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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 September 29, 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
https://cdn.kscope.io/e29e6bf437a2545d21263b50cb0ef42a-qorvoform8kimagefinala15.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 every Interactive Data File required to be submitted 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 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 ¨
 
 
 
 
 
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 October 25, 2018, there were 124,905,033 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)
 
 
September 29, 2018
 
March 31, 2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
557,924

 
$
926,037

Accounts receivable, less allowance of $177 and $134 as of September 29, 2018 and March 31, 2018, respectively
491,183

 
345,957

Inventories (Note 3)
474,532

 
472,292

Prepaid expenses
26,313

 
23,909

Other receivables
38,973

 
44,795

Other current assets
30,845

 
30,815

Total current assets
1,619,770

 
1,843,805

Property and equipment, net of accumulated depreciation of $1,130,891 at September 29, 2018 and $911,910 at March 31, 2018
1,401,865

 
1,374,112

Goodwill
2,173,889

 
2,173,889

Intangible assets, net of accumulated amortization of $1,978,206 at September 29, 2018 and $1,711,520 at March 31, 2018 (Note 4)
595,852

 
860,336

Long-term investments (Note 5)
90,903

 
63,765

Other non-current assets
64,782

 
65,612

Total assets
$
5,947,061

 
$
6,381,519

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
229,009

 
$
213,193

Accrued liabilities
181,505

 
167,182

Other current liabilities
51,869

 
60,904

Total current liabilities
462,383

 
441,279

Long-term debt (Note 6 )
735,098

 
983,290

Deferred tax liabilities (Note 10)
21,932

 
63,084

Other long-term liabilities
95,511

 
118,302

Total liabilities
1,314,924

 
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; 125,046 and 126,322 shares issued and outstanding at September 29, 2018 and March 31, 2018, respectively
5,089,331

 
5,237,085

Accumulated other comprehensive loss, net of tax
(5,008
)
 
(2,752
)
Accumulated deficit
(452,186
)
 
(458,769
)
Total stockholders’ equity
4,632,137

 
4,775,564

Total liabilities and stockholders’ equity
$
5,947,061

 
$
6,381,519

See accompanying Notes to Condensed Consolidated Financial Statements.

3
Table of Contents

 QORVO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
September 29, 2018
 
September 30, 2017
 
September 29, 2018
 
September 30, 2017
Revenue
$
884,443

 
$
821,583

 
$
1,577,113

 
$
1,462,414

Cost of goods sold
530,929

 
500,561

 
986,866

 
905,015

Gross profit
353,514

 
321,022

 
590,247

 
557,399

Operating expenses:
 
 
 
 
 
 
 
Research and development
116,748

 
111,398

 
227,651

 
227,897

Selling, general and administrative
139,507

 
138,867

 
275,437

 
278,298

Other operating expense
6,782

 
21,193

 
15,897

 
29,469

Total operating expenses
263,037

 
271,458

 
518,985

 
535,664

Income from operations
90,477

 
49,564

 
71,262

 
21,735

Interest expense (Note 6)
(9,689
)
 
(14,778
)
 
(24,042
)
 
(27,049
)
Interest income
1,580

 
1,058

 
4,974

 
1,824

Other expense (Note 6)
(49,532
)
 
(192
)
 
(81,487
)
 
(1,126
)
 
 
 
 
 
 
 
 
Income (loss) before income taxes
32,836

 
35,652

 
(29,293
)
 
(4,616
)
 
 
 
 
 
 
 
 
Income tax (expense) benefit (Note 10)
(752
)
 
267

 
31,384

 
9,911

Net income
$
32,084

 
$
35,919

 
$
2,091

 
$
5,295

 
 
 
 
 
 
 
 
Net income per share (Note 11):
 
 
 
 
 
 
 
Basic
$
0.26

 
$
0.28

 
$
0.02

 
$
0.04

Diluted
$
0.25

 
$
0.27

 
$
0.02

 
$
0.04

 
 
 
 
 
 
 
 
Weighted average shares of common stock outstanding (Note 11):
 
 
 
 
 
 
 
Basic
125,643

 
127,257

 
125,859

 
127,109

Diluted
128,550

 
130,778

 
128,977

 
131,062


See accompanying Notes to Condensed Consolidated Financial Statements.


4
Table of Contents

QORVO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
September 29, 2018
 
September 30, 2017
 
September 29, 2018
 
September 30, 2017
Net income
$
32,084

 
$
35,919

 
$
2,091

 
$
5,295

Other comprehensive (loss) income:
 
 
 
 
 
 
 
Unrealized gain on marketable securities, net of tax
85

 
38

 
90

 
99

Foreign currency translation adjustment, including intra-entity foreign currency transactions that are of a long-term investment nature
(181
)
 
106

 
(2,394
)
 
722

Reclassification adjustments, net of tax:
 
 
 
 
 
 
 
Foreign currency gain included in net income
—

 
(581
)
 
—

 
(581
)
Amortization of pension actuarial loss
24

 
45

 
48

 
87

Other comprehensive (loss) income
(72
)
 
(392
)
 
(2,256
)
 
327

Total comprehensive income (loss)
$
32,012

 
$
35,527

 
$
(165
)
 
$
5,622

See accompanying Notes to Condensed Consolidated Financial Statements.



5
Table of Contents

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

 
Six Months Ended

September 29, 2018
 
September 30, 2017
Cash flows from operating activities:
 
 
 
Net income
$
2,091

 
$
5,295

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
90,214

 
86,267

Intangible assets amortization (Note 4)
266,708

 
270,546

Amortization of debt issuance cost and non-cash items (Note 6)
82,539

 
464

Deferred income taxes
(42,962
)
 
(17,290
)
Foreign currency adjustments
(2,020
)
 
1,553

(Income) loss on investments and other assets, net
(81
)
 
3,573

Stock-based compensation expense
40,250

 
44,584

Changes in operating assets and liabilities:
 
 
 
Accounts receivable, net
(145,874
)
 
(102,219
)
Inventories
556

 
(29,786
)
Prepaid expenses and other current and non-current assets
1,589

 
12,157

Accounts payable and accrued liabilities
23,980

 
55,620

Income tax (recoverable) / payable
(20,965
)
 
(4,261
)
Other liabilities
(6,229
)
 
(3,009
)
Net cash provided by operating activities
289,796

 
323,494

Investing activities:
 
 
 
Purchase of property and equipment
(113,666
)
 
(192,219
)
Purchase of debt securities and other investments
(132,729
)
 
—

Proceeds from maturities of other investments
133,132

 
—

Other investing activities
(19,492
)
 
(23,028
)
Net cash used in investing activities
(132,755
)
 
(215,247
)
Financing activities:
 
 
 
Payment of debt (Note 6)
(954,745
)
 
—

Proceeds from debt issuances (Note 6)
631,300

 
—

Repurchase of common stock, including transaction costs (Note 7)
(186,682
)
 
(88,925
)
Proceeds from the issuance of common stock
18,406

 
32,867

Tax withholding paid on behalf of employees for restricted stock units
(24,181
)
 
(24,005
)
Other financing activities
(7,057
)
 
—

Net cash used in financing activities
(522,959
)
 
(80,063
)
 
 
 
 
Effect of exchange rate changes on cash
(2,216
)
 
1,260

Net (decrease) increase in cash, cash equivalents and restricted cash
(368,134
)
 
29,444

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
$
558,268

 
$
575,223

Non-cash investing information:
 
 
 
Capital expenditure adjustments included in accounts payable and accrued liabilities
$
44,634

 
$
30,272


See accompanying Notes to Condensed Consolidated Financial Statements.

6
Table of Contents

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.

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. The Company's historical policies were consistent with the new standard, and therefore, there was no 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 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, as determined by the standard. The Company is continuing to assess the overall impacts of the new standard, including the discount rate to be applied in these valuations.

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 affects 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

7
Table of Contents

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


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 impact to the Company's Condensed Consolidated Financial Statements.

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):
 
 
September 29, 2018
 
March 31, 2018
Raw materials
$
112,227

 
$
110,389

Work in process
252,891

 
221,137

Finished goods
109,414

 
140,766

Total inventories
$
474,532

 
$
472,292


4. INTANGIBLE ASSETS
Total intangible assets decreased to $595.9 million as of September 29, 2018, compared to $860.3 million as of March 31, 2018. This decrease was due to amortization expense for the three and six months ended September 29, 2018 of $133.4 million and $266.7 million, respectively, primarily related to developed technology and customer relationships (which had net book values of $386.9 million and $196.8 million respectively, as of September 29, 2018).

5. INVESTMENTS AND FAIR VALUE MEASUREMENTS

Debt Securities
The following is a summary of available-for-sale debt securities as of September 29, 2018 and March 31, 2018 (in thousands): 
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated Fair  
Value
September 29, 2018
 
 
 
 
 
 
 
Auction rate securities
$
1,950

 
$
—

 
$
(17
)
 
$
1,933

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 September 29, 2018 and March 31, 2018. The Company determines the cost of an investment sold based on the specific identification method.


8
Table of Contents

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):
 
September 29, 2018
 
March 31, 2018
 
Cost
 
Estimated
Fair Value
 
Cost
 
Estimated
Fair Value
Due in less than one year
$
—

 
$
—

 
$
—

 
$
—

Due after ten years
1,950

 
1,933

 
1,950

 
1,843

Total
$
1,950

 
$
1,933

 
$
1,950

 
$
1,843


Equity Investment Without a Readily Determinable Fair Value
As of September 29, 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. This investment was determined to be an equity investment without a readily determinable fair value and is accounted for using the measurement alternative in accordance with ASU 2016-01. As of September 29, 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 September 29, 2018 and March 31, 2018 (in thousands):
 
 
 
 
 
Total
 
Quoted Prices In
Active Markets For
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
September 29, 2018
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
Money market funds
$
—

 
$
—

 
$
—

 
 
Auction rate securities ("ARS")  (1)
1,933

 
—

 
1,933

 
 
Invested funds in deferred compensation plan (2)
16,472

 
16,472

 
—

 
 
 
 
Total assets measured at fair value
$
18,405

 
$
16,472

 
$
1,933

 
Liabilities
 
 
 
 
 
 
 
Deferred compensation plan obligation (2)
$
16,472

 
$
16,472

 
$
—

 
 
 
 
Total liabilities measured at fair value
$
16,472

 
$
16,472

 
$
—

 
 
 
 
 
 
 
 
 
 
March 31, 2018
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
Money market funds
$
9

 
$
9

 
$
—

 
 
Auction rate securities (1)
1,843

 
—

 
1,843

 
 
Invested funds in deferred compensation plan (2)
14,284

 
14,284

 
—

 
 
 
 
Total assets measured at fair value
$
16,136

 
$
14,293

 
$
1,843

 
Liabilities
 
 
 
 
 
 
 
Deferred compensation plan obligation (2)
$
14,284

 
$
14,284

 
$
—

 
 
 
 
Total liabilities measured at fair value
$
14,284

 
$
14,284

 
$
—

 
(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.

9
Table of Contents

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


(2) 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 September 29, 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 further disclosures related to the fair value of the Company's long-term debt.

6. DEBT

Long-term debt as of September 29, 2018 and March 31, 2018 is as follows (in thousands):
 
September 29, 2018
 
March 31, 2018
6.75% Senior Notes due 2023
$
—

 
$
444,464

7.00% Senior Notes due 2025
112,110

 
548,500

5.50% Senior Notes due 2026
630,000

 
—

Less unamortized premium and issuance costs
(7,012
)
 
(9,674
)
Total long-term debt
$
735,098

 
$
983,290


Senior Notes due 2023 and 2025
On November 19, 2015, the Company issued $450.0 million aggregate principal amount of its 6.75% senior notes due December 1, 2023 (the "2023 Notes") and $550.0 million aggregate principal amount of its 7.00% senior notes due December 1, 2025 (the "2025 Notes"). The 2023 Notes were, and the 2025 Notes are, senior unsecured obligations of the Company and guaranteed, jointly and severally, by the Company and certain of its U.S. subsidiaries (the "Guarantors"). The 2023 Notes and the 2025 Notes were issued pursuant to an indenture dated as of November 19, 2015 (the "2015 Indenture"), by and among the Company, the Guarantors and MUFG Union Bank, N.A., as trustee. The 2015 Indenture contains customary events of default, including payment default, failure to provide certain notices and certain provisions related to bankruptcy events.

In 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 of the 2025 Notes (the "2025 Tender Offer"). On June 29, 2018, the Company completed the purchase of $429.2 million aggregate principal amount of the 2023 Notes 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, plus a make-whole premium and accrued and unpaid interest.

On July 10, 2018, the Company increased the tender cap for the 2025 Tender Offer 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.

On August 14, 2018, the Company commenced a cash tender offer for up to $130.0 million of the 2025 Notes. On August 28, 2018, following an increase of the tender cap to $140.0 million, the Company completed the purchase of $136.4 million aggregate principal amount of the 2025 Notes at a price equal to 110.00% of the principal amount of the 2025 Notes purchased, plus accrued and unpaid interest.


10
Table of Contents

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


During the three and six months ended September 29, 2018, the Company recognized a loss on debt extinguishment of $48.8 million and $82.2 million, respectively, as "Other expense" in the Company’s Condensed Consolidated Statements of Income.

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% of the principal amount of the 2025 Notes redeemed, 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 and six months ended September 29, 2018 was $7.3 million and $41.5 million, respectively. Interest paid on the 2023 Notes and the 2025 Notes during the six months ended September 30, 2017 was $34.4 million.
  
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 “Initial 2026 Notes”). On August 28, 2018, the Company completed an offering of an additional $130.0 million aggregate principal amount of such notes (the "Additional 2026 Notes", together with the "Initial 2026 Notes", 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 are senior unsecured obligations of the Company and are initially guaranteed, jointly and severally, by its Guarantors.

The Initial 2026 Notes were issued pursuant to an indenture, dated as of July 16, 2018 by and among the Company, the Guarantors and MUFG Union Bank, N.A., as trustee, and the Additional 2026 Notes were issued pursuant to a supplemental indenture, dated as of August 28, 2018 (together, the "2018 Indenture"). The 2018 Indenture contains customary events of default, including payment default, exchange default, failure to provide certain notices thereunder and certain provisions related to bankruptcy events and also contains customary negative covenants.

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 2026 Notes to fund the tender offers for the 2025 Notes and to pay related fees and expenses of the offering and will use the remaining net proceeds for general corporate purposes.

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

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, 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 Initial 2026 Notes, on the other hand, and a substantially similar agreement, dated as of August 28, 2018 with respect to the Additional 2026 Notes (together, the "Registration Rights Agreements").


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


Under the Registration Rights Agreements, the Company and the Guarantors have agreed to use their commercially reasonable efforts to (i) file with the SEC a registration statement (the "Exchange Offer Registration Statement") relating to the registered exchange offer (the "Exchange Offer") to exchange the 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 (in the case of the Initial 2026 Notes) or August 28, 2018 (in the case of the Additional 2026 Notes) (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 rate.

Credit Agreement
On December 5, 2017, the Company and the Guarantors entered into a five-year unsecured senior credit facility pursuant to a credit agreement with Bank of America, N.A., as administrative agent (in such capacity, the “Administrative Agent”), swing line lender and L/C issuer, and a syndicate of lenders (the "Credit Agreement"). 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 by 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 six months ended September 29, 2018, there were no borrowings under the Revolving Facility and the Company had no outstanding amounts under the Credit Facility as of September 29, 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 September 29, 2018, the Company was in compliance with these covenants.

Fair Value of Long-Term Debt
The fair value of the 2025 Notes as of September 29, 2018 and March 31, 2018 was $120.0 million and $596.5 million, respectively (compared to a carrying value of $112.1 million and $548.5 million, respectively). The fair value of the 2026 Notes as of September 29, 2018 was $641.0 million (compared to a carrying value of $630.0 million). The Company considers its long-term debt to be Level 2 in the fair value hierarchy. Fair values are generally estimated based on quoted market prices for identical or similar instruments. The 2025 Notes and 2026 Notes trade over the counter and their fair values were estimated based upon the value of their last trade at the end of the period.

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



Interest Expense
During the three and six months ended September 29, 2018, the Company recognized $10.9 million and $28.0 million, respectively, of interest expense related to the 2023 Notes, 2025 Notes and the 2026 Notes, which was partially offset by $1.8 million and $5.3 million, respectively, of interest capitalized to property and equipment. During the three and six months ended September 30, 2017, the Company recognized $17.3 million and $34.6 million, respectively, of interest expense related to the 2023 Notes and the 2025 Notes, which was partially offset by $3.2 million and $8.8 million, respectively, of interest capitalized to property and equipment.

7. STOCK REPURCHASES

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 a prior share repurchase program which was terminated concurrent with the new authorization. Under this program, share repurchases are made in accordance with applicable securities laws on the open market or in privately negotiated transactions. The extent to which the Company repurchases its shares, the number of shares and the timing of any repurchases depends on general market conditions, regulatory requirements, alternative investment opportunities and other considerations. The program does not require the Company to repurchase a minimum number of shares, does not have a fixed term, and may be modified, suspended or terminated at any time without prior notice.

During the three months ended September 29, 2018, the Company repurchased approximately 1.1 million shares of its common stock for approximately $86.7 million under the current share repurchase program. During the six months ended September 29, 2018, the Company repurchased approximately 2.3 million shares of its common stock for approximately $186.7 million (which included 0.4 million shares of its common stock for approximately $35.9 million under a prior share repurchase program). As of September 29, 2018, $849.2 million remains available for repurchases under the current share repurchase program.

During the three and six months ended September 30, 2017, the Company repurchased approximately 0.8 million shares and 1.2 million shares of its common stock for approximately $57.0 million and $88.9 million, respectively, under a prior 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 in the quarter of adoption), 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.

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



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 5% of net revenue. The majority of these accruals 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.

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 upon shipment and recognizes revenues in accordance with delivery terms. As of September 29, 2018, the Company had $41.6 million in remaining unsatisfied performance obligations with an original duration greater than one year, of which the majority is expected to be recognized as income over the next 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 Income. Taxes assessed by government authorities on revenue-producing transactions, including tariffs, value-added and excise taxes, are excluded from revenue in the Condensed Consolidated Statements of Income.

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 Income) 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
 
Six Months Ended
 
September 29, 2018
 
September 30, 2017
 
September 29, 2018
 
September 30, 2017
Revenue:
 
 
 
 
 
 
 
  China
$
548,848

 
$
430,141

 
$
915,382

 
$
779,772

  Taiwan
160,835

 
169,913

 
316,006

 
260,071

  United States
106,294

 
127,897

 
214,760

 
266,257

  Other Asia
39,241

 
64,901

 
73,810

 
101,076

  Europe
24,302

 
24,534

 
46,938

 
45,769

  Other
4,923

 
4,197

 
10,217

 
9,469

Total Revenue
$
884,443

 
$
821,583

 
$
1,577,113

 
$
1,462,414



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


The Company also disaggregates revenue by operating segments (see Note 9).

9. OPERATING SEGMENT INFORMATION

The Company's operating segments as of September 29, 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, and new frequency bands are being added. 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 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, 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
 
Six Months Ended
 
September 29,
2018
 
September 30,
2017
 
September 29,
2018
 
September 30,
2017
Revenue:
 
 
 
 
 
 
 
MP
$
666,539

 
$
630,397

 
$
1,152,618

 
$
1,086,620

IDP
217,904

 
190,216

 
424,495

 
373,854

All other (1)
—

 
970

 
—

 
1,940

Total revenue
$
884,443

 
$
821,583

 
$
1,577,113

 
$
1,462,414

Income (loss) from operations
 
 
 
 
 
 
 
MP
$
196,948

 
$
172,892

 
$
286,119

 
$
260,699

IDP
56,311

 
57,649

 
111,515

 
107,235

All other
(162,782
)
 
(180,977
)
 
(326,372
)
 
(346,199
)
Income from operations
90,477

 
49,564

 
71,262

 
21,735

Interest expense
(9,689
)
 
(14,778
)
 
(24,042
)
 
(27,049
)
Interest income
1,580

 
1,058

 
4,974

 
1,824

Other expense
(49,532
)
 
(192
)
 
(81,487
)
 
(1,126
)
Income (loss) before income taxes
$
32,836

 
$
35,652

 
$
(29,293
)
 
$
(4,616
)
 
(1) "All other" revenue relates to royalty income that is not allocated to MP or IDP for the three and six months ended September 30, 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, was included as a transition adjustment impacting retained earnings.
 
Three Months Ended
 
Six Months Ended
 
September 29,
2018
 
September 30,
2017
 
September 29,
2018
 
September 30,
2017
Reconciliation of “All other” category:
 
 
 
 
 
 
 
Stock-based compensation expense
$
(20,905
)
 
$
(23,458
)
 
$
(40,250
)
 
$
(44,584
)
Amortization of intangible assets
(133,116
)
 
(135,639
)
 
(266,291
)
 
(270,325
)
Acquisition and integration related costs
(1,098
)
 
(2,613
)
 
(2,180
)
 
(5,390
)
Restructuring charges
(510
)
 
(7,453
)
 
(3,312
)
 
(7,984
)
Start-up costs
(5,883
)
 
(7,129
)
 
(11,244
)
 
(13,753
)
Other (including gain (loss) on assets and other miscellaneous corporate overhead)
(1,270
)
 
(4,685
)
 
(3,095
)
 
(4,163
)
Loss from operations for “All other”
$
(162,782
)
 
$
(180,977
)
 
$
(326,372
)
 
$
(346,199
)

10. INCOME TAXES

U.S. Tax Reform
On December 22, 2017, the Tax Cuts and Jobs Act ("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

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


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 six months ended September 29, 2018 we have made a $15.9 million measurement period adjustment to reduce the tax expense related to the previously recorded provisional amounts. This was comprised of an $11.6 million reduction in the Transitional Repatriation Tax and a $4.3 million increase in U.S. deferred tax assets.

The Global Intangible Low-Taxed Income (“GILTI”) provisions create a new requirement that certain income earned by foreign subsidiaries 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).

Income Tax Expense
The Company’s provision for income taxes for the three and six months ended September 29, 2018 and September 30, 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) to year-to-date income (loss) to determine the amounts for the three and six months ended September 29, 2018 and September 30, 2017.

The Company’s income tax expense was $0.8 million and income tax benefit was $31.4 million for the three and six months ended September 29, 2018, respectively, and the Company's income tax benefit was $0.3 million and $9.9 million for the three and six months ended September 30, 2017, respectively. The Company’s effective tax rate was 2.3% and 107.1% for the three and six months ended September 29, 2018, respectively, and (0.7)% and 214.7% for the three and six months ended September 30, 2017, respectively.

The Company's effective tax rate for the three and six months ended September 29, 2018 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, a discrete tax benefit for changes in provisional estimates related to the Transitional Repatriation Tax, and a discrete tax benefit resulting from a retroactive incentive allowing previously non-deductible payments to be amortized. The Company's effective tax rate for the three and six months ended September 30, 2017 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, for the six months only, 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.


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


The Company has domestic federal and state tax net operating loss ("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 $134.1 million as of the end of the second quarter of fiscal 2019, primarily due to tax positions taken with respect to the current fiscal year.

11. NET INCOME PER SHARE

The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share data):
 
Three Months Ended
 
Six Months Ended
 
September 29, 2018
 
September 30, 2017
 
September 29, 2018
 
September 30, 2017
Numerator:
 
 
 
 
 
 
 
Numerator for basic and diluted net income per share — net income available to common stockholders
$
32,084

 
$
35,919

 
$
2,091

 
$
5,295

Denominator:
 
 
 
 
 
 
 
Denominator for basic net income per share — weighted average shares
125,643

 
127,257

 
125,859

 
127,109

Effect of dilutive securities:
 
 
 
 
 
 
 
Stock-based awards
2,907

 
3,521

 
3,118

 
3,953

Denominator for diluted net income per share — adjusted weighted average shares and assumed conversions
128,550

 
130,778

 
128,977

 
131,062

Basic net income per share
$
0.26

 
$
0.28

 
$
0.02

 
$
0.04

Diluted net income per share
$
0.25

 
$
0.27

 
$
0.02

 
$
0.04


In the computation of diluted net income per share for the three and six months ended September 29, 2018, outstanding options to purchase 0.3 million shares and 0.2 million shares, respectively, were excluded because the effect of their inclusion would have been anti-dilutive. In the computation of diluted net income per share for the three and six months ended September 30, 2017, outstanding options to purchase less than 0.1 million shares were excluded because the effect of their inclusion would have been anti-dilutive.

12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION

In accordance with the applicable indentures governing the 2025 Notes and 2026 Notes, the Company's obligations under the 2025 Notes and 2026 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 applicable 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 Guarantor subsidiaries of the equity method of

18
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QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


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, Guarantor or non-guarantor subsidiaries operated as independent entities.

 
Condensed Consolidating Balance Sheet
 
September 29, 2018
(in thousands)
Parent Company
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations and Reclassifications
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
—

 
$
95,152

 
$
462,772

 
$
—

 
$
557,924

Accounts receivable, less allowance
—

 
50,023

 
441,160

 
—

 
491,183

Intercompany accounts and notes receivable
—

 
389,857

 
50,428

 
(440,285
)
 
—

Inventories
—

 
214,519

 
280,586

 
(20,573
)
 
474,532

Prepaid expenses
—

 
18,699

 
7,614

 
—

 
26,313

Other receivables
—

 
3,795

 
35,178

 
—

 
38,973

Other current assets
—

 
29,696

 
1,149

 
—

 
30,845

Total current assets
—

 
801,741

 
1,278,887

 
(460,858
)
 
1,619,770

Property and equipment, net
—

 
1,127,933

 
274,463

 
(531
)
 
1,401,865

Goodwill
—

 
1,122,629

 
1,051,260

 
—

 
2,173,889

Intangible assets, net
—

 
294,900

 
300,952

 
—

 
595,852

Long-term investments
—

 
4,952

 
85,951

 
—

 
90,903

Long-term intercompany accounts and notes receivable
—

 
990,080

 
92,490

 
(1,082,570
)
 
—

Investment in subsidiaries
6,272,369

 
2,450,260

 
—

 
(8,722,629
)
 
—

Other non-current assets
109,305

 
32,394

 
30,496

 
(107,413
)
 
64,782

Total assets
$
6,381,674

 
$
6,824,889

 
$
3,114,499

 
$
(10,374,001
)
 
$
5,947,061

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 

Current liabilities:
 
 
 
 
 
 
 
 

Accounts payable
$
—

 
$
90,561

 
$
138,448

 
$
—

 
$
229,009

Intercompany accounts and notes payable
—

 
50,428

 
389,857

 
(440,285
)
 
—

Accrued liabilities
9,921

 
126,420

 
44,806

 
358

 
181,505

Other current liabilities
—

 
2,989

 
48,880

 
—

 
51,869

Total current liabilities
9,921

 
270,398

 
621,991

 
(439,927
)
 
462,383

Long-term debt
735,098

 
—

 
—

 
—

 
735,098

Deferred tax liabilities
—

 
46,815

 
5,478

 
(30,361
)
 
21,932

Long-term intercompany accounts and notes payable
1,004,518

 
92,490

 
(14,438
)
 
(1,082,570
)
 
—

Other long-term liabilities
—

 
43,784

 
51,727

 
—

 
95,511

Total liabilities
1,749,537

 
453,487

 
664,758

 
(1,552,858
)
 
1,314,924

Total stockholders’ equity
4,632,137

 
6,371,402

 
2,449,741

 
(8,821,143
)
 
4,632,137

Total liabilities and stockholders’ equity
$
6,381,674

 
$
6,824,889

 
$
3,114,499

 
$
(10,374,001
)
 
$
5,947,061



19
Table of Contents

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



20
Table of Contents

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


 
Condensed Consolidating Statement of Income and Comprehensive Income
 
Three Months Ended September 29, 2018
(in thousands)
Parent Company
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations and Reclassifications
 
Consolidated
Revenue
$
—

 
$
236,631

 
$
825,844

 
$
(178,032
)
 
$
884,443

Cost of goods sold
—

 
207,221

 
476,256

 
(152,548
)
 
530,929

Gross profit
—

 
29,410

 
349,588

 
(25,484
)
 
353,514

Operating expenses:
 
 
 
 
 
 
 
 

Research and development
6,910

 
7,340

 
103,671

 
(1,173
)
 
116,748

Selling, general and administrative
13,876

 
58,924

 
91,399

 
(24,692
)
 
139,507

Other operating expense (income)
119

 
(2,192
)
 
8,458

 
397

 
6,782

Total operating expenses
20,905

 
64,072

 
203,528

 
(25,468
)
 
263,037

Income (loss) from operations
(20,905
)
 
(34,662
)
 
146,060

 
(16
)
 
90,477

Interest expense
(9,400
)
 
(522
)
 
(160
)
 
393

 
(9,689
)
Interest income
—

 
477

 
1,495

 
(392
)
 
1,580

Other (expense) income
(48,779
)
 
798

 
(1,551
)
 
—

 
(49,532
)
Income (loss) before income taxes
(79,084
)
 
(33,909
)
 
145,844

 
(15
)
 
32,836

Income tax (expense) benefit
25,920

 
(20,470
)
 
(6,202
)
 
—

 
(752
)
Income in subsidiaries
85,248

 
139,642

 
—

 
(224,890
)
 
—

Net income
$
32,084

 
$
85,263

 
$
139,642

 
$
(224,905
)
 
$
32,084

 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
32,012

 
$
85,347

 
$
139,472

 
$
(224,819
)
 
$
32,012


21
Table of Contents

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


 
Condensed Consolidating Statement of Income and Comprehensive Income
 
Three Months Ended September 30, 2017
(in thousands)
Parent Company
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations and Reclassifications
 
Consolidated
Revenue
$
—

 
$
256,595

 
$
775,682

 
$
(210,694
)
 
$
821,583

Cost of goods sold
—

 
196,350

 
480,439

 
(176,228
)
 
500,561

Gross profit
—

 
60,245

 
295,243

 
(34,466
)
 
321,022

Operating expenses:
 
 
 
 
 
 
 
 
 
Research and development
6,703

 
11,148

 
97,800

 
(4,253
)
 
111,398

Selling, general and administrative
16,626

 
66,958

 
86,004

 
(30,721
)
 
138,867

Other operating expense
129

 
16,800

 
4,288

 
(24
)
 
21,193

Total operating expenses
23,458

 
94,906

 
188,092

 
(34,998
)
 
271,458

Income (loss) from operations
(23,458
)
 
(34,661
)
 
107,151

 
532

 
49,564

Interest expense
(14,442
)
 
(557
)
 
(434
)
 
655

 
(14,778
)
Interest income
—

 
331

 
1,382

 
(655
)
 
1,058

Other (expense) income
—

 
970

 
(3,880
)
 
2,718

 
(192
)
Income (loss) before income taxes
(37,900
)
 
(33,917
)
 
104,219

 
3,250

 
35,652

Income tax benefit (expense)
19,527

 
(8,651
)
 
(10,609
)
 
—

 
267

Income in subsidiaries
54,292

 
93,610

 
—

 
(147,902
)
 
—

Net income
$
35,919

 
$
51,042

 
$
93,610

 
$
(144,652
)
 
$
35,919

 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
35,527

 
$
51,080

 
$
90,666

 
$
(141,746
)
 
$
35,527

 
Condensed Consolidating Statement of Income and Comprehensive (Loss) Income
 
Six Months Ended September 29, 2018
(in thousands)
Parent Company
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Revenue
$
—

 
$
468,570

 
$
1,451,805

 
$
(343,262
)
 
$
1,577,113

Cost of goods sold
—

 
397,532

 
885,953

 
(296,619
)
 
986,866

Gross profit
—

 
71,038

 
565,852

 
(46,643
)
 
590,247

Operating expenses:
 
 
 
 
 
 
 
 
 
Research and development
13,311

 
10,619

 
206,119

 
(2,398
)
 
227,651

Selling, general and administrative
26,671

 
116,880

 
177,778

 
(45,892
)
 
275,437

Other operating expense
269

 
5,748

 
9,512

 
368

 
15,897

Total operating expenses
40,251

 
133,247

 
393,409

 
(47,922
)
 
518,985

Income (loss) from operations
(40,251
)
 
(62,209
)
 
172,443

 
1,279

 
71,262

Interest expense
(23,442
)
 
(1,059
)
 
(321
)
 
780

 
(24,042
)
Interest income
—

 
2,883

 
2,870

 
(779
)
 
4,974

Other (expense) income
(82,152
)
 
1,126

 
(461
)
 
—

 
(81,487
)
(Loss) income before income taxes
(145,845
)
 
(59,259
)
 
174,531

 
1,280

 
(29,293
)
Income tax benefit (expense)
37,374

 
(3,666
)
 
(2,324
)
 
—

 
31,384

Income in subsidiaries
110,562

 
172,207

 
—

 
(282,769
)
 
—

Net income
$
2,091

 
$
109,282

 
$
172,207

 
$
(281,489
)
 
$
2,091

 
 
 
 
 
 
 
 
 
 
Comprehensive (loss) income
$
(165
)
 
$
109,371

 
$
169,727

 
$
(279,098