NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying Condensed Consolidated Financial Statements of Qorvo, Inc. and Subsidiaries (together, the “Company” or “Qorvo”) have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of these financial statements requires management to make estimates and assumptions, which could differ materially from actual results. In addition, certain information or footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed, or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, the financial statements include all adjustments (which are of a normal and recurring nature) necessary for the fair presentation of the results of the interim periods presented. These Condensed Consolidated Financial Statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in Qorvo’s Annual Report on Form 10-K for the fiscal year ended March 28, 2020.
The Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain items in the fiscal 2020 financial statements have been reclassified to conform with the fiscal 2021 presentation.
The Company uses a 52- or 53-week fiscal year ending on the Saturday closest to March 31 of each year. The first fiscal quarter of each year ends on the Saturday closest to June 30, the second fiscal quarter of each year ends on the Saturday closest to September 30 and the third fiscal quarter of each year ends on the Saturday closest to December 31. Fiscal 2021 is a 53-week year and fiscal 2020 was a 52-week year; however, the first quarters of both fiscal years 2021 and 2020 included 13 weeks.
2. RECENT ACCOUNTING PRONOUNCEMENTS
The Company assesses recently issued accounting standards by the Financial Accounting Standards Board ("FASB") to determine the expected impacts on the Company's financial statements. The summary below describes impacts from newly issued standards as well as material updates to our previous assessments, if any, from Qorvo’s Annual Report on Form 10-K for the fiscal year ended March 28, 2020.
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 previous incurred loss approach, which requires waiting to recognize a loss until it is probable of being incurred. The Company adopted the standard, which applies to its accounts receivables, in the first quarter of fiscal 2021.
Under this new standard, trade receivables are now evaluated on a collective (pool) basis and aggregated on the basis of similar risk characteristics. These aggregated risk pools will be reassessed at each measurement date. A combination of factors is considered in determining the appropriate estimate of expected credit losses which include broad-based economic indicators as well as customers' financial strength, credit standing, payment history and any historical defaults.
The adoption of this standard using the modified retrospective transition method resulted in a cumulative-effect adjustment to retained earnings of less than $0.1 million.
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
3. INVENTORIES
The components of inventories, net of reserves, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
June 27, 2020
|
|
March 28, 2020
|
Raw materials
|
$
|
117,868
|
|
|
$
|
112,671
|
|
Work in process
|
257,656
|
|
|
291,028
|
|
Finished goods
|
148,166
|
|
|
113,499
|
|
Total inventories
|
$
|
523,690
|
|
|
$
|
517,198
|
|
4. 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 operating results of these companies 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 in power management markets.
During the three months ended June 27, 2020, the Company recognized an increase to goodwill of approximately $0.1 million in connection with finalizing the purchase price allocation. The measurement period ended one year from the acquisition date.
Cavendish Kinetics Limited
Prior to fiscal 2020, the Company had an investment in preferred shares in Cavendish, a private supplier of high-performance radio frequency ("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, which resulted in recognition of a gain of $43.0 million in fiscal 2020.
During the three months ended June 27, 2020, the Company recognized an increase to goodwill of approximately $1.5 million and a decrease to intangibles of approximately $2.0 million as a result of purchase price allocation adjustments. 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).
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
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 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. On the acquisition date, the purchase price was comprised of cash consideration of $86.0 million and contingent consideration of $5.7 million (based on estimated fair value) 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. At June 27, 2020, the contingent consideration liability was remeasured to fair value ($9.6 million, which is included in "Accrued liabilities") with changes recognized in "Other operating expense.” See Note 6 for further information related to the fair value measurement.
During the three months ended June 27, 2020, the Company recognized a decrease to goodwill of approximately $0.5 million as a result of purchase price allocation adjustments. The Company will continue to evaluate certain assets, liabilities, and tax estimates over the measurement period (up to one year from the acquisition date).
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 $372.7 million. The acquisition expands the Company's product and technology offerings that enables real-time, highly accurate and reliable local area precision-location services.
During the three months ended June 27, 2020, the Company recognized a decrease to goodwill of approximately $2.3 million as a result of purchase price allocation adjustments. The Company will continue to evaluate certain assets, liabilities, and tax estimates over the measurement period (up to one year from the acquisition date).
5. GOODWILL AND INTANGIBLE ASSETS
The changes in the carrying amount of goodwill for the three months ended June 27, 2020 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile Products
|
|
Infrastructure and Defense Products
|
|
Total
|
Balance as of March 28, 2020 (1)
|
$
|
2,005,432
|
|
|
$
|
608,842
|
|
|
$
|
2,614,274
|
|
Measurement period adjustments (Note 4)
|
(844
|
)
|
|
(346
|
)
|
|
(1,190
|
)
|
Effect of changes in foreign currency exchange rates (2)
|
2,094
|
|
|
—
|
|
|
2,094
|
|
Balance as of June 27, 2020 (1)
|
$
|
2,006,682
|
|
|
$
|
608,496
|
|
|
$
|
2,615,178
|
|
(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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The following summarizes information regarding the gross carrying amounts and accumulated amortization of intangible assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 27, 2020
|
|
March 28, 2020
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
Developed technology
|
$
|
1,232,472
|
|
|
$
|
613,366
|
|
|
$
|
1,325,472
|
|
|
$
|
652,400
|
|
Customer relationships
|
458,150
|
|
|
360,649
|
|
|
463,772
|
|
|
346,799
|
|
Technology licenses
|
2,271
|
|
|
1,516
|
|
|
3,271
|
|
|
2,327
|
|
Backlog
|
1,600
|
|
|
667
|
|
|
1,600
|
|
|
267
|
|
Trade names
|
1,000
|
|
|
208
|
|
|
1,200
|
|
|
283
|
|
In-process research and development
|
9,600
|
|
|
N/A
|
|
|
9,600
|
|
|
N/A
|
|
Effect of changes in foreign currency exchange rates (1)
|
9,773
|
|
|
114
|
|
|
6,064
|
|
|
11
|
|
Total
|
$
|
1,714,866
|
|
|
$
|
976,520
|
|
|
$
|
1,810,979
|
|
|
$
|
1,002,087
|
|
(1) Represents the impact of foreign currency translation when intangibles are recorded in foreign entities whose functional currency is also their local currency.
At the beginning of each fiscal year, the Company removes the gross asset and accumulated amortization amounts of intangible assets that have reached the end of their useful lives and have been fully amortized. Useful lives are estimated based on expected economic benefit to be derived from the intangible assets.
Total intangible assets amortization expense was $72.1 million for the three months ended June 27, 2020 and $58.4 million for the three months ended June 29, 2019.
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
6. INVESTMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Equity Method Investments
The Company invests in limited partnerships which are accounted for using the equity method. The carrying amounts of these investments as of June 27, 2020 and March 28, 2020 were $29.9 million and $14.2 million, respectively, and are classified as “Long-term investments” in the Condensed Consolidated Balance Sheets. During the three months ended June 27, 2020, the Company recorded $15.7 million of income based on its share of the limited partnerships' earnings. This amount is included in “Other income (expense)” in the Condensed Consolidated Statement of Income.
Equity Investments Without a Readily Determinable Fair Value
During fiscal 2020, the Company recorded an impairment of $18.3 million on an equity investment without a readily determinable fair value based on observable price changes present at the time. During the three months ended June 27, 2020, the Company recorded an additional impairment of $2.8 million to fully impair this investment.
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 June 27, 2020 and March 28, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Quoted Prices In
Active Markets For
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
June 27, 2020
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Marketable equity securities
|
$
|
657
|
|
|
$
|
657
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
Invested funds in deferred compensation plan (1)
|
24,049
|
|
|
24,049
|
|
|
—
|
|
|
—
|
|
|
|
|
|
Total assets measured at fair value
|
$
|
24,706
|
|
|
$
|
24,706
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan obligation (1)
|
$
|
24,049
|
|
|
$
|
24,049
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
Contingent earn-out liability (2)
|
9,600
|
|
|
—
|
|
|
—
|
|
|
9,600
|
|
|
|
|
|
Total liabilities measured at fair value
|
$
|
33,649
|
|
|
$
|
24,049
|
|
|
$
|
—
|
|
|
$
|
9,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
(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 Condensed Consolidated Balance Sheets and the Company's obligation to deliver the deferred compensation in the “Other current liabilities” and “Other long-term liabilities” line items of its Condensed Consolidated Balance Sheets.
(2) The Company recorded a contingent earn-out liability in conjunction with the Custom MMIC acquisition. The fair value of this liability is estimated using an option pricing model and is remeasured to fair value each period with changes in fair value reported in “Other operating expense” in the Condensed Consolidated Statements of Income. As of June 27, 2020, no payments have been made for the contingent liability as the earn-out assessment period is still ongoing. Any anticipated payments are expected to be settled during the first quarter of fiscal 2022.
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
7. DEBT
Long-term debt as of June 27, 2020 and March 28, 2020 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
June 27, 2020
|
|
March 28, 2020
|
Term loan
|
$
|
98,750
|
|
|
$
|
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
|
850,000
|
|
|
550,000
|
|
Finance leases
|
1,816
|
|
|
2,252
|
|
Unamortized premium and issuance costs, net
|
2,119
|
|
|
(1,532
|
)
|
Less current portion of long-term debt
|
(6,587
|
)
|
|
(6,893
|
)
|
Total long-term debt
|
$
|
1,869,502
|
|
|
$
|
1,567,231
|
|
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,” together 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 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 swing line option due in full no later than ten business days after such loan is made), subject to scheduled amortization of the Term Loan principal prior to the maturity date as set forth in the Credit Agreement. During the three months ended June 27, 2020, there were no borrowings under the Revolving Facility. Principal paid on the Term Loan during the three months ended June 27, 2020 was $1.3 million. Interest paid on the Term Loan during the three months ended June 27, 2020 was $0.5 million.
The Credit Agreement contains various conditions, covenants and representations with which the Company must be in compliance in order to borrow funds and to avoid an event of default. As of June 27, 2020, the Company was in compliance with these covenants.
Senior Notes due 2025
On November 19, 2015, the Company issued $550.0 million aggregate principal amount of its 7.00% senior notes due December 1, 2025 (the "2025 Notes"). Interest on the 2025 Notes is payable on June 1 and December 1 of each year. 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 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 $526.6 million of the 2025 Notes. As of June 27, 2020, an aggregate principal amount of $23.4 million of the 2025 Notes remained outstanding.
Interest paid on the 2025 Notes during both the three months ended June 27, 2020 and June 29, 2019 was $0.8 million.
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
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"). Interest is payable on the 2026 Notes on January 15 and July 15 of each year. 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 (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.
There was no interest paid on the 2026 Notes during the three months ended June 27, 2020 or June 29, 2019.
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 and June 11, 2020, the Company issued an additional $200.0 million and $300.0 million, respectively, aggregate principal amount of such notes (together, the "Additional 2029 Notes" and together with the Initial 2029 Notes, the "2029 Notes"). Interest is payable on the 2029 Notes on April 15 and October 15 of each year. 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 supplemental indentures, dated as of December 20, 2019 and June 11, 2020 (such indenture and supplemental indentures, collectively, 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.
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 the representative of the initial purchasers of the Initial 2029 Notes, on the other hand, and substantially similar agreements, dated as of December 20, 2019 and June 11, 2020, with respect to the Additional 2029 Notes (collectively, the "Registration Rights Agreements").
On June 24, 2020, pursuant to their obligations under the Registration Rights Agreements, the Company and the Guarantors filed with the Securities and Exchange Commission a 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. On July 15, 2020, the Company and the Guarantors commenced the Exchange Offer, which is scheduled to expire on August 13, 2020.
Interest paid on the 2029 Notes during the three months ended June 27, 2020 was $13.0 million.
Fair Value of Debt
The Company's debt is carried at amortized cost and is measured at fair value quarterly for disclosure purposes. The estimated fair value of the 2025 Notes, 2026 Notes and 2029 Notes as of June 27, 2020 was $23.9 million, $941.6 million, and $867.0 million, respectively (compared to a carrying value of $23.4 million, $900.0 million, and $850.0 million, respectively). The estimated fair value of the 2025 Notes, 2026 Notes and the 2029 Notes as of March 28, 2020 was $23.9 million, $962.8 million, and $489.5 million, respectively (compared to a carrying value of $23.4 million, $900.0 million, and $550.0 million, respectively). The Company considers its 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, 2026 Notes and 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.
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The Term Loan carries a variable interest rate set at current market rates, and as such, the fair value of the Term Loan approximated book value as of June 27, 2020.
Interest Expense
During the three months ended June 27, 2020, the Company recognized $19.9 million of interest expense primarily related to the 2026 Notes and the 2029 Notes, which was partially offset by $1.1 million of interest capitalized to property and equipment. During the three months ended June 29, 2019, the Company recognized $13.6 million of interest expense primarily related to the 2026 Notes, which was partially offset by $1.7 million of interest capitalized to property and equipment.
8. STOCK REPURCHASES
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 the 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.
During the three months ended June 27, 2020, the Company repurchased approximately 0.7 million shares of its common stock for approximately $75.0 million under the current share repurchase program. As of June 27, 2020, approximately $690.9 million remained available for repurchases under the current share repurchase program.
During the three months ended June 29, 2019, the Company repurchased approximately 1.5 million shares of its common stock for approximately $100.1 million under the prior share repurchase program.
9. COMMITMENTS AND CONTINGENT LIABILITIES
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.
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
10. REVENUE
The following table presents the Company's revenue disaggregated by geography, based on the location of the customers' headquarters (in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
June 27, 2020
|
|
June 29, 2019
|
China
|
$
|
387,222
|
|
|
$
|
361,143
|
|
United States
|
248,246
|
|
|
267,496
|
|
Other Asia
|
58,097
|
|
|
70,009
|
|
Taiwan
|
53,328
|
|
|
40,989
|
|
Europe
|
40,558
|
|
|
35,961
|
|
Total revenue
|
$
|
787,451
|
|
|
$
|
775,598
|
|
The Company also disaggregates revenue by operating segments (see Note 12).
11. RESTRUCTURING
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 restructuring actions, the Company has recorded cumulative restructuring related charges totaling $92.9 million as of the end of the first quarter of fiscal 2021, 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 $13.9 million and other exit costs of $15.7 million. The Company expects to record additional expenses of approximately $0.4 million for employee termination benefits and other exit costs as a result of these actions.
The following table summarizes the restructuring charges resulting from this restructuring event (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 27, 2020
|
|
Three Months Ended June 29, 2019
|
|
Cost of Goods Sold
|
|
Other Operating Expense
|
|
Total
|
|
Cost of Goods Sold
|
|
Other Operating Expense
|
|
Total
|
One-time employee termination benefits
|
$
|
—
|
|
|
$
|
248
|
|
|
$
|
248
|
|
|
$
|
—
|
|
|
$
|
3,395
|
|
|
$
|
3,395
|
|
Contract termination and other associated costs
|
—
|
|
|
690
|
|
|
690
|
|
|
1,835
|
|
|
2,801
|
|
|
4,636
|
|
Accelerated depreciation
|
—
|
|
|
—
|
|
|
—
|
|
|
15,938
|
|
|
—
|
|
|
15,938
|
|
Total
|
$
|
—
|
|
|
$
|
938
|
|
|
$
|
938
|
|
|
$
|
17,773
|
|
|
$
|
6,196
|
|
|
$
|
23,969
|
|
The following table summarizes the activity related to the Company's restructuring liabilities for the three months ended June 27, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-Time Employee Termination Benefits
|
|
Contract Termination and Other Associated Costs
|
|
Total
|
Accrued restructuring balance as of March 28, 2020
|
$
|
1,728
|
|
|
$
|
270
|
|
|
$
|
1,998
|
|
Costs incurred and charged to expense
|
248
|
|
|
690
|
|
|
938
|
|
Cash payments
|
(206
|
)
|
|
(631
|
)
|
|
(837
|
)
|
Non-cash activity
|
—
|
|
|
(86
|
)
|
|
(86
|
)
|
Accrued restructuring balance as of June 27, 2020
|
$
|
1,770
|
|
|
$
|
243
|
|
|
$
|
2,013
|
|
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
12. OPERATING SEGMENT INFORMATION
The Company's operating and reportable segments as of June 27, 2020 are Mobile Products ("MP") and Infrastructure and Defense Products ("IDP") based on the organizational structure and information reviewed by the Company's Chief Executive Officer, who is the Company's chief operating decision maker ("CODM"), and these segments are managed separately based on the end markets and applications they support. The CODM allocates resources and assesses the performance of each operating segment primarily based on non-GAAP 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 and biosensor 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, 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):
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
June 27,
2020
|
|
June 29,
2019
|
Revenue:
|
|
|
|
MP
|
$
|
468,404
|
|
|
$
|
556,253
|
|
IDP
|
319,047
|
|
|
219,345
|
|
Total revenue
|
$
|
787,451
|
|
|
$
|
775,598
|
|
Operating income (loss):
|
|
|
|
MP
|
$
|
109,983
|
|
|
$
|
139,935
|
|
IDP
|
93,755
|
|
|
50,124
|
|
All other
|
(111,026
|
)
|
|
(134,833
|
)
|
Operating income
|
92,712
|
|
|
55,226
|
|
Interest expense
|
(18,849
|
)
|
|
(11,864
|
)
|
Interest income
|
1,190
|
|
|
2,946
|
|
Other income (expense)
|
21,947
|
|
|
(1,111
|
)
|
Income before income taxes
|
$
|
97,000
|
|
|
$
|
45,197
|
|
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
June 27,
2020
|
|
June 29,
2019
|
Reconciliation of “All other” category:
|
|
|
|
Stock-based compensation expense
|
$
|
(21,859
|
)
|
|
$
|
(24,953
|
)
|
Amortization of intangible assets
|
(71,944
|
)
|
|
(58,182
|
)
|
Acquisition and integration related costs
|
(12,663
|
)
|
|
(23,130
|
)
|
Restructuring related charges
|
(938
|
)
|
|
(8,031
|
)
|
Accelerated depreciation
|
—
|
|
|
(15,938
|
)
|
Other (including (loss) gain on assets, start-up costs and other miscellaneous corporate overhead)
|
(3,622
|
)
|
|
(4,599
|
)
|
Loss from operations for “All other”
|
$
|
(111,026
|
)
|
|
$
|
(134,833
|
)
|
13. INCOME TAXES
The Company’s provision for income taxes for the three months ended June 27, 2020 and June 29, 2019 was calculated by applying an estimate of the annual effective tax rate for the full fiscal year to “ordinary” income or loss (pre-tax income or loss excluding unusual or infrequently occurring discrete items) for the three months ended June 27, 2020 and June 29, 2019.
The Company’s income tax expense was $0.1 million and $5.7 million for the three months ended June 27, 2020 and June 29, 2019, respectively. The Company’s effective tax rate was 0.1% and 12.5% for the three months ended June 27, 2020 and June 29, 2019, respectively.
The Company's effective tax rate for the three months ended June 27, 2020 differed from the statutory rate primarily due to tax rate differences in foreign jurisdictions, global intangible low tax income (“GILTI”), domestic tax credits generated and a discrete tax benefit resulting from a retroactive incentive allowing previously non-deductible payments to be amortized. The Company's effective tax rate for the three months ended June 29, 2019 differed from the statutory rate primarily due to tax rate differences in foreign jurisdictions, GILTI, domestic tax credits generated, foreign permanent differences and the discrete treatment of post-combination compensation related expenses due to the Active-Semi acquisition.
14. NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
June 27, 2020
|
|
June 29, 2019
|
Numerator:
|
|
|
|
Numerator for basic and diluted net income per share — net income available to common stockholders
|
$
|
96,922
|
|
|
$
|
39,541
|
|
Denominator:
|
|
|
|
Denominator for basic net income per share — weighted average shares
|
114,585
|
|
|
118,756
|
|
Effect of dilutive securities:
|
|
|
|
Stock-based awards
|
2,166
|
|
|
2,367
|
|
Denominator for diluted net income per share — adjusted weighted average shares and assumed conversions
|
116,751
|
|
|
121,123
|
|
Basic net income per share
|
$
|
0.85
|
|
|
$
|
0.33
|
|
Diluted net income per share
|
$
|
0.83
|
|
|
$
|
0.33
|
|
In the computation of diluted net income per share for the three months ended June 27, 2020 and June 29, 2019, less than 0.1 million outstanding shares were excluded because the effect of their inclusion would have been anti-dilutive.