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Qorvo, Inc. (Form: 10-Q, Received: 08/05/2016 17:28:19)
Table of Contents

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 2, 2016
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____

Commission File Number 001-36801
Qorvo, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
 
46-5288992
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
7628 Thorndike Road, Greensboro, North Carolina 27409-9421
(Address of principal executive offices)
(Zip Code)
 
 
 
(336) 664-1233
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  
Large accelerated filer þ  
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company  ¨
 
 
(Do not check if a smaller reporting company)
 


Table of Contents

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
As of July 27, 2016 , there were 127,896,371 shares of the registrant’s common stock outstanding.
 
 
 
 
 


Table of Contents

QORVO, INC. AND SUBSIDIARIES
INDEX
 
 
Page    
 
 
 
 
 
 
 
 
 
 
 
 

2

Table of Contents

PART I — FINANCIAL INFORMATION
ITEM 1.
QORVO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
 
 
July 2, 2016
 
April 2, 2016
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents (Note 7)
$
433,034

 
$
425,881

Short-term investments (Note 7)
13,873

 
186,808

Accounts receivable, less allowance of $171 and $143 as of July 2, 2016 and April 2, 2016, respectively
400,679

 
316,356

Inventories (Note 3)
455,771

 
427,551

Prepaid expenses
68,329

 
63,850

Other receivables
69,871

 
47,380

Other current assets
43,863

 
41,384

Total current assets
1,485,420

 
1,509,210

Property and equipment, net of accumulated depreciation of $779,610 at July 2, 2016 and $751,898 at April 2, 2016
1,160,953

 
1,046,888

Goodwill (Note 4)
2,174,639

 
2,135,697

Intangible assets, net of accumulated amortization of $882,291 at July 2, 2016 and $763,640 at April 2, 2016 (Note 4)
1,775,937

 
1,812,515

Long-term investments (Note 7)
26,000

 
26,050

Other non-current assets
65,038

 
66,459

Total assets
$
6,687,987

 
$
6,596,819

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
263,478

 
$
205,364

Accrued liabilities
142,509

 
137,889

Other current liabilities
14,346

 
30,548

Total current liabilities
420,333

 
373,801

Long-term debt (Note 5)
988,372

 
988,130

Deferred tax liabilities (Note 6)
163,644

 
152,160

Other long-term liabilities
82,062

 
83,056

Total liabilities
1,654,411

 
1,597,147

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; 127,817 and 127,386 shares issued and outstanding at July 2, 2016 and April 2, 2016, respectively
5,483,200

 
5,442,613

Accumulated other comprehensive loss, net of tax
(4,141
)
 
(3,133
)
Accumulated deficit
(445,483
)
 
(439,808
)
Total stockholders’ equity
5,033,576

 
4,999,672

Total liabilities and stockholders’ equity
$
6,687,987

 
$
6,596,819

See accompanying Notes to Condensed Consolidated Financial Statements.

3


 QORVO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 
Three Months Ended
 
 
July 2, 2016
 
June 27, 2015
 
Revenue
$
698,537

 
$
673,641

 
Cost of goods sold
422,062

 
394,124

 
Gross profit
276,475

 
279,517

 
Operating expenses:
 
 
 
 
Research and development
117,137

 
117,210

 
Marketing and selling
109,036

 
109,645

 
General and administrative
34,559

 
36,083

 
Other operating expense
10,002

 
17,914

 
Total operating expenses
270,734

 
280,852

 
Income (loss) from operations
5,741

 
(1,335
)
 
Interest expense (Note 5)
(15,187
)
 
(548
)
 
Interest income
278

 
392

 
Other (expense) income
(500
)
 
4,119

 
 
 
 
 
 
(Loss) income before income taxes
(9,668
)
 
2,628

 
 
 
 
 
 
Income tax benefit (expense) (Note 6)
3,993

 
(592
)
 
Net (loss) income
$
(5,675
)
 
$
2,036

 
 
 
 
 
 
Net (loss) income per share (Note 2):
 
 
 
 
Basic
$
(0.04
)
 
$
0.01

 
Diluted
$
(0.04
)
 
$
0.01

 
 
 
 
 
 
Weighted average shares of common stock outstanding (Note 2):
 
 
 
 
Basic
127,541

 
149,322

 
Diluted
127,541

 
154,461

 

See accompanying Notes to Condensed Consolidated Financial Statements.


4


QORVO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In thousands)
(Unaudited)
 
Three Months Ended
 
 
July 2, 2016
 
June 27, 2015
 
Net (loss) income
$
(5,675
)
 
$
2,036

 
Other comprehensive (loss) income:
 
 
 
 
Unrealized gain on marketable securities, net of tax
72

 
812

 
Foreign currency translation adjustment, including intra-entity foreign currency transactions that are of a long-term-investment nature
(1,111
)
 
122

 
Reclassification adjustments, net of tax:
 
 
 
 
Recognized gain on marketable securities

 
(1,928
)
 
Amortization of pension actuarial loss
31

 
35

 
Other comprehensive loss
(1,008
)
 
(959
)
 
Total comprehensive (loss) income
$
(6,683
)
 
$
1,077

 
See accompanying Notes to Condensed Consolidated Financial Statements.



5


QORVO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
Three Months Ended
 
July 2, 2016
 
June 27, 2015
Cash flows from operating activities:
 
 
 
Net (loss) income
$
(5,675
)
 
$
2,036

Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 
 
 
Depreciation
46,352

 
42,738

Amortization and other non-cash items
119,735

 
123,121

Deferred income taxes
2,509

 
3,849

Foreign currency adjustments
(1,645
)
 
76

Loss (income) on investments and other assets, net
168

 
(3,551
)
Stock-based compensation expense
30,594

 
48,170

Changes in operating assets and liabilities:
 
 
 
Accounts receivable, net
(79,501
)
 
(54,245
)
Inventories
(30,270
)
 
(21,606
)
Prepaid expenses and other current and non-current assets
(28,578
)
 
(9,600
)
Accounts payable and accrued liabilities
23,010

 
22,631

Income tax (recoverable) / payable
(17,459
)
 
(5,630
)
Other liabilities
149

 
(6,557
)
Net cash provided by operating activities
59,389

 
141,432

Investing activities:
 
 
 
Purchase of property and equipment
(130,440
)
 
(89,395
)
Purchase of a business (Note 4)
(117,498
)
 

Proceeds from sale of property and equipment
17

 
140

Purchase of available-for-sale securities

 
(86,145
)
Proceeds from maturities and sales of available-for-sale securities
172,920

 
100,263

Net cash used in investing activities
(75,001
)
 
(75,137
)
Financing activities:
 
 
 
Debt issuance costs
(2
)
 
(1,335
)
Proceeds from the issuance of common stock
25,962

 
18,386

Repurchase of common stock, including transaction costs

 
(50,009
)
Tax withholding paid on behalf of employees for restricted stock units
(2,810
)
 
(7,504
)
Restricted cash associated with financing activities
4

 
(8
)
Other financing

 
(3
)
Net cash provided by (used in) financing activities
23,154

 
(40,473
)
 
 
 
 
Effect of exchange rate changes on cash
(389
)
 
(34
)
Net increase in cash and cash equivalents
7,153

 
25,788

Cash and cash equivalents at the beginning of the period
425,881

 
299,814

Cash and cash equivalents at the end of the period
$
433,034

 
$
325,602

Non-cash investing information:
 
 
 
Capital expenditure adjustments included in liabilities
$
29,885

 
$
6,599

See accompanying Notes to Condensed Consolidated Financial Statements.

6


QORVO, INC. AND SUBSIDIARIES
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. 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 accounting principles generally accepted in the United States 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 April 2, 2016 .

On February 22, 2014, RF Micro Devices, Inc. (“RFMD”) entered into an Agreement and Plan of Merger and Reorganization as subsequently amended on July 15, 2014 (the "Merger Agreement"), with TriQuint Semiconductor, Inc. ("TriQuint") providing for the combination of RFMD and TriQuint in a merger of equals (the "Business Combination") under a new holding company named Qorvo, Inc. The transactions contemplated by the Merger Agreement were consummated on January 1, 2015.

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.

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 2017 is a 52-week year and fiscal 2016 was a 53-week year, however, the first quarters of both fiscal years 2017 and 2016 included 13 weeks.

2. NET (LOSS) INCOME PER SHARE

The following table sets forth the computation of basic and diluted net (loss) income per share (in thousands, except per share data):
 
 
Three Months Ended
 
 
July 2, 2016
 
June 27, 2015
Numerator:
 
 
 
 
Numerator for basic and diluted net (loss) income per share — net (loss) income available to common stockholders
 
$
(5,675
)
 
$
2,036

Denominator:
 
 
 
 
Denominator for basic net (loss) income per share — weighted average shares
 
127,541

 
149,322

Effect of dilutive securities:
 
 
 
 
Stock-based awards
 

 
5,139

Denominator for diluted net (loss) income per share — adjusted weighted average shares and assumed conversions
 
127,541

 
154,461

Basic net (loss) income per share
 
$
(0.04
)
 
$
0.01

Diluted net (loss) income per share
 
$
(0.04
)
 
$
0.01


In the computation of diluted net loss per share for the three months ended July 2, 2016 , approximately 5.1 million outstanding shares were excluded because the effect of their inclusion would have been anti-dilutive. In the computation of diluted net income per share for the three months ended June 27, 2015 , less than 0.1 million shares were excluded because the exercise price of the options was greater than the average market price of the underlying common stock and the effect of their inclusion would have been anti-dilutive.


7


QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

3. INVENTORIES
Inventories are stated at the lower of cost or market based on standard costs which approximates actual average costs. The components of inventories, net of reserves, are as follows (in thousands):
 
 
July 2, 2016
 
April 2, 2016
Raw materials
$
102,910

 
$
89,928

Work in process
241,276

 
228,626

Finished goods
111,585

 
108,997

Total inventories
$
455,771

 
$
427,551


4. GOODWILL AND INTANGIBLE ASSETS
The changes in the carrying amount of goodwill for the three months ended July 2, 2016 are as follows (in thousands):
 
Mobile Products
 
Infrastructure and Defense Products
 
Total
Balance as of April 2, 2016
$
1,751,503

 
$
384,194

 
$
2,135,697

Goodwill resulting from GreenPeak

 
39,124

 
39,124

Translation

 
(182
)
 
(182
)
Balance at July 2, 2016
$
1,751,503

 
$
423,136

 
$
2,174,639


On April 29, 2016, the Company completed the acquisition of GreenPeak Technologies ("GreenPeak"), a leader in ultra-low power, short range radio frequency ("RF") communication technology for a purchase price of $118.7 million . The acquisition expanded the Company's customer offering to include highly integrated RF solutions and systems-on-a-chip ("SoCs") for the connected home and the rapidly growing Internet of Things ("IoT"). The acquisition resulted in initial goodwill of $39.1 million and an increase in intangible assets of $82.1 million . The more significant intangibles assets acquired included developed technology of $74.2 million (being amortized over 7 years) and customer relationships of $5.6 million (being amortized over 3 years).

The following summarizes information regarding the gross carrying amounts and accumulated amortization of intangibles assets (in thousands):
 
July 2, 2016
 
April 2, 2016
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Gross
Carrying
Amount
 
Accumulated
Amortization
Intangible Assets:
 
 
 
 
 
 
 
In-process research and development
$
267,000

 
N/A

 
$
267,000

 
N/A

Technology licenses
13,346

 
11,172

 
12,446

 
11,021

Customer relationships
1,272,725

 
447,072

 
1,267,103

 
377,357

Developed technology
989,335

 
323,989

 
915,163

 
277,736

Wafer supply agreement
20,443

 
20,443

 
20,443

 
20,443

Trade names
29,353

 
14,529

 
29,000

 
12,083

Backlog
65,000

 
65,000

 
65,000

 
65,000

Non-compete agreement
1,026

 
86

 

 

Total
$
2,658,228

 
$
882,291

 
$
2,576,155

 
$
763,640


8

Table of Contents

QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


Total intangible assets amortization expense was $119.4 million for the three months ended July 2, 2016 and $123.2 million for the three months ended June 27, 2015 .

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
2017
$
505,502

2018
542,634

2019
455,402

2020
206,986

2021
144,066


5. DEBT

Debt at July 2, 2016 and April 2, 2016 is as follows (in thousands):
 
July 2, 2016
 
April 2, 2016
6.75% Senior Notes due 2023
$
450,000

 
$
450,000

7.00% Senior Notes due 2025
550,000

 
550,000

Less unamortized issuance costs
(11,628
)
 
(11,870
)
Total long-term debt
$
988,372

 
$
988,130


Senior Notes
On November 19, 2015, the Company completed an offering of $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” and, together with the 2023 Notes, the “Notes”). The Notes were sold in the United States to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States pursuant to Regulation S under the Securities Act. The carrying value of issuance costs related to the Notes is $11.6 million as of July 2, 2016 and $11.9 million as of April 2, 2016 , and is presented on the Condensed Consolidated Balance Sheet as a direct deduction of Long-term debt.

The Notes were issued pursuant to an indenture, dated as of November 19, 2015 (the “Indenture”), by and among the Company, the Company’s domestic subsidiaries that guarantee the Company’s obligations under its revolving credit facility, as guarantors (the “Guarantors”), and MUFG Union Bank, N.A., as trustee. The Company has used and intends to continue to use the net proceeds of the offering of the Notes for general corporate purposes, including share repurchases and merger and acquisition activity.

Interest is payable on the 2023 Notes at a rate of 6.75%  per annum and on the 2025 Notes at a rate of 7.00%  per annum. During the three months ended July 2, 2016 , the Company recognized $17.5 million of interest expense related to the Notes which was offset by $3.0 million of interest capitalized to property and equipment. Interest on both series of Notes is payable semi-annually on June 1 and December 1 of each year, and commenced on June 1, 2016. Interest paid on the Notes during the three months ended July 2, 2016 was $36.7 million .

9

Table of Contents

QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


At any time prior to December 1, 2018, the Company may redeem all or part of the 2023 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 December 1, 2018, the Company may redeem up to 35% of the original aggregate principal amount of the 2023 Notes with the proceeds of one or more equity offerings, at a redemption price equal to 106.75% , plus accrued and unpaid interest. Furthermore, at any time on or after December 1, 2018, the Company may redeem the 2023 Notes, in whole or in part, at once or over time, at the specified redemption prices set forth in the Indenture plus accrued and unpaid interest thereon to the redemption date (subject to the rights of holders of record on the relevant record date to receive interest due on the relevant interest payment date).

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 prior to December 1, 2018, the Company may redeem up to 35% of the original aggregate principal amount of the 2025 Notes with the proceeds of one or more equity offerings, at a redemption price equal to 107.00% , plus accrued and unpaid interest. Furthermore, at any time on or after December 1, 2020, the Company may redeem the 2025 Notes, in whole or in part, at once or over time, at the specified redemption prices set forth in the Indenture plus accrued and unpaid interest thereon to the redemption date (subject to the rights of holders of record on the relevant record date to receive interest due on the relevant interest payment date).

The Indenture contains customary events of default, including, among other things, payment default, exchange default, failure to provide certain notices thereunder and certain provisions related to bankruptcy events. The Indenture also contains customary negative covenants.

The 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.

Registration Rights Agreement
In connection with the offering of the Notes, the Company entered into a Registration Rights Agreement, dated as of November 19, 2015 (the “Registration Rights Agreement”), with the Guarantors party thereto, on the one hand, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representative of the initial purchasers of the Notes, on the other hand.

Under the Registration Rights Agreement, the Company and the Guarantors have agreed to use their commercially reasonable efforts to (i) file with the SEC a registration statement (the “Exchange Offer Registration Statement”) relating to the registered exchange offer (the “Exchange Offer”) to exchange the 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 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 360 th day after November 19, 2015 (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 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 Notes covered thereby have been sold pursuant thereto).

If the Company fails to meet any of these targets, the annual interest rate on the Notes would increase by 0.25% during the 90-day period following the default, and would 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 Notes would revert to the original level.


10

Table of Contents

QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

The 2023 Notes and the 2025 Notes are traded over the counter and their fair values as of July 2, 2016 , of $469.1 million and $581.6 million , respectively (compared to carrying values of $450.0 million and $550.0 million , respectively) were estimated based upon the values of their last trade at the end of the period. The fair values of the 2023 Notes and the 2025 Notes were $465.8 million and $581.6 million , respectively as of April 2, 2016 .

Credit Agreement
On April 7, 2015, the Company and the Guarantors entered into a five-year unsecured senior credit facility 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 includes a $300.0 million revolving credit facility, which includes a $25.0 million sublimit for the issuance of standby letters of credit and a $10.0 million sublimit for swing line loans. The Company may request, at any time and from time to time, that the revolving credit facility be increased by an amount not to exceed $150.0 million . The revolving credit facility is available to finance working capital, capital expenditures and other corporate purposes. The Company’s obligations under the Credit Agreement are jointly and severally guaranteed by the Guarantors. During the three months ended July 2, 2016 , there were no borrowings under the revolving credit facility. The Company had no outstanding amounts under the Credit Agreement as of July 2, 2016 and April 2, 2016 .

At the Company’s option, loans under the Credit Agreement will 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 (c) the Eurodollar Base Rate plus 1.0% (the “Base Rate”). All swing line loans will bear interest at a rate equal to the Applicable Rate plus the Base Rate. The Eurodollar Base Rate is the rate per annum equal to the London Interbank Offered Rate, as published by Bloomberg, for dollar deposits for interest periods of one, two, three or six months, as selected by the Company. The Applicable Rate for Eurodollar Rate loans ranges from 1.50% per annum to 2.00% per annum. The Applicable Rate for Base Rate loans ranges from 0.50% per annum to 1.00% 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 be in compliance in order to borrow funds and to avoid an event of default, including financial covenants that the Company must maintain. On November 12, 2015, the Credit Agreement was amended to increase the size of certain of the negative covenant baskets and the threshold for certain negative covenant incurrence-based permissions and to raise the consolidated leverage ratio test from 2.50 to 1.00 to 3.00 to 1.00 as of the end of any fiscal quarter. The Company must also maintain a consolidated interest coverage ratio of not less than 3.00 to 1.00 as of the end of any fiscal quarter.

The Credit Agreement also contains customary events of default, and the occurrence of an event of default will increase the applicable rate of interest by 2.00% and could result in the termination of commitments under the revolving credit facility, the declaration that all outstanding loans are due and payable in whole or in part and the requirement of cash collateral deposits in respect of outstanding letters of credit. Outstanding amounts are due in full on the maturity date of April 7, 2020 (with amounts borrowed under the swing line option due in full no later than ten business days after such loan is made).

6. INCOME TAXES

Income Tax Expense
The Company’s provision for income taxes for the three months ended July 2, 2016 and June 27, 2015 has been 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 July 2, 2016 and June 27, 2015 .

The Company’s income tax benefit was $4.0 million for the three months ended July 2, 2016 , and income tax expense was $0.6 million for the three months ended June 27, 2015 . The Company’s effective tax rate was 41.3% for the three months ended July 2, 2016 and 22.5% for the three months ended June 27, 2015 . The Company's effective tax rate for both the first quarter of fiscal 2017 and the first quarter of fiscal 2016 differed from the statutory rate primarily due to tax rate differences in foreign jurisdictions, state income taxes, domestic tax credits generated, and changes in unrecognized tax benefits.


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QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

Deferred Taxes
A valuation allowance remained against certain domestic and foreign net deferred tax assets as it is more likely than not that the related deferred tax assets will not be realized.

The Company has domestic federal and state tax net operating loss (“NOLs”) carry-forwards that expire in fiscal years 2017 to 2035 if unused. The use of the NOLs that were acquired in prior year acquisitions is subject to certain annual limitations under Internal Revenue Code Section 382 and similar state income tax provisions.

Uncertain Tax Positions
The Company’s gross unrecognized tax benefits increased from $69.1 million as of the end of fiscal 2016 to $72.8 million as of the end of the first quarter of fiscal 2017 , due to a $3.7 million increase related to tax positions taken with respect to the current fiscal year.

7. INVESTMENTS AND FAIR VALUE MEASUREMENTS

Investments
The following is a summary of cash equivalents and available-for-sale securities as of July 2, 2016 and April 2, 2016 (in thousands):  
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated Fair  
Value
July 2, 2016
 
 
 
 
 
 
 
Auction rate securities
$
2,150

 
$

 
$
(400
)
 
$
1,750

Corporate debt
13,873

 

 

 
13,873

Money market funds
57,798

 

 

 
57,798

 
$
73,821

 
$

 
$
(400
)
 
$
73,421

April 2, 2016
 
 
 
 
 
 
 
U.S. government/agency securities
$
149,874

 
$
19

 
$
(1
)
 
$
149,892

Auction rate securities
2,150

 

 
(350
)
 
1,800

Corporate debt
45,510

 

 

 
45,510

Money market funds
146,779

 

 

 
146,779

 
$
344,313

 
$
19

 
$
(351
)
 
$
343,981

 
The estimated fair value of available-for-sale securities was based on the prevailing market values on July 2, 2016 and April 2, 2016 . The Company determines the cost of an investment sold based on the specific identification method.

There were no gross realized gains and no gross realized losses recognized on available-for-sale securities for the three months ended July 2, 2016 . There were $4.0 million of gross realized gains and no gross realized losses recognized on available-for-sale securities for the three months ended June 27, 2015 .

There were no unrealized losses on available-for-sale securities in a continuous loss position for fewer than 12 months as of July 2, 2016 , and as of April 2, 2016 , such unrealized losses were insignificant. Unrealized losses on available-for-sale securities in a continuous loss position for 12 months or greater were $0.4 million as of July 2, 2016 and $0.4 million as of April 2, 2016 .

The aggregate amount of available-for-sale securities in an unrealized loss position at July 2, 2016 was $1.8 million , with $0.4 million in unrealized losses. The aggregate amount of available-for-sale securities in an unrealized loss position at April 2, 2016 was $55.6 million , with $0.4 million in unrealized losses.


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QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

The expected maturity distribution of cash equivalents and available-for-sale debt securities is as follows (in thousands):
 
July 2, 2016
 
April 2, 2016
 
Cost
 
Estimated
Fair Value
 
Cost
 
Estimated
Fair Value
Due in less than one year
$
71,671

 
$
71,671

 
$
342,163

 
$
342,181

Due after ten years
2,150

 
1,750

 
2,150

 
1,800

Total investments in debt securities
$
73,821

 
$
73,421

 
$
344,313

 
$
343,981


During the quarter, our investments in commercial paper and U.S. government treasury bills matured and a portion of the proceeds was used for the GreenPeak acquisition.

Other Investments
On August 4, 2015, the Company invested $25.0 million to acquire shares of Series F Preferred Stock of Cavendish Kinetics Limited, a private limited company incorporated in England and Wales. This investment was accounted for as a cost method investment and classified in "Long-term investments" on the Company's Condensed Consolidated Balance Sheet. No impairment was recognized on the Company's cost-method investment during the three months ended July 2, 2016 .

Fair Value of Financial Instruments
On a quarterly basis, the Company measures the fair value of its marketable securities, which are comprised of U.S. government/agency securities, corporate debt, auction rate securities (ARS), and money market funds. Marketable securities are reported at fair value in "Cash and cash equivalents", "Short-term investments" and "Long-term investments" on the Company’s Condensed Consolidated Balance Sheet. The related unrealized gains and losses are included in "Accumulated other comprehensive loss," a component of stockholders’ equity, net of tax.


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QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

Recurring Fair Value Measurements
The fair value of the financial assets measured at fair value on a recurring basis was determined using the following levels of inputs as of July 2, 2016 and April 2, 2016 (in thousands):
 
 
 
 
 
Total
 
Quoted Prices In
Active Markets For
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
July 2, 2016
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Available-for-sale securities
 
 
 
 
 
 
 
 
 
Auction rate securities (1)
$
1,750

 
$

 
$
1,750

 
 
 
 
Corporate debt (2)
13,873

 

 
13,873

 
 
 
 
Money market funds
57,798

 
57,798

 

 
 
 
Total available-for-sale securities
73,421

 
57,798

 
15,623

 
 
 
Invested funds in deferred compensation plan (3)
7,169

 
7,169

 

 
 
 
 
Total assets measured at fair value
$
80,590

 
$
64,967

 
$
15,623

 
Liabilities:
 
 
 
 
 
 
 
 
Deferred compensation plan obligation (3)
7,169

 
7,169

 

 
 
 
 
Total liabilities measured at fair value
$
7,169

 
$
7,169

 
$

 
 
 
 
 
 
 
 
 
 
April 2, 2016
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Available-for-sale securities
 
 
 
 
 
 
 
 
 
U.S. government/agency securities
$
149,892

 
$
149,892

 
$

 
 
 
 
Auction rate securities (1)
1,800

 

 
1,800

 
 
 
 
Corporate debt (2)
45,510

 

 
45,510

 
 
 
 
Money market funds
146,779

 
146,779

 

 
 
 
Total available-for-sale securities
343,981

 
296,671

 
47,310

 
 
 
Invested funds in deferred compensation plan  (3)
6,468

 
6,468

 

 
 
 
 
Total assets measured at fair value
$
350,449

 
$
303,139

 
$
47,310

 
Liabilities:
 
 
 
 
 
 
 
 
Deferred compensation plan obligation (3)
6,468

 
6,468

 

 
 
 
 
Total liabilities measured at fair value
$
6,468

 
$
6,468

 
$

 
(1) ARS are debt instruments with interest rates that reset through periodic short-term auctions. The Company’s Level 2 ARS are valued based on quoted prices for identical or similar instruments in markets that are not active.
(2) Corporate debt includes corporate bonds and commercial paper that are valued using observable market prices for identical securities that are traded in less active markets.
(3) 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.
 
Other Fair Value Disclosures
The carrying values of cash and cash equivalents, accounts receivable, accounts payable and other accrued liabilities approximate fair values because of the relatively short-term maturities of these instruments. See Note 5 for the fair value of the Company's long-term debt.


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QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

8. STOCK REPURCHASES

On February 5, 2015, the Company announced that its Board of Directors authorized the repurchase of up to $200.0 million of the Company's outstanding common stock, exclusive of related fees, commissions or other expenses. On August 11, 2015, the Company announced the completion of this $200.0 million share repurchase program having repurchased on the open market approximately 2.4 million shares at an average price of $63.14 during fiscal 2016 (of which approximately 0.6 million shares at an average price of $83.10 were repurchased during the first quarter of fiscal 2016 ).

On August 11, 2015, the Company announced that its Board of Directors authorized a new share repurchase program to repurchase up to $400.0 million of the Company's outstanding common stock. On September 10, 2015, the Company announced the completion of this $400.0 million share repurchase program having repurchased approximately 7.3 million shares at an average price of $54.75 on the open market during the second quarter of fiscal 2016 .

On November 5, 2015, 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 stock through November 4, 2016. Under the share repurchase program, share repurchases will be made in accordance with applicable securities laws on the open market or in privately negotiated transactions. The extent to which the Company repurchases its shares, the number of shares and the timing of any repurchases will depend on general market conditions, regulatory requirements, alternative investment opportunities and other considerations. The program does not require the Company to repurchase a minimum number of shares, and may be modified, suspended or terminated at any time without prior notice. During fiscal 2016, the Company repurchased approximately 14.6 million shares of common stock pursuant to this authorization for approximately $750.0 million .

As part of the $1.0 billion share repurchase program described above, on February 16, 2016, the Company entered into variable maturity accelerated share repurchase ("ASR") agreements (a $250.0 million collared agreement and a $250.0 million uncollared agreement) with Bank of America, N.A. For the upfront payment of $500.0 million , the Company received 3.1 million shares of our common stock under the collared agreement (representing 50% of the shares the Company would have repurchased assuming an average share price of $40.78 ) and 4.9 million shares of our common stock under the uncollared agreement (representing 80% of the shares the Company would have repurchased assuming an average share price of $40.78 ). On March 10, 2016, the Company received an additional 2.0 million shares of our common stock under the collared agreement. Final settlements of the ASR agreements were completed during the first quarter of fiscal 2017 with an additional 0.4 million shares received resulting in a total of 10.4 million shares of our common stock repurchased under the ASR agreements.

The shares were retired in the periods they were delivered, and the upfront payment was accounted for as a reduction to stockholders' equity in the Company's Consolidated Balance Sheet in the period the payment was made. The Company reflected each ASR as a repurchase of common stock in the period delivered for purposes of calculating earnings per share.

9. RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Pronouncements Not Yet Effective

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." The new guidance introduces an approach based on current expected losses over the life of the exposure to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The new standard will become effective for the Company beginning in the first quarter of fiscal year 2021. The Company is currently evaluating the effects the new guidance will have on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting." The new guidance will simplify certain aspects of accounting for share-based payment transactions, including income tax consequences, forfeitures, classification of awards on the balance sheet and presentation on the statement of cash flows. The new standard will become effective for the Company beginning in the first quarter of fiscal 2018. The Company is currently evaluating the effects this new guidance will have on its consolidated financial statements.

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QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)." The new standard will revise the current guidance for lessees, lessors and sale-leaseback transactions. Under the new guidance, substantially all lessees will now recognize a right-of-use asset and a lease liability for all of their leases with terms greater than 12 months even if the lease is an operating lease. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flow arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. The new guidance becomes effective for the Company in the first quarter of fiscal 2020. The Company is currently evaluating the effects this new guidance will have on its consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurements of Financial Assets and Financial Liabilities." This new standard will affect the accounting for equity investments, financial liabilities measured under the fair value option and presentation and disclosure requirements for financial instruments. In addition, the FASB clarified guidance related to the assessment of valuation allowances when recognizing deferred tax assets related to unrealized losses on available-for-sale debt securities. The new standard is effective for the Company beginning in the first quarter of fiscal 2019. The Company is currently evaluating the effects this new standard will have on its consolidated financial statements.

In July 2015, the FASB issued ASU 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory." Entities that measure their inventory other than pursuant to the last-in, last-out and retail inventory methods will measure their inventory at the lower of cost or net realized value. Net realized value is the estimated selling price in the ordinary course of business less reasonably predictable costs to completion, transportation, or disposal. Currently, inventory is required to be measured at the lower of cost or market where market could be the replacement cost, net realizable value, or net realizable value less an approximated normal profit margin. The Company will adopt the provisions of this standard in the first quarter of fiscal 2018, and is currently evaluating the impact on its consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)" that amends existing guidance on revenue recognition. The new guidance is based on principles that an entity will recognize revenue to depict the transfer of goods and services to customers at an amount the entity expects to be entitled to in exchange for those goods and services. The guidance requires additional disclosures regarding the nature, amount, timing, and uncertainty of cash flows and both qualitative and quantitative information about contracts with customers and applied significant judgments. The FASB has issued several amendments to the new guidance. In August 2015, they delayed the effective date for adoption by one year. In March 2016, additional guidance was issued that clarifies the principal versus agent considerations within the new revenue standard. In April, 2016, additional guidance was issued that clarifies the identification of distinct performance obligations in a contract as well as clarifies the accounting for licenses of intellectual property. In May 2016, additional guidance was issued related to transition, collectibility, non-cash consideration and the presentation of sales and other similar taxes. The new amended guidance will become effective for the Company in the first quarter of fiscal 2019, using one of two retrospective methods of adoption. The Company has not determined which method it will adopt and is evaluating the effects the new guidance will have on its consolidated financial statements.

Accounting Pronouncements Recently Adopted

In April 2015, the FASB issued ASU 2015-05 , "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement " which provided additional guidance to customers about whether a cloud computing arrangement includes a software license. Under this guidance, if a cloud computing arrangement contains a software license, customers should account for the license element of the arrangement in a manner consistent with the acquisition of other software licenses. If the arrangement does not contain a software license, customers should account for the arrangement as a service contract. The Company adopted the provisions of this standard in the first quarter of fiscal 2017, and there was no impact on its condensed consolidated financial statements.

In September 2015, the FASB issued ASU No. 2015-16, " Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments."   This standard requires an acquirer in a business combination to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined.  The effect on earnings of changes in depreciation, amortization or other income effects, as a result of the change in provisional amounts, are to be included in the same period’s financial statements, calculated as if the accounting had

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QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

been completed at the acquisition date.  The amendments in this update became effective for the Company beginning in the first quarter of fiscal 2017 and will be applied prospectively to adjustments to provisional amounts that occur in the future.

10. OPERATING SEGMENT INFORMATION

The Company’s operating segments as of July 2, 2016 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 (or 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 (loss) and non-GAAP operating income (loss) as a percentage of revenue.

MP is a leading global supplier of RF solutions that perform various functions in the increasingly complex cellular radio front end section of smartphones and other cellular devices. These RF solutions are required in fourth generation (“4G”) data-centric devices operating under Long-Term Evolution (“LTE”) 4G networks, as well as third generation (“3G”) and second generation mobile devices. These solutions include complete RF front end modules that combine high-performance filters, power amplifiers (“PAs”), low noise amplifiers (“LNAs”) and switches, PA modules, transmit modules, antenna control solutions, antenna switch modules, diversity receive modules and envelope tracking power management devices. MP supplies its broad portfolio of RF solutions into a variety of mobile devices, including smartphones, notebook computers, wearables, tablets and cellular-based applications for the IoT.

IDP is a leading global supplier of RF solutions that support diverse global applications, including ubiquitous high-speed network connectivity to the cloud, data center communications, rapid internet connectivity throughout the home and workplace, and upgraded military capabilities across the globe. These RF solutions enhance performance and reduce complexity in cellular base stations, optical long haul, data center and metro networks, WiFi networks, cable networks, and emerging fifth generation (“5G”) wireless networks. Products include high power gallium arsenide (“GaAs”) and gallium nitride (“GaN”) PAs, LNAs, switches, RF filter solutions, CMOS system-on-a-chip (“SoC”) solutions and various multichip and hybrid assemblies. IDP market-leading RF solutions for defense and aerospace upgrade communications and radar systems for air, land and sea. IDP RF solutions for the IoT enable the connected car and an array of industrial applications, and serve the home automation market with SoC solutions based on ZigBee and Bluetooth Smart technologies. During the first quarter of fiscal 2017, the Company acquired GreenPeak, a leader in ultra-low power, short range RF communication technology. The acquisition expanded the Company's customer offering to include highly integrated RF solutions and SoCs for the connected home and the rapidly growing IoT.

The “All other” category includes operating expenses such as stock-based compensation, amortization of intangible assets, acquisition and integration related costs, acquired inventory step-up and revaluation, intellectual property rights (IPR) litigation costs, restructuring and disposal costs, start-up costs, gain (loss) 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.


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QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

The following tables present details of the Company’s reportable segments and a reconciliation of the “All other” category (in thousands):  
 
Three Months Ended
 
July 2,
2016
 
June 27,
2015
Revenue:
 
 
 
MP
$
547,077

 
$
550,886

IDP
150,490

 
121,785

All other (1)
970

 
970

Total revenue
$
698,537

 
$
673,641

Income (loss) from operations:
 
 
 
MP
$
132,977

 
$
173,742

IDP
34,651

 
14,073

All other
(161,887
)
 
(189,150
)
Income (loss) from operations
5,741

 
(1,335
)
Interest expense
(15,187
)
 
(548
)
Interest income
278

 
392

Other (expense) income
(500
)
 
4,119

(Loss) income before income taxes
$
(9,668
)
 
$
2,628

 
(1) "All other" revenue relates to royalty income that is not allocated to MP or IDP.
 
Three Months Ended
 
July 2,
2016
 
June 27,
2015
Reconciliation of “All other” category:
 
 
 
Stock-based compensation expense
$
(30,594
)
 
$
(48,170
)
Amortization of intangible assets
(119,345
)
 
(123,202
)
Acquisition and integration related costs
(6,760
)
 
(10,415
)
Acquired inventory step-up and revaluation
(1,199
)
 

Restructuring and disposal costs
(414
)
 
(1,427
)
IPR litigation costs
(156
)
 
(148
)
Start-up costs
(2,076
)
 
(3,710
)
Other expenses (including gain (loss) on assets and other miscellaneous corporate overhead)
(1,343
)
 
(2,078
)
Loss from operations for “All other”
$
(161,887
)
 
$
(189,150
)


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QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

11. CONDENSED CONSOLIDATING FINANCIAL INFORMATION

As discussed in Note 5, the Notes were issued pursuant to the Indenture by and among the Company, the Company's domestic subsidiaries that guarantee the Company's obligations under its revolving credit facility, as guarantors, and MUFG Union Bank, N.A., as trustee. The Notes are fully and unconditionally guaranteed on a joint and several basis by each guarantor subsidiary, each of which is 100% owned, directly or indirectly, by Qorvo, Inc. (the "Parent Company"). A guarantor subsidiary’s guarantee can be released in certain customary circumstances.

In accordance with Rule 3-10 of Regulation S-X, the following presents the condensed consolidating financial information separately for:

(i)
the Parent Company, the issuer of the Notes;
(ii)
the guarantor subsidiaries, on a combined basis, as specified in the Indenture;
(iii)
the non-guarantor subsidiaries, on a combined basis;
(iv)
consolidating entries and eliminations representing adjustments to (a) eliminate intercompany transactions between or among the Parent Company, the guarantor subsidiaries and the non-guarantor subsidiaries, (b) eliminate intercompany profit in inventory, (c) eliminate the investments in the Company’s subsidiaries and (d) record consolidating entries; and
(v)
the Company, on a consolidated basis.

Each entity in the condensed consolidating financial information follows the same accounting policies as described in the consolidated financial statements, except for the use by the Parent Company and guarantor subsidiaries of the equity method of accounting to reflect ownership interests in subsidiaries that are eliminated upon consolidation. The financial information may not necessarily be indicative of the financial position, results of operations, comprehensive income (loss), and cash flows, had the Parent Company, guarantor or non-guarantor subsidiaries operated as independent entities.
 

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QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


 
Condensed Consolidating Balance Sheet
 
July 2, 2016
(in thousands)
Parent Company
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
150,131

 
$
282,903

 
$

 
$
433,034

Short-term investments

 
13,873

 

 

 
13,873

Accounts receivable, less allowance

 
75,532

 
325,147

 

 
400,679

Intercompany accounts and notes receivable

 
617,320

 
134,392

 
(751,712
)
 

Inventories

 
118,262

 
439,544

 
(102,035
)
 
455,771

Prepaid expenses

 
56,469

 
11,860

 

 
68,329

Other receivables

 
5,770

 
64,101

 

 
69,871

Other current assets

 
43,493

 
370

 

 
43,863

Total current assets

 
1,080,850

 
1,258,317

 
(853,747
)
 
1,485,420

Property and equipment, net

 
883,197

 
277,756

 

 
1,160,953

Goodwill

 
1,953,102

 
221,537

 

 
2,174,639

Intangible assets, net

 
741,188

 
1,068,586

 
(33,837
)
 
1,775,937

Long-term investments

 
26,000

 

 

 
26,000

Long-term intercompany accounts and notes receivable

 
424,333

 
131,713

 
(556,046
)
 

Investment in subsidiaries
6,137,196

 
1,664,717

 

 
(7,801,913
)
 

Other non-current assets
1,023

 
38,619

 
25,396

 

 
65,038

Total assets
$
6,138,219

 
$
6,812,006

 
$
2,983,305

 
$
(9,245,543
)
 
$
6,687,987

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 

Current liabilities:
 
 
 
 
 
 
 
 

Accounts payable
$

 
$
99,265

 
$
166,091

 
$
(1,878
)
 
$
263,478

Intercompany accounts and notes payable

 
134,392

 
617,320

 
(751,712
)
 

Accrued liabilities
5,931

 
103,492

 
33,086

 

 
142,509

Other current liabilities

 
197

 
14,149

 

 
14,346

Total current liabilities
5,931

 
337,346

 
830,646

 
(753,590
)
 
420,333

Long-term debt
988,372

 

 

 

 
988,372

Deferred tax liabilities
(103,634
)
 
204,465

 
62,813

 

 
163,644

Long-term intercompany accounts and notes payable
213,974

 
131,713

 
210,359

 
(556,046
)
 

Other long-term liabilities

 
33,879

 
48,183

 

 
82,062

Total liabilities
1,104,643

 
707,403

 
1,152,001

 
(1,309,636
)
 
1,654,411

Total stockholders’ equity
5,033,576

 
6,104,603

 
1,831,304

 
(7,935,907
)
 
5,033,576

Total liabilities and stockholders’ equity
$
6,138,219

 
$
6,812,006

 
$
2,983,305

 
$
(9,245,543
)
 
$
6,687,987



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QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

 
Condensed Consolidating Balance Sheet
 
April 2, 2016
(in thousands)
Parent Company
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
220,633

 
$
205,248

 
$

 
$
425,881

Short-term investments

 
186,808

 

 

 
186,808

Accounts receivable, less allowance

 
203,488

 
112,868

 

 
316,356

Intercompany accounts and notes receivable

 
532,508

 
404,330

 
(936,838
)
 

Inventories

 
186,627

 
325,346

 
(84,422
)
 
427,551

Prepaid expenses

 
56,151

 
7,699

 

 
63,850

Other receivables

 
37,033

 
10,347

 

 
47,380

Other current assets

 
40,866

 
518

 

 
41,384

Total current assets

 
1,464,114

 
1,066,356

 
(1,021,260
)
 
1,509,210

Property and equipment, net

 
807,586

 
239,495

 
(193
)
 
1,046,888

Goodwill

 
1,868,816

 
266,881

 

 
2,135,697

Intangible assets, net

 
786,314

 
1,026,201

 

 
1,812,515

Long-term investments

 
26,050

 

 

 
26,050

Long-term intercompany accounts and notes receivable

 
564,397

 
267,823

 
(832,220
)
 

Investment in subsidiaries
6,151,119

 
1,645,846

 

 
(7,796,965
)
 

Other non-current assets
1,091

 
39,478

 
25,890

 

 
66,459

Total assets
$
6,152,210

 
$
7,202,601

 
$
2,892,646

 
$
(9,650,638
)
 
$
6,596,819

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 

Current liabilities:
 
 
 
 
 
 
 
 

Accounts payable
$

 
$
141,792

 
$
66,508

 
$
(2,936
)
 
$
205,364

Intercompany accounts and notes payable

 
404,330

 
532,508

 
(936,838
)
 

Accrued liabilities
25,445

 
93,609

 
18,835

 

 
137,889

Other current liabilities

 
20,122

 
10,426

 

 
30,548

Total current liabilities
25,445

 
659,853

 
628,277

 
(939,774
)
 
373,801

Long-term debt
988,130

 

 

 

 
988,130

Deferred tax liabilities
(93,340
)
 
195,462

 
50,038

 

 
152,160

Long-term intercompany accounts and notes payable
232,303

 
267,823

 
332,094

 
(832,220
)
 

Other long-term liabilities

 
39,288

 
43,768

 

 
83,056

Total liabilities
1,152,538

 
1,162,426

 
1,054,177

 
(1,771,994
)
 
1,597,147

Total stockholders’ equity
4,999,672

 
6,040,175

 
1,838,469

 
(7,878,644
)
 
4,999,672

Total liabilities and stockholders’ equity
$
6,152,210

 
$
7,202,601

 
$
2,892,646

 
$
(9,650,638
)
 
$
6,596,819



21

Table of Contents

QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

 
Condensed Consolidating Statement of Operations and Comprehensive (Loss) Income
 
Three Months Ended July 2, 2016
(in thousands)
Parent Company
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Revenue
$

 
$
404,978

 
$
732,494

 
$
(438,935
)
 
$
698,537

Cost of goods sold

 
344,567

 
479,042

 
(401,547
)
 
422,062

Gross profit

 
60,411

 
253,452

 
(37,388
)
 
276,475

Operating expenses:
 
 
 
 
 
 
 
 

Research and development
11,669

 
9,840

 
98,487

 
(2,859
)
 
117,137

Marketing and selling
6,058

 
25,534

 
86,612

 
(9,168
)
 
109,036

General and administrative
12,867

 
2,099

 
19,926

 
(333
)
 
34,559

Other operating expense

 
4,093

 
5,941

 
(32
)
 
10,002

Total operating expenses
30,594

 
41,566

 
210,966

 
(12,392
)
 
270,734

Income (loss) from operations
(30,594
)
 
18,845

 
42,486

 
(24,996
)
 
5,741

Interest expense
(14,768
)
 
(818
)
 
(1,578
)
 
1,977

 
(15,187
)
Interest income

 
1,482

 
567

 
(1,771
)
 
278

Other (expense) income

 
(321
)
 
(945
)
 
766

 
(500
)
(Loss) income before income taxes
(45,362
)
 
19,188

 
40,530

 
(24,024
)
 
(9,668
)
Income tax benefit (expense)
10,295

 
(27,087
)
 
20,785

 

 
3,993

Income in subsidiaries
29,392

 

 

 
(29,392
)
 

Net (loss) income
$
(5,675
)
 
$
(7,899
)
 
$
61,315

 
$
(53,416
)
 
$
(5,675
)
 
 
 
 
 
 
 
 
 
 
Comprehensive (loss) income
$
(6,683
)
 
$
(7,827
)
 
$
60,235

 
$
(52,408
)
 
$
(6,683
)


22

Table of Contents

QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

 
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
 
Three Months Ended June 27, 2015
(in thousands)
Parent Company
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Revenue
$

 
$
725,762

 
$
566,828

 
$
(618,949
)
 
673,641

Cost of goods sold

 
547,523

 
463,940

 
(617,339
)
 
394,124

Gross profit

 
178,239

 
102,888

 
(1,610
)
 
279,517

Operating expenses:
 
 
 
 
 
 
 
 

Research and development
21,473

 
43,670

 
60,011

 
(7,944
)
 
117,210

Marketing and selling
20,087

 
33,508

 
62,859

 
(6,809
)
 
109,645

General and administrative
6,610

 
22,556

 
9,179

 
(2,262
)
 
36,083

Other operating expense

 
15,428

 
2,486

 

 
17,914

Total operating expenses
48,170

 
115,162

 
134,535

 
(17,015
)
 
280,852

(Loss) income from operations
(48,170
)
 
63,077

 
(31,647
)
 
15,405

 
(1,335
)
Interest expense

 
(886
)
 
(559
)
 
897

 
(548
)
Interest income

 
522

 
607

 
(737
)
 
392

Other income (expense)

 
4,517

 
(239
)
 
(159
)
 
4,119

Income (loss) before income taxes
(48,170
)
 
67,230

 
(31,838
)
 
15,406

 
2,628

Income tax (expense) benefit
16,083

 
(11,888
)
 
(4,787
)
 

 
(592
)
Income in subsidiaries
34,123

 

 

 
(34,123
)
 

Net income (loss)
$
2,036

 
$
55,342

 
$
(36,625
)
 
$
(18,717
)
 
$
2,036

 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss)
$
1,077

 
$
53,889

 
$
(36,467
)
 
$
(17,422
)
 
$
1,077




23

Table of Contents

QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

 
Condensed Consolidating Statement of Cash Flows
 
Three Months Ended July 2, 2016
(in thousands)
Parent Company
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net cash provided by (used in) operating activities
$
(23,150
)
 
$
(137,694
)
 
$
220,233

 
$

 
$
59,389

Investing activities:
 
 
 
 
 
 
 
 
 
Purchase of property and equipment

 
(106,301
)
 
(24,139
)
 

 
(130,440
)
Purchase of a business

 

 
(117,498
)
 

 
(117,498
)
Proceeds from sale of property and equipment

 
17

 

 

 
17

Proceeds from maturities of available-for-sale securities

 
172,920

 

 

 
172,920

Net cash (used in) provided by investing activities

 
66,636

 
(141,637
)
 

 
(75,001
)
Financing activities:
 
 
 
 
 
 
 
 

Debt issuance costs
(2
)
 

 

 

 
(2
)
Proceeds from the issuance of common stock
25,962

 

 

 

 
25,962

Tax withholding paid on behalf of employees for restricted stock units
(2,810
)
 

 

 

 
(2,810
)
Restricted cash associated with financing activities

 
4

 

 

 
4

Net transactions with related parties

 
552

 
(552