Document
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 June 30, 2018
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
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12385878&doc=13
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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ 
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company ¨
Emerging growth company ¨
 
 
(Do not check if a smaller reporting company)
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ


Table of Contents

As of July 26, 2018, there were 125,643,281 shares of the registrant’s common stock outstanding.
 
 
 
 
 


Table of Contents

QORVO, INC. AND SUBSIDIARIES
INDEX
 
 
Page    
 
 
 
 
 
 
 
 
 
 
 
 

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PART I — FINANCIAL INFORMATION
ITEM 1.
QORVO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
 
 
June 30, 2018
 
March 31, 2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
334,039

 
$
926,037

Short-term investments (Note 5)
58,010

 

Accounts receivable, less allowance of $148 and $134 as of June 30, 2018 and March 31, 2018, respectively
360,857

 
345,957

Inventories (Note 3)
501,578

 
472,292

Prepaid expenses
24,873

 
23,909

Other receivables
53,799

 
44,795

Other current assets
34,550

 
30,815

Total current assets
1,367,706

 
1,843,805

Property and equipment, net of accumulated depreciation of $950,018 at June 30, 2018 and $911,910 at March 31, 2018
1,368,588

 
1,374,112

Goodwill
2,173,889

 
2,173,889

Intangible assets, net of accumulated amortization of $1,844,821 at June 30, 2018 and $1,711,520 at March 31, 2018 (Note 4)
729,238

 
860,336

Long-term investments (Note 5)
79,515

 
63,765

Other non-current assets
63,396

 
65,612

Total assets
$
5,782,332

 
$
6,381,519

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
219,143

 
$
213,193

Accrued liabilities
133,605

 
167,182

Other current liabilities
50,616

 
60,904

Total current liabilities
403,364

 
441,279

Long-term debt (Notes 6 & 13)
558,280

 
983,290

Deferred tax liabilities (Note 10)
37,155

 
63,084

Other long-term liabilities
105,428

 
118,302

Total liabilities
1,104,227

 
1,605,955

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; 125,598 and 126,322 shares issued and outstanding at June 30, 2018 and March 31, 2018, respectively
5,167,311

 
5,237,085

Accumulated other comprehensive loss, net of tax
(4,936
)
 
(2,752
)
Accumulated deficit
(484,270
)
 
(458,769
)
Total stockholders’ equity
4,678,105

 
4,775,564

Total liabilities and stockholders’ equity
$
5,782,332

 
$
6,381,519

See accompanying Notes to Condensed Consolidated Financial Statements.

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 QORVO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 
 
Three Months Ended
 
 
June 30, 2018
 
July 1, 2017
Revenue
 
$
692,670

 
$
640,831

Cost of goods sold
 
455,937

 
404,454

Gross profit
 
236,733

 
236,377

Operating expenses:
 
 
 
 
Research and development
 
110,903

 
116,499

Selling, general and administrative
 
135,930

 
139,431

Other operating expense
 
9,115

 
8,276

Total operating expenses
 
255,948

 
264,206

Loss from operations
 
(19,215
)
 
(27,829
)
Interest expense (Note 6)
 
(14,353
)
 
(12,271
)
Interest income
 
3,394

 
766

Other expense (Note 6)
 
(31,955
)
 
(934
)
 
 
 
 
 
Loss before income taxes
 
(62,129
)
 
(40,268
)
 
 
 
 
 
Income tax benefit (Note 10)
 
32,136

 
9,644

Net loss
 
$
(29,993
)
 
$
(30,624
)
 
 
 
 
 
Net loss per share (Note 11):
 
 
 
 
Basic
 
$
(0.24
)
 
$
(0.24
)
Diluted
 
$
(0.24
)
 
$
(0.24
)
 
 
 
 
 
Weighted average shares of common stock outstanding (Note 11):
 
 
 
 
Basic
 
126,198

 
126,961

Diluted
 
126,198

 
126,961


See accompanying Notes to Condensed Consolidated Financial Statements.


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QORVO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
 
 
Three Months Ended
 
 
June 30, 2018
 
July 1, 2017
Net loss
 
$
(29,993
)
 
$
(30,624
)
Other comprehensive (loss) income:
 
 
 
 
Unrealized gain on marketable securities, net of tax
 
5

 
61

Foreign currency translation adjustment, including intra-entity foreign currency transactions that are of a long-term investment nature
 
(2,213
)
 
616

Reclassification adjustments, net of tax:
 
 
 
 
Amortization of pension actuarial loss
 
24

 
42

Other comprehensive (loss) income
 
(2,184
)
 
719

Total comprehensive loss
 
$
(32,177
)
 
$
(29,905
)
See accompanying Notes to Condensed Consolidated Financial Statements.



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

 
Three Months Ended

June 30, 2018
 
July 1, 2017
Cash flows from operating activities:
 
 
 
Net loss
$
(29,993
)
 
$
(30,624
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation
43,451

 
42,827

Amortization and other non-cash items (Notes 4 & 6)
166,174

 
134,390

Deferred income taxes
(26,684
)
 
(4,728
)
Foreign currency adjustments
(2,646
)
 
2,477

Loss (gain) on investments and other assets, net
370

 
(763
)
Stock-based compensation expense
19,345

 
21,126

Changes in operating assets and liabilities:
 
 
 
Accounts receivable, net
(14,849
)
 
(15,901
)
Inventories
(29,587
)
 
(40,036
)
Prepaid expenses and other current and non-current assets
(11,503
)
 
16,748

Accounts payable and accrued liabilities
(20,625
)
 
(7,363
)
Income tax (recoverable) / payable
(16,571
)
 
(16,028
)
Other liabilities
(1,623
)
 
1,511

Net cash provided by operating activities
75,259

 
103,636

Investing activities:
 
 
 
Purchase of property and equipment
(43,564
)
 
(124,428
)
Purchase of debt securities and other investments
(132,729
)
 

Proceeds from maturities of other investments
75,000

 

Other investing activities
(8,667
)
 
7,036

Net cash used in investing activities
(109,960
)
 
(117,392
)
Financing activities:
 
 
 
Payment of debt (Note 6)
(458,172
)
 

Repurchase of common stock, including transaction costs (Note 7)
(100,004
)
 
(31,925
)
Proceeds from the issuance of common stock
9,889

 
20,526

Tax withholding paid on behalf of employees for restricted stock units
(6,802
)
 
(8,404
)
Other financing activities
(214
)
 

Net cash used in financing activities
(555,303
)
 
(19,803
)
 
 
 
 
Effect of exchange rate changes on cash
(2,014
)
 
750

Net decrease in cash, cash equivalents and restricted cash
(592,018
)
 
(32,809
)
Cash, cash equivalents and restricted cash at the beginning of the period
926,402

 
545,779

Cash, cash equivalents and restricted cash at the end of the period
$
334,384

 
$
512,970

Non-cash investing information:
 
 
 
Capital expenditure adjustments included in accounts payable and accrued liabilities
$
35,394

 
$
47,206


See accompanying Notes to Condensed Consolidated Financial Statements.

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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 ("U.S. GAAP"). The preparation of these financial statements requires management to make estimates and assumptions, which could differ materially from actual results. In addition, certain information or footnote disclosures normally included in financial statements prepared in accordance with U.S GAAP have been condensed, or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, the financial statements include all adjustments (which are of a normal and recurring nature) necessary for the fair presentation of the results of the interim periods presented. These Condensed Consolidated Financial Statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in Qorvo’s Annual Report on Form 10-K for the fiscal year ended March 31, 2018.

The Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain items in the fiscal 2018 financial statements have been reclassified to conform with the fiscal 2019 presentation.

The Company uses a 52- or 53-week fiscal year ending on the Saturday closest to March 31 of each year. The first fiscal quarter of each year ends on the Saturday closest to June 30, the second fiscal quarter of each year ends on the Saturday closest to September 30 and the third fiscal quarter of each year ends on the Saturday closest to December 31. Fiscal years 2019 and 2018 are 52-week years.

2. RECENT ACCOUNTING PRONOUNCEMENTS

The Company assesses recently issued accounting standards by the Financial Accounting Standards Board ("FASB") to determine the expected impacts on the Company's financial statements. The summary below describes impacts from newly issued standards as well as material updates to our previous assessments, if any, from Qorvo’s Annual Report on Form 10-K for the fiscal year ended March 31, 2018.

In January 2017, the FASB issued Accounting Standards Update ("ASU") 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business." The new guidance clarifies the definition of a business and provides further guidance for evaluating whether a transaction will be accounted for as an acquisition of an asset or a business. The new standard became effective for the Company in the first quarter of fiscal 2019. There was no impact to the Company's Condensed Consolidated Financial Statements.

In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the FASB’s Emerging Issues Task Force)." The new guidance addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The new standard became effective for the Company in the first quarter of fiscal 2019. There was no impact to the Company's Condensed 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." The new guidance 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 was adopted by the Company in the first quarter of fiscal 2019. There was no financial impact to the Company's Condensed Consolidated Financial Statements.

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)." The new guidance requires lessees to recognize a right-of-use asset and a lease liability for all leases with a term longer than 12 months, including those previously described as operating leases. Consistent with current U.S. GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will primarily depend on its classification as a finance or operating lease. The new guidance will become effective for the Company in the first quarter of fiscal 2020. The Company expects the valuation of the

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


right-of-use assets and lease liabilities, for leases previously described as operating leases, to be the present value of its forecasted future lease commitments. The Company is continuing to assess the overall impacts of the new standard, including the discount rate to be applied in these valuations.

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," with several amendments subsequently issued.  The new guidance provides an updated framework for revenue recognition, resulting in a single revenue model to be applied by reporting companies under U.S. GAAP.  Under the new model, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  The Company adopted the standard in the first quarter of fiscal 2019 using the modified retrospective approach, under which the cumulative effect of adoption is recognized at the date of initial application. This standard did not have a material impact on the Company's Condensed Consolidated Financial Statements. The Company has implemented changes to its accounting policies, internal controls and disclosures to support the new standard; however, these changes were not material. See Note 8 for further disclosures resulting from the adoption of this new standard.

3. INVENTORIES
The components of inventories, net of reserves, are as follows (in thousands):
 
 
June 30, 2018
 
March 31, 2018
Raw materials
$
122,226

 
$
110,389

Work in process
258,168

 
221,137

Finished goods
121,184

 
140,766

Total inventories
$
501,578

 
$
472,292


4. INTANGIBLE ASSETS
Total intangible assets decreased to $729.2 million as of June 30, 2018, compared to $860.3 million as of March 31, 2018. This decrease was due to amortization expense of $133.3 million for the three months ended June 30, 2018, primarily related to developed technology and customer relationships (which had net book values of $450.1 million and $266.7 million respectively, as of June 30, 2018).

5. INVESTMENTS AND FAIR VALUE MEASUREMENTS

Debt Securities
The following is a summary of available-for-sale debt securities as of June 30, 2018 and March 31, 2018 (in thousands): 
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated Fair  
Value
June 30, 2018
 
 
 
 
 
 
 
Auction rate securities
$
1,950

 
$

 
$
(105
)
 
$
1,845

Commercial paper
58,006

 
4

 

 
58,010

 
$
59,956

 
$
4

 
$
(105
)
 
$
59,855

March 31, 2018
 
 
 
 
 
 
 
Auction rate securities
$
1,950

 
$

 
$
(107
)
 
$
1,843

 
The estimated fair value of available-for-sale debt securities was based on the prevailing market values on June 30, 2018 and March 31, 2018. The Company determines the cost of an investment sold based on the specific identification method.


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


The expected maturity distribution of available-for-sale debt securities is as follows (in thousands):
 
June 30, 2018
 
March 31, 2018
 
Cost
 
Estimated
Fair Value
 
Cost
 
Estimated
Fair Value
Due in less than one year
$
58,006

 
$
58,010

 
$

 
$

Due after ten years
1,950

 
1,845

 
1,950

 
1,843

Total
$
59,956

 
$
59,855

 
$
1,950

 
$
1,843


Equity Investment Without a Readily Available Fair Value
As of June 30, 2018, the Company has invested $60.0 million to acquire preferred shares of a private limited company. This investment is classified in "Long-term investments" in the Condensed Consolidated Balance Sheets.

As of April 1, 2018, in accordance with the adoption of ASU 2016-01, an equity investment without a readily available fair value is accounted for using the measurement alternative. The measurement alternative is calculated as cost minus impairment, if any, plus or minus changes resulting from observable price changes. As of June 30, 2018, there was no impairment or observable price change for this investment.

Fair Value of Financial Instruments
Marketable securities are measured at fair value and recorded in "Cash and cash equivalents," "Short-term investments" and "Long-term investments" in the Condensed Consolidated Balance Sheets, and the related unrealized gains and losses are included in "Accumulated other comprehensive loss," a component of stockholders’ equity, net of tax.

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 June 30, 2018 and March 31, 2018 (in thousands):
 
 
 
 
 
Total
 
Quoted Prices In
Active Markets For
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
June 30, 2018
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
Money market funds
$
37

 
$
37

 
$

 
 
Auction rate securities ("ARS")  (1)
1,845

 

 
1,845

 
 
Commercial paper (2)
58,010

 

 
58,010

 
 
Invested funds in deferred compensation plan (3)
15,306

 
15,306

 

 
 
 
 
Total assets measured at fair value
$
75,198

 
$
15,343

 
$
59,855

 
Liabilities
 
 
 
 
 
 
 
Deferred compensation plan obligation (3)
$
15,306

 
$
15,306

 
$

 
 
 
 
Total liabilities measured at fair value
$
15,306

 
$
15,306

 
$

 
 
 
 
 
 
 
 
 
 
March 31, 2018
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
Money market funds
$
9

 
$
9

 
$

 
 
Auction rate securities (1)
1,843

 

 
1,843

 
 
Invested funds in deferred compensation plan (3)
14,284

 
14,284

 

 
 
 
 
Total assets measured at fair value
$
16,136

 
$
14,293

 
$
1,843

 
Liabilities
 
 
 
 
 
 
 
Deferred compensation plan obligation (3)
$
14,284

 
$
14,284

 
$

 
 
 
 
Total liabilities measured at fair value
$
14,284

 
$
14,284

 
$

 

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


(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) The Company invests in high quality, investment grade commercial paper which is 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.
 
As of June 30, 2018 and March 31, 2018, the Company did not have any Level 3 assets or liabilities.

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 6 for the fair value of the Company's long-term debt.

6. DEBT

Long-term debt as of June 30, 2018 and March 31, 2018 is as follows (in thousands):
 
June 30, 2018
 
March 31, 2018
6.75% Senior Notes due 2023
$
15,263

 
$
444,464

7.00% Senior Notes due 2025
548,500

 
548,500

Less unamortized issuance costs
(5,483
)
 
(9,674
)
Total long-term debt
$
558,280

 
$
983,290


Credit Agreement
On December 5, 2017, the Company and certain of its U.S. subsidiaries (the "Guarantors") entered into a five-year unsecured senior credit facility pursuant to a credit agreement with Bank of America, N.A., as administrative agent (in such capacity, the “Administrative Agent”), swing line lender and L/C issuer, and a syndicate of lenders (the “Credit Agreement”). On June 5, 2018, the Company and the Guarantors entered into the First Amendment (the "Amendment") to the Credit Agreement. The Credit Agreement includes a senior delayed draw term loan of up to $400.0 million (the "Term Loan") and a $300.0 million senior revolving line of credit (the "Revolving Facility", together with the Term Loan, the "Credit Facility"). On the closing date, $100.0 million of the Term Loan was funded (and subsequently repaid in March 2018), with the remainder available, at the discretion of the Company, in up to two draws. The Amendment, among other things, extended the delayed draw availability period from June 5, 2018 to January 3, 2019. The Revolving Facility includes a $25.0 million sublimit for the issuance of standby letters of credit and a $10.0 million sublimit for swing line loans. The Company may request that the Credit Facility be increased up to $300.0 million, subject to securing additional funding commitments from the existing or new lenders. The Credit Facility is available to finance working capital, capital expenditures and other corporate purposes. Outstanding amounts are due in full on the maturity date of December 5, 2022 (with amounts borrowed under the swingline option due in full no later than ten business days after such loan is made), subject to scheduled amortization of the Term Loan principal as set forth in the Credit Agreement prior to the maturity date. During the three months ended June 30, 2018, there were no borrowings under the Revolving Facility and the Company had no outstanding amounts under the Credit Facility as of June 30, 2018.

The Credit Agreement contains various conditions, covenants and representations with which the Company must be in compliance in order to borrow funds and to avoid an event of default. As of June 30, 2018, the Company was in compliance with these covenants.
  
Senior Notes
On November 19, 2015, the Company issued $450.0 million aggregate principal amount of its 6.75% senior notes due December 1, 2023 (the “2023 Notes”) and $550.0 million aggregate principal amount of its 7.00% senior notes due December 1, 2025 (the “2025 Notes”). The 2023 Notes were, and the 2025 Notes are, senior unsecured obligations of the Company and

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


guaranteed, jointly and severally, by the Guarantors. The 2023 Notes and the 2025 Notes were issued pursuant to an indenture dated as of November 19, 2015 (the "2015 Indenture"), by and among the Company, the Guarantors and MUFG Union Bank, N.A., as trustee. The 2015 Indenture contains customary events of default, including payment default, failure to provide certain notices and certain provisions related to bankruptcy events. The 2015 Indenture also contains customary negative covenants.

In March 2018, the Company repurchased $5.5 million and $1.5 million of the 2023 Notes and the 2025 Notes, respectively, at prices equal to 107.50% of the principal amount of the 2023 Notes purchased, plus accrued and unpaid interest, and 109.50% of the principal amount of the 2025 Notes purchased, plus accrued and unpaid interest.

On June 15, 2018, the Company commenced cash tender offers for any and all of the 2023 Notes (the “2023 Tender Offer”) and up to $150.0 million (the “Tender Cap”) of the 2025 Notes (the “2025 Tender Offer,” and together with the 2023 Tender Offer, the “Tender Offers”). On June 29, 2018, the Company completed the purchase of $429.2 million aggregate principal amount of the 2023 Notes in the 2023 Tender Offer at a price equal to 106.75% of the principal amount of the 2023 Notes purchased, plus accrued and unpaid interest. On July 19, 2018, the Company redeemed the remaining $15.3 million principal amount of the 2023 Notes at a redemption price equal to 100.0% of the principal amount of the 2023 Notes redeemed, plus a make-whole premium and accrued and unpaid interest.

On July 10, 2018, the Company increased the Tender Cap to $300.0 million, and on July 16, 2018, the Company completed the purchase of $300.0 million aggregate principal amount of the 2025 Notes at a price equal to 109.63% of the principal amount of the 2025 Notes purchased, plus accrued and unpaid interest.

In connection with the 2023 Notes purchased on June 29, 2018 in the 2023 Tender Offer, the Company recognized a loss of $33.4 million as "Other expense" in the Company’s Condensed Consolidated Statement of Operations for the three months ended June 30, 2018.

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 the redemption prices specified in the 2015 Indenture, plus accrued and unpaid interest.

With respect to the 2023 Notes, interest was payable on June 1 and December 1 of each year at a rate of 6.75% per annum, and with respect to the 2025 Notes, interest is payable on June 1 and December 1 of each year at a rate of 7.00% per annum. Interest paid on the 2023 Notes and the 2025 Notes during the three months ended June 30, 2018 and July 1, 2017 was $34.2 million and $34.4 million, respectively.
  
The 2023 Notes traded, and the 2025 Notes currently trade, over the counter and their fair values as of June 30, 2018 of $16.3 million and $594.9 million, respectively (compared to carrying values of $15.3 million and $548.5 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 $474.5 million and $596.5 million, respectively (compared to carrying values of $444.5 million and $548.5 million, respectively), as of March 31, 2018, based upon the values of their last trade at the end of the period.

Interest Expense
During the three months ended June 30, 2018, the Company recognized $17.1 million of interest expense related to the 2023 Notes and the 2025 Notes, which was partially offset by $3.5 million of interest capitalized to property and equipment. During the three months ended July 1, 2017, the Company recognized $17.3 million of interest expense related to the 2023 Notes and the 2025 Notes, which was partially offset by $5.6 million of interest capitalized to property and equipment.

7. STOCK REPURCHASES

On November 3, 2016, the Company announced that its Board of Directors authorized a share repurchase program to repurchase up to $500.0 million of the Company's outstanding stock. As of March 31, 2018, $162.1 million was available for future repurchases, and during the first quarter of fiscal 2019, the Company repurchased 0.4 million shares of its common stock for approximately $35.9 million under this program.

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



On May 23, 2018, the Company announced that its Board of Directors authorized a share repurchase program to repurchase up to $1.0 billion of the Company's outstanding stock, which included approximately $126.3 million authorized under the prior program terminated concurrent with the new authorization. Under this program, share repurchases are made in accordance with applicable securities laws on the open market or in privately negotiated transactions. The extent to which the Company repurchases its shares, the number of shares and the timing of any repurchases depends on general market conditions, regulatory requirements, alternative investment opportunities and other considerations. The program does not require the Company to repurchase a minimum number of shares, does not have a fixed term, and may be modified, suspended or terminated at any time without prior notice.

During the three months ended June 30, 2018, the Company repurchased approximately 0.8 million shares of its common stock for approximately $64.1 million under the current program. As of June 30, 2018, $935.9 million remains available for repurchases under the current share repurchase program.

8. REVENUE

Change in Accounting Policy
The Company adopted ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," in the first quarter of fiscal 2019 for open contracts using the modified retrospective approach through a cumulative adjustment to "Accumulated deficit" in the Condensed Consolidated Balance Sheet for the fiscal year beginning April 1, 2018. The impact from the cumulative-effect adjustment was immaterial (less than 1% of revenue for the three months ended June 30, 2018), related to over-time revenue recognition for customer-controlled inventory and point in time revenue recognition for intellectual property with a right to use. As the adoption of ASU 2014-09 did not have a material impact, comparative financial information for prior periods has not been restated and continues to be presented under the accounting standards in effect for the respective periods.

Revenue Recognition Policy
The Company generates revenue primarily from the sale of semiconductor products, either directly to a customer or to a distributor, or at completion of a consignment process. Revenue is recognized when control of the promised goods or services is transferred to the Company's customers, in an amount that reflects the consideration it expects to be entitled in exchange for those goods or services. A majority of the Company's revenue is recognized at a point in time, either on shipment or delivery of the product, depending on individual customer terms and conditions. Revenue from sales to the Company’s distributors is recognized upon shipment of the product to the distributors (sell-in). Revenue is recognized from the Company’s consignment programs at a point in time when the products are pulled from consignment inventory by the customer. Revenue recognized for product and services over-time is immaterial (less than 2% of overall revenue). The Company applies a five-step approach as defined in the new standard in determining the amount and timing of revenue to be recognized: (1) identifying the contract with a customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations in the contract; and (5) recognizing revenue when the corresponding performance obligation is satisfied.

Sales agreements are in place with certain customers and contain terms and conditions with respect to payment, delivery, warranty and supply, but typically do not require minimum purchase commitments. In the absence of a sales agreement, the Company’s standard terms and conditions apply. The Company considers a customer's purchase order, which is governed by a sales agreement or the Company’s standard terms and conditions, to be the contract with the customer.

The Company’s pricing terms are negotiated independently, on a stand-alone basis. In determining the transaction price, the Company evaluates whether the price is subject to refund or adjustment to determine the net consideration to which the Company expects to be entitled. Variable consideration in the form of rebate programs is offered to certain customers, including distributors. These rebates represent less than 3% of net revenue and are classified as a contra accounts receivable. The Company determines variable consideration by estimating the most likely amount of consideration it expects to receive from the customer. The Company's terms and conditions do not give its customers a right of return associated with the original sale of its products. However, the Company may authorize sales returns under certain circumstances, which include courtesy returns and like-kind exchanges. Sales returns are classified as a refund liability. The Company reduces revenue and records reserves for product returns and allowances, rebate programs and scrap allowance based on historical experience or specific identification depending on the contractual terms of the arrangement.


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


The Company’s accounts receivable balance is from contracts with customers and represents the Company’s unconditional right to receive consideration from its customers. Payments are due within one year of completion of the performance obligation and subsequent invoicing and, therefore, do not include significant financing components. To date, there have been no material impairment losses on accounts receivable. Contract assets and contract liabilities recorded on the Condensed Consolidated Balance Sheets were immaterial in the periods presented.

The Company invoices customers for each delivery upon shipment and recognizes revenues in accordance with delivery terms. As of June 30, 2018, the Company had $37.3 million in remaining unsatisfied performance obligations with an original duration greater than one year, substantially all of which are expected to be recognized as income over the next twelve months.

The Company includes shipping charges billed to customers in "Revenue" and includes the related shipping costs in "Cost of goods sold" in the Condensed Consolidated Statements of Operations. Taxes assessed by government authorities on revenue-producing transactions, including value-added and excise taxes, are presented on a net basis (excluded from revenue) in the Condensed Consolidated Statements of Operations.

The Company incurs commission expense that is incremental to obtaining contracts with customers. Sales commissions (which are recorded in the "Selling, general and administrative" expense line item in the Condensed Consolidated Statements of Operations) are expensed when incurred because such commissions are not owed until the performance obligation is satisfied, which coincides with the end of the contract term, and therefore no remaining period exists over which to amortize the commissions.

The following table presents the Company's revenue disaggregated by geography, based on the billing addresses of its customers (in thousands):
 
 
Three Months Ended
 
 
June 30, 2018
 
July 1, 2017
Revenue:
 
 
 
 
  China
 
$
366,534

 
$
349,631

  Taiwan
 
155,171

 
90,158

  United States
 
108,466

 
138,360

  Other Asia
 
34,569

 
36,175

  Europe
 
22,636

 
21,236

  Other
 
5,294

 
5,271

Total Revenue
 
$
692,670

 
$
640,831


9. OPERATING SEGMENT INFORMATION

The Company's operating segments as of June 30, 2018 are Mobile Products (MP) and Infrastructure and Defense Products (IDP) based on the organizational structure and information reviewed by the Company's Chief Executive Officer, who is the Company's chief operating decision maker ("CODM"), and these segments are managed separately based on the end markets and applications they support. The CODM allocates resources and assesses the performance of each operating segment primarily based on non-GAAP operating income (loss) and non-GAAP operating income (loss) as a percentage of revenue.

MP is a leading global supplier of cellular radio frequency ("RF") and Wi-Fi solutions for a variety of mobile devices, including smartphones, notebook computers, wearables, tablets, and cellular-based applications for the Internet of Things ("IoT"). Mobile device manufacturers and mobile network operators are adopting new technologies to address the growing demand for data-intensive, increasingly cloud-based distributed applications and for mobile devices with smaller form factors, improved signal quality, less heat and longer talk and standby times. New wireless communications standards are being deployed to utilize available spectrum more efficiently. Carrier aggregation is being implemented to support wider bandwidths, increase data rates and improve network performance. These trends increase the complexity of smartphones, require more RF content and place a premium on performance, integration, systems-level expertise, and product and technology portfolio breadth, all of which are MP strengths. MP offers a comprehensive product portfolio of bulk acoustic wave ("BAW") and surface acoustic wave ("SAW") filters, power amplifiers ("PAs"), low noise amplifiers ("LNAs"), switches, multimode multi-band PAs and

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


transmit modules, RF power management integrated circuits, diversity receive modules, antenna switch modules, antenna tuning and control solutions, modules incorporating PAs and duplexers and modules incorporating switches, PAs and duplexers.

IDP is a leading global supplier of RF solutions with a diverse portfolio of solutions that "connect and protect," spanning communications and defense applications. These applications include high performance defense systems such as radar, electronic warfare and communication systems, Wi-Fi customer premises equipment for home and work, high speed connectivity in Long-Term Evolution ("LTE") and 5G base stations, cloud connectivity via data center communications and telecom transport, automotive connectivity and other IoT, including smart home solutions. IDP products include high power gallium arsenide ("GaAs") and gallium nitride ("GaN") PAs, LNAs, switches, Complementary Metal Oxide Semiconductor ("CMOS") system-on-a-chip solutions, premium BAW and SAW filter solutions and various multi-chip and hybrid assemblies.  

The “All other” category includes operating expenses such as stock-based compensation, amortization of intangible assets, acquisition and integration related costs, restructuring charges, start-up costs, (loss) gain on assets and other miscellaneous corporate overhead expenses that the Company does not allocate to its reportable segments because these expenses are not included in the segment operating performance measures evaluated by the Company’s CODM. The CODM does not evaluate operating segments using discrete asset information. The Company’s operating segments do not record intercompany revenue. The Company does not allocate gains and losses from equity investments, interest and other income, or taxes to operating segments. Except as discussed above regarding the “All other” category, the Company’s accounting policies for segment reporting are the same as for the Company as a whole.

The following tables present details of the Company’s reportable segments and a reconciliation of the “All other” category (in thousands): 
 
Three Months Ended
 
June 30,
2018
 
July 1,
2017
Revenue:
 
 
 
MP
$
486,079

 
$
456,223

IDP
206,591

 
183,638

All other (1)

 
970

Total revenue
$
692,670

 
$
640,831

Income (loss) from operations
 
 
 
MP
$
89,171

 
$
87,807

IDP
55,204

 
49,586

All other
(163,590
)
 
(165,222
)
Loss from operations
(19,215
)
 
(27,829
)
Interest expense
(14,353
)
 
(12,271
)
Interest income
3,394

 
766

Other expense
(31,955
)
 
(934
)
Loss before income taxes
$
(62,129
)
 
$
(40,268
)
 
(1) "All other" revenue relates to royalty income that is not allocated to MP or IDP for the three months ended July 1, 2017. As a result of the adoption of ASU 2014-09, income related to a right-to-use license of intellectual property was recognized at a point-in-time and, therefore, is included as a transition adjustment impacting retained earnings.

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


 
Three Months Ended
 
June 30,
2018
 
July 1,
2017
Reconciliation of “All other” category:
 
 
 
Stock-based compensation expense
$
(19,345
)
 
$
(21,126
)
Amortization of intangible assets
(133,175
)
 
(134,686
)
Acquisition and integration related costs
(1,082
)
 
(2,777
)
Restructuring charges
(2,802
)
 
(531
)
Start-up costs
(5,361
)
 
(6,624
)
Other (expense) income (including (loss) gain on assets and other miscellaneous corporate overhead)
(1,825
)
 
522

Loss from operations for “All other”
$
(163,590
)
 
$
(165,222
)

10. INCOME TAXES

U.S. Tax Reform
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law. This new law includes significant changes to the U.S. corporate income tax system, including a permanent reduction in the corporate income tax rate from 35% to 21%, full expensing for investments in new and used qualified property, limitations on the deductibility of interest expense and executive compensation, and the transition of U.S. international taxation from a worldwide tax system to a territorial tax system.
In December 2017, the SEC staff issued Staff Accounting Bulletin 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC Topic 740- Income Taxes (“ASC 740”). The provisional tax effects recorded to date will be revised during the measurement period, possibly materially, due to further refinement of the calculations, changes in interpretations and assumptions made, and additional guidance that may be issued by the Department of the U.S. Treasury, the Internal Revenue Service, and other regulatory and standard setting bodies. The Company will complete its analysis within fiscal 2019 consistent with the guidance provided in SAB 118, and any adjustments during this measurement period will be included in net earnings from continuing operations as an adjustment to income tax expense.
As described in Note 12 Income Taxes in our 2018 Annual Report on Form 10-K, we were able to reasonably estimate certain effects of the Tax Act provisions that became effective during fiscal 2018 and, therefore, recorded provisional amounts, including a $116.4 million expense related to the one-time transition tax on certain unrepatriated earnings of foreign subsidiaries (the “Transitional Repatriation Tax”) and a $39.1 million benefit from the remeasurement of U.S. deferred tax assets and liabilities. While the Company has not finalized the accounting for the tax effects of the Tax Act, for the three months ended June 30, 2018, we have made a $15.2 million measurement period adjustment to reduce the tax expense related to the previously recorded provisional amounts. This was comprised of a $11.4 million reduction in the Transitional Repatriation Tax liability and a $3.8 million increase in U.S deferred tax assets.
The new Global Intangible Low-Taxed Income (“GILTI”) provisions create a new requirement that certain income earned by foreign subsidiaries must be currently included in the gross income of the U.S. shareholder. No provisional adjustments related to the potential GILTI impact on deferred taxes has been made as the Company has not made its accounting policy choice of either: (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into the Company's measurement of its deferred taxes (the “deferred method”).
The GILTI and executive compensation limitation provisions in the Tax Act became effective for the Company in fiscal 2019. Provisional estimates for the current year impact of these new provisions are included in the calculation of the fiscal 2019 annual effective tax rate applied to year-to-date income (loss).

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


Income Tax Expense
The Company’s provision for income taxes for the three months ended June 30, 2018 and July 1, 2017 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 June 30, 2018 and July 1, 2017.

The Company’s income tax benefit was $32.1 million and $9.6 million for the three months ended June 30, 2018 and July 1, 2017, respectively. The Company’s effective tax rate was 51.7% for the three months ended June 30, 2018 and 23.9% for the three months ended July 1, 2017. The Company's effective tax rate for the first quarter of fiscal 2019 differed from the statutory rate primarily due to tax rate differences in foreign jurisdictions, foreign permanent differences, state income taxes, domestic tax credits generated, changes in unrecognized tax benefits, GILTI, and a discrete tax benefit for changes in provisional estimates related to the Transitional Repatriation Tax. The Company's effective tax rate for the first quarter of fiscal 2018 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, a discrete tax benefit for excess stock compensation deductions in accordance with the new guidance for accounting for employee share-based payments (ASU 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting"), and a discrete tax expense associated with intra-entity transfers in accordance with the new guidance for the intra-entity transfer of assets other than inventory (ASU 2016-16, "Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory").

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 increased the deferred tax assets by $3.8 million for adjustments related to the provisional Transitional Repatriation Tax estimates.

The Company has domestic federal and state tax NOL and credit carry-forwards that expire in fiscal years 2019 to 2038 if unused. The use of the NOLs that were acquired in prior year acquisitions is subject to certain annual limitations under Internal Revenue Code Section 382 and similar state income tax provisions.

Uncertain Tax Positions
The Company’s gross unrecognized tax benefits increased from $122.8 million as of the end of fiscal 2018 to $125.6 million as of the end of the first quarter of fiscal 2019, due primarily to an increase related to tax positions taken with respect to the current fiscal year.


11. 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
 
June 30, 2018
 
July 1, 2017
Numerator:
 
 
 
Numerator for basic and diluted net loss per share — net loss available to common stockholders
$
(29,993
)
 
$
(30,624
)
Denominator:
 
 
 
Denominator for basic net loss per share — weighted average shares
126,198

 
126,961

Effect of dilutive securities:
 
 
 
Stock-based awards

 

Denominator for diluted net loss per share — adjusted weighted average shares and assumed conversions
126,198

 
126,961

Basic net loss per share
$
(0.24
)
 
$
(0.24
)
Diluted net loss per share
$
(0.24
)
 
$
(0.24
)


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


In the computation of diluted net loss per share for the three months ended June 30, 2018 and July 1, 2017, approximately 3.3 million and 4.4 million outstanding shares, respectively, were excluded because the effect of their inclusion would have been anti-dilutive.

12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION

In accordance with the 2015 Indenture governing the 2023 Notes and the 2025 Notes, the Guarantors guaranteed the Company's obligations under the 2023 Notes and the 2025 Notes. The 2023 Notes were, and the 2025 Notes are, fully and unconditionally guaranteed on a joint and several basis by each Guarantor, each of which is 100% owned, directly or indirectly, by Qorvo, Inc. (the "Parent Company"). A Guarantor can be released in certain customary circumstances.

The following presents the condensed consolidating financial information separately for:
(i)
Parent Company, the issuer of the guaranteed obligations;
(ii)
Guarantor subsidiaries, on a combined basis, as specified in the 2015 Indenture;
(iii)
Non-guarantor subsidiaries, on a combined basis;
(iv)
Consolidating entries, eliminations and reclassifications representing adjustments to (a) eliminate intercompany transactions between or among the Parent Company, the guarantor subsidiaries and the non-guarantor subsidiaries, (b) eliminate intercompany profit in inventory, (c) eliminate the investments in the Company’s subsidiaries and (d) record consolidating entries; and
(v)
The Company, on a consolidated basis.

Each entity in the condensed consolidating financial information follows the same accounting policies as described in the consolidated financial statements, except for the use by the Parent Company and Guarantors 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 (loss) income, and cash flows, had the Parent Company, Guarantors or non-guarantor subsidiaries operated as independent entities.
 



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



 
Condensed Consolidating Balance Sheet
 
June 30, 2018
(in thousands)
Parent Company
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations and Reclassifications
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
78,851

 
$
255,188

 
$

 
$
334,039

Short-term investments

 
58,010

 

 

 
58,010

Accounts receivable, less allowance

 
54,894

 
305,963

 

 
360,857

Intercompany accounts and notes receivable

 
296,498

 
39,146

 
(335,644
)
 

Inventories

 
186,645

 
335,819

 
(20,886
)
 
501,578

Prepaid expenses

 
17,282

 
7,591

 

 
24,873

Other receivables

 
4,272

 
49,527

 

 
53,799

Other current assets

 
33,460

 
1,090

 

 
34,550

Total current assets

 
729,912

 
994,324

 
(356,530
)
 
1,367,706

Property and equipment, net

 
1,086,252

 
282,536

 
(200
)
 
1,368,588

Goodwill

 
1,121,941

 
1,051,948

 

 
2,173,889

Intangible assets, net

 
345,109

 
384,129

 

 
729,238

Long-term investments

 
1,854

 
77,661

 

 
79,515

Long-term intercompany accounts and notes receivable

 
1,078,040

 
107,181

 
(1,185,221
)
 

Investment in subsidiaries
6,212,724

 
2,310,787

 

 
(8,523,511
)
 

Other non-current assets
83,679

 
30,721

 
30,487

 
(81,491
)
 
63,396

Total assets
$
6,296,403

 
$
6,704,616

 
$
2,928,266

 
$
(10,146,953
)
 
$
5,782,332

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 

Current liabilities:
 
 
 
 
 
 
 
 

Accounts payable
$

 
$
74,096

 
$
145,047

 
$

 
$
219,143

Intercompany accounts and notes payable

 
39,146

 
296,498

 
(335,644
)
 

Accrued liabilities
3,482

 
90,971

 
38,943

 
209

 
133,605

Other current liabilities

 
1,461

 
49,155

 

 
50,616

Total current liabilities
3,482

 
205,674

 
529,643

 
(335,435
)
 
403,364

Long-term debt
558,280

 

 

 

 
558,280

Deferred tax liabilities

 
58,676

 
13,286

 
(34,807
)
 
37,155

Long-term intercompany accounts and notes payable
1,056,536

 
107,181

 
21,504

 
(1,185,221
)
 

Other long-term liabilities

 
52,382

 
53,046

 

 
105,428

Total liabilities
1,618,298

 
423,913

 
617,479

 
(1,555,463
)
 
1,104,227

Total stockholders’ equity
4,678,105

 
6,280,703

 
2,310,787

 
(8,591,490
)
 
4,678,105

Total liabilities and stockholders’ equity
$
6,296,403

 
$
6,704,616

 
$
2,928,266

 
$
(10,146,953
)
 
$
5,782,332



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


 
Condensed Consolidating Balance Sheet
 
March 31, 2018
(in thousands)
Parent Company
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations and Reclassifications
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
629,314

 
$
296,723

 
$

 
$
926,037

Accounts receivable, less allowance

 
76,863

 
269,094

 

 
345,957

Intercompany accounts and notes receivable

 
272,409

 
53,363

 
(325,772
)
 

Inventories

 
154,651

 
339,434

 
(21,793
)
 
472,292

Prepaid expenses

 
17,530

 
6,379

 

 
23,909

Other receivables

 
5,959

 
38,836

 

 
44,795

Other current assets

 
29,627

 
1,188

 

 
30,815

Total current assets

 
1,186,353

 
1,005,017

 
(347,565
)
 
1,843,805

Property and equipment, net

 
1,085,255

 
289,146

 
(289
)
 
1,374,112

Goodwill

 
1,121,941

 
1,051,948

 

 
2,173,889

Intangible assets, net

 
395,317

 
465,019

 

 
860,336

Long-term investments

 
1,847

 
61,918

 

 
63,765

Long-term intercompany accounts and notes receivable

 
543,127

 
116,494

 
(659,621
)
 

Investment in Subsidiaries
6,198,885

 
2,388,222

 

 
(8,587,107
)
 

Other non-current assets
72,122

 
31,011

 
32,516

 
(70,037
)
 
65,612

Total assets
$
6,271,007

 
$
6,753,073

 
$
3,022,058

 
$
(9,664,619
)
 
$
6,381,519

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 

Current liabilities:
 
 
 
 
 
 
 
 

Accounts payable
$

 
$
78,278

 
$
134,915

 
$

 
$
213,193

Intercompany accounts and notes payable

 
53,363

 
272,409

 
(325,772
)
 

Accrued liabilities
23,102

 
101,286

 
43,163

 
(369
)
 
167,182

Other current liabilities

 
3,882

 
57,022

 

 
60,904

Total current liabilities
23,102

 
236,809

 
507,509

 
(326,141
)
 
441,279

Long-term debt
983,290

 

 

 

 
983,290

Deferred tax liabilities

 
83,449

 
16,366

 
(36,731
)
 
63,084

Long-term intercompany accounts and notes payable
489,051

 
116,494

 
54,076

 
(659,621
)
 

Other long-term liabilities

 
62,417

 
55,885

 

 
118,302

Total liabilities
1,495,443

 
499,169

 
633,836

 
(1,022,493
)
 
1,605,955

Total stockholders’ equity
4,775,564

 
6,253,904

 
2,388,222

 
(8,642,126
)
 
4,775,564

Total liabilities and stockholders’ equity
$
6,271,007

 
$
6,753,073

 
$
3,022,058

 
$
(9,664,619
)
 
$
6,381,519



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


 
Condensed Consolidating Statement of Operations and Comprehensive (Loss) Income
 
Three Months Ended June 30, 2018
(in thousands)
Parent Company
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations and Reclassifications
 
Consolidated
Revenue
$

 
$
231,939

 
$
625,961

 
$
(165,230
)
 
$
692,670

Cost of goods sold

 
190,311

 
409,697

 
(144,071
)
 
455,937

Gross profit

 
41,628

 
216,264

 
(21,159
)
 
236,733

Operating expenses:
 
 
 
 
 
 
 
 

Research and development
6,401

 
3,279

 
102,448

 
(1,225
)
 
110,903

Selling, general and administrative
12,795

 
57,956

 
86,379

 
(21,200
)
 
135,930

Other operating expense
150

 
7,940

 
1,054

 
(29
)
 
9,115

Total operating expenses
19,346

 
69,175

 
189,881

 
(22,454
)
 
255,948

(Loss) income from operations
(19,346
)
 
(27,547
)
 
26,383

 
1,295

 
(19,215
)
Interest expense
(14,042
)
 
(537
)
 
(161
)
 
387

 
(14,353
)
Interest income

 
2,406

 
1,375

 
(387
)
 
3,394

Other (expense) income
(33,373
)
 
328

 
1,090

 

 
(31,955
)
(Loss) income before income taxes
(66,761
)
 
(25,350
)
 
28,687

 
1,295

 
(62,129
)
Income tax benefit
11,454

 
16,804

 
3,878

 

 
32,136

Income in subsidiaries
25,314

 
32,565

 

 
(57,879
)
 

Net (loss) income
$
(29,993
)
 
$
24,019

 
$
32,565

 
$
(56,584
)
 
$
(29,993
)
 
 
 
 
 
 
 
 
 
 
Comprehensive (loss) income
$
(32,177
)
 
$
24,024

 
$
30,255

 
$
(54,279
)
 
$
(32,177
)

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


 
Condensed Consolidating Statement of Operations and Comprehensive Loss
 
Three Months Ended July 1, 2017
(in thousands)
Parent Company
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations and Reclassifications
 
Consolidated
Revenue
$

 
$
271,953

 
$
580,554

 
$
(211,676
)
 
$
640,831

Cost of goods sold

 
184,004

 
392,736

 
(172,286
)
 
404,454

Gross profit

 
87,949

 
187,818

 
(39,390
)
 
236,377

Operating expenses:
 
 
 
 
 
 
 
 
 
Research and development
6,796

 
16,738

 
97,284

 
(4,319
)
 
116,499

Selling, general and administrative
14,245

 
66,212

 
94,052

 
(35,078
)
 
139,431

Other operating expense
85

 
7,060

 
1,010

 
121

 
8,276

Total operating expenses
21,126

 
90,010

 
192,346

 
(39,276
)
 
264,206

Loss from operations
(21,126
)
 
(2,061
)
 
(4,528
)
 
(114
)
 
(27,829
)
Interest expense
(11,924
)
 
(575
)
 
(334
)
 
562

 
(12,271
)
Interest income

 
494

 
834

 
(562
)
 
766

Other (expense) income

 
(214
)
 
1,998

 
(2,718
)
 
(934
)
Loss before income taxes
(33,050
)
 
(2,356
)
 
(2,030
)
 
(2,832
)
 
(40,268
)
Income tax benefit (expense)
16,246

 
(7,524
)
 
922

 

 
9,644

Loss in subsidiaries
(13,820
)
 
(1,108
)
 

 
14,928

 

Net loss
$
(30,624
)
 
$
(10,988
)
 
$
(1,108
)
 
$
12,096

 
$
(30,624
)
 
 
 
 
 
 
 
 
 
 
Comprehensive loss
$
(29,905
)
 
$
(10,927
)
 
$
(450
)
 
$
11,377

 
$
(29,905
)


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Table of Contents

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


 
Condensed Consolidating Statement of Cash Flows
 
Three Months Ended June 30, 2018
(in thousands)
Parent Company
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations and Reclassifications
 
Consolidated
Net cash provided by (used in) operating activities
$
555,303

 
$
(566,340
)
 
$
86,296

 
$

 
$
75,259

Investing activities:
 
 
 
 
 
 
 
 
 
Purchase of property and equipment

 
(37,020
)
 
(6,544
)
 

 
(43,564
)
Purchase of debt securities and other investments

 
(132,729
)
 

 

 
(132,729
)
Proceeds from maturities of other investments

 
75,000

 

 

 
75,000

Other investing activities

 
234

 
(8,901
)
 

 
(8,667
)
Net transactions with related parties

 
110,047

 

 
(110,047
)
 

Net cash (used in) provided by investing activities

 
15,532

 
(15,445
)
 
(110,047
)
 
(109,960
)
Financing activities:
 
 
 
 
 
 
 
 

Payment of debt
(458,172
)
 

 

 

 
(458,172
)
Repurchase of common stock, including transaction costs
(100,004
)
 

 

 

 
(100,004
)
Proceeds from the issuance of common stock
9,889

 

 

 

 
9,889

Tax withholding paid on behalf of employees for restricted stock units
(6,802
)
 

 

 

 
(6,802
)
Other financing activities
(214
)
 

 

 

 
(214
)
Net transactions with related parties

 
345

 
(110,392
)
 
110,047

 

Net cash (used in) provided by financing activities
(555,303
)
 
345

 
(110,392
)
 
110,047

 
(555,303
)
Effect of exchange rate changes on cash

 

 
(2,014
)
 

 
(2,014
)
Net decrease in cash, cash equivalents and restricted cash

 
(550,463
)
 
(41,555
)
 

 
(592,018
)
Cash, cash equivalents and restricted cash at the beginning of the period

 
629,314

 
297,088

 

 
926,402

Cash, cash equivalents and restricted cash at the end of the period
$

 
$
78,851

 
$
255,533

 
$

 
$
334,384

 
 
 
 
 
 
 
 
 
 


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


 
Condensed Consolidating Statement of Cash Flows
 
Three Months Ended July 1, 2017
(in thousands)
Parent Company
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations and Reclassifications
 
Consolidated
Net cash provided by (used in) operating activities
$
19,803

 
$
(21,261
)
 
$
105,094

 
$

 
$
103,636

Investing activities:
 
 
 
 
 
 
 
 
 
Purchase of property and equipment

 
(104,016
)
 
(20,412
)
 

 
(124,428
)
Other investing activities

 
7,011

 
25

 

 
7,036

Net cash used in investing activities

 
(97,005
)
 
(20,387
)
 

 
(117,392
)
Financing activities:
 
 
 
 
 
 
 
 

Repurchase of common stock, including transaction costs
(31,925
)
 

 

 

 
(31,925
)
Proceeds from the issuance of common stock
20,526

 

 

 

 
20,526

Tax withholding paid on behalf of employees for restricted stock units
(8,404
)
 

 

 

 
(8,404
)
Net transactions with related parties

 
345

 
(345
)
 

 

Net cash (used in) provided by financing activities
(19,803
)
 
345

 
(345
)
 

 
(19,803
)
Effect of exchange rate changes on cash

 

 
750

 

 
750

Net (decrease) increase in cash, cash equivalents and restricted cash

 
(117,921
)
 
85,112

 

 
(32,809
)
Cash, cash equivalents and restricted cash at the beginning of the period


 
226,186

 
319,593

 

 
545,779

Cash, cash equivalents and restricted cash at the end of the period

$

 
$
108,265

 
$
404,705

 
$

 
$
512,970


13. SUBSEQUENT EVENTS

The following table summarizes the Company's long-term debt as of June 30, 2018 on an actual basis and as adjusted for subsequent events:
 
Actual
 
As Adjusted
6.75% Senior Notes due 2023
$
15,263

 
$

7.00% Senior Notes due 2025
548,500

 
248,500

5.50% Senior Notes due 2026

 
500,000

Less unamortized issuance costs
(5,483
)
 
(8,286
)
Total long-term debt
$
558,280

 
$
740,214


Tender Offers
On July 10, 2018, the Company increased the Tender Cap with respect to the 2025 Tender Offer from $150.0 million to $300.0 million, and on July 16, 2018, the Company completed the purchase of $300.0 million aggregate principal amount of the 2025 Notes in the 2025 Tender Offer at a price equal to 109.63% of the principal amount of the 2025 Notes purchased, plus accrued and unpaid interest.

On July 19, 2018, the Company redeemed all of the remaining $15.3 million outstanding principal amount of the 2023 Notes at a redemption price equal to 100.0% of the principal amount of the 2023 Notes redeemed, plus a make-whole premium and accrued and unpaid interest.



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


Senior Notes due 2026
On July 16, 2018, the Company completed an offering of $500.0 million aggregate principal amount of its 5.50% Senior Notes due 2026 (the “2026 Notes”). The 2026 Notes pay interest semi-annually on January 15 and July 15 at a rate of 5.50% per annum. The 2026 Notes will mature on July 15, 2026, unless earlier redeemed in accordance with their terms.

The 2026 Notes were sold in a private offering to certain institutions that then resold the 2026 Notes in the United States to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and to certain non-U.S. persons in accordance with Regulation S under the Securities Act. The Company used a portion of the net proceeds of the offering to fund the 2025 Tender Offer and to pay related fees and expenses of the offering and the Tender Offers, and will use the remaining net proceeds for general corporate purposes. The 2026 Notes are senior unsecured obligations of the Company and are initially guaranteed, jointly and severally, by each of the Guarantors.

The 2026 Notes were issued pursuant to an indenture, dated as of July 16, 2018 (the “2018 Indenture”), by and among the Company, the Guarantors and MUFG Union Bank, N.A., as trustee. The 2018 Indenture contains customary events of default, including payment default, exchange default, failure to provide certain notices thereunder and certain provisions related to bankruptcy events. The 2018 Indenture also contains customary negative covenants.

At any time prior to July 15, 2021, the Company may redeem all or part of the 2026 Notes, at a redemption price equal to their principal amount, plus a “make-whole” premium as of the redemption date, and accrued and unpaid interest. In addition, at any time prior to July 15, 2021, the Company may redeem up to 35% of the original aggregate principal amount of the 2026 Notes with the proceeds of one or more equity offerings, at a redemption price equal to 105.50%, plus accrued and unpaid interest. Furthermore, at any time on or after July 15, 2021, the Company may redeem the 2026 Notes, in whole or in part, at the redemption prices specified in the 2018 Indenture, plus accrued and unpaid interest.

The 2026 Notes have not been registered under the Securities Act, or any state securities laws, and, unless so registered, may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act and applicable state securities laws.

In connection with the offering of the 2026 Notes, the Company entered into a Registration Rights Agreement, dated as of July 16, 2018 (the “Registration Rights Agreement”), by and among the Company and the Guarantors, on the one hand, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representative of the initial purchasers of the 2026 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 2026 Notes for a new series of the Company’s exchange notes having terms substantially identical in all material respects to, and in the same aggregate principal amount as, the 2026 Notes; (ii) cause the Exchange Offer Registration Statement to be declared effective by the SEC; and (iii) cause the Exchange Offer to be consummated no later than the 360th day after July 16, 2018 (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 2026 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 2026 Notes covered thereby have been sold pursuant thereto).

If the Company fails to meet any of these targets, the annual interest rate on the 2026 Notes will increase by 0.25% during the 90-day period following the default, and will increase by an additional 0.25% for each subsequent 90-day period during which the default continues, up to a maximum additional interest rate of 1.00% per year. If the Company cures the default, the interest rate on the 2026 Notes will revert to the original level.



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Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that relate to our plans, objectives, estimates and goals. Statements expressing expectations regarding our future and projections relating to products, sales, revenues and earnings are typical of such statements and are made under the Private Securities Litigation Reform Act of 1995. Words such as "expect," "anticipate," "intend," "plan," "believe," "estimate," "forecast," and "predict," and variations of such words and similar expressions, identify such forward-looking statements. Our business is subject to numerous risks and uncertainties, including, but not limited to the factors listed below:

business, political, and macroeconomic changes, including trade disputes and downturns in the semiconductor industry and the overall global economy;

our ability to introduce new products that are competitive and can be manufactured at lower costs or that command higher prices based on superior performance;

our ability to forecast our customers' demand for our products accurately;

our customers’ and distributors’ ability to manage the inventory they hold and accurately forecast their demand for our products;

our ability to successfully integrate acquired businesses, operations, product technologies and personnel as well as achieve expected synergies;

our ability to achieve cost savings and improve yields and margins on our new and existing products;

our ability to utilize our capacity efficiently, or to acquire or source additional capacity, in response to customer demand;

our ability to continue to improve our product designs, develop new products, and achieve design wins as our industry's product life cycles are short and our customers’ requirements change rapidly;

our dependence on a limited number of customers for a substantial portion of our revenue;

our reliance on the U.S. government and on U.S. government sponsored programs (principally for defense and aerospace applications) for a portion of our revenue;

our ability to bring new products to market in response to market shifts and to use technological innovation to shorten time-to-market for our products;

our ability to efficiently and successfully operate our wafer fabrication, assembly and test and tape and reel facilities;

variability in manufacturing yields and product quality;

variability in raw material costs and availability of raw materials;

our dependence on third parties, including distributors, wafer foundries, wafer starting material suppliers, passive component manufacturers, assembly and packaging suppliers and test and tape and reel suppliers;

our ability to manage platform provider and customer relationships;

our ability to procure, commercialize and enforce intellectual property rights ("IPR") and to operate our business without infringing on the unlicensed IPR of others;

the risks associated with security breaches and other disruptions, which could compromise our proprietary information and expose us to liability and could cause our business and reputation to suffer;

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Table of Contents


the possibility that we may be subject to theft, loss or misuse of personal data by or about our employees, customers or other third parties;

currency fluctuations, tariffs, trade barriers, tax and export license requirements and health and security issues associated with our foreign operations;

the impact of environmental, health and safety regulations and climate change;

the impact of changes in generally accepted accounting principles and in tax laws or the interpretation of such tax laws, including the U.S. Tax Cuts and Jobs Act (the "Tax Act") enacted during the third quarter of fiscal 2018;

the impact of the Organisation for Economic Co-operation and Development Base Erosion and Profit Shifting initiative on tax policy and enacted laws in the countries in which we operate;

our ability to attract and retain skilled personnel and develop leaders for key business units and functions; and

the possibility that future acquisitions may dilute our stockholders’ ownership and cause us to incur debt and assume contingent liabilities or adversely affect our results of operations.

These and other risks and uncertainties, which are described in more detail in our most recent Annual Report on Form 10-K and in other reports and statements that we file with the SEC, could cause the actual results and developments to be materially different from those expressed or implied by any of these forward-looking statements. Forward-looking statements speak only as of the date they were made, and we undertake no obligation to update or revise such statements, except as required by the federal securities laws.

OVERVIEW

Company

The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help the reader understand the consolidated results of operations and financial condition of Qorvo. MD&A is provided as a supplement to, and should be read in conjunction with, our Condensed Consolidated Financial Statements and accompanying Notes to Condensed Consolidated Financial Statements.

We are a product and technology leader at the forefront of the growing global demand for always-on broadband connectivity. We combine a broad portfolio of radio frequency ("RF") solutions, highly differentiated semiconductor technologies, deep systems-level expertise and scale manufacturing to supply a diverse group of customers in expanding markets, including smartphones and other mobile devices, defense and aerospace, Wi-Fi customer premises equipment, cellular base stations, optical networks, automotive connectivity and smart home applications. Within these markets, our products enable a broad range of leading-edge applications — from very-high-power wired and wireless infrastructure solutions to ultra-low-power smart home solutions. Our products and technologies help transform how people around the world access their data, transact commerce, and interact with their communities.

We employ more than 8,100 people. We have world-class manufacturing facilities, and our fabrication facility in Richardson, Texas, is a U.S. Department of Defense accredited ‘Trusted Source’ (Category 1A) for gallium arsenide ("GaAs"), gallium nitride ("GaN") and bulk acoustic wave ("BAW") technologies. Our design and manufacturing expertise covers many semiconductor process technologies, which we source both internally and through external suppliers. Our primary wafer fabrication facilities are in Florida, North Carolina, Oregon and Texas, and our primary assembly and test facilities are in China, Costa Rica, Germany and Texas. We also operate design, sales and manufacturing facilities throughout Asia, Europe and North America.

We design, develop, manufacture and market our products to leading U.S. and international original equipment manufacturers and original design manufacturers in the following operating segments:

Mobile Products (MP) - MP is a leading global supplier of cellular RF and Wi-Fi solutions for a variety of mobile devices, including smartphones, notebook computers, wearables, tablets and cellular-based applications for the Internet of Things ("IoT"). Mobile device manufacturers and mobile network operators are adopting new technologies to address the growing demand for data-intensive, increasingly cloud-based distributed applications and for mobile devices with smaller form

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Table of Contents

factors, improved signal quality, less heat and longer talk and standby times. New wireless communications standards are being deployed to utilize available spectrum more efficiently. Carrier aggregation is being implemented to support wider bandwidths, increase data rates and improve network performance. These trends increase the complexity of smartphones, require more RF content and place a premium on performance, integration, systems-level expertise, and product and technology portfolio breadth, all of which are MP strengths. We offer a comprehensive product portfolio of BAW and surface acoustic wave ("SAW") filters, power amplifiers ("PAs"), low noise amplifiers ("LNAs"), switches, multimode multi-band PAs and transmit modules, RF power management integrated circuits, diversity receive modules, antenna switch modules, antenna tuning and control solutions, modules incorporating PAs and duplexers ("PADs") and modules incorporating switches, PAs and duplexers.

Infrastructure and Defense Products (IDP) - IDP is a leading global supplier of RF solutions with a diverse portfolio of solutions that "connect and protect," spanning communications and defense applications. These applications include high performance defense systems such as radar, electronic warfare and communication systems, Wi-Fi customer premises equipment for home and work, high speed connectivity in Long-Term Evolution ("LTE") and 5G base stations, cloud connectivity via data center communications and telecom transport, automotive connectivity and other IoT, including smart home solutions. Our IDP products include GaAs and GaN PAs, LNAs, switches, Complementary Metal Oxide Semiconductor ("CMOS") system-on-a-chip solutions, premium BAW and SAW filter solutions and various multi-chip and hybrid assemblies.  

As of June 30, 2018, our reportable segments are MP and IDP. These business segments are based on the organizational structure and information reviewed by our Chief Executive Officer, who is our chief operating decision maker ("CODM"), and are managed separately based on the end markets and applications they support. The CODM allocates resources and evaluates the performance of each operating segment primarily based on operating income and operating income as a percentage of revenue (see Note 9 of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report for additional information regarding our operating segments).

FIRST QUARTER FISCAL 2019 FINANCIAL HIGHLIGHTS:

Quarterly revenue increased 8.1% as compared to the first quarter of fiscal 2018, primarily due to higher demand for our cellular RF solutions in support of our customers based in China and higher demand for our Wi-Fi products.

Gross margin for the first quarter of fiscal 2019 was 34.2% as compared to 36.9% for the first quarter of fiscal 2018. The decrease was primarily due to lower factory utilization and average selling price erosion, partially offset by cost and other productivity improvements.