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Qorvo, Inc. (Form: 10-Q, Received: 02/02/2017 17:05:48)
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 December 31, 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
QORVOFORM8KIMAGEFINALA02.JPG
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 January 25, 2017 , there were 126,452,577 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)
 
 
December 31, 2016
 
April 2, 2016
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents (Note 7)
$
495,811

 
$
425,881

Short-term investments (Note 7)

 
186,808

Accounts receivable, less allowance of $85 and $143 as of December 31, 2016 and April 2, 2016, respectively
421,100

 
316,356

Inventories (Note 3)
404,617

 
427,551

Prepaid expenses
38,106

 
63,850

Other receivables
82,266

 
47,380

Other current assets
46,017

 
41,384

Total current assets
1,487,917

 
1,509,210

Property and equipment, net of accumulated depreciation of $871,441 at December 31, 2016 and $751,898 at April 2, 2016
1,335,767

 
1,046,888

Goodwill (Note 4)
2,173,914

 
2,135,697

Intangible assets, net (Note 4)
1,534,098

 
1,812,515

Long-term investments (Note 7)
34,733

 
26,050

Other non-current assets
58,482

 
66,459

Total assets
$
6,624,911

 
$
6,596,819

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
287,953

 
$
205,364

Accrued liabilities
136,999

 
137,889

Other current liabilities (Note 6)
123,644

 
30,548

Total current liabilities
548,596

 
373,801

Long-term debt (Note 5)
988,886

 
988,130

Deferred tax liabilities (Note 6)
139,253

 
152,160

Other long-term liabilities
85,060

 
83,056

Total liabilities
1,761,795

 
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; 126,331 and 127,386 shares issued and outstanding at December 31, 2016 and April 2, 2016, respectively
5,378,944

 
5,442,613

Accumulated other comprehensive loss, net of tax
(3,554
)
 
(3,133
)
Accumulated deficit
(512,274
)
 
(439,808
)
Total stockholders’ equity
4,863,116

 
4,999,672

Total liabilities and stockholders’ equity
$
6,624,911

 
$
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
 
Nine Months Ended
 
December 31, 2016
 
January 2, 2016
 
December 31, 2016
 
January 2, 2016
Revenue
$
826,347

 
$
620,681

 
$
2,389,582

 
$
2,002,657

Cost of goods sold
515,705

 
389,693

 
1,485,666

 
1,207,304

Gross profit
310,642

 
230,988

 
903,916

 
795,353

Operating expenses:
 
 
 
 
 
 
 
Research and development
111,951

 
105,992

 
355,166

 
341,495

Selling, general and administrative
130,672

 
126,294

 
412,850

 
407,016

Other operating expense
6,638

 
11,915

 
23,385

 
43,351

Total operating expenses
249,261

 
244,201

 
791,401

 
791,862

Income (loss) from operations
61,381

 
(13,213
)
 
112,515

 
3,491

Interest expense (Note 5)
(14,464
)
 
(7,668
)
 
(45,205
)
 
(8,876
)
Interest income
233

 
519

 
703

 
1,383

Other (expense) income
(2,609
)
 
(639
)
 
(3,420
)
 
3,861

 
 
 
 
 
 
 
 
Income (loss) before income taxes
44,541

 
(21,001
)
 
64,593

 
(141
)
 
 
 
 
 
 
 
 
Income tax (expense) benefit (Note 6)
(123,179
)
 
9,874

 
(137,059
)
 
(4,502
)
Net loss
$
(78,638
)
 
$
(11,127
)
 
$
(72,466
)
 
$
(4,643
)
 
 
 
 
 
 
 
 
Net loss per share (Note 2):
 
 
 
 
 
 
 
Basic
$
(0.62
)
 
$
(0.08
)
 
$
(0.57
)
 
$
(0.03
)
Diluted
$
(0.62
)
 
$
(0.08
)
 
$
(0.57
)
 
$
(0.03
)
 
 
 
 
 
 
 
 
Weighted average shares of common stock outstanding (Note 2):
 
 
 
 
 
 
 
Basic
126,852

 
139,343

 
127,313

 
144,936

Diluted
126,852

 
139,343

 
127,313

 
144,936


See accompanying Notes to Condensed Consolidated Financial Statements.


4


QORVO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
December 31, 2016
 
January 2, 2016
 
December 31, 2016
 
January 2, 2016
Net loss
$
(78,638
)
 
$
(11,127
)
 
$
(72,466
)
 
$
(4,643
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized (loss) gain on marketable securities, net of tax
(28
)
 
(5
)
 
45

 
702

Foreign currency translation adjustment, including intra-entity foreign currency transactions that are of a long-term-investment nature
162

 
(84
)
 
(596
)
 
(59
)
Reclassification adjustments, net of tax:
 
 
 
 
 
 
 
Realized gain on marketable securities

 
(17
)
 

 
(1,975
)
Amortization of pension actuarial loss
42

 
34

 
130

 
103

Other comprehensive income (loss)
176

 
(72
)
 
(421
)
 
(1,229
)
Total comprehensive loss
$
(78,462
)
 
$
(11,199
)
 
$
(72,887
)
 
$
(5,872
)
See accompanying Notes to Condensed Consolidated Financial Statements.



5


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

 
Nine Months Ended
 
December 31, 2016
 
January 2, 2016
Cash flows from operating activities:
 
 
 
Net loss
$
(72,466
)
 
$
(4,643
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation
153,286

 
137,329

Amortization and other non-cash items
365,932

 
379,587

Excess tax benefit from exercises of stock options
(12
)
 
(339
)
Deferred income taxes
(19,382
)
 
(19,053
)
Foreign currency adjustments
3,267

 
586

Loss (gain) on investments and other assets, net
444

 
(3,625
)
Stock-based compensation expense
73,291

 
114,208

Changes in operating assets and liabilities:
 
 
 
Accounts receivable, net
(100,374
)
 
56,867

Inventories
19,151

 
(64,997
)
Prepaid expenses and other current and non-current assets
(2,145
)
 
(8,628
)
Accounts payable and accrued liabilities
16,742

 
(37,679
)
Income tax payable / (recoverable)
86,873

 
(5,435
)
Other liabilities
5,142

 
(15,945
)
Net cash provided by operating activities
529,749

 
528,233

Investing activities:
 
 
 
Purchase of property and equipment
(386,955
)
 
(231,154
)
Purchase of a business, net of cash acquired (Note 4)
(118,133
)
 

Purchase of available-for-sale securities
(469
)
 
(343,466
)
Proceeds from maturities and sales of available-for-sale securities
186,793

 
391,522

Other investing activities
(4,621
)
 
668

Net cash used in investing activities
(323,385
)
 
(182,430
)
Financing activities:
 
 
 
Proceeds from debt issuances

 
1,125,000

Payment of debt

 
(125,000
)
Debt issuance costs

 
(12,890
)
Excess tax benefit from exercises of stock options
12

 
339

Proceeds from the issuance of common stock
38,417

 
40,474

Repurchase of common stock, including transaction costs
(158,491
)
 
(800,009
)
Tax withholding paid on behalf of employees for restricted stock units
(15,034
)
 
(21,303
)
Other financing activities
20

 
87

Net cash (used in) provided by financing activities
(135,076
)
 
206,698

 
 
 
 
Effect of exchange rate changes on cash
(1,358
)
 
(718
)
Net increase in cash and cash equivalents
69,930

 
551,783

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

 
299,814

Cash and cash equivalents at the end of the period
$
495,811

 
$
851,597

Non-cash investing information:
 
 
 
Capital expenditure adjustments included in Accounts payable and accrued liabilities
$
59,491

 
$
32,683

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 the three and nine months ended December 31, 2016 included 13 and 39 weeks, respectively. Comparatively, fiscal 2016 was a 53-week year and the three and nine months ended January 2, 2016 included 13 and 40 weeks, respectively.

2. NET LOSS PER SHARE

The following table sets forth the computation of basic and diluted net loss per share (in thousands, except per share data):
 
Three Months Ended
 
Nine Months Ended
 
December 31, 2016
 
January 2, 2016
 
December 31, 2016
 
January 2, 2016
Numerator:
 
 
 
 
 
 
 
Numerator for basic and diluted net loss per share — net loss available to common stockholders
$
(78,638
)
 
$
(11,127
)
 
$
(72,466
)
 
$
(4,643
)
Denominator:
 
 
 
 
 
 
 
Denominator for basic net loss per share — weighted average shares
126,852

 
139,343

 
127,313

 
144,936

Effect of dilutive securities:
 
 
 
 
 
 
 
Stock-based awards

 

 

 

Denominator for diluted net loss per share — adjusted weighted average shares and assumed conversions
126,852

 
139,343

 
127,313

 
144,936

Basic net loss per share
$
(0.62
)
 
$
(0.08
)
 
$
(0.57
)
 
$
(0.03
)
Diluted net loss per share
$
(0.62
)
 
$
(0.08
)
 
$
(0.57
)
 
$
(0.03
)

In the computation of diluted net loss per share for the three and nine months ended December 31, 2016 and January 2, 2016 , all outstanding options were excluded because 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):
 
 
December 31, 2016
 
April 2, 2016
Raw materials
$
95,399

 
$
89,928

Work in process
180,735

 
228,626

Finished goods
128,483

 
108,997

Total inventories
$
404,617

 
$
427,551


4. GOODWILL AND INTANGIBLE ASSETS
The change in the carrying amount of goodwill for the nine months ended December 31, 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

Acquisition

 
38,217

 
38,217

Balance at December 31, 2016
$
1,751,503

 
$
422,411

 
$
2,173,914


On April 29, 2016, the Company completed the acquisition of GreenPeak Technologies, B.V. ("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 offerings to include integrated RF solutions and systems-on-a-chip ("SoCs") for the connected home and the Internet of Things ("IoT"). The acquisition resulted in initial goodwill of $39.2 million and an increase in intangible assets of $82.1 million . A Business Combination adjustment reduced goodwill by $1.0 million . The more significant intangible assets acquired were developed technology of $74.2 million (which is being amortized over 7 years) and customer relationships of $5.6 million (which is being amortized over 3 years).

The following summarizes information regarding the gross carrying amounts and accumulated amortization of intangible assets (in thousands):
 
December 31, 2016
 
April 2, 2016
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Gross
Carrying
Amount
 
Accumulated
Amortization
Intangible Assets:
 
 
 
 
 
 
 
Customer relationships
$
1,272,725

 
$
586,816

 
$
1,267,103

 
$
377,357

Developed technology
1,209,335

 
420,554

 
915,163

 
277,736

Backlog
65,000

 
65,000

 
65,000

 
65,000

Trade names
29,353

 
19,451

 
29,000

 
12,083

Wafer supply agreement
20,443

 
20,443

 
20,443

 
20,443

Technology licenses
13,346

 
11,524

 
12,446

 
11,021

Non-compete agreement
1,026

 
342

 

 

In-process research and development
47,000

 
N/A

 
267,000

 
N/A

Total
$
2,658,228

 
$
1,124,130

 
$
2,576,155

 
$
763,640


8

Table of Contents

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

During the third quarter of fiscal 2017, $220.0 million of in-process research and development assets were completed, transferred to finite-lived intangible assets and are being amortized over their useful lives of 4 years .

Total intangible assets amortization expense was $122.0 million and $361.2 million for the three and nine months ended December 31, 2016 , respectively, and $128.5 million and $379.8 million for the three and nine months ended January 2, 2016 , respectively.

Based on identified intangible assets as of December 31, 2016 , we expect amortization expense for each period to be as follows (in thousands):
Fiscal Year
Estimated
Amortization
Expense
2017
$
494,032

2018
542,621

2019
455,451

2020
206,986

2021
155,525


5. DEBT

Debt as of December 31, 2016 and April 2, 2016 is as follows (in thousands):
 
December 31, 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
(11,114
)
 
(11,870
)
Total long-term debt
$
988,886

 
$
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 was $11.1 million as of December 31, 2016 and $11.9 million as of April 2, 2016 , and is presented on the Condensed Consolidated Balance Sheets 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 used 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. For the three and nine months ended December 31, 2016 , the Company recognized $17.4 million and $52.2 million , respectively, of interest expense related to the Notes, which was offset by $3.6 million and $9.0 million , respectively, of interest capitalized to property and equipment. For the three and nine months ended January 2, 2016 , the Company recognized $8.3 million of interest expense related to the Notes, which was offset by $1.6 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 and nine months ended December 31, 2016 was $34.5 million and $71.2 million , respectively.


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 payment default, failure to provide certain notices and certain provisions related to bankruptcy events. The Indenture also contains customary negative covenants.

In connection with the offering of the Notes, the Company agreed to provide the holders of the Notes with an opportunity to exchange the Notes for registered notes having terms substantially identical to the Notes. On September 19, 2016, the Company completed an exchange offer, in which all of the 2023 Notes and substantially all of the 2025 Notes were exchanged for new notes that have been registered under the Securities Act.

The 2023 Notes and the 2025 Notes are traded over the counter and their fair values as of December 31, 2016 , of $495.6 million and $609.5 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 nine months ended December 31, 2016 , there were no borrowings under the revolving credit facility. The Company had no outstanding amounts under the Credit Agreement as of December 31, 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.

10

Table of Contents

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


The Credit Agreement contains various conditions, covenants and representations with which the Company must be in compliance in order to borrow funds and to avoid an event of default, 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 and nine months ended December 31, 2016 and January 2, 2016 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 and nine months ended December 31, 2016 and January 2, 2016 .

The Company’s income tax expense was $123.2 million and $137.1 million for the three and nine months ended December 31, 2016 , respectively, and the Company's income tax (benefit) expense was $(9.9) million and $4.5 million for the three and nine months ended January 2, 2016 , respectively. The Company’s effective tax rate was 276.6% and 212.2% for the three and nine months ended December 31, 2016 , respectively, and 47.0% and (3,183.0)% for the three and nine months ended January 2, 2016 , respectively. The Company's effective tax rate for both the third quarter of fiscal 2017 and the third 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, changes in unrecognized tax benefits, and the timing of when income and loss is recognized in the various tax jurisdictions.

Income taxes payable of $122.8 million and $29.9 million as of December 31, 2016 and April 2, 2016 , respectively, are included in "Other current liabilities" on the Company's Condensed Consolidated Balance Sheets.

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 2036 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 $86.0 million as of the end of the third quarter of fiscal 2017 , due to a $16.9 million increase primarily related to tax positions taken with respect to the current fiscal year.


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

7. INVESTMENTS AND FAIR VALUE MEASUREMENTS

Investments
The following is a summary of cash equivalents and available-for-sale securities as of December 31, 2016 and April 2, 2016 (in thousands):  
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated Fair  
Value
December 31, 2016
 
 
 
 
 
 
 
Auction rate securities
$
2,150

 
$

 
$
(442
)
 
$
1,708

Money market funds
96,934

 

 

 
96,934

 
$
99,084

 
$

 
$
(442
)
 
$
98,642

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 December 31, 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 insignificant gross realized losses recognized on available-for-sale securities for the three and nine months ended December 31, 2016 . The gross realized gains and losses realized on available-for-sale securities for the three months ended January 2, 2016 were insignificant. There were $4.0 million of gross realized gains and insignificant gross realized losses recognized on available-for-sale securities for the nine months ended January 2, 2016 .

There were no unrealized losses on available-for-sale securities in a continuous loss position for fewer than 12 months as of December 31, 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 December 31, 2016 and April 2, 2016 .

The aggregate amount of available-for-sale securities in an unrealized loss position at December 31, 2016 was $1.7 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.

The expected maturity distribution of cash equivalents and available-for-sale debt securities is as follows (in thousands):
 
December 31, 2016
 
April 2, 2016
 
Cost
 
Estimated
Fair Value
 
Cost
 
Estimated
Fair Value
Due in less than one year
$
96,934

 
$
96,934

 
$
342,163

 
$
342,181

Due after ten years
2,150

 
1,708

 
2,150

 
1,800

Total investments in debt securities
$
99,084

 
$
98,642

 
$
344,313

 
$
343,981


During the first quarter of fiscal 2017, 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 is accounted for as a cost method investment and classified in "Long-term investments" on the Company's Condensed Consolidated Balance Sheets.


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

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 Sheets. The related unrealized gains and losses are included in "Accumulated other comprehensive loss," a component of stockholders’ equity, net of tax.

Recurring Fair Value Measurements
The fair value of the financial assets measured at fair value on a recurring basis was determined using the following levels of inputs as of December 31, 2016 and April 2, 2016 (in thousands):
 
 
 
 
 
Total
 
Quoted Prices In
Active Markets For
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
December 31, 2016
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Available-for-sale securities
 
 
 
 
 
 
 
 
 
Auction rate securities (1)
$
1,708

 
$

 
$
1,708

 
 
 
 
Money market funds
96,934

 
96,934

 

 
 
 
Total available-for-sale securities
98,642

 
96,934

 
1,708

 
 
 
Invested funds in deferred compensation plan (3)
9,499

 
9,499

 

 
 
 
 
Total assets measured at fair value
$
108,141

 
$
106,433

 
$
1,708

 
Liabilities:
 
 
 
 
 
 
 
 
Deferred compensation plan obligation (3)
9,499

 
9,499

 

 
 
 
 
Total liabilities measured at fair value
$
9,499

 
$
9,499

 
$

 
 
 
 
 
 
 
 
 
 
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.
 

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

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.

8. STOCK REPURCHASES

On November 3, 2016, the Company announced that its Board of Directors authorized a new share repurchase program to repurchase up to $500.0 million of the Company's outstanding stock. Under this program, share repurchases will be made in accordance with applicable securities laws on the open market or in privately negotiated transactions. The extent to which 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 does not have a fixed term, and may be modified, suspended or terminated at any time without prior notice. During the three and nine months ended December 31, 2016 , the Company repurchased approximately 1.3 million shares and 2.9 million shares of its common stock for approximately $67.1 million and $158.5 million , respectively. As of December 31, 2016, $432.9 million remains available for repurchases under our current share repurchase program.

During the three and nine months ended January 2, 2016 , the Company repurchased approximately 4.6 million shares and 14.3 million shares for approximately $250.0 million and $800.0 million , respectively, under prior share repurchase programs.

9. RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Pronouncements Not Yet Effective

In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)." The new guidance requires the inclusion of restricted cash along with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The new standard will become effective for the Company beginning in the first quarter of fiscal year 2019 with early adoption permitted. The Company does not believe it will have a significant impact on its consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory ," which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The new standard will become effective for the Company in the first quarter of fiscal year 2019 with early adoption permitted. The Company is currently evaluating the effects this new guidance will have on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the FASB’s Emerging Issues Task Force)." The new guidance addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The new standard will become effective for the Company beginning in the first quarter of fiscal year 2019 with early adoption permitted. The Company is currently evaluating the effects the new guidance will have on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." The new guidance requires entities to use a current lifetime expected credit loss methodology to measure impairments of certain 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 with early adoption permitted. The Company does not believe it will have a significant impact 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

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

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.

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 with early adoption permitted. 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 Measurement 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 does not believe it will have a significant impact 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, first-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, it 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. In December 2016, additional guidance was issued for technical corrections and improvements to Topic 606 and other Topics amended by Update 2014-09. 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 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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

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 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 December 31, 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, including the connected car.

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 offerings to include integrated RF solutions and SoCs for the connected home and the 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) settlement, 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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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
 
Nine Months Ended
 
December 31,
2016
 
January 2,
2016
 
December 31,
2016
 
January 2,
2016
Revenue:
 
 
 
 
 
 
 
MP
$
656,788

 
$
489,397

 
$
1,910,003

 
$
1,618,444

IDP
168,589

 
130,314

 
476,669

 
381,303

All other (1)
970

 
970

 
2,910

 
2,910

Total revenue
$
826,347

 
$
620,681

 
$
2,389,582

 
$
2,002,657

Income (loss) from operations:
 
 
 
 
 
 
 
MP
$
163,401

 
$
126,019

 
$
460,775

 
$
471,736

IDP
45,278

 
30,896

 
112,345

 
67,818

All other
(147,298
)
 
(170,128
)
 
(460,605
)
 
(536,063
)
Income (loss) from operations
61,381

 
(13,213
)
 
112,515

 
3,491

Interest expense
(14,464
)
 
(7,668
)
 
(45,205
)
 
(8,876
)
Interest income
233

 
519

 
703

 
1,383

Other (expense) income
(2,609
)
 
(639
)
 
(3,420
)
 
3,861

Income (loss) before income taxes
$
44,541

 
$
(21,001
)
 
$
64,593

 
$
(141
)
 
(1) "All other" revenue relates to royalty income that is not allocated to MP or IDP.
 
Three Months Ended
 
Nine Months Ended
 
December 31,
2016
 
January 2,
2016
 
December 31,
2016
 
January 2,
2016
Reconciliation of “All other” category:
 
 
 
 
 
 
 
Stock-based compensation expense
$
(16,655
)
 
$
(30,308
)
 
$
(73,291
)
 
$
(114,208
)
Amortization of intangible assets
(121,969
)
 
(128,542
)
 
(360,960
)
 
(379,772
)
Acquisition and integration related costs
(5,426
)
 
(4,955
)
 
(21,148
)
 
(20,958
)
Acquired inventory step-up and revaluation

 

 
(1,517
)
 

Restructuring and disposal costs
(437
)
 
(301
)
 
(1,319
)
 
(4,131
)
IPR litigation (costs) settlement
(607
)
 
(337
)
 
4,337

 
(677
)
Start-up costs
(2,207
)
 
(3,835
)
 
(6,295
)
 
(11,041
)
Other expenses (including gain (loss) on assets and other miscellaneous corporate overhead)
3

 
(1,850
)
 
(412
)
 
(5,276
)
Loss from operations for “All other”
$
(147,298
)
 
$
(170,128
)
 
$
(460,605
)
 
$
(536,063
)


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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 a direct or indirect wholly owned subsidiary of the 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 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 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 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 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
 
December 31, 2016
(in thousands)
Parent Company
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
209,656

 
$
286,155

 
$

 
$
495,811

Accounts receivable, less allowance

 
52,724

 
368,376

 

 
421,100

Intercompany accounts and notes receivable

 
416,247

 
19,416

 
(435,663
)
 

Inventories

 
92,911

 
381,726

 
(70,020
)
 
404,617

Prepaid expenses

 
30,843

 
7,263

 

 
38,106

Other receivables

 
7,223

 
75,043

 

 
82,266

Other current assets

 
45,539

 
478

 

 
46,017

Total current assets

 
855,143

 
1,138,457

 
(505,683
)
 
1,487,917

Property and equipment, net

 
1,018,563

 
317,204

 

 
1,335,767

Goodwill

 
1,953,102

 
220,812

 

 
2,173,914

Intangible assets, net

 
650,052

 
884,046

 

 
1,534,098

Long-term investments

 
25,958

 
8,775

 

 
34,733

Long-term intercompany accounts and notes receivable

 
555,909

 
132,572

 
(688,481
)
 

Investment in subsidiaries
6,149,591

 
1,664,718

 

 
(7,814,309
)
 

Other non-current assets
888

 
34,172

 
23,422

 

 
58,482

Total assets
$
6,150,479

 
$
6,757,617

 
$
2,725,288

 
$
(9,008,473
)
 
$
6,624,911

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 

Current liabilities:
 
 
 
 
 
 
 
 

Accounts payable
$

 
$
129,372

 
$
158,055

 
$
526

 
$
287,953

Intercompany accounts and notes payable

 
19,416

 
416,247

 
(435,663
)
 

Accrued liabilities
5,931

 
89,705

 
41,363

 

 
136,999

Other current liabilities

 
1,271

 
122,373

 

 
123,644

Total current liabilities
5,931

 
239,764

 
738,038

 
(435,137
)
 
548,596

Long-term debt
988,886

 

 

 

 
988,886

Deferred tax liabilities
(120,164
)
 
218,067

 
41,350

 

 
139,253

Long-term intercompany accounts and notes payable
412,710

 
132,572

 
143,199

 
(688,481
)
 

Other long-term liabilities

 
35,393

 
49,667

 

 
85,060

Total liabilities
1,287,363

 
625,796

 
972,254

 
(1,123,618
)
 
1,761,795

Total stockholders’ equity
4,863,116

 
6,131,821

 
1,753,034

 
(7,884,855
)
 
4,863,116

Total liabilities and stockholders’ equity
$
6,150,479

 
$
6,757,617

 
$
2,725,288

 
$
(9,008,473
)
 
$
6,624,911



19

Table of Contents

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



20

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 December 31, 2016
(in thousands)
Parent Company
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Revenue
$

 
$
280,380

 
$
803,114

 
$
(257,147
)
 
$
826,347

Cost of goods sold

 
227,543

 
800,529

 
(512,367
)
 
515,705

Gross profit

 
52,837

 
2,585

 
255,220

 
310,642

Operating expenses:
 
 
 
 
 
 
 
 

Research and development
9,115

 
1,972

 
106,749

 
(5,885
)
 
111,951

Selling, general and administrative
7,540

 
43,652

 
91,052

 
(11,572
)
 
130,672

Other operating expense

 
6,087

 
551

 

 
6,638

Total operating expenses
16,655

 
51,711

 
198,352

 
(17,457
)
 
249,261

Income (loss) from operations
(16,655
)
 
1,126

 
(195,767
)
 
272,677

 
61,381

Interest expense
(14,090
)
 
(594
)
 
(1,751
)
 
1,971

 
(14,464
)
Interest income

 
914

 
1,290

 
(1,971
)
 
233

Other (expense) income

 
530

 
(1,313
)
 
(1,826
)
 
(2,609
)
Income (loss) before income taxes
(30,745
)
 
1,976

 
(197,541
)
 
270,851

 
44,541

Income tax (expense) benefit
6,948

 
(5,949
)
 
(124,178
)
 

 
(123,179
)
Income in subsidiaries
(54,841
)
 

 

 
54,841

 

Net income (loss)
$
(78,638
)
 
$
(3,973
)
 
$
(321,719
)
 
$
325,692

 
$
(78,638
)
 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss)
$
(78,462
)
 
$
(4,001
)
 
$
(321,515
)
 
$
325,516

 
$
(78,462
)
 
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
 
Three Months Ended January 2, 2016
(in thousands)
Parent Company
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Revenue
$

 
$
361,796

 
$
780,824

 
$
(521,939
)
 
$
620,681

Cost of goods sold

 
343,516

 
567,436

 
(521,259
)
 
389,693

Gross profit

 
18,280

 
213,388

 
(680
)
 
230,988

Operating expenses:
 
 
 
 
 
 
 
 
 
Research and development
13,827

 
5,468

 
93,386

 
(6,689
)
 
105,992

Selling, general and administrative
16,481

 
27,815

 
90,819

 
(8,821
)
 
126,294

Other operating expense

 
11,762

 
(107
)
 
260

 
11,915

Total operating expenses
30,308

 
45,045

 
184,098

 
(15,250
)
 
244,201

Income (loss) from operations
(30,308
)
 
(26,765
)
 
29,290

 
14,570

 
(13,213
)
Interest expense
(7,276
)
 
(618
)
 
(894
)
 
1,120

 
(7,668
)
Interest income

 
688