UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended September 28, 2019
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
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. employer identification no.) | ||
(Address of principal executive office) | (Zip code) | ||
(336 ) 664-1233
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act: | ||||
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
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.
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
As of October 23, 2019, there were 116,174,131 shares of the registrant’s common stock outstanding.
QORVO, INC. AND SUBSIDIARIES
INDEX
Page | |
Item 1. Financial Statements (Unaudited). | |
2
PART I — FINANCIAL INFORMATION
ITEM 1.
QORVO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
September 28, 2019 | March 30, 2019 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | $ | |||||
Accounts receivable, less allowance of $43 and $40 as of September 28, 2019 and March 30, 2019, respectively | |||||||
Inventories (Note 3) | |||||||
Prepaid expenses | |||||||
Other receivables | |||||||
Other current assets | |||||||
Total current assets | |||||||
Property and equipment, net of accumulated depreciation of $1,322,103 at September 28, 2019 and $1,218,507 at March 30, 2019 | |||||||
Goodwill (Note 4) | |||||||
Intangible assets, net (Note 4) | |||||||
Long-term investments (Note 5) | |||||||
Other non-current assets (Note 6) | |||||||
Total assets | $ | $ | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | $ | |||||
Accrued liabilities | |||||||
Current portion of long-term debt (Note 7) | |||||||
Other current liabilities (Note 6) | |||||||
Total current liabilities | |||||||
Long-term debt (Note 7) | |||||||
Other long-term liabilities (Note 6) | |||||||
Total liabilities | |||||||
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; 116,294 and 119,063 shares issued and outstanding at September 28, 2019 and March 30, 2019, respectively | |||||||
Accumulated other comprehensive loss, net of tax | ( | ) | ( | ) | |||
Accumulated deficit | ( | ) | ( | ) | |||
Total stockholders’ equity | |||||||
Total liabilities and stockholders’ equity | $ | $ | |||||
See accompanying Notes to Condensed Consolidated Financial Statements.
3
QORVO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended | Six Months Ended | ||||||||||||||
September 28, 2019 | September 29, 2018 | September 28, 2019 | September 29, 2018 | ||||||||||||
Revenue | $ | $ | $ | $ | |||||||||||
Cost of goods sold | |||||||||||||||
Gross profit | |||||||||||||||
Operating expenses: | |||||||||||||||
Research and development | |||||||||||||||
Selling, general and administrative | |||||||||||||||
Other operating expense (Notes 4 and 10) | |||||||||||||||
Total operating expenses | |||||||||||||||
Income from operations | |||||||||||||||
Interest expense (Note 7) | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Interest income | |||||||||||||||
Other expense (Note 7) | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Income (loss) before income taxes | ( | ) | |||||||||||||
Income tax (expense) benefit (Note 12) | ( | ) | ( | ) | ( | ) | |||||||||
Net income | $ | $ | $ | $ | |||||||||||
Net income per share (Note 13): | |||||||||||||||
Basic | $ | $ | $ | $ | |||||||||||
Diluted | $ | $ | $ | $ | |||||||||||
Weighted average shares of common stock outstanding (Note 13): | |||||||||||||||
Basic | |||||||||||||||
Diluted | |||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
4
QORVO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
Three Months Ended | Six Months Ended | ||||||||||||||
September 28, 2019 | September 29, 2018 | September 28, 2019 | September 29, 2018 | ||||||||||||
Net income | $ | $ | $ | $ | |||||||||||
Other comprehensive loss: | |||||||||||||||
Unrealized gain on marketable securities, net of tax | |||||||||||||||
Foreign currency translation adjustment, including intra-entity foreign currency transactions that are of a long-term investment nature | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Reclassification adjustments, net of tax: | |||||||||||||||
Foreign currency loss included in net income | |||||||||||||||
Amortization of pension actuarial loss | |||||||||||||||
Other comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Total comprehensive income (loss) | $ | $ | $ | $ | ( | ) | |||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
5
QORVO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
Accumulated Other Comprehensive Loss | Accumulated Deficit | |||||||||||||||||
Common Stock | ||||||||||||||||||
Three Months Ended | Shares | Amount | Total | |||||||||||||||
Balance, June 29, 2019 | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||
Net income | — | — | — | |||||||||||||||
Other comprehensive loss | — | — | ( | ) | — | ( | ) | |||||||||||
Exercise of stock options and vesting of restricted stock units, net of shares withheld for employee taxes | ( | ) | ( | ) | ||||||||||||||
Repurchase of common stock, including transaction costs | ( | ) | ( | ) | ( | ) | ||||||||||||
Stock-based compensation | — | |||||||||||||||||
Balance, September 28, 2019 | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||
Balance, June 30, 2018 | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||
Net income | — | — | — | |||||||||||||||
Other comprehensive loss | — | — | ( | ) | — | ( | ) | |||||||||||
Exercise of stock options and vesting of restricted stock units, net of shares withheld for employee taxes | ( | ) | ( | ) | ||||||||||||||
Repurchase of common stock, including transaction costs | ( | ) | ( | ) | ( | ) | ||||||||||||
Stock-based compensation | — | |||||||||||||||||
Balance, September 29, 2018 | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||
6
QORVO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
Accumulated Other Comprehensive Loss | Accumulated Deficit | |||||||||||||||||
Common Stock | ||||||||||||||||||
Six Months Ended | Shares | Amount | Total | |||||||||||||||
Balance, March 30, 2019 | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||
Net income | — | — | — | |||||||||||||||
Other comprehensive loss | — | — | ( | ) | — | ( | ) | |||||||||||
Exercise of stock options and vesting of restricted stock units, net of shares withheld for employee taxes | ( | ) | ( | ) | ||||||||||||||
Issuance of common stock in connection with employee stock purchase plan | — | — | ||||||||||||||||
Cumulative-effect adoption of ASU 2016-02 | — | — | — | |||||||||||||||
Repurchase of common stock, including transaction costs | ( | ) | ( | ) | ( | ) | ||||||||||||
Stock-based compensation | — | |||||||||||||||||
Balance, September 28, 2019 | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||
Balance, March 31, 2018 | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||
Net income | — | — | — | |||||||||||||||
Other comprehensive loss | — | — | ( | ) | — | ( | ) | |||||||||||
Exercise of stock options and vesting of restricted stock units, net of shares withheld for employee taxes | ( | ) | ( | ) | ||||||||||||||
Issuance of common stock in connection with employee stock purchase plan | — | — | ||||||||||||||||
Cumulative-effect adoption of ASU 2014-09 | — | — | — | |||||||||||||||
Repurchase of common stock, including transaction costs | ( | ) | ( | ) | ( | ) | ||||||||||||
Stock-based compensation | — | |||||||||||||||||
Balance, September 29, 2018 | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||
7
QORVO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended | |||||||
September 28, 2019 | September 29, 2018 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | $ | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation | |||||||
Intangible assets amortization (Note 4) | |||||||
Loss on debt extinguishment (Note 7) | |||||||
Deferred income taxes | ( | ) | ( | ) | |||
Stock-based compensation expense | |||||||
Other, net | ( | ) | |||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable, net | ( | ) | ( | ) | |||
Inventories | |||||||
Prepaid expenses and other current and non-current assets | |||||||
Accounts payable and accrued liabilities | ( | ) | |||||
Income tax payable and receivable | ( | ) | |||||
Other liabilities | ( | ) | |||||
Net cash provided by operating activities | |||||||
Investing activities: | |||||||
Purchase of property and equipment | ( | ) | ( | ) | |||
Purchase of available-for-sale debt securities | ( | ) | |||||
Purchase of a business, net of cash acquired (Note 4) | ( | ) | |||||
Proceeds from sales and maturities of available-for-sale debt securities | |||||||
Other investing activities | ( | ) | ( | ) | |||
Net cash used in investing activities | ( | ) | ( | ) | |||
Financing activities: | |||||||
Repurchase of debt (Note 7) | ( | ) | |||||
Proceeds from borrowings (Note 7) | |||||||
Proceeds from debt issuances (Note 7) | |||||||
Repurchase of common stock, including transaction costs (Note 8) | ( | ) | ( | ) | |||
Proceeds from the issuance of common stock | |||||||
Tax withholding paid on behalf of employees for restricted stock units | ( | ) | ( | ) | |||
Other financing activities | ( | ) | ( | ) | |||
Net cash used in financing activities | ( | ) | ( | ) | |||
Effect of exchange rate changes on cash | ( | ) | ( | ) | |||
Net decrease in cash, cash equivalents and restricted cash | ( | ) | ( | ) | |||
Cash, cash equivalents and restricted cash at the beginning of the period | |||||||
Cash, cash equivalents and restricted cash at the end of the period | $ | $ | |||||
Non-cash investing information: | |||||||
Capital expenditure adjustments included in accounts payable and accrued liabilities | $ | $ | |||||
Reconciliation of cash, cash equivalents and restricted cash | |||||||
Cash and cash equivalents | $ | $ | |||||
Restricted cash included in "Other non-current assets" | |||||||
Total cash, cash equivalents and restricted cash | |||||||
8
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 30, 2019.
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 2019 financial statements have been reclassified to conform with the fiscal 2020 presentation.
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 30, 2019.
In February 2016, the FASB issued Accounting Standards Update 2016-02, "Leases (Topic 842)," with multiple amendments subsequently issued. The new guidance requires that lease arrangements be presented on the lessee's balance sheet by recording a right-of-use asset and a lease liability equal to the present value of the related future minimum lease payments. The Company adopted the standard in the first quarter of fiscal 2020, using the modified retrospective approach which permits lessees to recognize a cumulative-effect adjustment to the opening balance of accumulated deficit in the period of adoption. Upon adoption, the Company recorded a right-of-use asset of $70.7 million and a lease liability of $75.0 million. The difference between the right-of-use asset and lease liability is primarily attributed to a deferred rent liability which existed under Accounting Standards Codification ("ASC") 840, "Leases."
The Company elected the transition package of practical expedients, under which the Company does not have to reassess (1) whether any expired or existing contracts are leases, or contain leases, (2) the lease classification for any expired or existing leases, and (3) initial direct costs for any existing leases. Further, the Company elected the practical expedient not to separate lease and non-lease components for substantially all of its classes of leases and to account for the combined lease and non-lease components as a single lease component. In addition, the Company made an accounting policy election to exclude leases with an initial term of 12 months or less from the balance sheet.
9
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
3. INVENTORIES
The components of inventories, net of reserves, are as follows (in thousands):
September 28, 2019 | March 30, 2019 | ||||||
Raw materials | $ | $ | |||||
Work in process | |||||||
Finished goods | |||||||
Total inventories | $ | $ | |||||
4. BUSINESS ACQUISITION
On May 6, 2019, the Company completed its acquisition of Active-Semi International, Inc. ("Active-Semi"), a private fabless supplier of programmable analog power solutions. The acquisition expanded the Company's product offerings for existing customers and new customers in power management markets. The purchase price of $309.5 million was allocated to Active-Semi's net tangible assets (approximately $19.8 million) and intangible assets (approximately $158.4 million) based on their estimated fair values as of May 6, 2019. The excess of the purchase price over the value of the net tangible assets and intangible assets resulted in goodwill of approximately $131.2 million. The more significant intangible assets acquired included developed technology of $76.7 million (being amortized over 5 to 9 years), customer relationships of $40.9 million (being amortized over 5 years) and in-process research and development ("IPRD") of $40.6 million. During the six months ended September 28, 2019, $31.0 million of IPRD assets were completed, transferred to finite-lived intangible assets, and are being amortized over their useful lives of 5 to 7 years. The IPRD remaining as of September 28, 2019 is expected to be completed during fiscal 2021 with remaining costs to complete of less than $2.0 million.
The Company will continue to evaluate certain assets, liabilities and tax estimates that are subject to change within the measurement period (up to one year from the acquisition date).
The Company recorded postcombination compensation expense as well as other acquisition and integration related costs during the three and six months ended September 28, 2019 of $1.7 million and $23.0 million, respectively, in "Other operating expense" in the Condensed Consolidated Statements of Income. In addition, the Company recorded acquisition and integration related costs during the three and six months ended September 28, 2019 of $3.5 million and $4.2 million, respectively, in "Cost of goods sold" in the Condensed Consolidated Statements of Income.
The change in the carrying amount of goodwill for the six months ended September 28, 2019, is as follows (in thousands):
Mobile Products | Infrastructure and Defense Products | Total | |||||||||
Balance as of March 30, 2019 | $ | $ | $ | ||||||||
Goodwill resulting from Active-Semi acquisition | |||||||||||
Balance as of September 28, 2019 | $ | $ | $ | ||||||||
10
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The following summarizes information regarding the gross carrying amounts and accumulated amortization of intangible assets (in thousands):
September 28, 2019 | March 30, 2019 | ||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | ||||||||||||
Intangible assets: | |||||||||||||||
Developed technology | $ | $ | $ | $ | |||||||||||
Customer relationships | |||||||||||||||
Trade names | |||||||||||||||
Technology licenses | |||||||||||||||
Non-compete agreement | |||||||||||||||
IPRD | N/A | N/A | |||||||||||||
Total | $ | $ | $ | $ | |||||||||||
In the first quarter of each fiscal year, the Company removes the fully amortized balances from the gross asset and accumulated amortization amounts of those intangible assets that were fully amortized as of the prior fiscal year end.
11
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
5. INVESTMENTS AND FAIR VALUE MEASUREMENTS
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 28, 2019 and March 30, 2019 (in thousands):
Total | Quoted Prices In Active Markets For Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | |||||||||||||
September 28, 2019 | |||||||||||||||
Assets | |||||||||||||||
Marketable equity securities | $ | $ | $ | ||||||||||||
Invested funds in deferred compensation plan (1) | |||||||||||||||
Total assets measured at fair value | $ | $ | $ | ||||||||||||
Liabilities | |||||||||||||||
Deferred compensation plan obligation (1) | $ | $ | $ | ||||||||||||
Total liabilities measured at fair value | $ | $ | $ | ||||||||||||
March 30, 2019 | |||||||||||||||
Assets | |||||||||||||||
Money market funds | $ | $ | $ | ||||||||||||
Marketable equity securities | |||||||||||||||
Auction rate securities (2) | — | ||||||||||||||
Invested funds in deferred compensation plan (1) | |||||||||||||||
Total assets measured at fair value | $ | $ | $ | ||||||||||||
Liabilities | |||||||||||||||
Deferred compensation plan obligation (1) | $ | $ | $ | ||||||||||||
Total liabilities measured at fair value | $ | $ | $ | ||||||||||||
(1) 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.
(2) The Company's Level 2 auction rate securities were debt instruments with interest rates that reset through periodic short-term auctions and were valued based on quoted prices for identical or similar instruments in markets that were not active. During the first quarter of fiscal 2020, the Company sold its auction rate securities at par value.
As of September 28, 2019 and March 30, 2019, the Company did not have any Level 3 assets or liabilities.
Equity Investment Without a Readily Determinable Fair Value
12
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
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)" in the Condensed Consolidated Statements of Income (equity securities).
Other Fair Value Disclosures
6. LEASES
The Company leases certain of its corporate, manufacturing and other facilities from multiple third-party real estate developers. The Company also leases various machinery and office equipment. These operating leases expire at various dates through 2036, and some of these leases have renewal options, with the longest ranging up to two, ten-year periods.
In fiscal 2018, the Company entered into a finance lease which is expected to commence in fiscal 2021 and is not recorded in the Condensed Consolidated Balance Sheet as of September 28, 2019. The Company’s other finance lease, which is classified in "Property and equipment" in the Condensed Consolidated Balance Sheets, is immaterial for disclosure.
The Company determines that a contract contains a lease at lease inception if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. In evaluating whether the right to control an identified asset exists, the Company assesses whether it has the right to direct the use of the identified asset and obtain substantially all of the economic benefit from the use of the identified asset.
Right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The Company uses its estimated incremental borrowing rate in determining the present value of lease payments considering the term of the lease, which is derived from information available at the lease commencement date. The lease term includes renewal options when it is reasonably certain that the option will be exercised, and excludes termination options. To the extent that the Company's agreements have variable lease payments, the Company includes variable lease payments that depend on an index or a rate and excludes those that depend on facts or circumstances occurring after the commencement date, other than the passage of time.
The components of lease expense for operating leases for the three and six months ended September 28, 2019, are as follows:
September 28, 2019 | |||||||
Three Months Ended | Six Months Ended | ||||||
Operating lease expense | $ | $ | |||||
Short-term lease expense | |||||||
Variable lease expense | |||||||
Total lease expense | $ | $ | |||||
Supplemental cash information and non-cash activities related to operating leases are as follows (in thousands):
Six Months Ended | |||
September 28, 2019 | |||
Cash paid for amounts included in measurement of lease liabilities: | |||
Operating cash flows from operating leases | $ | ||
Non-cash activities: | |||
Operating lease assets obtained in exchange for new lease liabilities | $ | ||
13
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Supplemental balance sheet information related to operating leases is as follows (in thousands):
Classification on the Condensed Consolidated Balance Sheet | September 28, 2019 | |||||
Assets | ||||||
Operating lease assets | Other non-current assets | $ | ||||
Liabilities | ||||||
Operating lease current liabilities | Other current liabilities | $ | ||||
Operating lease non-current liabilities | Other long-term liabilities | $ | ||||
Weighted-average remaining lease term and discount rate related to operating leases are as follows:
September 28, 2019 | ||
Weighted-average remaining lease term (years) - operating leases | ||
Weighted-average discount rate - operating leases | % | |
Maturities of lease liabilities under operating leases by fiscal year as of September 28, 2019 are as follows (in thousands):
September 28, 2019 | |||
2020 | $ | ||
2021 | |||
2022 | |||
2023 | |||
2024 | |||
Thereafter | |||
Total lease payments | |||
Less imputed interest | ( | ) | |
Present value of lease liabilities | $ | ||
7. DEBT
Long-term debt as of September 28, 2019 and March 30, 2019 is as follows (in thousands):
September 28, 2019 | March 30, 2019 | ||||||
Term loan | $ | $ | |||||
7.00% senior notes due 2025 | |||||||
5.50% senior notes due 2026 | |||||||
Finance leases | |||||||
Less unamortized premium and issuance costs | ( | ) | ( | ) | |||
Less current portion of long-term debt | ( | ) | ( | ) | |||
Total long-term debt | $ | $ | |||||
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.
14
QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
In fiscal years 2018 and 2019, the Company retired all of the issued and outstanding 2023 Notes and $526.6 million of the 2025 Notes. 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 Condensed Consolidated Statements of Income in connection with certain purchases of the 2023 Notes and the 2025 Notes. As of September 28, 2019, an aggregate principal amount of $23.4 million of the 2025 Notes remained outstanding.
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. The Company paid no interest on the 2025 Notes during the three months ended September 28, 2019 and paid interest of $0.8 million on the 2025 Notes during the six months ended September 28, 2019. 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.
Senior Notes due 2026
On July 16, 2018, the Company issued $500.0 million aggregate principal amount 5.50 % senior notes due 2026 (the “Initial 2026 Notes”). On August 28, 2018 and March 5, 2019, the Company issued an additional $130.0 million and $270.0 million, respectively, aggregate principal amount of such notes (together, the "Additional 2026 Notes" and together with the Initial 2026 Notes, the "2026 Notes"). 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 the 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 supplemental indentures, dated as of August 28, 2018 and March 5, 2019, respectively (such indenture and supplemental indentures, collectively, 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.
In connection with the offerings of the 2026 Notes, the Company agreed to provide the holders of the 2026 Notes with an opportunity to exchange the 2026 Notes for registered notes having terms substantially identical to the 2026 Notes. On June 25, 2019, the Company completed the exchange offer, in which all of the privately placed 2026 Notes were exchanged for new notes that have been registered under the Securities Act of 1933, as amended (the "Securities Act").
Interest is payable on the 2026 Notes on January 15 and July 15 of each year at a rate of 5.50 % per annum. Interest paid on the 2026 Notes during the three and six months ended September 28, 2019 was $24.8 million.
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"). 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). On June 17, 2019, the Company drew $100.0 million of the Term Loan, with the remaining $200.0 million available, at the discretion of the Company, in a final draw. Subsequent amendments to the Credit Agreement have, among other things, extended the delayed draw availability period to December 31, 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 28, 2019, there were no borrowings under the Revolving Facility. Interest paid on the Term Loan during the three and six months ended September 28, 2019 was $0.9 million.
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QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The Credit Agreement contains various conditions, covenants and representations with which the Company must be in compliance in order to borrow funds and to avoid an event of default. As of September 28, 2019, the Company was in compliance with these covenants.
Fair Value of Debt
The Company's debt is carried at amortized cost and is measured at fair value quarterly for disclosure purposes. The estimated fair value of the 2025 Notes and the 2026 Notes as of September 28, 2019 was $25.1 million and $954.8 million, respectively (compared to a carrying value of $23.4 million and $900.0 million, respectively). The estimated fair value of the 2025 Notes and the 2026 Notes as of March 30, 2019 was $25.8 million and $929.3 million, respectively. The Company considers its 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.
The Company had no outstanding amounts under the Revolving Facility as of September 28, 2019. The Term Loan carries a variable interest rate set at current market rates, and as such, the fair value of the Term Loan approximated book value as of September 28, 2019.
Interest Expense
8. 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 the prior 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 and six months ended September 28, 2019, the Company repurchased approximately 2.3 million shares and 3.8 million shares, respectively, of its common stock for approximately $165.0 million and $265.1 million, respectively. As of September 28, 2019, $132.8 million remains available for repurchases under the current share repurchase program. See Note 15 for information regarding the new share repurchase program which was announced by the Company on October 31, 2019.
During the three and six months ended September 29, 2018, the Company repurchased approximately 1.1 million shares and 2.3 million shares, respectively, of its common stock for approximately $86.7 million and $186.7 million, respectively.
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QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
9. REVENUE
The following table presents the Company's revenue disaggregated by geography, based on the location of the customers' headquarters (in thousands):
Three Months Ended | Six Months Ended | ||||||||||||||
September 28, 2019 | September 29, 2018 | September 28, 2019 | September 29, 2018 | ||||||||||||
United States | $ | $ | $ | $ | |||||||||||
China | |||||||||||||||
Other Asia | |||||||||||||||
Taiwan | |||||||||||||||
Europe | |||||||||||||||
Total revenue | $ | $ | $ | $ | |||||||||||
During the first quarter of fiscal 2020, the Company changed its presentation of net revenue based on the "sold to" address of the customer to the above presentation of net revenue based on the location of the customers' headquarters. The September 29, 2018 information above has been reclassified to reflect this change. The Company believes that the disaggregation of revenue based on the location of the customers' headquarters is more representative of how its revenue and cash flows are impacted by geographically-sensitive changes in economic factors.
The Company also disaggregates revenue by operating segments (see Note 11).
10. 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, the Company expects to record total restructuring charges of approximately $95.0 million, including accelerated depreciation of $49.0 million (to reflect changes in estimated useful lives of certain property and equipment), impairment charges of $16.0 million (to adjust the carrying value of certain property and equipment to reflect its fair value), employee termination benefits of $16.0 million, and other exit costs of $14.0 million. As of the end of the second quarter of fiscal 2020, the Company has recorded cumulative expenses of approximately $42.9 million, $16.0 million, $12.3 million and $6.9 million for accelerated depreciation, impairment charges, employee termination benefits and other exit costs, respectively, as a result of these restructuring actions (which are expected to be substantially completed by the end of fiscal 2020).
During fiscal 2018, the Company initiated restructuring actions to improve operating efficiencies. As of the end of the second quarter of fiscal 2020, the Company has recorded cumulative expenses of $46.3 million, $23.4 million and $0.2 million for impairment charges, employee termination benefits and other exit costs, respectively, as a result of these restructuring actions. The Company believes these amounts approximate the total costs to be recognized as these restructuring actions are substantially complete.
In addition, the Company recorded immaterial restructuring expenses in the three and six months ended September 28, 2019 and September 29, 2018, related to exited leased facilities associated with other restructuring events.
The Company does not allocate restructuring costs to its reportable segments.
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QORVO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The following table summarizes the restructuring activity primarily resulting from these restructuring events:
Three Months Ended September 28, 2019 | Three Months Ended September 29, 2018 | ||||||||||||||||||||||
Cost of Goods Sold | Other Operating Expense | Total | Cost of Goods Sold | Other Operating Expense | Total | ||||||||||||||||||
One-time employee termination benefits | $ | $ | $ | $ | $ | $ | |||||||||||||||||
Contract termination and other associated costs | |||||||||||||||||||||||
Accelerated depreciation | |||||||||||||||||||||||
Total | $ | $ | $ | $ | $ | $ | |||||||||||||||||
Six Months Ended September 28, 2019 | Six Months Ended September 29, 2018 | ||||||||||||||||||||||
Cost of Goods Sold | Other Operating Expense | Total | Cost of Goods Sold | Other Operating Expense | Total | ||||||||||||||||||
One-time employee termination benefits | $ | $ | |||||||||||||||||||||