideration exchanged to acquire the remaining issued and outstanding capital of Cavendish. This resulted in recognition of a gain of $43.0 million in fiscal 2020, which is recorded in "Other income (expense)" in the Consolidated Statement of Operations.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The purchase price was calculated as follows (in thousands):
|
|
|
|
|
|
|
|
|
Cash consideration paid to Cavendish
|
|
$
|
198,385
|
|
|
Fair value of equity interest previously held by the Company
|
|
102,383
|
|
|
Total purchase price
|
|
$
|
300,768
|
|
The purchase price was allocated based on the estimated fair values of the assets acquired and liabilities assumed as follows (in thousands):
|
|
|
|
|
|
|
|
|
Net tangible assets (1)
|
|
$
|
97
|
|
|
Intangible assets
|
|
206,350
|
|
|
Goodwill
|
|
100,845
|
|
|
Deferred tax liability, net
|
|
(6,524
|
)
|
|
|
|
$
|
300,768
|
|
(1) Includes cash acquired of $1.8 million.
The most significant intangible asset acquired was developed technology of $206.0 million. The fair value of the Cavendish developed technology acquired was determined based on an income approach using the "excess earnings method," which estimated the value of the intangible asset by discounting the future projected earnings of the asset to present value as of the valuation date. This developed technology is being amortized on a straight-line basis over its estimated useful life of 9 years.
The Company will continue to evaluate certain assets, liabilities and tax estimates over the measurement period (up to one year from the October 4, 2019 acquisition date). Goodwill recognized from the acquisition of Cavendish is not deductible for income tax purposes.
During fiscal 2020, the Company recorded post-combination compensation expense as well as other acquisition and integration related costs associated with the acquisition of Cavendish totaling $3.8 million in "Other operating expense" in the Consolidated Statement of Operations.
Custom MMIC Design Services, Inc.
On February 6, 2020, the Company acquired all of the outstanding equity interests of Custom MMIC, a supplier of high-performance gallium arsenide ("GaAs") and gallium nitride ("GaN") monolithic microwave integrated circuits ("MMICs") for defense, aerospace and commercial applications, for a total purchase price of $91.7 million. The acquisition expands the Company's millimeter wave ("mmWave") capabilities for product offerings in defense and commercial markets.
The purchase price was comprised of cash consideration of $86.0 million and contingent consideration of up to $10.0 million which is payable to the sellers in the first quarter of fiscal 2022 if certain revenue targets are achieved over a one-year period from the acquisition date. The estimated fair value of the contingent consideration was $5.7 million at both the acquisition date and at March 28, 2020 (and is included in "Other long-term liabilities" in the Consolidated Balance Sheet). In subsequent reporting periods, the contingent consideration liability will be remeasured at fair value with changes recognized in "Other operating expense."
In addition to the purchase price consideration, an installment agreement was entered into for $15.5 million which is payable to certain key employees of Custom MMIC and is subject to their continued employment over a three-year period from the acquisition date. This amount is being recognized as post-combination compensation expense over the requisite service period.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The purchase price was allocated based on the estimated fair values of the assets acquired and liabilities assumed as follows (in thousands):
|
|
|
|
|
|
|
|
|
Net tangible assets (1)
|
|
$
|
4,988
|
|
|
Intangible assets
|
|
31,100
|
|
|
Goodwill
|
|
55,654
|
|
|
|
|
$
|
91,742
|
|
(1) Includes cash acquired of $2.3 million.
The more significant intangible assets acquired were customer relationships of $26.9 million. The fair value of Custom MMIC customer relationship intangibles acquired was determined based on an income approach using the "excess earnings method," which estimated the values of the intangible assets by discounting the future projected earnings of the asset to present value as of the valuation date. These customer relationships are being amortized on a straight-line basis over their estimated useful lives of 10 years.
The Company will continue to evaluate certain assets, liabilities and tax estimates over the measurement period (up to one year from the acquisition date). All goodwill recognized from the acquisition of Custom MMIC is deductible for income tax purposes.
During fiscal 2020, the Company recorded post-combination compensation expense as well as other acquisition and integration related costs associated with the acquisition of Custom MMIC totaling $9.4 million in "Other operating expense" in the Consolidated Statement of Operations.
Decawave Limited
On February 21, 2020, the Company acquired all of the outstanding equity interests of Decawave, a pioneer in ultra-wide band ("UWB") technology and provider of UWB solutions for mobile, automotive and Internet of Things ("IoT") applications, for a total purchase price of $374.7 million (of which $372.8 million was paid in cash as of year-end). The acquisition expands the Company's product offerings of technology that enables real-time, highly accurate and reliable local area precision-location services.
In addition to the purchase price consideration, the Company agreed to pay employees of Decawave total compensation of $23.1 million, primarily subject to their continued employment. This amount will be recognized as post-combination compensation expense over the period the employees provide the required services. In fiscal 2020, $5.4 million was recorded in "Other operating expense" in the Consolidated Statement of Operations and $8.1 million and $9.6 million was recorded in "Prepaid expenses" and "Other non-current assets", respectively, in the Consolidated Balance Sheet.
The purchase price was allocated based on the estimated fair values of the assets acquired and liabilities assumed as follows (in thousands):
|
|
|
|
|
|
|
|
|
Net tangible assets (1)
|
|
$
|
304
|
|
|
Intangible assets
|
|
246,060
|
|
|
Goodwill
|
|
149,703
|
|
|
Deferred tax liability, net
|
|
(21,327
|
)
|
|
|
|
$
|
374,740
|
|
(1) Includes cash acquired of $5.0 million.
The more significant intangible assets acquired included developed technology of $235.0 million and customer relationships of $10.0 million.
The fair value of the Decawave developed technology acquired was determined based on an income approach using the "excess earnings method," which estimated the values of the intangible asset by discounting the future projected
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
earnings of the asset to present value as of the valuation date. The acquired developed technology asset is being amortized on a straight-line basis over its estimated useful life of 7 years.
The fair value of Decawave customer relationships acquired was determined based on an income approach using the "with and without method," in which the value of the asset is determined by the difference in discounted cash flows of the profitability of the Company "with" the asset and the profitability of the Company "without" the asset. These customer relationships are being amortized on a straight-line basis over their estimated useful lives of 3 years.
The Company will continue to evaluate certain assets, liabilities and tax estimates over the measurement period (up to one year from the acquisition date). Goodwill recognized from the acquisition of Decawave is not deductible for income tax purposes.
During fiscal 2020, the Company recorded post-combination compensation expense of $5.4 million (as discussed above) as well as other acquisition and integration related costs associated with the acquisition of Decawave of $7.0 million in "Other operating expense" in the Consolidated Statement of Operations.
6. GOODWILL AND INTANGIBLE ASSETS
The changes in the carrying amount of goodwill for fiscal 2020 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile Products
|
|
Infrastructure and Defense Products
|
|
Total
|
|
Balance as of March 30, 2019 (1)
|
$
|
1,751,503
|
|
|
$
|
422,386
|
|
|
$
|
2,173,889
|
|
|
Active-Semi acquisition
|
—
|
|
|
130,802
|
|
|
130,802
|
|
|
Cavendish acquisition
|
100,845
|
|
|
—
|
|
|
100,845
|
|
|
Custom MMIC acquisition
|
—
|
|
|
55,654
|
|
|
55,654
|
|
|
Decawave acquisition
|
149,703
|
|
|
—
|
|
|
149,703
|
|
|
Effect of changes in foreign currency exchange rates (2)
|
3,381
|
|
|
—
|
|
|
3,381
|
|
|
Balance as of March 28, 2020 (1)
|
$
|
2,005,432
|
|
|
$
|
608,842
|
|
|
$
|
2,614,274
|
|
(1) The Company’s goodwill balance is presented net of accumulated impairment losses and write-offs of $621.6 million.
(2) Represents the impact of foreign currency translation when goodwill is recorded in foreign entities whose functional currency is also their local currency.
Goodwill is allocated to the reporting units that are expected to benefit from the synergies of the business combinations generating the underlying goodwill.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The following summarizes information regarding the gross carrying amounts and accumulated amortization of intangible assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28, 2020
|
|
March 30, 2019
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Developed technology
|
$
|
1,325,472
|
|
|
$
|
652,400
|
|
|
$
|
1,246,335
|
|
|
$
|
960,793
|
|
|
Customer relationships
|
463,772
|
|
|
346,799
|
|
|
1,272,725
|
|
|
1,161,735
|
|
|
Technology licenses
|
3,271
|
|
|
2,327
|
|
|
14,704
|
|
|
13,026
|
|
|
Backlog
|
1,600
|
|
|
267
|
|
|
—
|
|
|
—
|
|
|
Trade names
|
1,200
|
|
|
283
|
|
|
29,391
|
|
|
29,391
|
|
|
Non-compete agreement
|
—
|
|
|
—
|
|
|
1,026
|
|
|
1,026
|
|
|
IPRD
|
9,600
|
|
|
N/A
|
|
|
10,000
|
|
|
N/A
|
|
|
Effect of changes in foreign currency exchange rates (1)
|
6,064
|
|
|
11
|
|
|
—
|
|
|
—
|
|
|
Total
|
$
|
1,810,979
|
|
|
$
|
1,002,087
|
|
|
$
|
2,574,181
|
|
|
$
|
2,165,971
|
|
(1) Represents the impact of foreign currency translation when intangibles are recorded in foreign entities whose functional currency is also their local currency.
Total intangible assets amortization expense was $247.3 million, $454.5 million and $539.8 million in fiscal years 2020, 2019 and 2018, respectively.
The following table provides the Company's estimated amortization expense for intangible assets based on current amortization periods for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
Fiscal Year
|
Estimated
Amortization
Expense
|
|
2021
|
$
|
248,000
|
|
|
2022
|
119,000
|
|
|
2023
|
103,000
|
|
|
2024
|
90,000
|
|
|
2025
|
76,000
|
|
7. INVESTMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Equity Investments Without a Readily Determinable Fair Value
On October 4, 2019, the Company completed its acquisition of the remaining issued and outstanding capital of Cavendish. Prior to the acquisition date, the Company had accounted for its investment in Cavendish as an equity investment without a readily determinable fair value and the investment was classified in "Long-term investments" in the Consolidated Balance Sheets. See Note 5 for disclosures related to the acquisition of Cavendish.
During fiscal 2020, the Company recorded an impairment of $18.3 million on an equity investment without a readily determinable fair value based on recent observable price changes present at the time. This amount is recorded in "Other income (expense)" in the Consolidated Statement of Operations.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Fair Value of Financial Instruments
The fair value of the financial assets and liabilities measured on a recurring basis was determined using the following levels of inputs as of March 28, 2020 and March 30, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Quoted Prices In
Active Markets For
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
March 28, 2020
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Marketable equity securities
|
$
|
459
|
|
|
$
|
459
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
Invested funds in deferred compensation plan (1)
|
19,398
|
|
|
19,398
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
Total assets measured at fair value
|
$
|
19,857
|
|
|
$
|
19,857
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan obligation (1)
|
$
|
19,398
|
|
|
$
|
19,398
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
Contingent earn-out liability (2)
|
5,700
|
|
|
—
|
|
|
—
|
|
|
5,700
|
|
|
|
|
|
|
Total liabilities measured at fair value
|
$
|
25,098
|
|
|
$
|
19,398
|
|
|
$
|
—
|
|
|
$
|
5,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 30, 2019
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
$
|
13
|
|
|
$
|
13
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
Marketable equity securities
|
901
|
|
|
901
|
|
|
—
|
|
|
—
|
|
|
|
|
Auction rate securities (3)
|
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 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 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 Consolidated Balance Sheets.
(2) The Company recorded a contingent earn-out liability in conjunction with a recent acquisition (see Note 5 for disclosures related to acquisitions). The fair value of this liability was estimated using an option pricing model.
(3) The Company's Level 2 auction rate securities were debt instruments with interest rates that reset through periodic short-term auctions and valued based on quoted prices for identical or similar instruments in markets that were not active. The Company sold its auction rate securities at par value during fiscal 2020.
8. LEASES
Operating 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.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Operating leases as of March 28, 2020 are classified as follows (in thousands):
|
|
|
|
|
|
|
|
|
Other non-current assets
|
|
$
|
65,107
|
|
|
|
|
|
|
Other current liabilities
|
|
$
|
15,917
|
|
|
Other long-term liabilities
|
|
$
|
58,077
|
|
Details of operating leases for fiscal 2020 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
Operating lease expense
|
|
$
|
15,184
|
|
|
Short-term lease expense
|
|
$
|
6,878
|
|
|
Variable lease expense
|
|
$
|
3,098
|
|
|
|
|
|
|
|
Cash paid for amounts included in measurement of lease liabilities:
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
16,504
|
|
|
|
|
|
|
Operating lease assets obtained in exchange for new lease liabilities
|
|
$
|
13,201
|
|
|
|
|
|
|
Weighted-average remaining lease term (years)
|
|
7.8
|
|
|
Weighted-average discount rate
|
|
4.06
|
%
|
The aggregate future lease payments for operating leases as of March 28, 2020 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
2021
|
|
$
|
21,586
|
|
|
2022
|
|
14,201
|
|
|
2023
|
|
9,690
|
|
|
2024
|
|
7,449
|
|
|
2025
|
|
6,006
|
|
|
Thereafter
|
|
27,194
|
|
|
Total lease payments
|
|
86,126
|
|
|
Less imputed interest
|
|
(12,132
|
)
|
|
Present value of lease liabilities
|
|
$
|
73,994
|
|
Finance Lease
In fiscal 2018, the Company entered into a finance lease for a facility in Beijing, China that will allow the Company to consolidate several leased facilities as well as provide additional manufacturing space. The lease term is expected to commence in fiscal 2021 and therefore is not recorded on the Consolidated Balance Sheets as of March 28, 2020 and March 30, 2019. The lease has an initial term of five years and includes multiple renewal options, with the maximum lease term not to exceed 30 years. The total amount expected to be paid over the lease term is $56.2 million.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Prior Fiscal Year Disclosures
As previously disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended March 30, 2019 and under the previous lease accounting standard, the aggregate future non-cancelable minimum lease payments of the Company's operating leases as of March 30, 2019 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
2020
|
|
$
|
22,207
|
|
|
2021
|
|
13,382
|
|
|
2022
|
|
10,331
|
|
|
2023
|
|
8,224
|
|
|
2024
|
|
7,139
|
|
|
Thereafter
|
|
31,598
|
|
|
Total minimum payments
|
|
$
|
92,881
|
|
Rent expense under operating leases, covering facilities and equipment, was approximately $19.3 million and $16.3 million for fiscal years 2019 and 2018, respectively, prior to the adoption of the new lease accounting standard.
9. DEBT
Debt as of March 28, 2020 and March 30, 2019 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28, 2020
|
|
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
|
|
|
4.375% senior notes due 2029
|
550,000
|
|
|
—
|
|
|
Finance leases
|
2,252
|
|
|
1,745
|
|
|
Less unamortized premium and issuance costs, net
|
(1,532
|
)
|
|
(4,134
|
)
|
|
Less current portion of long-term debt
|
(6,893
|
)
|
|
(80
|
)
|
|
Total long-term debt
|
$
|
1,567,231
|
|
|
$
|
920,935
|
|
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"). The Credit Agreement included 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"). In addition, the Company may request one or more additional tranches of term loans or increases in the Revolving Facility, up to an aggregate of $300.0 million and subject to securing additional funding commitments from the existing or new lenders (the "Incremental Facility", and collectively with the Term Loan and the Revolving Facility, the "Credit Facility"). On the closing date, $100.0 million of the Term Loan was funded (and was subsequently repaid in March 2018). On June 17, 2019, the Company drew $100.0 million of the Term Loan. The delayed draw availability period for the remaining $200.0 million of the Term Loan expired on 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 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 fiscal 2020, there were no borrowings under the Revolving Facility. Interest paid on the Term Loan during fiscal 2020 was $2.4 million.
At the Company’s option, loans under the Credit Agreement bear interest at (i) the Applicable Rate (as defined in the Credit Agreement) plus the Eurodollar Rate (as defined in the Credit Agreement) or (ii) the Applicable Rate plus a rate equal to the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate of the Administrative Agent, or
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(c) the Eurodollar Base Rate plus 1.0% (the "Base Rate"). All swingline loans will bear interest at a rate equal to the Applicable Rate plus the Base Rate. The Eurodollar Rate is the rate per annum equal to the reserve adjusted London Interbank Offered Rate (or a comparable or successor rate), for dollar deposits for interest periods of one, two, three, six or twelve months, as selected by the Company. The Applicable Rate for Eurodollar Rate loans ranges from 1.125% per annum to 1.375% per annum. The Applicable Rate for Base Rate loans ranges from 0.125% per annum to 0.375% per annum. Interest for Eurodollar Rate loans will be payable at the end of each applicable interest period or at three-month intervals, if such interest period exceeds three months. Interest for Base Rate loans will be payable quarterly in arrears. The Company will pay a letter of credit fee equal to the Applicable Rate multiplied by the daily amount available to be drawn under any letter of credit, a fronting fee, and any customary documentary and processing charges for any letter of credit issued under the Credit Agreement.
The Credit Agreement contains various conditions, covenants and representations with which the Company must comply in order to borrow funds and to avoid an event of default, including the following financial covenants that the Company must maintain: (i) a consolidated leverage ratio not to exceed 3.0 to 1.0 as of the end of any fiscal quarter of the Company, provided that in connection with a permitted acquisition in excess of $300.0 million, the Company's maximum consolidated leverage ratio may increase on two occasions during the term of the Credit Facility to 3.5 to 1.0 for four consecutive fiscal quarters, beginning with the fiscal quarter in which such acquisition occurs and (ii) an interest coverage ratio not to be less than 3.0 to 1.0 as of the end of any fiscal quarter of the Company. As of March 28, 2020, the Company was in compliance with these covenants.
The annual maturities of the Term Loan as of March 28, 2020 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
Maturities
|
|
2021
|
|
$
|
6,250
|
|
|
2022
|
|
5,000
|
|
|
2023
|
|
88,750
|
|
|
|
|
$
|
100,000
|
|
Senior Notes due 2023 and 2025
On November 19, 2015, the Company issued $450.0 million aggregate principal amount of its 6.75% senior notes due December 1, 2023 (the "2023 Notes") and $550.0 million aggregate principal amount of its 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 certain of the Company's 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.
In fiscal years 2018 and 2019, the Company retired all of the issued and outstanding 2023 Notes and $526.6 million of the 2025 Notes. During fiscal 2019, the Company recognized a loss on debt extinguishment of $90.2 million (related to the retirements of the 2023 Notes and the 2025 Notes) as "Other expense" in the Company’s Consolidated Statement of Operations. As of March 28, 2020, an aggregate principal amount of $23.4 million of the 2025 Notes remained outstanding.
At any time prior to December 1, 2020, the Company may redeem all or part 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.
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. Interest paid on the 2025 Notes during fiscal 2020 was $1.6 million and the total interest paid on the 2023 Notes and the 2025 Notes during fiscal years 2019 and 2018 was $46.5 million and $68.9 million, respectively.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Senior Notes due 2026
On July 16, 2018, the Company issued $500.0 million aggregate principal amount of its 5.50% senior notes due 2026 (the "Initial 2026 Notes"). On August 28, 2018 and March 5, 2019, the Company issued an additional $130.0 million and $270.0 million, respectively, aggregate principal amount of such notes (together, the "Additional 2026 Notes", and together with the Initial 2026 Notes, the "2026 Notes"). 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 the 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 supplemental indentures, dated as of August 28, 2018 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.
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.
In connection with the offering 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 exchanged for new notes that have been registered under the Securities Act of 1933, as amended.
Interest is payable on the 2026 Notes on January 15 and July 15 of each year at a rate of 5.50% per annum. Interest paid on the 2026 Notes during fiscal years 2020 and 2019 was $49.5 million and $17.2 million, respectively.
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 "Initial 2029 Notes"). On December 20, 2019, the Company issued an additional $200.0 million aggregate principal amount of such notes (the "Additional 2029 Notes", and together with the Initial 2029 Notes, the "2029 Notes"). The 2029 Notes will mature on October 15, 2029, unless earlier redeemed in accordance with their terms. The 2029 Notes are senior unsecured obligations of the Company and are initially guaranteed, jointly and severally, by the Guarantors.
The Initial 2029 Notes were issued pursuant to an indenture, dated as of September 30, 2019, by and among the Company, the Guarantors and MUFG Union Bank, N.A., as trustee, and the Additional 2029 Notes were issued pursuant to a supplemental indenture, dated as of December 20, 2019 (such indenture and supplemental indenture, together, the "2019 Indenture"). 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 and 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.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
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 Initial 2029 Notes, the Company entered into a registration rights agreement, dated as of September 30, 2019, by and among the Company and the Guarantors, on the one hand, and BofA Securities, Inc., as representative of the initial purchasers of the Initial 2029 Notes, on the other hand, and a substantially similar agreement, dated as of December 20, 2019, with respect to the Additional 2029 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 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.
Interest is payable on the 2029 Notes on April 15 and October 15 of each year at a rate of 4.375% per annum, commencing April 15, 2020.
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 as of March 28, 2020 and March 30, 2019 was $23.9 million and $25.8 million, respectively (compared to a carrying value of $23.4 million). The estimated fair value of the 2026 Notes as of March 28, 2020 and March 30, 2019 was $962.8 million and $929.3 million, respectively (compared to a carrying value of $900.0 million). The estimated fair value of the 2029 Notes as of March 28, 2020 was $489.5 million (compared to a carrying value of $550.0 million). 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, the 2026 Notes and the 2029 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.
Since the Term Loan carries a variable interest rate set at current market rates, the fair value of the Term Loan approximated book value as of March 28, 2020.
Interest Expense
During fiscal 2020, the Company recognized $66.0 million of interest expense primarily related to the 2026 Notes and the 2029 Notes, which was partially offset by $5.6 million of interest capitalized to property and equipment. During fiscal 2019, the Company recognized $52.8 million of interest expense primarily related to the 2023 Notes, the 2025 Notes and the 2026 Notes, which was partially offset by $8.8 million of interest capitalized to property and
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
equipment. During fiscal 2018, the Company recognized $73.2 million of interest expense, primarily related to the 2023 Notes and the 2025 Notes, which was partially offset by $13.6 million of interest capitalized to property and equipment.
10. RETIREMENT BENEFIT PLANS
Defined Contribution Plans
The Company offers tax-beneficial retirement contribution plans to eligible employees in the U.S. and certain other countries. Eligible employees in certain countries outside of the U.S. are eligible to participate in stakeholder or national pension plans with differing eligibility and contributory requirements based on local and national regulations. U.S. employees are eligible to participate in the Company's fully qualified 401(k) plan 30 days after their date of hire. An employee may invest pretax earnings in the 401(k) plan up to the maximum legal limits (as defined by Federal regulations). Employer contributions to the 401(k) plan are made at the discretion of the Company’s Board of Directors. Employees are immediately vested in their own contributions as well as employer matching contributions.
In total, the Company contributed $14.4 million, $14.0 million and $14.0 million to its domestic and foreign defined contribution plans during fiscal years 2020, 2019 and 2018, respectively.
Defined Benefit Pension Plans
The Company maintains two qualified defined benefit pension plans for its subsidiaries located in Germany. One of the plans is funded through a self-paid reinsurance program with assets valued at $3.6 million as of March 28, 2020 and March 30, 2019 (included in "Other non-current assets" in the Consolidated Balance Sheets). The pension benefit obligations of both plans were $12.3 million and $12.9 million as of March 28, 2020 and March 30, 2019, respectively, which is included in "Accrued liabilities" and "Other long-term liabilities" in the Consolidated Balance Sheets. The assumptions used in calculating the benefit obligations for the plans are dependent on the local economic conditions and were measured as of March 28, 2020 and March 30, 2019. The net periodic benefit costs were approximately $0.6 million, $0.5 million and $0.7 million for fiscal years 2020, 2019 and 2018, respectively.
Non-Qualified Deferred Compensation Plan
Certain employees and members of the Board of Directors are eligible to participate in the Company's Non-Qualified Deferred Compensation Plan ("NQDC Plan"). The NQDC Plan provides eligible participants the opportunity to defer and invest a specified percentage of their cash compensation. The NQDC Plan is a non-qualified plan that is maintained in a rabbi trust. The amount of compensation to be deferred by each participant is based on their own elections and is adjusted for any investment changes that the participant directs. The deferred compensation obligation and the fair value of the investments held in the rabbi trust were $19.4 million and $18.7 million as of March 28, 2020 and March 30, 2019, respectively. The current portion of the deferred compensation obligation and fair value of the assets held in the rabbi trust were $0.9 million and $1.1 million as of March 28, 2020 and March 30, 2019, respectively, and are included in "Other current assets" and "Accrued liabilities" in the Consolidated Balance Sheets. The non-current portion of the deferred compensation obligation and fair value of the assets held in the rabbi trust were $18.5 million and $17.6 million as of March 28, 2020 and March 30, 2019, respectively, and are included in "Other non-current assets" and "Other long-term liabilities" in the Consolidated Balance Sheets.
11. COMMITMENTS AND CONTINGENT LIABILITIES
Purchase Commitments
The Company's purchase commitments total approximately $318.3 million, a substantial majority of which will be due within the next 12 months. Purchase commitments include payments due for materials and manufacturing services and commitments for the purchase of property and equipment.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Lease Commitments
See Note 8 for disclosures related to lease commitments.
Legal Matters
The Company accrues a liability for legal contingencies when it believes that it is both probable that a liability has been incurred and that it can reasonably estimate the amount of the loss. The Company reviews these accruals and adjusts them to reflect ongoing negotiations, settlements, rulings, advice of legal counsel and other relevant information. To the extent new information is obtained and the Company's views on the probable outcomes of claims, suits, assessments, investigations or legal proceedings change, changes in the Company's accrued liabilities would be recorded in the period in which such determination is made.
The Company is involved in various legal proceedings and claims that have arisen in the ordinary course of its 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 upon the Company’s consolidated financial position or results of operations.
12. RESTRUCTURING
During fiscal years 2020, 2019 and 2018, the Company recorded restructuring related charges totaling approximately $47.9 million, $50.7 million and $67.7 million, respectively, related primarily to (1) fiscal 2019 actions to reduce operating expenses and improve manufacturing cost structure, (2) fiscal 2018 actions to improve operating efficiencies, and (3) actions resulting from the Business Combination.
During 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, the Company recorded cumulative restructuring related charges of $92.0 million during fiscal years 2020 and 2019, including accelerated depreciation of $47.4 million (to reflect changes in estimated useful lives of certain property and equipment), impairment charges of $15.9 million (to adjust the carrying value of certain property and equipment to reflect its fair value), employee termination benefits of $13.7 million and other exit costs of $15.0 million. The Company expects to record additional expenses of approximately $1.0 million for employee termination benefits and other exit costs as a result of these actions.
The fair value 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 of 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.
During fiscal 2018, the Company initiated restructuring actions to improve operating efficiencies. As a result of these actions (which are substantially complete), in fiscal years 2020, 2019 and 2018, the Company recorded cumulative restructuring related charges of $46.3 million, $23.5 million and $0.2 million for asset impairments, employee termination benefits and other exit costs, respectively.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Primarily as a result of the Business Combination (see Note 1), during fiscal years 2020, 2019 and 2018, the Company recorded restructuring related charges (including employee termination benefits and ongoing expenses related to exited leased facilities) of approximately $0.3 million, $1.3 million and $2.7 million, respectively.
The following table summarizes the restructuring charges primarily resulting from these restructuring events (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2020
|
|
|
Cost of Goods Sold
|
|
Other Operating Expense
|
|
Total
|
|
One-time employee termination benefits
|
$
|
—
|
|
|
$
|
6,289
|
|
|
$
|
6,289
|
|
|
Contract termination and other associated costs
|
8,365
|
|
|
7,154
|
|
|
15,519
|
|
|
Accelerated depreciation
|
26,061
|
|
|
—
|
|
|
26,061
|
|
|
Total
|
$
|
34,426
|
|
|
$
|
13,443
|
|
|
$
|
47,869
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2019
|
|
|
Cost of Goods Sold
|
|
Other Operating Expense
|
|
Total
|
|
One-time employee termination benefits
|
$
|
—
|
|
|
$
|
12,826
|
|
|
$
|
12,826
|
|
|
Contract termination and other associated costs
|
—
|
|
|
641
|
|
|
641
|
|
|
Asset impairment and accelerated depreciation
|
21,346
|
|
|
15,901
|
|
|
37,247
|
|
|
Total
|
$
|
21,346
|
|
|
$
|
29,368
|
|
|
$
|
50,714
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2018
|
|
|
Cost of Goods Sold
|
|
Other Operating Expense
|
|
Total
|
|
One-time employee termination benefits
|
$
|
—
|
|
|
$
|
19,232
|
|
|
$
|
19,232
|
|
|
Contract termination and other associated costs
|
—
|
|
|
2,174
|
|
|
2,174
|
|
|
Asset impairment
|
—
|
|
|
46,315
|
|
|
46,315
|
|
|
Total
|
$
|
—
|
|
|
$
|
67,721
|
|
|
$
|
67,721
|
|
The following table summarizes the activity related to the Company's restructuring liabilities for fiscal years 2019 and 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-Time Employee Termination Benefits
|
|
Asset Impairment and Accelerated Depreciation
|
|
Contract Termination and Other Associated Costs
|
|
Total
|
|
Accrued restructuring balance as of March 31, 2018
|
$
|
6,130
|
|
|
$
|
—
|
|
|
$
|
2,557
|
|
|
$
|
8,687
|
|
|
Costs incurred and charged to expense
|
12,826
|
|
|
37,247
|
|
|
641
|
|
|
50,714
|
|
|
Cash payments
|
(11,968
|
)
|
|
—
|
|
|
(1,572
|
)
|
|
(13,540
|
)
|
|
Non-cash activity
|
—
|
|
|
(37,247
|
)
|
|
—
|
|
|
(37,247
|
)
|
|
Accrued restructuring balance as of March 30, 2019
|
$
|
6,988
|
|
|
$
|
—
|
|
|
$
|
1,626
|
|
|
$
|
8,614
|
|
|
Costs incurred and charged to expense
|
6,289
|
|
|
26,061
|
|
|
15,519
|
|
|
47,869
|
|
|
Transfer to right-of-use asset
|
—
|
|
|
—
|
|
|
(1,248
|
)
|
|
(1,248
|
)
|
|
Cash payments
|
(11,549
|
)
|
|
—
|
|
|
(7,262
|
)
|
|
(18,811
|
)
|
|
Non-cash activity
|
—
|
|
|
(26,061
|
)
|
|
(8,365
|
)
|
|
(34,426
|
)
|
|
Accrued restructuring balance as of March 28, 2020
|
$
|
1,728
|
|
|
$
|
—
|
|
|
$
|
270
|
|
|
$
|
1,998
|
|
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. INCOME TAXES
Income (loss) before income taxes consists of the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
2020
|
|
2019
|
|
2018
|
|
United States
|
$
|
(226,005
|
)
|
|
$
|
(297,975
|
)
|
|
$
|
(151,083
|
)
|
|
Foreign
|
621,094
|
|
|
389,767
|
|
|
168,228
|
|
|
Total
|
$
|
395,089
|
|
|
$
|
91,792
|
|
|
$
|
17,145
|
|
The components of the income tax provision are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
2020
|
|
2019
|
|
2018
|
|
Current (expense) benefit:
|
|
|
|
|
|
|
Federal
|
$
|
(6,705
|
)
|
|
$
|
17,222
|
|
|
$
|
(28,168
|
)
|
|
State
|
(93
|
)
|
|
209
|
|
|
(229
|
)
|
|
Foreign
|
(65,065
|
)
|
|
(46,267
|
)
|
|
(61,284
|
)
|
|
|
(71,863
|
)
|
|
(28,836
|
)
|
|
(89,681
|
)
|
|
Deferred benefit (expense):
|
|
|
|
|
|
|
Federal
|
$
|
7,826
|
|
|
$
|
55,833
|
|
|
$
|
11,817
|
|
|
State
|
4,603
|
|
|
946
|
|
|
253
|
|
|
Foreign
|
(1,330
|
)
|
|
13,390
|
|
|
20,178
|
|
|
|
11,099
|
|
|
70,169
|
|
|
32,248
|
|
|
Total
|
$
|
(60,764
|
)
|
|
$
|
41,333
|
|
|
$
|
(57,433
|
)
|
On December 22, 2017, the Tax Cuts and Jobs Act ("Tax Act") was signed into law in the U.S., lowering the U.S. corporate income tax rate to 21% from 35%, instituting a one-time transition tax on unrepatriated foreign earnings (the "Transitional Repatriation Tax"), and implementing a territorial tax system. During fiscal 2018, the Company recorded a net provisional tax expense of $77.3 million for the estimated effects of the Tax Act. In accordance with Staff Accounting Bulletin No. 118, the Company completed its analysis of the impact of the Tax Act during fiscal 2019 and recorded a net discrete income tax benefit adjustment of $17.0 million to the prior year provisional estimates. The Global Intangible Low-Taxed Income ("GILTI") provisions became effective for the Company in fiscal 2019, at which time the Company elected to treat taxes due on future GILTI inclusions in U.S. taxable income as current-period expense (the "period cost method").
On March 27, 2020, the U.S. enacted the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") to help provide relief as a result of the COVID-19 outbreak. Similarly, governments around the world have enacted or implemented various forms of tax relief to assist with the economic disruption in the wake of COVID-19. The measures vary by jurisdiction, but often include the ability to delay certain income tax payments. As of March 28, 2020, the COVID-19 relief measures did not have a material impact on the Company's effective tax rate or other income tax accounts.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
A reconciliation of the provision for income taxes to income tax expense computed by applying the statutory federal income tax rate to pre-tax income (loss) for fiscal years 2020, 2019 and 2018 is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
Amount
|
Percentage
|
|
Amount
|
Percentage
|
|
Amount
|
Percentage
|
|
Income tax expense at statutory federal rate
|
$
|
(82,969
|
)
|
21.0
|
%
|
|
$
|
(19,276
|
)
|
21.0
|
%
|
|
$
|
(5,407
|
)
|
31.5
|
%
|
|
(Increase) decrease resulting from:
|
|
|
|
|
|
|
|
|
|
State benefit, net of federal expense
|
2,605
|
|
(0.7
|
)
|
|
710
|
|
(0.8
|
)
|
|
474
|
|
(2.8
|
)
|
|
Tax credits
|
64,017
|
|
(16.2
|
)
|
|
69,856
|
|
(76.1
|
)
|
|
38,054
|
|
(221.9
|
)
|
|
Effect of changes in income tax rate applied to net deferred tax assets
|
(2,269
|
)
|
0.6
|
|
|
12,972
|
|
(14.1
|
)
|
|
39,168
|
|
(228.4
|
)
|
|
Foreign tax rate difference
|
75,247
|
|
(19.0
|
)
|
|
41,672
|
|
(45.4
|
)
|
|
21,829
|
|
(127.3
|
)
|
|
Foreign permanent differences and related items
|
(5,446
|
)
|
1.4
|
|
|
6,825
|
|
(7.4
|
)
|
|
(2,598
|
)
|
15.2
|
|
|
Change in valuation allowance
|
6,438
|
|
(1.6
|
)
|
|
2,353
|
|
(2.6
|
)
|
|
(1,632
|
)
|
9.5
|
|
|
Expiration of state attributes
|
(5,165
|
)
|
1.3
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
Stock-based compensation
|
(1,707
|
)
|
0.4
|
|
|
(7,694
|
)
|
8.4
|
|
|
9,924
|
|
(57.9
|
)
|
|
Tax reserve adjustments
|
(13,973
|
)
|
3.5
|
|
|
5,213
|
|
(5.7
|
)
|
|
(29,188
|
)
|
170.2
|
|
|
U.S. tax on foreign earnings, including GILTI
|
(81,916
|
)
|
20.8
|
|
|
(76,215
|
)
|
83.0
|
|
|
(5,098
|
)
|
29.7
|
|
|
U.S. Transitional Repatriation Tax
|
—
|
|
—
|
|
|
1,897
|
|
(2.1
|
)
|
|
(116,419
|
)
|
679.0
|
|
|
Intra-entity transfer
|
—
|
|
—
|
|
|
3,935
|
|
(4.3
|
)
|
|
(6,873
|
)
|
40.1
|
|
|
Permanent reinvestment assertion
|
(6,814
|
)
|
1.7
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
Acquisition related adjustments
|
(7,257
|
)
|
1.8
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
Other income tax (expense) benefit
|
(1,555
|
)
|
0.4
|
|
|
(915
|
)
|
1.1
|
|
|
333
|
|
(1.9
|
)
|
|
|
$
|
(60,764
|
)
|
15.4
|
%
|
|
$
|
41,333
|
|
(45.0
|
)%
|
|
$
|
(57,433
|
)
|
335.0
|
%
|
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the basis used for income tax purposes. The deferred income tax assets and liabilities are measured in each taxing jurisdiction using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Significant components of the Company’s net deferred income taxes are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28, 2020
|
|
March 30, 2019
|
|
Deferred income tax assets:
|
|
|
|
|
Inventory reserve
|
$
|
10,114
|
|
|
$
|
8,588
|
|
|
Equity compensation
|
18,817
|
|
|
27,380
|
|
|
Net operating loss carry-forwards
|
71,928
|
|
|
13,744
|
|
|
Research and other credits
|
106,958
|
|
|
95,640
|
|
|
Employee benefits
|
12,606
|
|
|
13,070
|
|
|
Lease liabilities
|
16,456
|
|
|
—
|
|
|
Other deferred assets
|
3,559
|
|
|
19,457
|
|
|
Total deferred income tax assets
|
240,438
|
|
|
177,879
|
|
|
Valuation allowance
|
(35,280
|
)
|
|
(40,433
|
)
|
|
Total deferred income tax assets, net of valuation allowance
|
$
|
205,158
|
|
|
$
|
137,446
|
|
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
Amortization and purchase accounting basis difference
|
$
|
(107,517
|
)
|
|
$
|
(45,665
|
)
|
|
Accumulated depreciation/basis difference
|
(59,356
|
)
|
|
(62,097
|
)
|
|
Accrued tax on unremitted foreign earnings
|
(15,521
|
)
|
|
—
|
|
|
Right-of-use assets
|
(14,400
|
)
|
|
—
|
|
|
Other deferred liabilities
|
(1,955
|
)
|
|
—
|
|
|
Total deferred income tax liabilities
|
(198,749
|
)
|
|
(107,762
|
)
|
|
Net deferred income tax asset
|
$
|
6,409
|
|
|
$
|
29,684
|
|
|
|
|
|
|
|
Amounts included in the Consolidated Balance Sheets:
|
|
|
|
|
Other non-current assets
|
$
|
45,754
|
|
|
$
|
30,017
|
|
|
Other long-term liabilities
|
(39,345
|
)
|
|
(333
|
)
|
|
Net deferred income tax asset
|
$
|
6,409
|
|
|
$
|
29,684
|
|
The Company has recorded a valuation allowance against certain U.S. and foreign deferred tax assets as of March 28, 2020 and March 30, 2019. These valuation allowances were established based upon management's opinion that it is more likely than not (a likelihood of more than 50 percent) that the benefit of these deferred tax assets may not be realized.
The valuation allowance against deferred tax assets decreased by approximately $5.2 million in fiscal 2020. The decrease was comprised of a $7.9 million decrease in the valuation allowance against state deferred tax assets for net operating losses and credits and a $2.7 million increase for the valuation allowance against deferred tax assets for net operating losses at foreign subsidiaries, $2.1 million of which was due to purchase accounting related adjustments. At the end of fiscal 2020, a $3.8 million valuation allowance remained against deferred assets at foreign subsidiaries and a $31.5 million valuation allowance remained against state deferred tax assets.
The valuation allowance against deferred tax assets decreased by $2.4 million in fiscal 2019. The decrease was comprised of a $1.5 million decrease in the valuation allowance against state deferred tax assets for net operating losses and tax credits and a $0.9 million decrease for the valuation allowance against deferred tax assets for net operating losses at foreign subsidiaries. At the end of fiscal 2019, a $1.1 million valuation allowance remained against deferred tax assets at foreign subsidiaries and a $39.3 million valuation allowance remained against state deferred tax assets.
The valuation allowance against deferred tax assets increased by $9.7 million in fiscal 2018. The increase was comprised of a $6.8 million increase resulting from tax rate changes, primarily the federal rate enacted in the Tax Act, a $1.9 million increase in the valuation allowance against state deferred tax assets for net operating losses and tax credits, a $1.0 million increase for the valuation allowance against deferred tax assets for net operating losses at foreign subsidiaries and a $0.5 million increase in the valuation allowance for state tax credits due to the adoption of
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
ASU 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting." It was partially offset by a $0.5 million decrease in valuation allowance for federal deferred tax assets for foreign tax credits. At the end of fiscal 2018, a $2.0 million valuation allowance remained against deferred tax assets at foreign subsidiaries and a $40.8 million valuation allowance remained against domestic deferred tax assets.
As of March 28, 2020, the Company had federal loss carryovers of approximately $190.4 million that expire in fiscal years 2021 to 2040 if unused and state losses of approximately $281.1 million that expire in fiscal years 2021 to 2040 if unused. Federal research credits of $143.0 million, and state credits of $64.1 million may expire in fiscal years 2030 to 2040 and 2021 to 2040, respectively. The Company had foreign losses of $107.5 million, some of which may expire in fiscal years 2021 to 2030 if unused. Included in the amounts above are $397.5 million of federal, state and foreign losses and $7.5 million of tax credits related to acquisitions in the current year. The utilization of acquired domestic assets is subject to certain annual limitations as required under Section 382 of the Internal Revenue Code of 1986, as amended (the "Code") and similar state income tax provisions.
The Company has continued to expand its operations and increase its investments in numerous international jurisdictions. These activities expose the Company to taxation in multiple foreign jurisdictions. Management has concluded that it can no longer support an assertion that certain earnings which have been subject to U.S. federal taxation at its foreign subsidiaries are permanently reinvested. During the second quarter of fiscal 2020, the Company updated forecasts of cash balances and cash flow outside the U.S. and began to implement a more centralized approach to cash management. As a result, the Company recorded $6.8 million of tax expense during fiscal 2020. In the third quarter of fiscal 2018, the Company had previously released its permanent reinvestment assertion on its largest operating subsidiary in Singapore, Qorvo International Pte. Ltd. The remainder of the Company's foreign earnings and historic investments will continue to be permanently reinvested to fund working capital requirements and operations abroad. It is not practical to estimate the additional tax that would be incurred, if any, if the remainder of the permanently reinvested earnings were repatriated.
The Company has foreign subsidiaries with tax holiday agreements in Singapore and Costa Rica. These tax holiday agreements have varying rates and expire in December 2021 and December 2027, respectively. Incentives from these countries are subject to the Company meeting certain employment and investment requirements. The Company does not expect that the Singapore legislation enacted in February 2017, which will exclude from the Company's existing Development and Expansion Incentive grant the benefit of the reduced tax rate for intellectual property income earned after June 30, 2021, will have an impact on the Company. Income tax expense decreased by $62.9 million (an impact of approximately $0.54 and $0.53 per basic and diluted share, respectively) in fiscal 2020 and $34.6 million (an impact of approximately $0.28 and $0.27 per basic and diluted share, respectively) in fiscal 2019 as a result of these agreements.
The Company’s gross unrecognized tax benefits totaled $119.2 million as of March 28, 2020, $103.2 million as of March 30, 2019, and $122.8 million as of March 31, 2018. Of these amounts, $114.8 million (net of federal benefit of state taxes), $99.1 million (net of federal benefit of state taxes) and $118.7 million (net of federal benefit of state taxes) as of March 28, 2020, March 30, 2019, and March 31, 2018, respectively, represent the amounts of unrecognized tax benefits that, if recognized, would impact the effective tax rate in each of the fiscal years.
The Company’s gross unrecognized tax benefits increased from $103.2 million as of March 30, 2019 to $119.2 million as of March 28, 2020, primarily due to increases related to current year tax positions, the effect of provision-to-return adjustments on prior year positions, and increases related to business combinations recognized as part of purchase accounting.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
A reconciliation of fiscal 2018 through fiscal 2020 beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
2020
|
|
2019
|
|
2018
|
|
Beginning balance
|
$
|
103,178
|
|
|
$
|
122,823
|
|
|
$
|
90,615
|
|
|
Additions based on positions related to current year
|
10,357
|
|
|
7,193
|
|
|
26,431
|
|
|
Additions for tax positions in prior years
|
6,484
|
|
|
8,369
|
|
|
5,844
|
|
|
Reductions for tax positions in prior years
|
(69
|
)
|
|
(24,932
|
)
|
|
(67
|
)
|
|
Expiration of statute of limitations
|
(728
|
)
|
|
(6,972
|
)
|
|
—
|
|
|
Settlements
|
—
|
|
|
(3,303
|
)
|
|
—
|
|
|
Ending balance
|
$
|
119,222
|
|
|
$
|
103,178
|
|
|
$
|
122,823
|
|
It is the Company’s policy to recognize interest and penalties related to uncertain tax positions as a component of income tax expense. During fiscal years 2020, 2019 and 2018, the Company recognized $0.7 million, $(0.2) million and $(2.5) million, respectively, of interest and penalties related to uncertain tax positions. Accrued interest and penalties related to unrecognized tax benefits totaled $5.4 million, $4.4 million and $4.6 million as of March 28, 2020, March 30, 2019 and March 31, 2018, respectively.
The unrecognized tax benefits of $119.2 million and accrued interest and penalties of $5.4 million at the end of fiscal 2020 are recorded on the Consolidated Balance Sheet as a $19.4 million other long-term liability, with the balance reducing the carrying value of the gross deferred tax assets.
Although it is not reasonably possible to estimate the amount by which unrecognized tax benefits may increase or decrease within the next 12 months due to uncertainties regarding the timing of examinations and the amount of settlements that may be paid, if any, to tax authorities, the Company currently believes it is reasonably possible that only a minimal amount of gross unrecognized tax benefits will be reduced for tax positions taken in prior years within the next 12 months.
Income taxes payable of $50.8 million and $41.6 million as of March 28, 2020 and March 30, 2019, respectively, are included in "Other current liabilities" in the Consolidated Balance Sheets. Income taxes receivable of $5.4 million and $6.2 million as of March 28, 2020 and March 30, 2019, respectively, are included in “Other current assets” in the Consolidated Balance Sheets. Long-term income taxes payable of $5.6 million and $5.7 million as of March 28, 2020 and March 30, 2019, respectively, which relates to the Transitional Repatriation Tax which the Company has elected to pay over eight years, is included in "Other long-term liabilities" in the Consolidated Balance Sheets.
Qorvo files a consolidated U.S. federal income tax return, as well as separate and combined income tax returns in numerous state and international jurisdictions. Qorvo’s fiscal 2017 U.S. federal and state tax returns and subsequent tax years remain open for examination, as well as all attributes brought forward into those years. The Company is also subject to examination by various international tax authorities. The tax years subject to examination vary by jurisdiction.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
2020
|
|
2019
|
|
2018
|
|
Numerator:
|
|
|
|
|
|
|
Numerator for basic and diluted net income (loss) per share — net income (loss) available to common stockholders
|
$
|
334,325
|
|
|
$
|
133,125
|
|
|
$
|
(40,288
|
)
|
|
Denominator:
|
|
|
|
|
|
|
Denominator for basic net income (loss) per share — weighted average shares
|
117,007
|
|
|
124,534
|
|
|
126,946
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
Stock-based awards
|
2,286
|
|
|
2,822
|
|
|
—
|
|
|
Denominator for diluted net income (loss) per share — adjusted weighted average shares and assumed conversions
|
119,293
|
|
|
127,356
|
|
|
126,946
|
|
|
Basic net income (loss) per share
|
$
|
2.86
|
|
|
$
|
1.07
|
|
|
$
|
(0.32
|
)
|
|
Diluted net income (loss) per share
|
$
|
2.80
|
|
|
$
|
1.05
|
|
|
$
|
(0.32
|
)
|
In the computation of diluted net income (loss) per share for fiscal years 2020, 2019 and 2018, approximately 0.1 million shares, 0.3 million shares and 3.7 million shares, respectively, were excluded because the effect of their inclusion would have been anti-dilutive.
15. STOCK-BASED COMPENSATION
Summary of Stock Plans
2003 Stock Incentive Plan - RF Micro Devices, Inc.
The 2003 Stock Incentive Plan (the "2003 Plan") was approved by the Company's stockholders on July 22, 2003, and the Company was permitted to grant stock options and other types of equity incentive awards, such as stock appreciation rights, restricted stock awards, performance shares and performance units, under the 2003 Plan. No further awards can be granted under this plan.
2006 Directors’ Stock Option Plan - RF Micro Devices, Inc.
At the Company’s 2006 annual meeting of stockholders, stockholders of the Company adopted the 2006 Directors’ Stock Option Plan, which replaced the Non-Employee Directors’ Stock Option Plan and reserved an additional 0.3 million shares of common stock for issuance to non-employee directors. Under the terms of this plan, non-employee directors were entitled to receive options to acquire shares of common stock. No further awards can be granted under this plan.
2009 and 2012 Incentive Plans - TriQuint Semiconductor, Inc.
Effective upon the closing of the Business Combination, the Company assumed the TriQuint, Inc. 2009 Incentive Plan and TriQuint, Inc. 2012 Incentive Plan (the "TriQuint Incentive Plans"), originally adopted by TriQuint. The TriQuint Incentive Plans provided for the grant of stock options, restricted stock units, stock appreciation rights and other stock or cash awards to employees, officers, directors, consultants, agents, advisors and independent contractors of TriQuint and its subsidiaries and affiliates. The options granted thereunder were required to have an exercise price per share no less than 100% of the fair market value per share on the date of grant. The terms of each grant under the TriQuint Incentive Plans could not exceed ten years. No further awards can be granted under these plans.
2012 Stock Incentive Plan - Qorvo, Inc.
The Company currently grants stock options and restricted stock units to employees and directors under the 2012 Stock Incentive Plan (the "2012 Plan"), which was approved by the Company's stockholders on August 16, 2012, assumed by the Company in connection with the Business Combination and reapproved by the Company's
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
stockholders on August 8, 2017 for purposes of Section 162(m) of the Code. Under the 2012 Plan, the Company is permitted to grant stock options and other types of equity incentive awards, such as stock appreciation rights, restricted stock awards, performance shares and performance units. The maximum number of shares issuable under the 2012 Plan may not exceed the sum of (a) 4.3 million shares, plus (b) any shares of common stock (i) remaining available for issuance as of the effective date of the 2012 Plan under the Company's prior plans and (ii) subject to an award granted under a prior plan, which awards are forfeited, canceled, terminated, expire or lapse for any reason. As of March 28, 2020, 2.9 million shares were available for issuance under the 2012 Plan. The aggregate number of shares subject to performance-based restricted stock units awarded for fiscal 2020 under the 2012 Plan was 0.2 million shares.
2013 Incentive Plan - Qorvo, Inc.
Effective upon the closing of the Business Combination, the Company assumed the TriQuint, Inc. 2013 Incentive Plan (the "2013 Incentive Plan"), originally adopted by TriQuint, allowing Qorvo to issue awards under this plan. The 2013 Incentive Plan replaces the TriQuint 2012 Incentive Plan and provides for the grant of stock options, restricted stock units, stock appreciation rights and other stock or cash awards to employees, officers, directors, consultants, agents, advisors and independent contractors of TriQuint and its subsidiaries and affiliates who were such prior to the Business Combination or who become employed by the Company or its affiliates after the closing of the Business Combination. Former employees, officers and directors of RFMD are not eligible for awards under the 2013 Incentive Plan. The options granted thereunder must have an exercise price per share no less than 100% of the fair market value per share on the date of grant. The terms of each grant under the 2013 Incentive Plan may not exceed ten years. As of March 28, 2020, 1.3 million shares were available for issuance under the 2013 Incentive Plan.
2015 Inducement Stock Plan - Qorvo, Inc.
The 2015 Inducement Stock Plan (the "2015 Inducement Plan") provides for the grant of equity awards to persons as a material inducement to become employees of the Company or its affiliates. The plan provides for the grant of stock options, restricted stock units, stock appreciation rights and other stock-based awards. The maximum number of shares issuable under the 2015 Inducement Plan may not exceed the sum of (a) 0.3 million shares, plus (b) any shares of common stock (i) remaining available for issuance as of the effective date of the 2015 Inducement Stock Plan under the TriQuint 2008 Inducement Award Plan and (ii) subject to an award granted under the TriQuint 2008 Inducement Award Plan, which awards are forfeited, canceled, terminated, expire or lapse for any reason. No awards were made under the 2015 Inducement Plan in fiscal years 2020, 2019 and 2018. As of March 28, 2020, 0.3 million shares were available for issuance under the 2015 Inducement Plan.
Employee Stock Purchase Plan - Qorvo, Inc.
Effective upon closing of the Business Combination, the Company assumed the TriQuint Employee Stock Purchase Plan ("ESPP"), which is intended to qualify as an "employee stock purchase plan" under Section 423 of the Code. All regular full-time employees of the Company (including officers) and all other employees who meet the eligibility requirements of the plan may participate in the ESPP. The ESPP provides eligible employees an opportunity to acquire the Company’s common stock at 85.0% of the lower of the closing price per share of the Company’s common stock on the first or last day of each six-month purchase period. At March 28, 2020, 3.7 million shares were available for future issuance under this plan. The Company makes no cash contributions to the ESPP, but bears the expenses of its administration. The Company issued 0.5 million shares under the ESPP in fiscal years 2020, 2019 and 2018.
For fiscal years 2020, 2019 and 2018, the primary stock-based awards and their general terms and conditions are as follows:
Restricted stock units granted by the Company in fiscal years 2020, 2019 and 2018 are either service-based, performance and service-based, or based on total stockholder return. Service-based restricted stock units generally vest over a four-year period from the grant date. Performance and service-based restricted stock units are earned based on Company performance of stated metrics during the fiscal year and, if earned, generally vest one-half when earned and the balance over two years. Restricted stock units based on total stockholder return are earned based upon total stockholder return of the Company in comparison to the total stockholder return of a benchmark index and can be earned over one-, two- and three-year performance periods. Restricted stock units granted to non-employee directors generally vest over a one-year period from the grant date. In fiscal 2020, each non-employee director was eligible to receive an annual grant of restricted stock units.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The options and restricted stock units granted to certain officers of the Company generally will, in the event of the officer's termination other than for cause and subject to the officer executing certain agreements in favor of the Company, continue to vest pursuant to the same vesting schedule as if the officer had remained an employee of the Company and, as a result, these awards are expensed at grant date. In fiscal 2020, stock-based compensation of $24.1 million was recognized upon the grant of 0.3 million restricted share units to certain officers of the Company.
Stock-Based Compensation
Under ASC 718, stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award using an option pricing model for stock options (Black-Scholes) and market price for restricted stock units, and is recognized as expense over the employee's requisite service period. ASC 718 covers a wide range of stock-based compensation arrangements including stock options, restricted share plans, performance-based awards, share appreciation rights and employee stock purchase plans.
Total pre-tax stock-based compensation expense recognized in the Consolidated Statements of Operations was $76.0 million, $71.6 million and $68.2 million, for fiscal years 2020, 2019 and 2018, respectively, net of expense capitalized into inventory.
A summary of activity under the Company’s director and employee stock option plans follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
(in thousands)
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-Average Remaining Contractual Term (in years)
|
|
Aggregate
Intrinsic
Value
(in thousands)
|
|
Outstanding as of March 30, 2019
|
1,886
|
|
$
|
20.36
|
|
|
|
|
|
|
Granted
|
—
|
|
|
—
|
|
|
|
|
|
|
Exercised
|
(917)
|
|
$
|
22.70
|
|
|
|
|
|
|
Canceled
|
(2)
|
|
$
|
30.84
|
|
|
|
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
|
|
|
|
Outstanding as of March 28, 2020
|
967
|
|
$
|
18.11
|
|
|
2.37
|
|
$
|
60,529
|
|
|
Vested and expected to vest as of March 28, 2020
|
967
|
|
$
|
18.11
|
|
|
2.37
|
|
$
|
60,529
|
|
|
Options exercisable as of March 28, 2020
|
967
|
|
$
|
18.11
|
|
|
2.37
|
|
$
|
60,529
|
|
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value, based upon the Company’s closing stock price of $80.69 as of March 27, 2020 (the last business day prior to the fiscal year end on March 28, 2020), that would have been received by the option holders had all option holders with in-the-money options exercised their options as of that date. As of March 28, 2020, there was no remaining unearned compensation cost related to unvested option awards.
The fair value of each option award is estimated on the date of grant using a Black-Scholes option-pricing model based on the expected volatility, dividend yield, term and risk-free interest rate. There were no options granted during fiscal years 2020, 2019 and 2018.
The total intrinsic value of options exercised during fiscal years 2020, 2019 and 2018 was $65.1 million, $37.9 million and $87.8 million, respectively.
Cash received from the exercise of stock options and from participation in the employee stock purchase plan (excluding accrued unremitted employee funds) was approximately $49.5 million for fiscal 2020 and is reflected in cash flows from financing activities in the Consolidated Statements of Cash Flows. The Company settles employee stock options with newly issued shares of the Company's common stock.
ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Based upon historical pre-vesting forfeiture experience, the Company assumed an annualized forfeiture rate of 1.4% for both stock options and restricted stock units.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The following activity has occurred with respect to restricted stock unit awards:
|
|
|
|
|
|
|
|
|
|
|
|
Shares
(in thousands)
|
|
Weighted-Average
Grant-Date
Fair Value
|
|
Balance at March 30, 2019
|
1,994
|
|
|
$
|
69.03
|
|
|
Granted
|
1,146
|
|
|
71.88
|
|
|
Vested
|
(936)
|
|
|
64.89
|
|
|
Forfeited
|
(113)
|
|
|
69.76
|
|
|
Balance at March 28, 2020
|
2,091
|
|
|
$
|
72.59
|
|
As of March 28, 2020, total remaining unearned compensation cost related to unvested restricted stock units was $87.4 million, which will be amortized over the weighted-average remaining service period of approximately 1.3 years.
The total intrinsic value of restricted stock units that vested during fiscal years 2020, 2019 and 2018 was $67.7 million, $77.5 million and $73.2 million, respectively, based upon the fair market value of the Company’s common stock on the vesting date.
16. STOCKHOLDERS’ EQUITY
Stock Repurchase
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 included approximately $117.0 million authorized under a prior 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.
The Company repurchased 6.4 million shares, 9.1 million shares and 2.9 million shares of its common stock during fiscal years 2020, 2019 and 2018, respectively, at an aggregate cost of $515.1 million, $638.1 million and $219.9 million, respectively, in accordance with the current and prior share repurchase programs. As of March 28, 2020, $765.9 million remains available for future repurchases under the Company's current share repurchase program.
Common Stock Reserved For Future Issuance
At March 28, 2020, the Company had reserved a total of approximately 11.2 million of its authorized 405.0 million shares of common stock for future issuance as follows (in thousands):
|
|
|
|
|
|
Outstanding stock options under formal directors’ and employees’ stock option plans
|
967
|
|
Possible future issuance under Company stock incentive plans
|
4,515
|
|
Employee stock purchase plan
|
3,673
|
|
Restricted stock-based units outstanding
|
2,091
|
|
Total shares reserved
|
11,246
|
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
17. OPERATING SEGMENT AND GEOGRAPHIC INFORMATION
The Company's operating and reportable segments as of March 28, 2020 are MP and 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 operating income.
MP is a global supplier of cellular, UWB and Wi-Fi solutions for a variety of high-volume markets, including smartphones, wearables, laptops, tablets and IoT applications.
IDP is a global supplier of RF, system-on-a-chip and power management solutions for wireless infrastructure, defense, smart home, automotive and other IoT applications.
The "All other" category includes operating expenses such as stock-based compensation, amortization of intangible assets, acquisition and integration related costs, restructuring related charges, 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.
The following tables present details of the Company’s operating and reportable segments and a reconciliation of the "All other" category (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
2020
|
|
2019
|
|
2018
|
|
Revenue:
|
|
|
|
|
|
|
MP
|
$
|
2,397,740
|
|
|
$
|
2,197,660
|
|
|
$
|
2,181,161
|
|
|
IDP
|
841,401
|
|
|
892,665
|
|
|
788,495
|
|
|
All other (1)
|
—
|
|
|
—
|
|
|
3,880
|
|
|
Total revenue
|
$
|
3,239,141
|
|
|
$
|
3,090,325
|
|
|
$
|
2,973,536
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
MP
|
$
|
715,514
|
|
|
$
|
558,990
|
|
|
$
|
549,574
|
|
|
IDP
|
145,295
|
|
|
267,304
|
|
|
235,719
|
|
|
All other
|
(437,593
|
)
|
|
(609,828
|
)
|
|
(715,011
|
)
|
|
Operating income
|
$
|
423,216
|
|
|
$
|
216,466
|
|
|
$
|
70,282
|
|
|
Interest expense
|
$
|
(60,392
|
)
|
|
$
|
(43,963
|
)
|
|
$
|
(59,548
|
)
|
|
Interest income
|
12,066
|
|
|
10,971
|
|
|
7,017
|
|
|
Other income (expense)
|
20,199
|
|
|
(91,682
|
)
|
|
(606
|
)
|
|
Income before income taxes
|
$
|
395,089
|
|
|
$
|
91,792
|
|
|
$
|
17,145
|
|
(1) "All other" revenue relates to royalty income that was not allocated to MP or IDP for fiscal 2018. As a result of the adoption of ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," 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.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
2020
|
|
2019
|
|
2018
|
|
Reconciliation of "All other" category:
|
|
|
|
|
|
|
Stock-based compensation expense
|
$
|
(75,978
|
)
|
|
$
|
(71,580
|
)
|
|
$
|
(68,158
|
)
|
|
Amortization of intangible assets
|
(246,563
|
)
|
|
(453,515
|
)
|
|
(539,362
|
)
|
|
Acquisition and integration related costs
|
(61,891
|
)
|
|
(8,522
|
)
|
|
(10,561
|
)
|
|
Restructuring related charges
|
(21,808
|
)
|
|
(13,467
|
)
|
|
(21,406
|
)
|
|
Start-up costs
|
(712
|
)
|
|
(18,035
|
)
|
|
(24,271
|
)
|
|
Asset impairment and accelerated depreciation
|
(27,118
|
)
|
|
(37,246
|
)
|
|
(38,000
|
)
|
|
Other (including (loss) gain on assets and other miscellaneous corporate overhead)
|
(3,523
|
)
|
|
(7,463
|
)
|
|
(13,253
|
)
|
|
Loss from operations for "All other"
|
$
|
(437,593
|
)
|
|
$
|
(609,828
|
)
|
|
$
|
(715,011
|
)
|
The consolidated financial statements include revenue to customers by geographic region that are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
2020
|
|
2019
|
|
2018
|
|
Revenue:
|
|
|
|
|
|
|
United States
|
$
|
1,468,358
|
|
|
$
|
1,379,528
|
|
|
$
|
1,463,594
|
|
|
China
|
1,106,679
|
|
|
1,094,061
|
|
|
890,969
|
|
|
Other Asia
|
340,400
|
|
|
271,797
|
|
|
327,158
|
|
|
Taiwan
|
169,337
|
|
|
188,745
|
|
|
161,479
|
|
|
Europe
|
154,367
|
|
|
156,194
|
|
|
130,336
|
|
|
Total Revenue
|
$
|
3,239,141
|
|
|
$
|
3,090,325
|
|
|
$
|
2,973,536
|
|
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 information above for fiscal years 2019 and 2018 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 consolidated financial statements include the following long-lived tangible asset amounts related to operations of the Company by geographic region (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28, 2020
|
|
March 30, 2019
|
|
Long-lived tangible assets:
|
|
|
|
|
United States
|
$
|
1,042,587
|
|
|
$
|
1,106,705
|
|
|
China
|
166,524
|
|
|
216,342
|
|
|
Other countries
|
50,092
|
|
|
43,466
|
|
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
18. QUARTERLY FINANCIAL SUMMARY (UNAUDITED):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2020 Quarter
|
|
(in thousands, except per share data)
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
Revenue
|
$
|
775,598
|
|
|
$
|
806,698
|
|
|
$
|
869,073
|
|
|
$
|
787,772
|
|
|
|
Gross profit
|
294,289
|
|
|
323,582
|
|
|
368,111
|
|
|
335,781
|
|
|
|
Net income
|
39,541
|
|
(1),(2),(3)
|
83,038
|
|
(1),(3)
|
161,356
|
|
(1),(2),(3),(4)
|
50,390
|
|
(1),(2),(3),(5)
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.33
|
|
|
$
|
0.71
|
|
|
$
|
1.39
|
|
|
$
|
0.44
|
|
|
|
Diluted
|
$
|
0.33
|
|
|
$
|
0.70
|
|
|
$
|
1.36
|
|
|
$
|
0.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2019 Quarter
|
|
(in thousands, except per share data)
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
Revenue
|
$
|
692,670
|
|
|
$
|
884,443
|
|
|
$
|
832,330
|
|
|
$
|
680,882
|
|
|
|
Gross profit
|
236,733
|
|
|
353,514
|
|
|
338,363
|
|
(1)
|
266,573
|
|
(1)
|
|
Net (loss) income
|
(29,993
|
)
|
(1),(2),(6),(7)
|
32,084
|
|
(1),(2),(6)
|
69,517
|
|
(1),(2),(6)
|
61,517
|
|
(1),(6),(8)
|
|
Net (loss) income per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.24
|
)
|
|
$
|
0.26
|
|
|
$
|
0.56
|
|
|
$
|
0.51
|
|
|
|
Diluted
|
$
|
(0.24
|
)
|
|
$
|
0.25
|
|
|
$
|
0.55
|
|
|
$
|
0.50
|
|
|
1 The Company recorded restructuring related charges, including accelerated depreciation on certain property and equipment, of $24.0 million, $9.5 million, $10.3 million and $4.1 million in the first, second, third and fourth quarters of fiscal 2020, respectively. The Company recorded restructuring related charges, including accelerated depreciation and impairment charges on certain property and equipment, of $2.8 million, $0.5 million, $19.5 million and $27.9 million in the first, second, third and fourth quarters of fiscal 2019, respectively (Note 12).
2 The Company recorded start-up expenses of $0.1 million, $0.4 million and $0.2 million in the first, third and fourth quarters of fiscal 2020, respectively. The Company recorded start-up expenses of $5.3 million, $5.9 million and $6.8 million in the first, second and third quarters of fiscal 2019, respectively.
3 The Company recorded acquisition and integration related expenses of $23.1 million, $7.6 million, $7.2 million and $24.0 million in the first, second, third and fourth quarters of fiscal 2020, respectively, primarily associated with the acquisitions of Active-Semi, Cavendish, Custom MMIC and Decawave (Note 5).
4 The Company recorded a gain of $43.0 million in the third quarter of fiscal 2020 related to the remeasurement of its previously held equity interest in Cavendish in connection with the purchase of the remaining issued and outstanding capital of the entity (Note 5).
5 The Company recorded an impairment of $18.3 million in the fourth quarter of fiscal 2020 on an equity investment without a readily determinable fair value (Note 7).
6 The Company recorded losses on debt extinguishment of $33.4 million, $48.8 million, $1.8 million and $6.2 million in the first, second, third and fourth quarters of fiscal 2019, respectively.
7 Income tax benefit of $32.1 million for the first quarter of fiscal 2019 relates primarily to a discrete provisional benefit for adjustments to a third quarter fiscal 2018 provisional estimate of the impact of the Tax Act (Note 13).
8 Income tax benefit of $11.3 million for the fourth quarter of fiscal 2019 relates primarily to a discrete benefit for the recognition of a previously unrecognized tax benefit as a result of legislative guidance issued during the year (Note 13).
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. Each quarter of fiscal 2020 and fiscal 2019 contained a comparable number of weeks (13 weeks).
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Qorvo, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Qorvo, Inc. and subsidiaries (the Company) as of March 28, 2020 and March 30, 2019, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the two years in the period ended March 28, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at March 28, 2020 and March 30, 2019, and the results of its operations and its cash flows for each of the two years in the period ended March 28, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of March 28, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated May 20, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Inventory - Valuation
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Description of the Matter
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The Company’s inventory, net totaled $517.2 million as of March 28, 2020, representing approximately 8% of total assets. As explained in Note 1 to the consolidated financial statements, the Company assesses the valuation of all inventories including manufacturing raw materials, work-in-process, and finished goods each reporting period. Obsolete inventory or inventory in excess of management’s estimated demand forecasts is written down to its estimated net realizable value if less than cost by recording an inventory reserve at each reporting period.
Auditing management’s estimates for inventory reserves involved subjective auditor judgment because the assessment considers a number of factors, including estimated customer demand forecasts, technological obsolescence risks, and possible alternative uses that are affected at least partially by market and economic conditions outside the Company’s control.
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How We Addressed the Matter in Our Audit
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We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s inventory reserve process. This included testing controls over management's review of the assumptions and data underlying the inventory reserves, such as demand forecasts and consideration of how factors outside of the Company’s control might affect the valuation of obsolete and excess inventory.
Our audit procedures included, among others, evaluating the significant assumptions (e.g., customer demand forecasts, technological and/or market obsolescence, and possible alternative uses) and the accuracy and completeness of underlying data used in management’s assessment of inventory reserves. We evaluated inventory levels compared to forecasted demand, historical sales and specific product considerations. We also assessed the historical accuracy of management’s estimates for both the forecast assumptions and the reserve estimate.
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Business Combinations
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Description of the Matter
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As explained in Note 5 to the consolidated financial statements, the Company completed acquisitions of Active-Semi International, Inc. (“Active-Semi”), Cavendish Kinetics Limited (“Cavendish”), Custom MMIC Design Services, Inc. (“Custom MMIC”), and Decawave Limited (“Decawave”) during the fiscal year ended March 28, 2020. The acquisitions were each accounted for as business combinations. The Company recorded intangible assets from these acquisitions, primarily consisting of customer relationships and developed technology. The Company used the income approach to estimate the preliminary fair values of the customer relationships and developed technology, each of which are based on management’s estimates and assumptions.
Auditing the Company's accounting for its acquisitions of Active-Semi, Cavendish, Custom MMIC, and Decawave was complex and subjective due to the significant estimation uncertainty in determining the fair value of the above identified intangible assets, which was primarily due to the sensitivity of the respective fair values to underlying assumptions. The fair value estimate of the customer relationships intangible asset included significant assumptions in the prospective financial information (including revenue growth, EBITDA margin, and customer attrition) and the discount rate. The fair value estimate of the developed technology intangible asset included significant assumptions in the prospective financial information (including revenue growth, EBITDA margin, technology migration rates, royalty rates, and expected economic life) and the discount rate. These significant assumptions for each of the identified intangible assets are forward-looking and could be affected by future economic and market conditions.
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How We Addressed the Matter in Our Audit
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We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the accounting for the acquisitions. Our tests included controls over the estimation process and models to calculate the fair value estimates of the above identified intangible assets, as well as controls over management’s review of the valuation methodologies and significant assumptions discussed above.
To test the estimated fair values of the developed technology and customer relationship intangible assets, we performed audit procedures that included, among others, evaluating the Company's selection of the valuation methodologies, testing the significant assumptions and the completeness and accuracy of the underlying data. For example, we compared the significant assumptions in the prospective financial information, including, but not limited to, the forecasted revenue growth rates, EBITDA margin, expected annual customer attrition, technology migration rates, and the estimated economic life, as appropriate for each calculation to current industry trends, as well as to the historical performance of the acquired businesses. With the assistance of our valuation specialists, we evaluated the reasonableness of the valuation methodology, and significant assumptions, including royalty rates and discount rates. This included understanding and validating the source information underlying the determination of the royalty rates and discount rates and testing the mathematical accuracy of the calculations. In addition, we developed a range of independent estimates for the discount rates using publicly available market data for comparable entities and comparing those to the discount rates selected by management.
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/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2018.
Raleigh, North Carolina
May 20, 2020
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Qorvo, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Qorvo, Inc. and subsidiaries’ internal control over financial reporting as of March 28, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Qorvo, Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of March 28, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of March 28, 2020 and March 30, 2019, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the two years in the period ended March 28, 2020, and the related notes and our report dated May 20, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Assessment of Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Raleigh, North Carolina
May 20, 2020
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Qorvo, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of operations, comprehensive loss, stockholders’
equity, and cash flows of Qorvo, Inc. and subsidiaries (the Company) for the year ended March 31, 2018, and
the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial
statements present fairly, in all material respects the results of operations of the Company and its cash flows for
the year ended March 31, 2018, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a
public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are
free of material misstatement, whether due to error or fraud. Our audit included performing procedures to
assess the risks of material misstatement of the consolidated financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also
included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides
a reasonable basis for our opinion.
/s/ KPMG LLP
We served as the Company’s auditor from 2014 to 2018.
Greensboro, North Carolina
May 21, 2018