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 December 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
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12683294&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 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 January 30, 2019, there were 122,788,565 shares of the registrant’s common stock outstanding.
 
 
 
 
 


Table of Contents

QORVO, INC. AND SUBSIDIARIES
INDEX
 
 
Page    
 
 
 
 
 
 
 
 
 
 
 
 

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Table of Contents

PART I — FINANCIAL INFORMATION
ITEM 1.
QORVO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
 
 
December 29, 2018
 
March 31, 2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
649,711

 
$
926,037

Accounts receivable, less allowance of $159 and $134 as of December 29, 2018 and March 31, 2018, respectively
420,903

 
345,957

Inventories (Note 3)
464,949

 
472,292

Prepaid expenses
23,961

 
23,909

Other receivables
21,899

 
44,795

Other current assets
34,113

 
30,815

Total current assets
1,615,536

 
1,843,805

Property and equipment, net of accumulated depreciation of $1,159,495 at December 29, 2018 and $911,910 at March 31, 2018
1,397,589

 
1,374,112

Goodwill
2,173,889

 
2,173,889

Intangible assets, net of accumulated amortization of $2,110,694 at December 29, 2018 and $1,711,520 at March 31, 2018 (Note 4)
463,359

 
860,336

Long-term investments (Note 5)
90,696

 
63,765

Other non-current assets
65,222

 
65,612

Total assets
$
5,806,291

 
$
6,381,519

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
229,266

 
$
213,193

Accrued liabilities
137,573

 
167,182

Other current liabilities
47,093

 
60,904

Total current liabilities
413,932

 
441,279

Long-term debt (Note 6 )
714,402

 
983,290

Deferred tax liabilities (Note 11)
6,978

 
63,084

Other long-term liabilities
93,659

 
118,302

Total liabilities
1,228,971

 
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; 123,001 and 126,322 shares issued and outstanding at December 29, 2018 and March 31, 2018, respectively
4,966,059

 
5,237,085

Accumulated other comprehensive loss, net of tax
(6,070
)
 
(2,752
)
Accumulated deficit
(382,669
)
 
(458,769
)
Total stockholders’ equity
4,577,320

 
4,775,564

Total liabilities and stockholders’ equity
$
5,806,291

 
$
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
 
Nine Months Ended
 
December 29, 2018
 
December 30, 2017
 
December 29, 2018
 
December 30, 2017
Revenue
$
832,330

 
$
845,739

 
$
2,409,443

 
$
2,308,153

Cost of goods sold
493,967

 
508,812

 
1,480,833

 
1,413,827

Gross profit
338,363

 
336,927

 
928,610

 
894,326

Operating expenses:
 
 
 
 
 
 
 
Research and development
109,985

 
106,411

 
337,636

 
334,308

Selling, general and administrative
125,604

 
126,555

 
401,041

 
404,853

Other operating expense (Note 9)
21,617

 
23,641

 
37,514

 
53,110

Total operating expenses
257,206

 
256,607

 
776,191

 
792,271

Income from operations
81,157

 
80,320

 
152,419

 
102,055

Interest expense (Note 6)
(9,562
)
 
(16,338
)
 
(33,604
)
 
(43,387
)
Interest income
2,814

 
2,215

 
7,788

 
4,039

Other expense (Note 6)
(3,520
)
 
(757
)
 
(85,007
)
 
(1,883
)
 
 
 
 
 
 
 
 
Income before income taxes
70,889

 
65,440

 
41,596

 
60,824

 
 
 
 
 
 
 
 
Income tax (expense) benefit (Note 11)
(1,372
)
 
(98,522
)
 
30,012

 
(88,611
)
Net income (loss)
$
69,517

 
$
(33,082
)
 
$
71,608

 
$
(27,787
)
 
 
 
 
 
 
 
 
Net income (loss) per share (Note 12):
 
 
 
 
 
 
 
Basic
$
0.56

 
$
(0.26
)
 
$
0.57

 
$
(0.22
)
Diluted
$
0.55

 
$
(0.26
)
 
$
0.56

 
$
(0.22
)
 
 
 
 
 
 
 
 
Weighted average shares of common stock outstanding (Note 12):
 
 
 
 
 
 
 
Basic
124,308

 
127,034

 
125,437

 
127,084

Diluted
126,842

 
127,034

 
128,360

 
127,084


See accompanying Notes to Condensed Consolidated Financial Statements.


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QORVO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
December 29, 2018
 
December 30, 2017
 
December 29, 2018
 
December 30, 2017
Net income (loss)
$
69,517

 
$
(33,082
)
 
$
71,608

 
$
(27,787
)
Other comprehensive (loss) income:
 
 
 
 
 
 
 
Unrealized (loss) gain on marketable securities, net of tax
(5
)
 
57

 
85

 
156

Foreign currency translation adjustment, including intra-entity foreign currency transactions that are of a long-term investment nature
(1,079
)
 
795

 
(3,448
)
 
1,517

Reclassification adjustments, net of tax:
 
 
 
 
 
 
 
Foreign currency gain included in net income (loss)

 

 

 
(581
)
Amortization of pension actuarial loss
22

 
45

 
45

 
132

Other comprehensive (loss) income
(1,062
)
 
897

 
(3,318
)
 
1,224

Total comprehensive income (loss)
$
68,455

 
$
(32,185
)
 
$
68,290

 
$
(26,563
)
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)

 
Nine Months Ended

December 29, 2018
 
December 30, 2017
Cash flows from operating activities:
 
 
 
Net income (loss)
$
71,608

 
$
(27,787
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation
143,008

 
132,879

Intangible assets amortization (Note 4)
399,200

 
406,375

Loss on debt extinguishment (Note 6)
84,004

 

Deferred income taxes
(58,216
)
 
(36,657
)
Foreign currency adjustments
(1,603
)
 
3,244

Asset impairment (Note 9)
14,913

 

Stock-based compensation expense
58,874

 
58,299

Other, net
5,094

 
12,276

Changes in operating assets and liabilities:
 
 
 
Accounts receivable, net
(74,844
)
 
(91,051
)
Inventories
7,474

 
6,974

Prepaid expenses and other current and non-current assets
14,914

 
26,130

Accounts payable and accrued liabilities
(9,810
)
 
(338
)
Income tax payable and receivable
(26,574
)
 
94,566

Other liabilities
(5,023
)
 
8,652

Net cash provided by operating activities
623,019

 
593,562

Investing activities:
 
 
 
Purchase of property and equipment
(185,627
)
 
(237,658
)
Purchase of debt securities
(132,729
)
 

Proceeds from sales and maturities of debt securities
133,132

 

Other investing activities
(20,238
)
 
(8,713
)
Net cash used in investing activities
(205,462
)
 
(246,371
)
Financing activities:
 
 
 
Payment of debt (Note 6)
(977,498
)
 

Proceeds from debt issuances (Note 6)
631,300

 
100,000

Repurchase of common stock, including transaction costs (Note 7)
(338,675
)
 
(168,935
)
Proceeds from the issuance of common stock
25,452

 
42,121

Tax withholding paid on behalf of employees for restricted stock units
(24,595
)
 
(24,343
)
Other financing activities
(7,510
)
 
(1,903
)
Net cash used in financing activities
(691,526
)
 
(53,060
)
 
 
 
 
Effect of exchange rate changes on cash
(2,369
)
 
1,771

Net (decrease) increase in cash, cash equivalents and restricted cash
(276,338
)
 
295,902

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
$
650,064

 
$
841,681

Non-cash investing information:
 
 
 
Capital expenditure adjustments included in accounts payable and accrued liabilities
$
37,206

 
$
26,743


See accompanying Notes to Condensed Consolidated Financial Statements.

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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. 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 August 2018, the FASB issued Accounting Standards Update ("ASU") 2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract." The new guidance clarifies the accounting for implementation costs in cloud computing arrangements. The Company intends to adopt the guidance, prospectively, in the fourth quarter of fiscal 2019 and does not expect any significant impact to the Company's Condensed Consolidated Financial Statements.

In January 2017, the FASB issued 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.  Also, in July 2018, the FASB issued 2018-11, "Leases (Topic 842): Targeted Improvements," to provide clarification on specific topics, including adoption guidance and practical expedients.  The Company plans to adopt the new guidance utilizing the modified retrospective method and will recognize any cumulative effect adjustment in retained earnings at the beginning of the period of adoption.  The Company also plans to elect the package of three practical expedients that permits the Company to maintain its historical conclusions about lease identification, lease classification and initial direct costs

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Table of Contents

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


for leases that exist at the date of adoption.  Currently, the Company is assessing the other available practical expedients for potential adoption.  The 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 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 and there was no material 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):
 
 
December 29, 2018
 
March 31, 2018
Raw materials
$
113,660

 
$
110,389

Work in process
222,499

 
221,137

Finished goods
128,790

 
140,766

Total inventories
$
464,949

 
$
472,292


4. INTANGIBLE ASSETS
Total intangible assets decreased to $463.4 million as of December 29, 2018, compared to $860.3 million as of March 31, 2018. This decrease was primarily due to amortization expense for the three and nine months ended December 29, 2018 of $132.5 million and $399.2 million, respectively, primarily related to developed technology and customer relationships (which had net book values of $324.2 million and $127.3 million, respectively, as of December 29, 2018).

5. INVESTMENTS AND FAIR VALUE MEASUREMENTS

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

 
$

 
$

 
$
1,950

March 31, 2018
 
 
 
 
 
 
 
Auction rate securities
$
1,950

 
$

 
$
(107
)
 
$
1,843

 

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


The estimated fair value of available-for-sale debt securities was based on the prevailing market values on December 29, 2018 and March 31, 2018. The Company determines the cost of an investment sold based on the specific identification method.

The expected maturity distribution of available-for-sale debt securities is as follows (in thousands):
 
December 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

 
1,950

 
1,950

 
1,843

Total
$
1,950

 
$
1,950

 
$
1,950

 
$
1,843


Equity Investment Without a Readily Determinable Fair Value
As of December 29, 2018, the Company has invested $60.0 million to acquire preferred shares of a private limited company. 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 December 29, 2018, there was no impairment or observable price change for this investment. This investment is classified in "Long-term investments" in the Condensed Consolidated Balance Sheets.

Fair Value of Financial Instruments
Marketable securities are measured at fair value and recorded in "Cash and cash equivalents," "Other current assets" 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 (debt securities) and "Other income (expense)" on the Condensed Consolidated Statements of Operations (equity securities).


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


Recurring Fair Value Measurements
The fair value of the financial assets measured at fair value on a recurring basis was determined using the following levels of inputs as of December 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)
December 29, 2018
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
Auction rate securities (1)
1,950

 

 
1,950

 
 
Marketable equity securities
3,207

 
3,207

 

 
 
Invested funds in deferred compensation plan (2)
16,176

 
16,176

 

 
 
 
 
Total assets measured at fair value
$
21,333

 
$
19,383

 
$
1,950

 
Liabilities
 
 
 
 
 
 
 
Deferred compensation plan obligation (2)
$
16,176

 
$
16,176

 
$

 
 
 
 
Total liabilities measured at fair value
$
16,176

 
$
16,176

 
$

 
 
 
 
 
 
 
 
 
 
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) The Company's Level 2 auction rate securities are debt instruments with interest rates that reset through periodic short-term auctions and are valued based on quoted prices for identical or similar instruments in markets that are not active.
(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 December 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.


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


6. DEBT

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

 
$
444,464

7.00% Senior Notes due 2025
91,009

 
548,500

5.50% Senior Notes due 2026
630,000

 

Less unamortized premium and issuance costs
(6,607
)
 
(9,674
)
Total long-term debt
$
714,402

 
$
983,290


Senior Notes due 2023 and 2025
On November 19, 2015, the Company issued $450.0 million aggregate principal amount 6.75% senior notes due December 1, 2023 (the "2023 Notes") and $550.0 million aggregate principal amount 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.

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.

On November 28, 2018 and December 11, 2018, the Company repurchased $1.1 million and $20.0 million, respectively, of the 2025 Notes, at prices equal to 107.25% and 107.63%, respectively, of the principal amount of the 2025 Notes purchased, plus accrued and unpaid interest. As of December 29, 2018, 2025 Notes with an aggregate principal amount of $91.0 million remained outstanding.
  
During the three and nine months ended December 29, 2018, the Company recognized a loss on debt extinguishment of $1.8 million and $84.0 million, respectively, as "Other expense" in the Company’s Condensed Consolidated Statements of Operations.

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 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 2025 Notes during the three months ended December 29, 2018 was $4.0 million, and interest paid on the

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2023 Notes and the 2025 Notes during the nine months ended December 29, 2018 was $45.5 million. Interest paid on the 2023 Notes and the 2025 Notes during the three and nine months ended December 30, 2017 was $34.5 million and $68.9 million, respectively.
  
Senior Notes due 2026
On July 16, 2018, the Company completed an offering of $500.0 million aggregate principal amount 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 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").

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

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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 "First Amendment") to the Credit Agreement, and on December 17, 2018, the Company and the Guarantors entered into the Second Amendment (the "Second 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 First Amendment, among other things, extended the delayed draw availability period from June 5, 2018 to January 3, 2019, and the Second Amendment, among other things, further extended such period to June 30, 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 nine months ended December 29, 2018, there were no borrowings under the Revolving Facility and the Company had no outstanding amounts under the Credit Facility as of December 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 December 29, 2018, the Company was in compliance with these covenants.

Fair Value of Long-Term Debt
The Company's long-term debt is carried at amortized cost and is measured at fair value quarterly for disclosure purposes. The estimated fair value of the 2025 Notes as of December 29, 2018 and March 31, 2018 was $97.8 million and $596.5 million, respectively (compared to a carrying value of $91.0 million and $548.5 million, respectively). The estimated fair value of the 2026 Notes as of December 29, 2018 was $601.7 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 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.

Interest Expense
During the three months ended December 29, 2018, the Company recognized $10.8 million of interest expense related to the 2025 Notes and the 2026 Notes, which was partially offset by $1.9 million of interest capitalized to property and equipment. During the nine months ended December 29, 2018, the Company recognized $38.8 million of interest expense related to the 2023 Notes, 2025 Notes and the 2026 Notes, which was partially offset by $7.2 million of interest capitalized to property and equipment. During the three and nine months ended December 30, 2017, the Company recognized $17.7 million and $52.3 million, respectively, of interest expense related to the 2023 Notes and the 2025 Notes, which was partially offset by $2.0 million and $10.8 million, respectively, of interest capitalized to property and equipment.


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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 December 29, 2018, the Company repurchased approximately 2.3 million shares of its common stock for approximately $152.0 million under the current share repurchase program. During the nine months ended December 29, 2018, the Company repurchased approximately 4.6 million shares of its common stock for approximately $338.7 million (which included 0.4 million shares of its common stock for approximately $35.9 million under a prior share repurchase program). As of December 29, 2018, $697.2 million remains available for repurchases under the current share repurchase program.

During the three and nine months ended December 30, 2017, the Company repurchased approximately 1.1 million shares and 2.3 million shares of its common stock for approximately $80.0 million and $168.9 million, respectively, under a prior share repurchase program.

8. REVENUE

Adoption of 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 products 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,

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including distributors. A majority of these rebates are accrued and classified as a contra accounts receivable, and represent less than 5% of net revenue. 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 upon completion of the performance obligation and subsequent invoicing. Substantially all payments are collected within the Company’s standard terms, which do not include any 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 December 29, 2018, the Company had $34.7 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 Operations. 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 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
 
Nine Months Ended
 
December 29, 2018
 
December 30, 2017
 
December 29, 2018
 
December 30, 2017
Revenue:
 
 
 
 
 
 
 
  China
$
474,844

 
$
446,721

 
$
1,390,226

 
$
1,226,494

  Taiwan
127,104

 
157,725

 
443,110

 
417,795

  United States
117,724

 
131,107

 
332,484

 
397,364

  Europe
72,866

 
24,257

 
119,804

 
70,026

  Other Asia
34,839

 
82,126

 
108,649

 
183,202

  Other
4,953

 
3,803

 
15,170

 
13,272

Total Revenue
$
832,330

 
$
845,739

 
$
2,409,443

 
$
2,308,153


The Company also disaggregates revenue by operating segments (see Note 10).

9. RESTRUCTURING

In the third quarter of fiscal 2019, the Company initiated restructuring actions to reduce operating expenses and improve its manufacturing cost structure, including the phased closure of a wafer fabrication facility in Florida and idling production at a wafer fabrication facility in Texas. As a result of these actions, in the third quarter of fiscal 2019, the Company recorded impairment charges of $14.9 million (to adjust the carrying value of certain of its property and equipment to reflect its fair value) and accelerated depreciation of $3.1 million (to reflect changes in estimated useful lives of certain property and

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equipment), which were recorded in "Other operating expense" and "Cost of goods sold," respectively, in the Company’s Condensed Consolidated Statements of Operations.

The fair value of the real property was derived based upon a market approach with substantial input from market participants, including brokers, investors, developers and appraisers. The fair value of the personal property was determined using a market approach based upon quoted market prices from auction data for comparable assets. Factors such as age, condition, capacity and manufacturer were considered to adjust the auction price and determine an orderly liquidation value of the personal property assets. The significant inputs related to valuing these assets are classified as Level 2 in the fair value measurement hierarchy.

Over the next four quarters, the Company expects to record additional charges associated with these restructuring actions, including $60.0 million to $70.0 million related to accelerated depreciation, $10.0 million to $20.0 million related to employee termination benefits and $5.0 million to $10.0 million related to other exit costs.

10. OPERATING SEGMENT INFORMATION

The Company's operating segments as of December 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 income from operations.

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, Multiple Input Multiple Output ("MIMO") and 5G are 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 costs, start-up costs, asset impairment and accelerated depreciation, (loss) gain on assets and other miscellaneous corporate overhead expenses that the Company does not allocate to its reportable segments because these expenses are not included in the segment operating performance measures evaluated by the Company’s CODM. The CODM does not evaluate operating segments using discrete asset information. The Company’s operating segments do not record intercompany revenue. The Company does not allocate gains and losses from equity investments, interest and other income, or taxes to operating segments. Except as discussed above regarding the “All other” category, the Company’s accounting policies for segment reporting are the same as for the Company as a whole.


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The following tables present details of the Company’s reportable segments and a reconciliation of the “All other” category (in thousands): 
 
Three Months Ended
 
Nine Months Ended
 
December 29,
2018
 
December 30,
2017
 
December 29,
2018
 
December 30,
2017
Revenue:
 
 
 
 
 
 
 
MP
$
602,312

 
$
642,089

 
$
1,754,930

 
$
1,728,709

IDP
230,018

 
202,680

 
654,513

 
576,534

All other (1)

 
970

 

 
2,910

Total revenue
$
832,330

 
$
845,739

 
$
2,409,443

 
$
2,308,153

Income (loss) from operations
 
 
 
 
 
 
 
MP
$
180,394

 
$
190,990

 
$
466,513

 
$
451,689

IDP
80,861

 
63,281

 
192,376

 
170,516

All other
(180,098
)
 
(173,951
)
 
(506,470
)
 
(520,150
)
Income from operations
81,157

 
80,320

 
152,419

 
102,055

Interest expense
(9,562
)
 
(16,338
)
 
(33,604
)
 
(43,387
)
Interest income
2,814

 
2,215

 
7,788

 
4,039

Other expense (Note 6)
(3,520
)
 
(757
)
 
(85,007
)
 
(1,883
)
Income before income taxes
$
70,889

 
$
65,440

 
$
41,596

 
$
60,824

 
(1) "All other" revenue relates to royalty income that is not allocated to MP or IDP for the three and nine months ended December 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
 
Nine Months Ended
 
December 29,
2018
 
December 30,
2017
 
December 29,
2018
 
December 30,
2017
Reconciliation of “All other” category:
 
 
 
 
 
 
 
Stock-based compensation expense
$
(18,624
)
 
$
(13,715
)
 
$
(58,874
)
 
$
(58,299
)
Amortization of intangible assets
(132,227
)
 
(135,743
)
 
(398,518
)
 
(406,068
)
Acquisition and integration related costs
(3,700
)
 
(2,723
)
 
(5,880
)
 
(8,113
)
Restructuring costs
(1,510
)
 
(8,958
)
 
(4,822
)
 
(16,942
)
Start-up costs
(6,791
)
 
(5,415
)
 
(18,035
)
 
(19,168
)
Asset impairment and accelerated depreciation
(17,994
)
 

 
(17,994
)
 

Other (including (loss) gain on assets and other miscellaneous corporate overhead)
748

 
(7,397
)
 
(2,347
)
 
(11,560
)
Loss from operations for “All other”
$
(180,098
)
 
$
(173,951
)
 
$
(506,470
)
 
$
(520,150
)

11. 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 included 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”). During

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the third quarter of fiscal 2019, the Company completed its analysis within the measurement period provided by SAB 118, and the adjustments during this measurement period have been included in net earnings from operations as an adjustment to income tax expense.

As described in Note 12 Income Taxes in our 2018 Annual Report on Form 10-K, the Company was 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. For the nine months ended December 29, 2018, the Company made a $17.7 million SAB 118 measurement period adjustment consisting of a $2.6 million reduction in the tax expense related to the previously recorded provisional amount for the Transitional Repatriation Tax and a $15.1 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 adjustments related to the potential GILTI impact on deferred taxes have been recorded as the Company made its accounting policy choice during the third quarter of fiscal 2019 to treat taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost 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) before taxes.

Income Tax Expense
The Company’s provision for income taxes for the three and nine months ended December 29, 2018 and December 30, 2017 was calculated by applying an estimate of the annual effective tax rate for the full fiscal year to “ordinary” income or loss (pre-tax income or loss excluding unusual or infrequently occurring discrete items) to year-to-date income (loss) to determine the amounts for the three and nine months ended December 29, 2018 and December 30, 2017.

The Company’s income tax expense was $1.4 million and income tax benefit was $30.0 million for the three and nine months ended December 29, 2018, respectively, and the Company's income tax expense was $98.5 million and $88.6 million for the three and nine months ended December 30, 2017, respectively. The Company’s effective tax rate was 1.9% and (72.2)% for the three and nine months ended December 29, 2018, respectively, and 150.6% and 145.7% for the three and nine months ended December 30, 2017, respectively.

The Company's effective tax rate for the three and nine months ended December 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 for the nine months only, discrete tax benefits of $8.3 million resulting from a retroactive incentive allowing previously non-deductible payments to be amortized and the SAB 118 increase in U.S deferred tax assets. The Company's effective tax rate for the three and nine months ended December 30, 2017 differed from the statutory rate primarily due to a net discrete provisional tax expense of $95.9 million resulting from the enactment of the Tax Act, tax rate differences in foreign jurisdictions, foreign permanent differences, state income taxes, domestic tax credits generated, changes in unrecognized tax benefits, a discrete tax benefit for excess stock compensation deductions in accordance with ASU 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" (adopted in the first quarter of fiscal 2018), and for the nine months only, a discrete tax expense associated with intra-entity transfers in accordance with ASU 2016-16, "Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory" (adopted in the first quarter of fiscal 2018).

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

The Company has domestic federal and state tax net operating loss ("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.

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



Uncertain Tax Positions
The Company’s gross unrecognized tax benefits decreased from $122.8 million as of the end of fiscal 2018 to $116.4 million as of the end of the third quarter of fiscal 2019, primarily due to lapses of statutes of limitations and the impact of the Tax Act reduction in tax rates.

12. NET INCOME (LOSS) PER SHARE

The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except per share data):
 
Three Months Ended
 
Nine Months Ended
 
December 29, 2018
 
December 30, 2017
 
December 29, 2018
 
December 30, 2017
Numerator:
 
 
 
 
 
 
 
Numerator for basic and diluted net income (loss) per share — net income (loss) available to common stockholders
$
69,517

 
$
(33,082
)
 
$
71,608

 
$
(27,787
)
Denominator:
 
 
 
 
 
 
 
Denominator for basic net income (loss) per share — weighted average shares
124,308

 
127,034

 
125,437

 
127,084

Effect of dilutive securities:
 
 
 
 
 
 
 
Stock-based awards
2,534

 

 
2,923

 

Denominator for diluted net income (loss) per share — adjusted weighted average shares and assumed conversions
126,842

 
127,034

 
128,360

 
127,084

Basic net income (loss) per share
$
0.56

 
$
(0.26
)
 
$
0.57

 
$
(0.22
)
Diluted net income (loss) per share
$
0.55

 
$
(0.26
)
 
$
0.56

 
$
(0.22
)

In the computation of diluted net income per share for the three and nine months ended December 29, 2018, outstanding options to purchase 0.5 million shares and 0.3 million shares, respectively, were excluded because the effect of their inclusion would have been anti-dilutive. In the computation of diluted net loss per share for the three and nine months ended December 30, 2017, outstanding options to purchase 3.4 million shares and 3.8 million shares, respectively, were excluded because the effect of their inclusion would have been anti-dilutive.

13. 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 accounting to reflect ownership interests in subsidiaries that are eliminated upon consolidation. The financial information may

19

Table of Contents

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


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
 
December 29, 2018
(in thousands)
Parent Company
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations and Reclassifications
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
43,695

 
$
606,016

 
$

 
$
649,711

Accounts receivable, less allowance

 
64,962

 
355,941

 

 
420,903

Intercompany accounts and notes receivable

 
368,130

 
70,924

 
(439,054
)
 

Inventories

 
226,781

 
259,394

 
(21,226
)
 
464,949

Prepaid expenses

 
18,245

 
5,716

 

 
23,961

Other receivables

 
4,730

 
17,169

 

 
21,899

Other current assets

 
30,618

 
4,556

 
(1,061
)
 
34,113

Total current assets

 
757,161

 
1,319,716

 
(461,341
)
 
1,615,536

Property and equipment, net

 
1,114,250

 
276,093

 
7,246

 
1,397,589

Goodwill

 
1,122,629

 
1,051,260

 

 
2,173,889

Intangible assets, net

 
245,049

 
218,310

 

 
463,359

Long-term investments

 
4,970

 
85,726

 

 
90,696

Long-term intercompany accounts and notes receivable

 
1,135,377

 
124,264

 
(1,259,641
)
 

Investment in subsidiaries
6,352,350

 
2,460,118

 

 
(8,812,468
)
 

Other non-current assets
122,683

 
33,278

 
30,065

 
(120,804
)
 
65,222

Total assets
$
6,475,033

 
$
6,872,832

 
$
3,105,434

 
$
(10,647,008
)
 
$
5,806,291

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 

Current liabilities:
 
 
 
 
 
 
 
 

Accounts payable
$

 
$
96,252

 
$
133,014

 
$

 
$
229,266

Intercompany accounts and notes payable

 
70,924

 
368,130

 
(439,054
)
 

Accrued liabilities
16,505

 
69,780

 
50,546

 
742

 
137,573

Other current liabilities

 

 
48,154

 
(1,061
)
 
47,093

Total current liabilities
16,505

 
236,956

 
599,844

 
(439,373
)
 
413,932

Long-term debt
714,402

 

 

 

 
714,402

Deferred tax liabilities

 
39,235

 
939

 
(33,196
)
 
6,978

Long-term intercompany accounts and notes payable
1,166,806

 
92,835

 

 
(1,259,641
)
 

Other long-term liabilities

 
48,607

 
45,052

 

 
93,659

Total liabilities
1,897,713

 
417,633

 
645,835

 
(1,732,210
)
 
1,228,971

Total stockholders’ equity
4,577,320

 
6,455,199

 
2,459,599

 
(8,914,798
)
 
4,577,320

Total liabilities and stockholders’ equity
$
6,475,033

 
$
6,872,832

 
$
3,105,434

 
$
(10,647,008
)
 
$
5,806,291



20

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



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 December 29, 2018
(in thousands)
Parent Company
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations and Reclassifications
 
Consolidated
Revenue
$

 
$
271,671

 
$
762,484

 
$
(201,825
)
 
$
832,330

Cost of goods sold

 
225,156

 
447,084

 
(178,273
)
 
493,967

Gross profit

 
46,515

 
315,400

 
(23,552
)
 
338,363

Operating expenses:
 
 
 
 
 
 
 
 

Research and development
8,122

 
10,218

 
94,114

 
(2,469
)
 
109,985

Selling, general and administrative
10,327

 
53,131

 
82,581

 
(20,435
)
 
125,604

Other operating expense
173

 
21,477

 
499

 
(532
)
 
21,617

Total operating expenses
18,622

 
84,826

 
177,194

 
(23,436
)
 
257,206

Income (loss) from operations
(18,622
)
 
(38,311
)
 
138,206

 
(116
)
 
81,157

Interest expense
(9,235
)
 
(516
)
 
(206
)
 
395

 
(9,562
)
Interest income

 
269

 
2,941

 
(396
)
 
2,814

Other (expense) income
(1,852
)
 
(2,566
)
 
898

 

 
(3,520
)
Income (loss) before income taxes
(29,709
)
 
(41,124
)
 
141,839

 
(117
)
 
70,889

Income tax (expense) benefit
6,147

 
(23,051
)
 
15,532

 

 
(1,372
)
Income in subsidiaries
93,079

 
157,371

 

 
(250,450
)
 

Net income
$
69,517

 
$
93,196

 
$
157,371

 
$
(250,567
)
 
$
69,517

 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
68,455

 
$
92,520

 
$
156,974

 
$
(249,494
)
 
$
68,455

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

 
$
301,077

 
$
751,995

 
$
(207,333
)
 
$
845,739

Cost of goods sold

 
212,574

 
473,330

 
(177,092
)
 
508,812

Gross profit

 
88,503

 
278,665

 
(30,241
)
 
336,927

Operating expenses:
 
 
 
 
 
 
 
 
 
Research and development
7,101

 
6,842

 
97,842

 
(5,374
)
 
106,411

Selling, general and administrative
6,381

 
57,166

 
88,016

 
(25,008
)
 
126,555

Other operating expense
234

 
15,799

 
7,466

 
142

 
23,641

Total operating expenses
13,716

 
79,807

 
193,324

 
(30,240
)
 
256,607

Income (loss) from operations
(13,716
)
 
8,696

 
85,341

 
(1
)
 
80,320

Interest expense
(16,001
)
 
(557
)
 
(393
)
 
613

 
(16,338
)
Interest income

 
614

 
2,214

 
(613
)
 
2,215

Other expense

 
(549
)
 
(208
)
 

 
(757
)
Income (loss) before income taxes
(29,717
)
 
8,204

 
86,954

 
(1
)
 
65,440

Income tax expense
(30,116
)
 
(59,974
)
 
(8,432
)
 

 
(98,522
)
Income in subsidiaries
26,751

 
78,522

 

 
(105,273
)
 

Net (loss) income
$
(33,082
)
 
$
26,752

 
$
78,522

 
$
(105,274
)
 
$
(33,082
)
 
 
 
 
 
 
 
 
 
 
Comprehensive (loss) income
$
(32,185
)
 
$
28,630

 
$
82,312

 
$
(110,942
)
 
$
(32,185
)

22

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


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

 
$
740,241

 
$
2,214,289

 
$
(545,087
)
 
$
2,409,443

Cost of goods sold

 
622,688

 
1,333,037

 
(474,892
)
 
1,480,833

Gross profit

 
117,553

 
881,252

 
(70,195
)
 
928,610

Operating expenses:
 
 
 
 
 
 
 
 
 
Research and development
21,433

 
20,837

 
300,233

 
(4,867
)
 
337,636

Selling, general and administrative
36,998

 
170,011

 
260,359

 
(66,327
)
 
401,041

Other operating expense
442

 
27,225

 
10,011

 
(164
)
 
37,514

Total operating expenses
58,873

 
218,073

 
570,603

 
(71,358
)
 
776,191

Income (loss) from operations
(58,873
)
 
(100,520
)
 
310,649

 
1,163

 
152,419

Interest expense
(32,677
)
 
(1,575
)
 
(527
)
 
1,175

 
(33,604
)
Interest income

 
3,152

 
5,811

 
(1,175
)
 
7,788

Other (expense) income
(84,004
)
 
(1,440
)
 
437

 

 
(85,007
)
Income (loss) before income taxes
(175,554
)
 
(100,383
)
 
316,370

 
1,163

 
41,596

Income tax benefit (expense)
43,521

 
(26,717
)
 
13,208

 

 
30,012

Income in subsidiaries
203,641

 
329,578

 

 
(533,219
)
 

Net income
$
71,608

 
$
202,478

 
$
329,578

 
$
(532,056
)
 
$
71,608

 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
68,290

 
$
201,891

 
$
326,701

 
$
(528,592
)
 
$
68,290

 
Condensed Consolidating Statement of Income and Comprehensive (Loss) Income
 
Nine Months Ended December 30, 2017
(in thousands)
Parent Company
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations and Reclassifications
 
Consolidated