SEC Filing | Qorvo, Inc.

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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 December 28, 2019



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____to _____

Commission File Number 001-36801

https://cdn.kscope.io/720ee109a180155319e36af7c11ba4e6-qorvoform8kimagefinala34.jpg

Qorvo, Inc.

(Exact name of registrant as specified in its charter)



Delaware		46-5288992
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification no.)

7628 Thorndike Road
Greensboro,	North Carolina	27409-9421
(Address of principal executive 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
Common Stock, $0.0001 par value	QRVO	The Nasdaq Stock Market LLC

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.

Table of Contents



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

As of January 22, 2020, there were 115,684,626 shares of the registrant’s common stock outstanding.

Table of Contents

QORVO, INC. AND SUBSIDIARIES

INDEX



	Page
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).
Condensed Consolidated Balance Sheets as of December 28, 2019 and March 30, 2019	3
Condensed Consolidated Statements of Income for the three and nine months ended December 28, 2019 and December 29, 2018	4
Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended December 28, 2019 and December 29, 2018	5
Condensed Consolidated Statements of Stockholders' Equity for the three and nine months ended December 28, 2019 and December 29, 2018	6
Condensed Consolidated Statements of Cash Flows for the nine months ended December 28, 2019 and December 29, 2018	8
Notes to Condensed Consolidated Financial Statements	9

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.	30
Item 3. Quantitative and Qualitative Disclosures About Market Risk.	38
Item 4. Controls and Procedures.	38

PART II — OTHER INFORMATION	38

Item 1A. Risk Factors.	38
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	39
Item 6. Exhibits.	40

SIGNATURES	41

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 28, 2019			March 30, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	1,097,724		$	711,035
Accounts receivable, less allowance of $61 and $40 as of December 28, 2019 and March 30, 2019, respectively	409,835			378,172
Inventories (Note 3)	479,885			511,793
Prepaid expenses	27,120			25,766
Other receivables	16,620			21,934
Other current assets	36,488			36,141
Total current assets	2,067,672			1,684,841
Property and equipment, net of accumulated depreciation of $1,374,455 at December 28, 2019 and $1,218,507 at March 30, 2019	1,278,988			1,366,513
Goodwill (Note 4)	2,415,802			2,173,889
Intangible assets, net (Note 4)	595,307			408,210
Long-term investments (Note 5)	40,896			97,786
Other non-current assets (Note 6)	120,838			76,785
Total assets	$	6,519,503		$	5,808,024
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	239,180		$	233,307
Accrued liabilities	187,017			160,516
Current portion of long-term debt (Note 7)	5,302			80
Other current liabilities (Note 6)	59,706			41,711
Total current liabilities	491,205			435,614
Long-term debt (Note 7)	1,568,554			920,935
Other long-term liabilities (Note 6)	120,367			91,796
Total liabilities	2,180,126			1,448,345
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; 115,738 and 119,063 shares issued and outstanding at December 28, 2019 and March 30, 2019, respectively	4,383,368			4,687,455
Accumulated other comprehensive loss, net of tax	(6,843		)	(6,624		)
Accumulated deficit	(37,148		)	(321,152		)
Total stockholders’ equity	4,339,377			4,359,679
Total liabilities and stockholders’ equity	$	6,519,503		$	5,808,024

See accompanying Notes to Condensed Consolidated Financial Statements.

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QORVO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)



	Three Months Ended						Nine Months Ended
	December 28, 2019			December 29, 2018			December 28, 2019			December 29, 2018
Revenue	$	869,073		$	832,330		$	2,451,369		$	2,409,443
Cost of goods sold	500,962			493,967			1,465,387			1,480,833
Gross profit	368,111			338,363			985,982			928,610
Operating expenses:
Research and development	122,851			109,985			357,385			337,636
Selling, general and administrative	81,205			125,604			258,458			401,041
Other operating expense (Notes 4 and 10)	10,986			21,617			49,077			37,514
Total operating expenses	215,042			257,206			664,920			776,191
Income from operations	153,069			81,157			321,062			152,419
Interest expense (Note 7)	(16,900		)	(9,562		)	(41,457		)	(33,604		)
Interest income	2,874			2,814			8,112			7,788
Other income (expense) (Notes 4 & 7)	44,148			(3,520		)	42,737			(85,007		)

Income before income taxes	183,191			70,889			330,454			41,596

Income tax (expense) benefit (Note 12)	(21,835		)	(1,372		)	(46,519		)	30,012
Net income	$	161,356		$	69,517		$	283,935		$	71,608

Net income per share (Note 13):
Basic	$	1.39		$	0.56		$	2.42		$	0.57
Diluted	$	1.36		$	0.55		$	2.37		$	0.56

Weighted average shares of common stock outstanding (Note 13):
Basic	116,129			124,308			117,436			125,437
Diluted	118,455			126,842			119,712			128,360

See accompanying Notes to Condensed Consolidated Financial Statements.

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QORVO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)



	Three Months Ended					Nine Months Ended
	December 28, 2019		December 29, 2018			December 28, 2019			December 29, 2018
Net income	$	161,356	$	69,517		$	283,935		$	71,608
Other comprehensive income (loss):
Unrealized (loss) gain on marketable securities, net of tax	—		(5		)	—			85
Foreign currency translation adjustment, including intra-entity foreign currency transactions that are of a long-term investment nature	781		(1,079		)	(674		)	(3,448		)
Reclassification adjustments, net of tax:
Foreign currency loss included in net income	—		—			353			—
Amortization of pension actuarial loss	34		22			102			45
Other comprehensive income (loss)	815		(1,062		)	(219		)	(3,318		)
Total comprehensive income	$	162,171	$	68,455		$	283,716		$	68,290

See accompanying Notes to Condensed Consolidated Financial Statements.

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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, September 28, 2019	116,294		$	4,471,656		$	(7,658	)	$	(198,504	)	$	4,265,494
Net income	—		—			—			161,356			161,356
Other comprehensive income	—		—			815			—			815
Exercise of stock options and vesting of restricted stock units, net of shares withheld for employee taxes	490		10,150			—			—			10,150
Issuance of common stock in connection with employee stock purchase plan	213		13,710			—			—			13,710
Repurchase of common stock, including transaction costs	(1,259	)	(125,012		)	—			—			(125,012		)
Stock-based compensation	—		12,864			—			—			12,864
Balance, December 28, 2019	115,738		$	4,383,368		$	(6,843	)	$	(37,148	)	$	4,339,377

Balance, September 29, 2018	125,046		$	5,089,331		$	(5,008	)	$	(452,186	)	$	4,632,137
Net income	—		—			—			69,517			69,517
Other comprehensive loss	—		—			(1,062		)	—			(1,062		)
Exercise of stock options and vesting of restricted stock units, net of shares withheld for employee taxes	41		226			—			—			226
Issuance of common stock in connection with employee stock purchase plan	219		12,535			—			—			12,535
Repurchase of common stock, including transaction costs	(2,305	)	(151,993		)	—			—			(151,993		)
Stock-based compensation	—		15,960			—			—			15,960
Balance, December 29, 2018	123,001		$	4,966,059		$	(6,070	)	$	(382,669	)	$	4,577,320

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QORVO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands)

(Unaudited)



						Accumulated Other Comprehensive Loss			Accumulated Deficit
	Common Stock
Nine Months Ended	Shares		Amount									Total
Balance, March 30, 2019	119,063		$	4,687,455		$	(6,624	)	$	(321,152	)	$	4,359,679
Net income	—		—			—			283,935			283,935
Other comprehensive loss	—		—			(219		)	—			(219		)
Exercise of stock options and vesting of restricted stock units, net of shares withheld for employee taxes	1,327		(5,459		)	—			—			(5,459		)
Issuance of common stock in connection with employee stock purchase plan	452		28,658			—			—			28,658
Cumulative-effect adoption of ASU 2016-02	—		—			—			69			69
Repurchase of common stock, including transaction costs	(5,104	)	(390,117		)	—			—			(390,117		)
Stock-based compensation	—		62,831			—			—			62,831
Balance, December 28, 2019	115,738		$	4,383,368		$	(6,843	)	$	(37,148	)	$	4,339,377

Balance, March 31, 2018	126,322		$	5,237,085		$	(2,752	)	$	(458,769	)	$	4,775,564
Net income	—		—			—			71,608			71,608
Other comprehensive loss	—		—			(3,318		)	—			(3,318		)
Exercise of stock options and vesting of restricted stock units, net of shares withheld for employee taxes	859		(19,633		)	—			—			(19,633		)
Issuance of common stock in connection with employee stock purchase plan	468		26,817			—			—			26,817
Cumulative-effect adoption of ASU 2014-09	—		—			—			4,492			4,492
Repurchase of common stock, including transaction costs	(4,648	)	(338,675		)	—			—			(338,675		)
Stock-based compensation	—		60,465			—			—			60,465
Balance, December 29, 2018	123,001		$	4,966,059		$	(6,070	)	$	(382,669	)	$	4,577,320

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QORVO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



	Nine Months Ended
	December 28, 2019			December 29, 2018
Cash flows from operating activities:
Net income	$	283,935		$	71,608
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	172,314			143,008
Intangible assets amortization (Note 4)	177,930			399,200
Loss on debt extinguishment (Note 7)	—			84,004
Deferred income taxes	(1,207		)	(58,216		)
Gain on Cavendish investment (Note 4)	(43,008		)	—
Asset impairment (Note 10)	1,057			14,913
Stock-based compensation expense	62,210			58,874
Other, net	7,036			3,491
Changes in operating assets and liabilities:
Accounts receivable, net	(25,166		)	(74,844		)
Inventories	44,863			7,474
Prepaid expenses and other current and non-current assets	2,942			14,914
Accounts payable and accrued liabilities	41,723			(9,810		)
Income tax payable and receivable	3,917			(26,574		)
Other liabilities	2,705			(5,023		)
Net cash provided by operating activities	731,251			623,019
Investing activities:
Purchase of property and equipment	(129,004		)	(185,627		)
Purchase of available-for-sale debt securities	—			(132,729		)
Purchase of businesses, net of cash acquired (Note 4)	(494,783		)	—
Proceeds from sales and maturities of available-for-sale debt securities	1,950			133,132
Other investing activities	(1,263		)	(20,238		)
Net cash used in investing activities	(623,100		)	(205,462		)
Financing activities:
Repurchase of debt (Note 7)	—			(977,498		)
Proceeds from borrowings and debt issuances (Note 7)	659,000			631,300
Repurchase of common stock, including transaction costs (Note 8)	(390,117		)	(338,675		)
Proceeds from the issuance of common stock	37,530			25,452
Tax withholding paid on behalf of employees for restricted stock units	(21,013		)	(24,595		)
Other financing activities	(6,252		)	(7,510		)
Net cash provided by (used in) financing activities	279,148			(691,526		)

Effect of exchange rate changes on cash	(501		)	(2,369		)
Net increase (decrease) in cash, cash equivalents and restricted cash	386,798			(276,338		)
Cash, cash equivalents and restricted cash at the beginning of the period	711,382			926,402
Cash, cash equivalents and restricted cash at the end of the period	$	1,098,180		$	650,064

Non-cash investing information:
Capital expenditure adjustments included in accounts payable and accrued liabilities	$	26,152		$	37,206

Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	1,097,724		$	649,711
Restricted cash included in "Other non-current assets"	456			353
Total cash, cash equivalents and restricted cash	1,098,180			650,064

See accompanying Notes to Condensed Consolidated Financial Statements.

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QORVO, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

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

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 2020 and 2019 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 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.

The adoption of this standard resulted in a cumulative-effect adjustment to accumulated deficit of less than $0.1 million. This standard did not have a material impact on the Condensed Consolidated Statements of Income or Condensed Consolidated Statements of Cash Flows. See Note 6 for further disclosures resulting from the adoption of this new standard.

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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):



	December 28, 2019		March 30, 2019
Raw materials	$	105,854	$	118,608
Work in process	271,798		272,469
Finished goods	102,233		120,716
Total inventories	$	479,885	$	511,793

4. BUSINESS ACQUISITIONS

Cavendish Kinetics Limited

As of September 28, 2019, the Company had an investment in preferred shares in Cavendish Kinetics Limited (“Cavendish”), a private supplier of high-performance radio frequency ("RF") microelectromechanical system ("MEMS") technology for antenna tuning applications, with a carrying value of $59.4 million. The Company accounted for this investment as an equity investment without a readily determinable fair value using the measurement alternative in accordance with Accounting Standards Update ("ASU") 2016-01.

On October 4, 2019, the Company completed its acquisition of the remaining issued and outstanding capital of Cavendish for $196.8 million, net of cash acquired. The acquisition advances RF MEMS technology for applications across the Company's products and the technology will be transitioned into high-volume manufacturing for mobile devices and other markets.

The purchase of the remaining equity interest in Cavendish was considered to be an acquisition achieved in stages, whereby the previously held equity interest was remeasured at its acquisition-date fair value. The Company determined that the fair value of its previously held equity investment was $102.4 million based on the purchase consideration exchanged to acquire the remaining issued and outstanding capital of Cavendish. This resulted in recognition of a gain of $43.0 million for the three and nine months ended December 28, 2019, which is recorded in "Other income (expense)" in the Condensed Consolidated Statements of Income.

The total purchase price of $305.9 million was allocated to Cavendish's net tangible assets (approximately $4.7 million), deferred tax liability (approximately $16.5 million) and intangible assets (approximately $206.4 million, primarily related to developed technology) based on their estimated fair values as of October 4, 2019.

The fair value of the Cavendish developed technology acquired was determined based on an income approach using the “excess earnings method,” which estimated the value of the intangible asset by discounting the future projected earnings of the asset to present value as of the valuation date. This developed technology is being amortized on a straight-line basis over its estimated useful life of 9 years.

The excess of the purchase price over the value of the net tangible assets, deferred tax liability and intangible assets resulted in goodwill of approximately $111.3 million. The Company will continue to evaluate certain assets, liabilities and tax estimates over the measurement period (up to one year from the October 4, 2019 acquisition date).

Active-Semi International, Inc.

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 $307.9 million was allocated to Active-Semi's net tangible assets (approximately $18.9 million) and intangible assets (approximately $158.4 million) based on their estimated fair values as of May 6, 2019. The more significant intangible assets acquired included developed technology of $76.7 million, customer relationships of $40.9 million and in-process research and development ("IPRD") of $40.6 million.

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QORVO, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The fair value of Active-Semi customer relationships acquired was determined based on an income approach using the “with and without method,” in which the value of the asset is determined by the difference in discounted cash flows of the profitability of the Company “with” the asset and the profitability of the Company “without” the asset. These customer relationships are being amortized on a straight-line basis over their estimated useful lives of 5 years.

The fair values of the Active-Semi developed technology and IPRD acquired were determined based on an income approach using the “excess earnings method,” which estimated the values of the intangible assets by discounting the future projected earnings of the asset to present value as of the valuation date. The acquired developed technology assets are being amortized on a straight-line basis over their estimated useful lives, ranging from 5 to 9 years.

During the nine months ended December 28, 2019, $31.0 million of IPRD assets were completed, transferred to finite-lived intangible assets, and are being amortized over their estimated useful lives of 5 to 7 years. The IPRD remaining as of December 28, 2019 is expected to be completed during fiscal 2021 with remaining costs to complete of less than $2.0 million.

The excess of the purchase price over the value of the net tangible assets and intangible assets resulted in goodwill of approximately $130.6 million. The Company will continue to evaluate certain assets, liabilities and tax estimates over 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 nine months ended December 28, 2019 of $2.1 million and $25.1 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 nine months ended December 28, 2019 of $0.3 million and $4.5 million, respectively, in "Cost of goods sold" in the Condensed Consolidated Statements of Income.

The change in the carrying amount of goodwill resulting from the Active-Semi and Cavendish acquisitions for the nine months ended December 28, 2019, is as follows (in thousands):



	Mobile Products		Infrastructure and Defense Products		Total
Balance as of March 30, 2019	$	1,751,503	$	422,386	$	2,173,889
Goodwill resulting from Active-Semi acquisition	—		130,648		130,648
Goodwill resulting from Cavendish acquisition	111,265		—		111,265
Balance as of December 28, 2019	$	1,862,768	$	553,034	$	2,415,802

The following summarizes information regarding the gross carrying amounts and accumulated amortization of intangible assets (in thousands):



	December 28, 2019				March 30, 2019
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Intangible assets:
Developed technology	$	1,077,872	$	602,536	$	1,246,335	$	960,793
Customer relationships	426,872		327,829		1,272,725		1,161,735
Trade names	200		200		29,391		29,391
Technology licenses	3,490		2,162		14,704		13,026
Non-compete agreement	—		—		1,026		1,026
IPRD	19,600		N/A		10,000		N/A
Total	$	1,528,034	$	932,727	$	2,574,181	$	2,165,971

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.

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QORVO, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Total intangible assets amortization expense was $63.1 million and $177.9 million, respectively, for the three and nine months ended December 28, 2019, and $132.5 million and $399.2 million, respectively, for the three and nine months ended December 29, 2018.

Based on the identified intangible assets as of December 28, 2019, the Company's estimated amortization expense for each period is as follows (in thousands):



Fiscal Year	Estimated Amortization Expense
2020	$	240,000
2021	206,000
2022	79,000
2023	63,000
2024	53,000

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 December 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)
December 28, 2019
	Assets
		Marketable equity securities		$	879	$	879	$	—
		Invested funds in deferred compensation plan (1)		23,255		23,255		—
			Total assets measured at fair value	$	24,134	$	24,134	$	—
	Liabilities
		Deferred compensation plan obligation (1)		$	23,255	$	23,255	$	—
			Total liabilities measured at fair value	$	23,255	$	23,255	$	—

March 30, 2019
	Assets
		Money market funds		$	13	$	13	$	—
		Marketable equity securities		901		901		—
		Auction rate securities (2)		1,950		—		1,950
		Invested funds in deferred compensation plan (1)		18,737		18,737		—
			Total assets measured at fair value	$	21,601	$	19,651	$	1,950
	Liabilities
		Deferred compensation plan obligation (1)		$	18,737	$	18,737	$	—
			Total liabilities measured at fair value	$	18,737	$	18,737	$	—

(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.

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(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 December 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

On October 4, 2019, the Company completed its acquisition of the remaining issued and outstanding capital of Cavendish. Prior to the acquisition date, the Company had accounted for its investment in Cavendish as an equity investment without a readily determinable fair value and the investment was classified in "Long-term investments" in the Condensed Consolidated Balance Sheets. See Note 4 for disclosures related to the acquisition of Cavendish.

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

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 7 for further disclosures related to the fair value of the Company's debt.

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.

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 nine months ended December 28, 2019, are as follows:



	December 28, 2019
	Three Months Ended		Nine Months Ended
Operating lease expense	$	3,698	$	11,115
Short-term lease expense	1,911		5,063
Variable lease expense	734		2,329
Total lease expense	$	6,343	$	18,507

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Supplemental cash information and non-cash activities related to operating leases are as follows (in thousands):



	Nine Months Ended
	December 28, 2019
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows from operating leases	$	12,172

Non-cash activities:
Operating lease assets obtained in exchange for new lease liabilities	$	3,559

Supplemental balance sheet information related to operating leases is as follows (in thousands):



	Classification on the Condensed Consolidated Balance Sheet	December 28, 2019
Assets
Operating lease assets	Other non-current assets	$	58,965

Liabilities
Operating lease current liabilities	Other current liabilities	$	13,268
Operating lease non-current liabilities	Other long-term liabilities	$	55,004

Weighted-average remaining lease term and discount rate related to operating leases are as follows:



	December 28, 2019
Weighted-average remaining lease term (years) - operating leases	8.26
Weighted-average discount rate - operating leases	4.22	%

Maturities of lease liabilities under operating leases by fiscal year as of December 28, 2019 are as follows (in thousands):



2020	$	7,685
2021	14,661
2022	11,485
2023	8,526
2024	7,005
Thereafter	31,272
Total lease payments	80,634
Less imputed interest	(12,362		)
Present value of lease liabilities	$	68,272

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7. DEBT

Long-term debt as of December 28, 2019 and March 30, 2019 is as follows (in thousands):



	December 28, 2019			March 30, 2019
Term loan	$	100,000		$	—
7.00% senior notes due 2025	23,404			23,404
5.50% senior notes due 2026	900,000			900,000
4.375% senior notes due 2029	550,000			—
Finance leases	1,951			1,745
Less unamortized premium and issuance costs	(1,499		)	(4,134		)
Less current portion of long-term debt	(5,302		)	(80		)
Total long-term debt	$	1,568,554		$	920,935

Senior Notes due 2023 and 2025

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

In 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 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 Condensed Consolidated Statements of Income in connection with certain purchases of these notes. As of December 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. Interest paid on the 2025 Notes during the three and nine months ended December 28, 2019 was $0.8 million and $1.6 million, respectively. Interest paid on the 2025 Notes during the three months ended December 29, 2018 was $4.0 million, and interest paid on the 2023 Notes and 2025 Notes during the nine months ended December 29, 2018 was $45.5 million.

Senior Notes due 2026

On July 16, 2018, the Company issued $500.0 million aggregate principal amount of its 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

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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. The Company paid no interest on the 2026 Notes during the three months ended December 28, 2019 and paid interest of $24.8 million on the 2026 Notes during the nine months ended December 28, 2019.

Senior Notes due 2029

On September 30, 2019, the Company issued $350.0 million aggregate principal amount of its 4.375% senior notes due 2029 (the “Initial 2029 Notes”). On December 20, 2019, the Company issued an additional $200.0 million aggregate principal amount of such notes (the "Additional 2029 Notes" and together with the Initial 2029 Notes, the "2029 Notes"). The 2029 Notes will mature on October 15, 2029, unless earlier redeemed in accordance with their terms. The 2029 Notes are senior unsecured obligations of the Company and are initially guaranteed, jointly and severally, by each of the Guarantors.

The Initial 2029 Notes were issued pursuant to an indenture, dated as of September 30, 2019, by and among the Company, the Guarantors and MUFG Union Bank, N.A., as trustee, and the Additional 2029 Notes were issued pursuant to a supplemental indenture, dated as of December 20, 2019 (such indenture and supplemental indenture, together, the "2019 Indenture"). The 2019 Indenture contains customary events of default, including payment default, exchange default, failure to provide certain notices thereunder and certain provisions related to bankruptcy events. The 2019 Indenture also contains customary negative covenants.

The 2029 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 Initial 2029 Notes, the Company entered into a registration rights agreement, dated as of September 30, 2019, by and among the Company and the Guarantors, on the one hand, and BofA Securities, Inc., as representative of the initial purchasers of the Initial 2029 Notes, on the other hand, and a substantially similar agreement, dated as of December 20, 2019, with respect to the Additional 2029 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 2029 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 2029 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 September 30, 2019 (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 2029 Notes as promptly as practicable, and (ii) cause the shelf registration statement to be declared effective by the SEC as promptly as practicable. The Company and the Guarantors have also agreed to use their commercially reasonable efforts to keep the shelf registration statement continuously effective until one year after its effective date (or such shorter period that will terminate when all the 2029 Notes covered thereby have been sold pursuant thereto).

If the Company fails to meet any of these targets, the annual interest rate on the 2029 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 2029 Notes will revert to the original level.

Interest is payable on the 2029 Notes on April 15 and October 15 of each year at a rate of 4.375% per annum, commencing April 15, 2020.

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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 included 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"). In addition, the Company may request one or more additional tranches of term loans or increases in the Revolving Facility, up to an aggregate of $300.0 million and subject to securing additional funding commitments from the existing or new lenders (the “Incremental Facility,” together with the Term Loan and the Revolving Facility, 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. The delayed draw availability period for the remaining $200.0 million of the Term Loan expired on 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 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 28, 2019, there were no borrowings under the Revolving Facility. Interest paid on the Term Loan during the three and nine months ended December 28, 2019 was $0.7 million and $1.6 million, respectively.

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 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, 2026 Notes, and 2029 Notes as of December 28, 2019 was $25.3 million, $962.3 million, and $576.1 million, respectively (compared to a carrying value of $23.4 million, $900.0 million, and $550.0 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, 2026 Notes, and 2029 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 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 December 28, 2019.

Interest Expense

During the three and nine months ended December 28, 2019, the Company recognized $17.8 million and $44.3 million, respectively, of interest expense related to the 2025 Notes, the 2026 Notes, the 2029 Notes and the Term Loan, which was partially offset by $1.4 million and $4.4 million, respectively, of interest capitalized to property and equipment. 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, the 2025 Notes and the 2026 Notes, which was partially offset by $7.2 million of interest capitalized to property and equipment.

8. STOCK REPURCHASES

On October 31, 2019, the Company announced that its Board of Directors authorized a new share repurchase program to repurchase up to $1.0 billion of the Company's outstanding common stock, which included approximately $117.0 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.

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During the three and nine months ended December 28, 2019, the Company repurchased approximately 1.3 million shares and 5.1 million shares, respectively, of its common stock for approximately $125.0 million and $390.1 million, respectively, under the prior and current share repurchase programs. As of December 28, 2019, $890.9 million remained available for repurchases under the current share repurchase program.

During the three and nine months ended December 29, 2018, the Company repurchased approximately 2.3 million shares and 4.6 million shares, respectively, of its common stock for approximately $152.0 million and $338.7 million, respectively, under the prior share repurchase program.

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				Nine Months Ended
	December 28, 2019		December 29, 2018		December 28, 2019		December 29, 2018
United States	$	423,573	$	460,525	$	1,143,995	$	1,153,823
China	281,024		242,454		842,112		830,727
Other Asia	80,729		54,414		229,344		168,344
Taiwan	43,156		35,143		122,189		142,038
Europe	40,591		39,794		113,729		114,511
Total revenue	$	869,073	$	832,330	$	2,451,369	$	2,409,443

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 December 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 of the end of the third quarter of fiscal 2020, the Company has recorded total cumulative restructuring charges of $88.1 million as a result of these restructuring actions, including accelerated depreciation of $47.2 million (to reflect changes in estimated useful lives of certain property and equipment), i