SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 28, 2020
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.)
7628 Thorndike Road
(Address of principal executive office)
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common Stock, $0.0001 par value
The Nasdaq Stock Market LLC
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ¨ No þ
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
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
The aggregate market value of the registrant's common stock held by non-affiliates of the registrant was approximately $8,484,359,696 as of September 28, 2019. For purposes of such calculation, shares of common stock held by persons who held more than 10% of the outstanding shares of common stock and shares held by directors and officers of the registrant and their immediate family members have been excluded because such persons may be deemed to be affiliates. This determination is not necessarily conclusive.
As of May 12, 2020, there were 114,734,210 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant has incorporated by reference into Part III of this report certain portions of its proxy statement for its 2020 annual meeting of stockholders, which is expected to be filed pursuant to Regulation 14A within 120 days after the end of the registrant’s fiscal year ended March 28, 2020.
This report includes "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including, but not limited to, certain disclosures contained in Item 1, "Business," Item 1A, "Risk Factors" and Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations." These forward-looking statements include, but are not limited to, statements about our plans, objectives, representations and contentions, and are not historical facts and typically are identified by the use of terms such as "may," "will," "should," "could," "expect," "plan," "anticipate," "believe," "estimate," "forecast," "predict," "potential," "continue" and similar words, although some forward-looking statements are expressed differently. You should be aware that the forward-looking statements included herein represent management's current judgment and expectations, but our actual results, events and performance could differ materially from those expressed or implied by forward-looking statements, including due to the numerous risks and uncertainties summarized in Item 1A, "Risk Factors" in this report. We do not intend to update any of these forward-looking statements or publicly announce the results of any revisions to these forward-looking statements, other than as is required under the federal securities laws.
The following discussion should be read in conjunction with, and is qualified in its entirety by reference to, our audited consolidated financial statements included in this report, including the notes thereto.
ITEM 1. BUSINESS.
Qorvo® is a leader in the development and commercialization of technologies and products for wireless and wired connectivity. We combine a broad portfolio of innovative radio frequency ("RF") solutions, highly differentiated semiconductor technologies, systems-level expertise and global manufacturing scale to supply a diverse set of customers a broad range of products that enable a more connected world.
Our design expertise and manufacturing capabilities span multiple semiconductor process technologies. Our primary wafer fabrication facilities are in North Carolina, Oregon and Texas, and our primary assembly and test facilities are in China, Costa Rica, Germany and Texas. We also source multiple products and materials through external suppliers. We operate design, sales and other manufacturing facilities throughout Asia, Europe and North America.
We have two reportable segments: Mobile Products ("MP") and Infrastructure and Defense Products ("IDP"). MP is a global supplier of cellular, ultra-wide band ("UWB") and Wi-Fi solutions for a variety of high-volume markets, including smartphones, wearables, laptops, tablets and Internet of Things ("IoT") applications. IDP is a global supplier of RF, system-on-a-chip ("SoC") and power management solutions for wireless infrastructure, defense, smart home, automotive and other IoT applications. Our MP segment supplies consumer products with a shorter life cycle, to a small set of large global customers. Our IDP segment supplies a diverse portfolio of products, that generally have longer life cycles, to a broad base of customers.
During fiscal 2020, we made the following strategic acquisitions to expand our product offerings and design capabilities and to extend our reach into new markets:
Active-Semi International, Inc. ("Active-Semi"), a fabless supplier of programmable power management solutions;
Cavendish Kinetics Limited ("Cavendish"), a supplier of high-performance RF microelectromechanical system ("MEMS") technology for RF switching applications;
Custom MMIC Design Services, Inc. ("Custom MMIC"), a fabless provider of gallium arsenide ("GaAs") and gallium nitride ("GaN") monolithic microwave integrated circuits ("MMICs") for defense and aerospace applications; and,
Decawave Limited ("Decawave"), a leader in UWB technology and provider of UWB solutions for mobile, automotive and IoT applications.
Qorvo was incorporated in Delaware in 2013. Our principal executive office is located at 7628 Thorndike Road, Greensboro, North Carolina 27409-9421 and our telephone number is (336) 664-1233.
There is growing global demand for ubiquitous, always-on connectivity. Total mobile data traffic continues to grow as smartphones, laptops, and other mobile devices are used increasingly to access the internet, stream videos, interact on social media and access other services. 5G is expected to enhance how we connect, communicate and transact business. 5G will improve network capacity, increase data throughput, reduce signal latency and enable machine-to-machine connectivity on a massive scale. Existing applications will be transformed, and new applications will be developed.
With each application, demand is increasing for RF solutions that improve performance, reduce product footprint, enhance network efficiency and ensure data security. In mobile devices, the deployment of 5G, the addition of Multiple-Input/Multiple-Output ("MIMO") architectures and new carrier aggregation ("CA") band combinations increase device complexity. To address this, Qorvo is integrating a broad portfolio of technologies and advancing the state-of-the-art in functional integration. In consumer IoT, the increasing demand for secure and accurate location and data communication services is driving demand for our UWB technology, which enables real-time, highly accurate and reliable local area precision-location services. In infrastructure, the deployment of 5G networks is driving demand for Qorvo’s high performance communications infrastructure solutions, including our GaN high power amplifiers and GaAs front-end modules ("FEMs"). In defense and aerospace, the trend toward phased array radar, the shift to higher frequencies and the sharing of existing frequency bands with cellular communications are expanding the demand for Qorvo’s capabilities.
Our business is diversified primarily across the following end markets: mobile devices; cellular base stations; defense and aerospace; Wi-Fi customer premises equipment; smart home; automotive connectivity; and various power management applications.
Our largest market, mobile devices, includes smartphones, wearables, laptops, tablets and other devices. This market is characterized by increasing demand for data throughput, the transition to 5G cellular technology and the proliferation of new communication and location-based services.
The transition to 5G involves advanced RF modulation across a wide range of frequency bands, including sub-6 GHz and millimeter wave. This introduces new challenges related to wider bandwidth, signal integrity, efficiency and overall system complexity.
To enable secure precision-location services, mobile devices are adopting UWB technology, given its superior location accuracy, security, throughput, and latency versus other short-range technologies.
Mobile device customers increasingly need compact RF solutions that improve signal quality, extend battery life and enhance the end-user experience. By leveraging our technology leadership, systems-level expertise and advanced packaging capabilities, we deliver high-performance discrete and highly integrated RF solutions to our customers.
Cellular Base Stations
We support top-tier global cellular base station original equipment manufacturers ("OEMs") with a broad portfolio of RF solutions across frequency bands. Requirements for higher throughput and broader coverage are fueling the expansion of the global base station network, including the migration to 5G networks. OEMs are deploying 5G frequency bands (referred to as sub-6 GHz and millimeter wave) that have wider channel bandwidths, and they are architecting radios that utilize massive MIMO active antenna array technology, increasing the number of RF transmit and receive channels by factors of 16 times, up to 256 times. These 5G networks require highly efficient RF solutions that increase capacity and expand coverage in a compact form factor.
Defense and Aerospace
Within the defense and aerospace markets, we focus primarily on high-power phased array radar, electronic warfare (EW) and communications systems. We engage directly with the U.S. government to develop next-generation semi-conductor and packaging technologies. We are a leading supplier of RF products and compound semiconductor foundry services to defense primes and other global defense and aerospace customers.
Wi-Fi Customer Premises Equipment
Wi-Fi customer premises equipment ("CPE") includes routers, gateways and enterprise infrastructure. In this market, consumer and enterprise customers want broader coverage and faster and more reliable connectivity enabling video streaming, augmented/virtual reality and other services, often in high density user environments. The Wi-Fi industry is migrating from 802.11ac to 802.11ax, also known as Wi-Fi 6. Wi-Fi is adopting higher order MIMO architectures, up to 8x8, to maximize range and capacity. With each new standard and architecture, there is a corresponding increase in the requirements for more complex RF front end solutions.
Smart home systems can be connected wirelessly allowing remote access and control of various household functions, enhancing convenience, entertainment, security and comfort. Smart home devices can be controlled through a computer, smartphone or through a direct peer-to-peer connection such as a voice-enabled remote control. They use industry-standard technologies, such as Bluetooth® Low Energy, Zigbee, Thread and Connected Home over IP, or CHIP, to link to a central gateway that accesses the internet via Wi-Fi. Smart home customers prefer standards-agnostic, multi-protocol products that extend battery life and enable coexistence of multiple radios in a compact form factor.
Next-generation wireless technologies are enabling new use cases in automotive wireless connectivity, including vehicle-to-vehicle communications and autonomous driving. These new use cases require complex RF solutions spanning multiple protocols, including GPS, satellite radio, Long-Term Evolution ("LTE"), Wi-Fi, 5G (sub-6 GHz and millimeter wave) and UWB. In automotive applications, UWB enables more secure access than current technologies.
Power efficiency is a core requirement in electronics. To enhance efficiency, extend battery life and protect the environment, power tools are moving from gasoline and brushed DC motors to battery powered brushless motors. Also, data storage is transitioning from hard drives to solid state drives. Power management solutions provide customers digital control of analog power, whether controlling brushless DC motors or managing power delivery for end equipment.
Qorvo competes in several smaller markets, including broadband cable, point-to-point radio and Very Small Aperture Terminal ("VSAT") applications. In broadband cable, we increase the bandwidth to the home by supporting DOCSIS 3.1 and the evolving DOCSIS 4.0 standard. Qorvo’s UWB technology offers secure precision-location services, enabling association, navigation and location for a range of IoT applications across markets.
Qorvo’s products improve performance, reduce complexity, shrink form factors and solve our customers' most critical RF challenges.
Our products include highly integrated modules incorporating switches, power amplifiers ("PAs"), filters and duplexers ("S-PADs"), antenna tuners, RF power management integrated circuits, multimode/multi-band PAs and transmit modules, antenna-plexers, discrete filters and duplexers, discrete switches and UWB system solutions.
Our most highly integrated products utilize sophisticated packaging capabilities to integrate high-performance components, including bulk acoustic wave ("BAW") filters, temperature-compensated surface acoustic wave ("TC-SAW") filters, silicon on insulator ("SOI") switches and low noise amplifiers ("LNAs"), and advanced GaAs PAs.
We also offer envelope tracking power management solutions, antenna control solutions and UWB system solutions supporting secure, low power, location and communication services.
Cellular Base Stations
Our integrated solutions for massive MIMO systems include switch-LNA modules, variable gain amplifiers and integrated PA Doherty modules. Our GaAs and SOI solutions offer differentiated low noise performance, while our GaN PAs target higher frequency bands and combine high linearity and efficiency with low power consumption.
Defense and Aerospace
Our products for defense radar applications bring new capabilities to detect and neutralize threats against infantry, aircrew and shipboard forces. Our PAs power phased array radars and our premium filters enable interference-free connections and optimize frequency spectrum to expand network capacity and extend coverage. Our Spatium® line of solid-state, high-power products provide highly reliable, efficient broadband solutions for complex EW applications across a broad frequency spectrum. Our recent acquisition of Custom MMIC combines their portfolio of low noise amplifiers, mixers, phase shifters, switches, multipliers and attenuators with our product offerings.
Wi-Fi Customer Premises Equipment
In Wi-Fi, we offer PAs, switches, LNAs and BAW filters. We integrate combinations of these into RF front end modules.
Qorvo offers multi-standard SOCs (Zigbee, Bluetooth® Low Energy, Thread) consisting of SoC hardware, firmware and application software. To augment the SoC, we also offer various configurations of advanced filtering and amplification as well as Wi-Fi 6 FEMs.
We provide a variety of automotive RF connectivity products, including BAW filters, LNAs, switches, PAs and LTE front end solutions. We also supply complementary metal oxide semiconductor ("CMOS")-based UWB chip and module system solutions. Our products meet or exceed automotive AEC-Q100 quality and reliability standards, and we supply the leading automotive OEMs, tier-1 suppliers and chipset vendors.
We supply Power Application Controllers (PACs®) and programmable analog power ICs that significantly reduce solution size and cost, improve system reliability, and shorten system development time. Our products manage voltages from 1.8V to 600V and power up to 4,000 Watts.
Research and Development
We invest in research and development ("R&D") to develop advanced technologies and products necessary to serve our markets. Our R&D activities focus primarily on large, competitive design win opportunities for major programs at key customers, which typically requires us to improve the functional density, performance, size and cost of our products. We also have R&D resources associated with the development of new products for broader market applications. Our R&D efforts require us to focus on both continuous improvement in our processes for design and manufacture as well as new innovation in fundamental areas like materials, software and firmware, semiconductor process technologies, simulation and modeling, systems architecture, circuit design, device packaging, module integration and test.
We have developed several generations of GaAs, GaN, BAW and surface acoustic wave ("SAW") process technologies that we manufacture internally. We invest in these technologies to improve device performance, reduce die size and reduce manufacturing costs. We also help develop and qualify technologies in cooperation with key suppliers, including SOI for switches and tuners, silicon germanium (SiGe) for amplifiers, and CMOS for power management devices and SoC solutions. We combine these technologies with our proprietary design methods, intellectual property ("IP") and other expertise to improve performance, increase integration and reduce the size and cost of our products.
We develop and qualify advanced packaging technologies to reduce component size, improve performance and reduce package costs. We are also investing in large scale module assembly and test capabilities to bring these technologies to market in very high volumes.
We purchase numerous raw materials, passive components and substrates for our products and manufacturing processes. The industry has experienced isolated shortages for various components in the past 12 months, including capacitors. These shortages are being addressed by suppliers adding additional capacity as we build in flexibility to our supply chain by adding suppliers and by designing in alternate capacitors to use in our products.
For our GaAs and GaN manufacturing operations, we use several raw materials, including GaAs and GaN on silicon carbide wafers. For our acoustic filter manufacturing operations, we use several raw materials, including wafers made from silicon, lithium niobate or lithium tantalate.
For our silicon-based products, we use third-party foundries. High demand for silicon wafers and wafer starting materials has led to supply constraints from time-to-time, and we have attempted to address this by qualifying multiple silicon foundries and by obtaining supply commitments, in some cases in exchange for purchase or capital commitments by us.
Our manufacturing strategy includes a balance of internal and external sites (primarily for assembly and test operations), which helps reduce costs, provides flexibility of supply, and minimizes the risk of supply disruption. We routinely qualify multiple sources of supply and manufacturing sites to reduce the risk of supply interruptions or price increases and closely monitor suppliers’ key performance indicators. Our suppliers' and our manufacturing sites are geographically diversified (with our largest volume sources distributed throughout Southern and Eastern Asia). We believe we have adequate sources for the supply of raw materials, passive components and substrates for our products and manufacturing needs.
Qorvo is currently experiencing isolated supply-chain issues caused by the recent novel coronavirus (COVID-19) outbreak. While this is a dynamic situation impacting the entire industry, we have a broadly diversified supply base and our operations are not currently materially impacted.
We are a manufacturer of BAW, GaN, GaAs, SAW, TC-SAW and silicon products. The majority of our products are multi-chip modules utilizing multiple semiconductor and acoustic material processing technologies. These products have varying degrees of complexity and contain semiconductors and other components that are manufactured internally or outsourced.
We operate wafer fabrication facilities for the production of BAW, GaN, GaAs, SAW and TC-SAW wafers in Greensboro, North Carolina; Hillsboro, Oregon; and Richardson, Texas. We also use multiple silicon-based process technologies, including SOI, SiGe and CMOS, which are principally sourced from leading silicon foundries located throughout the world. We have a global supply chain and ship millions of units per day.
We have our own flip chip, wire bond and wafer-level packaging ("WLP") technologies. Additionally, we use external suppliers for these and other packaging technologies.
At the end of the semiconductor manufacturing process, we regularly conduct wafer level tests to verify individual circuit performance. These tests could include electrical validation, RF testing through designed frequency bands, as well as visual defect inspection. The wafers are then separated into individual components called die. For module products, the next step is assembly, during which the die and other components are placed on high-density interconnect substrates to provide connectivity between the die and the components. This populated substrate is formed into a module. Next, the products are tested for RF performance and prepared for shipment through a tape and reel process. We primarily use internal assembly facilities in China, Costa Rica, Germany, and the U.S., and we also utilize external suppliers. We also manufacture large volumes of WLP die and discrete filters that our customers directly assemble into their products.
Manufacturing yields can vary significantly between products, based on a number of factors, including product complexity, performance requirements and the maturity of our manufacturing processes. To maximize wafer yields and quality, we test products multiple times, maintain continuous reliability monitoring and conduct numerous quality control inspections throughout the production flow.
Our internal manufacturing facilities require a high level of fixed costs, consisting primarily of occupancy costs, maintenance, repair, equipment depreciation, and fixed labor costs related to manufacturing and process engineering.
Integrated circuits and filter products are highly complex and sensitive to contaminants, and semiconductor fabrication requires highly controlled, clean environments. Wafers can be rejected or die on a wafer can be found to be nonfunctional as a result of minute impurities, variances in the fabrication process or defects in the masks used to transfer circuit patterns onto the wafers.
Our manufacturing facilities worldwide are certified to the ISO 9001 quality standard, and select locations are certified to additional automotive (IATF 16949), aerospace (AS 9100) and environmental (ISO 14001) standards. These stringent standards are audited and certified by third-party auditors in addition to our continuous internal self-audits. The ISO 9001 standard is based on a number of quality management principles including a strong customer focus, the motivation of top management, the process approach and continual improvement. IATF 16949 is the highest international quality standard for the global automotive industry and incorporates specific additional requirements for the automotive industry. AS 9100 is the standardized quality management system for the aerospace industry. ISO 14001 is an internationally agreed upon standard for an environmental management system. We require that all of our key vendors and suppliers be compliant with select standards, as applicable.
We design, develop, manufacture and market products for leading U.S. and international OEMs and original design manufacturers ("ODMs"). We also collaborate with leading reference design partners.
We provide our products to our largest end customer, Apple Inc. ("Apple"), through sales to multiple contract manufacturers, which in the aggregate accounted for 33%, 32%, and 36% of total revenue in fiscal years 2020, 2019 and 2018, respectively. Huawei Technologies Co., Ltd. and affiliates ("Huawei") accounted for 10%, 15% and 8% of our total revenue in fiscal years 2020, 2019 and 2018, respectively. These customers primarily purchase RF solutions for a variety of mobile devices.
Some of our sales to overseas customers are subject to export licenses or other restrictions imposed by the U.S. Department of Commerce (see Risk Factors in Part I, Item 1A set forth in this report).
Sales and Marketing
We sell our products worldwide directly to customers as well as through a network of U.S. and foreign sales representative firms and distributors. We select our domestic and foreign sales representatives based on technical skills and sales experience, the presence of complementary product lines and the customer base served. We provide ongoing training to our internal and external sales representatives and distributors to keep them educated about our products. We maintain an internal sales and marketing organization that is responsible for key account management, application engineering support for customers, sales and advertising literature, and technical presentations for industry conferences. Our sales and customer support centers are located near our customers throughout the world.
Our website contains extensive product information and includes an online store where customers can learn about our products, download product catalogs, order product samples and request evaluation boards. Our global team of application engineers interacts with customers during all stages of design and production, maintains regular contact with customer engineers, provides product application notes and engineering data, and assists in the resolution of technical problems. We maintain close relationships with our customers and platform providers and provide them strong technical support to help anticipate future product needs and enhance their customer experience.
Backlog and Seasonality
Our sales are the result of standard purchase orders or specific agreements with customers. Because industry practice allows customers to cancel orders with limited advance notice prior to shipment, and with little or no penalty, we believe that backlog as of any particular date may not be a reliable indicator of our future revenue levels.
Historically, we have experienced seasonal fluctuations in the sale of mobile products, with revenue typically strongest in our second and third fiscal quarters.
We operate in a competitive industry characterized by rapid advances in technology and new product introductions. Our customers’ product life cycles are often short, and our competitiveness depends on our ability to improve our products and processes faster than our competitors, anticipate changing customer requirements and successfully develop and launch new products while reducing our costs. Our competitiveness is also affected by the quality of our customer service and technical support and our ability to design customized products that address each customer’s particular requirements within their cost limitations. The selection process for our products to be included in our customers’ products is highly competitive, and our customers provide no guarantees that our products will be included in the next-generation of products introduced.
MP competes primarily with Broadcom Limited; Murata Manufacturing Co., Ltd.; Qualcomm Technologies, Inc.; and Skyworks Solutions, Inc. IDP competes primarily with Analog Devices, Inc.; Cree, Inc.; M/A-COM Technology Solutions, Inc.; NXP Semiconductors N.V.; Silicon Laboratories, Inc.; STMicroelectronics N.V.; Skyworks Solutions, Inc.; and Sumitomo Electric Device Innovations.
Many of our current and potential competitors have entrenched market positions and customer relationships, established patents and other IP and substantial technological capabilities. In some cases, our competitors are also our customers or suppliers. Additionally, many of our competitors may have significantly greater financial, technical, manufacturing and marketing resources than we do, which may allow them to implement new technologies and develop new products more quickly than we can.
We believe our IP, including patents, copyrights, trademarks and trade secrets, is important to our business, and we actively seek opportunities to leverage our IP portfolio to promote our business interests. We also actively seek to monitor and protect our global IP rights and to deter unauthorized use of our IP and other assets. Such efforts can be difficult because of the absence of consistent international standards and laws. Moreover, we respect the IP rights of others and have implemented policies and procedures to mitigate the risk of infringing or misappropriating third-party IP.
Patent applications are filed within the U.S. and in other countries where we have a market presence. On occasion, some applications do not mature into patents for various reasons, including rejections based on prior art. In addition, the laws of some foreign countries do not protect IP rights to the same extent as U.S. laws. We have approximately 1,973 patents that expire from 2020 to 2040. We also continue to acquire patents through acquisitions or direct prosecution efforts and engage in licensing transactions to secure the right to use third-parties’ patents. In view of our rapid innovation and product development and the comparative pace of governments’ patenting processes, there is no guarantee that our products will not be obsolete before the related patents expire or are granted. However, we believe the duration and scope of our most relevant patents are sufficient to support our business, which as a whole is not significantly dependent on any particular patent or other IP right. As we expand our products and offerings, we also seek to expand our patent prosecution efforts to cover such products.
We periodically register federal trademarks, service marks and trade names that distinguish our product brand names in the market. We also monitor these marks for their proper and intended use. Additionally, we rely on non-disclosure and confidentiality agreements to protect our interest in confidential and proprietary information that gives us a competitive advantage, including business strategies, unpatented inventions, designs and process technology. Such information is closely monitored and made available only to those employees whose responsibilities require access to the information.
On March 28, 2020, we had more than 7,900 employees. We believe that our future prospects will depend, in part, on our ability to continue to attract and retain skilled employees. Competition for skilled personnel is intense, and the number of persons with relevant experience, particularly in RF engineering, product design and technical marketing, is limited. None of our U.S. employees are represented by a labor union. Some of our employees in
Germany and the Netherlands are represented by internal works councils and some of our employees in China are represented by a labor union. As of March 28, 2020, approximately 12% of our global workforce was represented by a works council or labor union. We have never experienced any work stoppage, and we believe that our current employee relations are good.
By virtue of operating our wafer fabrication facilities, we are subject to a variety of extensive and changing domestic and international federal, state and local governmental laws, regulations and ordinances related to the use, storage, discharge and disposal of toxic, volatile or otherwise hazardous chemicals used in the manufacturing process. We pretreat and dispose of our wastewater from our manufacturing facilities to meet or exceed regulatory requirements. Our hazardous waste is sent to only licensed and permitted disposal facilities. State agencies require us to report storage and emissions of environmentally hazardous materials, and we have retained appropriate personnel to help ensure compliance with all applicable environmental regulations. We believe that costs arising from existing environmental laws will not have a material adverse effect on our financial position or results of operations.
We are an ISO 14001:2015 certified manufacturer with a comprehensive Environmental Management System ("EMS") in place to help ensure control of the environmental aspects of the manufacturing process. Our EMS mandates compliance and establishes appropriate checks and balances to minimize the potential for non-compliance with environmental laws and regulations.
We actively monitor the hazardous materials that are used in the manufacture, assembly and test of our products, particularly materials that are retained in the final product. We have developed specific restrictions on the content of certain hazardous materials in our products, as well as those of our suppliers and outsourced manufacturers and subcontractors. This helps to ensure that our products are compliant with the requirements of the markets into which the products will be sold and with our customers’ requirements. For example, our products are compliant with the European Union RoHS Directive (2011/65/EU on the Restriction of Use of Hazardous Substances), which prohibits the sale in the European Union market of new electrical and electronic equipment containing certain families of substances above a specified threshold.
Historically, the costs to comply with applicable environmental regulations have not been material, and we currently do not expect the costs of complying with existing environmental regulations to have a material adverse effect on our liquidity, capital resources or financial condition in fiscal 2021.
Access to Public Information
We make available, free of charge through our website (http://www.qorvo.com), our annual and quarterly reports on Forms 10-K and 10-Q (including related filings in iXBRL format) and current reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") as soon as reasonably practicable after we electronically file these reports with, or furnish them to, the United States Securities and Exchange Commission ("SEC"). The public may also request a copy of our forms filed with the SEC, without charge upon written request, directed to:
Investor Relations Department
Qorvo, Inc., 7628 Thorndike Road, Greensboro, NC 27409-9421
The information contained on, or that can be accessed through, our website is not incorporated by reference into this Annual Report on Form 10-K. We have included our website address as a factual reference and do not intend it as an active link to our website.
In addition, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.
ITEM 1A. RISK FACTORS.
You should carefully consider the risks described below in addition to the other information contained in this report before making an investment decision with respect to any of our securities. Our business, financial condition or results of operations could be materially impacted by any of these risks. The risks and uncertainties described below are not the only ones we face. Additional risks not currently known to us, or other factors not perceived by us to present significant risks to our business at this time, may impair our business operations, financial condition, or results of operations.
Our operating results fluctuate.
Our revenue, earnings, margins and other operating results have fluctuated significantly in the past and may fluctuate significantly in the future. If demand for our products fluctuates as a result of economic conditions or for other reasons, our revenue and profitability could be impacted. Our future operating results will depend on many factors, including the following:
business, political and macroeconomic changes, including trade disputes and recession or slowing growth in the semiconductor industry and the overall global economy;
changes in consumer confidence caused by many factors, including changes in interest rates, credit markets, expectations for inflation, unemployment levels, and energy or other commodity prices;
fluctuations in demand for our customers’ products;
our ability to forecast our customers' demand for our products accurately;
the ability of third-party foundries and other third-party suppliers to manufacture, assemble and test our products in a timely and cost-effective manner;
our customers’ and distributors’ ability to manage the inventory that they hold and to forecast accurately their demand for our products;
our ability to achieve cost savings and improve yields and margins on our new and existing products;
our ability to successfully integrate into our business, and realize the expected benefits of, our recent and any future acquisitions and strategic investments; and
our ability to utilize our capacity efficiently or to acquire additional capacity in response to customer demand.
It is likely that our future operating results could be adversely affected by one or more of the factors set forth above or other similar factors. If our future operating results are below the expectations of stock market analysts or our investors, our stock price may decline.
Our operating results are substantially dependent on development of new products and achieving design wins as our industry’s product life cycles are short and our customers' requirements change rapidly.
Our largest markets are characterized by short product life cycles and the frequent introduction of new products in response to evolving product requirements, driven by end user demand for more functionality, improved performance, lower costs and a variety of form factors. Our largest MP customers typically refresh some or all of their product portfolios by releasing new models each year. In some cases, product designs we pursue represent either opportunities to substantially increase our revenue by winning a new design or a risk of a substantial revenue loss by losing an incumbent product in a customer's device.
Our success is dependent on our ability to develop and introduce new products in a timely and cost-effective manner and secure production orders from our customers. The development of new products is a highly complex process, and we have experienced delays in completing the development and introduction of new products at times in the past. Our successful product development depends on a number of factors, including the following:
our ability to predict market requirements and define and design new products that address those requirements;
our ability to design products that meet our customers’ cost, size and performance requirements;
our ability to introduce new products that are competitive and can be manufactured at lower costs or that command higher prices based on superior performance;
acceptance of our new product designs;
the availability of qualified product design engineers;
our timely completion of product designs and ramp up of new products according to our customers’ needs with acceptable manufacturing yields; and
market acceptance of our customers’ products and the duration of the life cycle of such products.
We may not be able to design and introduce new products in a timely or cost-efficient manner, and our new products may fail to meet market or customer requirements. Most major product design opportunities that we pursue involve multiple competitors, and we could lose a new product design opportunity to a competitor that offers a lower cost or equal or superior performing product. If we are unsuccessful in achieving design wins, our revenue and operating results will be adversely affected. Even when a design win is achieved, our success is not assured. Design wins may require significant expenditures by us and typically precede volume revenue by six to nine months or more. Many customers seek a second source for all major components in their devices, which can significantly reduce the revenue obtained from a design win. In many cases, the average selling prices of our products decline over the products’ lives, and we must achieve yield improvements, cost reductions and other productivity enhancements in order to maintain profitability. The actual value of a design win to us will ultimately depend on the commercial success of our customers’ products.
We depend on a few large customers for a substantial portion of our revenue.
A substantial portion of our MP revenue comes from large purchases by a small number of customers. Our future operating results depend on both the success of our largest customers and on our success in diversifying our products and customer base. Collectively, our two largest end customers accounted for an aggregate of approximately 43%, 47% and 44% of our revenue for fiscal years 2020, 2019 and 2018, respectively.
The concentration of our revenue with a relatively small number of customers makes us particularly dependent on factors, both positive and negative, affecting those customers. If demand for their products increases, our results are favorably impacted, while if demand for their products decreases, they may reduce their purchases of, or stop purchasing, our products and our operating results would suffer. Even if we achieve a design win, our customers can delay or cancel the release of a new handset for any reason. Most of our customers can cease incorporating our products into their devices with little notice to us and with little or no penalty. The loss of a large customer and failure to add new customers to replace lost revenue would have a material adverse effect on our business, financial condition and results of operations.
We face risks of a loss of revenue if contracts with the United States government or defense and aerospace contractors are canceled or delayed or if defense spending is reduced.
We receive a portion of our revenue from the United States government and from prime contractors on United States government-sponsored programs, principally for defense and aerospace applications. These programs are subject to delays or cancellation. Further, spending on defense and aerospace programs can vary significantly depending on funding from the United States government. We believe our government and defense and aerospace business has been negatively affected in the past by external factors such as sequestration and political pressure to reduce federal defense spending. Reductions in defense and aerospace funding or the loss of a significant defense and aerospace program or contract would have a material adverse effect on our operating results.
The COVID-19 outbreak could materially adversely affect our financial condition and results of operations.
COVID-19 has spread globally and has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, and shutdowns. These measures have impacted and may further impact our workforce and operations, the operations of our customers, and those of our respective vendors and suppliers. We have significant manufacturing operations in the U.S. and China and both of these countries have been affected by the outbreak and have taken measures to try to contain it. There is considerable uncertainty regarding such measures and potential future measures, and restrictions on our access to our manufacturing facilities or on our support operations or workforce, or similar limitations for our vendors and suppliers, and restrictions or disruptions of transportation, such as reduced availability of air transport, port closures, and increased border controls or closures, could limit our capacity to meet customer demand and have a material adverse effect on our financial condition and results of operations.
The outbreak has significantly increased economic and demand uncertainty. The outbreak and continued spread of COVID-19 will cause an economic slowdown, and it is possible that the global economy worsens further. The spread of COVID-19 has caused us to modify our business practices (including employee travel, employee work locations, and cancellation of events and conferences), and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, partners, and suppliers. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus, and our ability to perform critical functions could be harmed.
The degree to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume.
We depend heavily on third parties.
We purchase numerous component parts, substrates and silicon-based products from external suppliers. We also utilize third-party suppliers for numerous services, including die processing, wafer bumping, test and tape and reel. The use of external suppliers involves a number of risks, including the possibility of material disruptions in the supply of key components and the lack of control over delivery schedules, capacity constraints, manufacturing yields, product quality and fabrication costs. Furthermore, the COVID-19 outbreak has created heightened risk that external suppliers may be unable to perform their obligations to us or suffer financial distress due to the economic impact of the outbreak and the regulatory measures that have been enacted by governments to contain the virus.
Although our key suppliers commit to us to be compliant with applicable ISO 9001 and/or TS-16949 quality standards, we have experienced quality and reliability issues with suppliers in the past. Quality or reliability issues in our supply chain could negatively affect our products, our reputation and our results of operations.
We face risks related to sales through distributors.
We sell a significant portion of our products through third-party distributors. We depend on these distributors to help us create end customer demand, provide technical support and other value-added services to customers, fill customer orders, and stock our products. We may rely on one or more key distributors for a product, and a material change in our relationship with one or more of these distributors or their failure to perform as expected could reduce our revenue. Our ability to add or replace distributors for some of our products may be limited because our end customers may be hesitant to accept the addition or replacement of a distributor due to advantages in the incumbent distributors’ technical support and favorable business terms related to payments, discounts and stocking of acceptable inventory levels. Using third parties for distribution exposes us to many risks, including competitive pressure, concentration, credit risk, and compliance risks. Other third parties may use one of our distributors to sell products that compete with our products, and we may need to provide financial and other incentives to the distributors to focus them on the sale of our products. Our distributors may face financial difficulties, including bankruptcy, which could harm our collection of accounts receivable and financial results. Violations of the Foreign Corrupt Practices Act or similar laws by our distributors or other third-party intermediaries could have a material impact on our business. Failure to manage risks related to our use of distributors may reduce sales, increase expenses, and weaken our competitive position.
We face risks associated with the operation of our manufacturing facilities.
We operate wafer fabrication facilities in North Carolina, Oregon and Texas. We currently use several international and domestic assembly suppliers, as well as internal assembly facilities in China, Costa Rica, Germany and the U.S., to assemble and test our products. We currently have our own test and tape and reel facilities located in China, Costa Rica and the U.S., and we also utilize contract suppliers and partners in Asia to test our products.
A number of factors related to our facilities will affect our business and financial results, including the following:
our ability to adjust production capacity in a timely fashion in response to changes in demand for our products;
the significant fixed costs of operating the facilities;
factory utilization rates;
our ability to qualify our facilities for new products and new technologies in a timely manner;
the availability of raw materials, the impact of the volatility of commodity pricing and tariffs imposed on raw materials, including substrates, gold, platinum and high purity source materials such as gallium, aluminum, arsenic, indium, silicon, phosphorous and palladium;
our manufacturing cycle times;
our manufacturing yields;
the political, regulatory and economic risks associated with our international manufacturing operations;
potential violations by our international employees or third-party agents of international or U.S. laws relevant to foreign operations;
our ability to hire, train and manage qualified production personnel;
our compliance with applicable environmental and other laws and regulations; and
our ability to avoid prolonged periods of down-time in our facilities for any reason.
Business disruptions could harm our business, lead to a decline in revenues and increase our costs.
Our worldwide operations and business could be disrupted by natural disasters, industrial accidents, cybersecurity incidents, telecommunications failures, power or water shortages, extreme weather conditions, public health issues (including the COVID-19 outbreak), military actions, acts of terrorism, political or regulatory issues and other man-made disasters or catastrophic events. Global climate change could result in certain natural disasters occurring more frequently or with greater intensity, such as drought, wildfires, storms and flooding. We carry commercial property damage and business interruption insurance against various risks, with limits we deem adequate, for reimbursement for damage to our fixed assets and resulting disruption of our operations. However, the occurrence of any of these business disruptions could harm our business and result in significant losses, a decline in revenue and an increase in our costs and expenses. Any disruptions from these events could require substantial expenditures and recovery time in order to fully resume operations and could also have a material adverse effect on our operations and financial results to the extent that losses are uninsured or exceed insurance recoveries and to the extent that such disruptions adversely impact our relationships with our customers. Furthermore, even if our own operations are unaffected or recover quickly, if our customers cannot timely resume their own operations due to a business disruption, natural disaster or catastrophic event, they may reduce or cancel their orders, which may adversely affect our results of operations.
If we experience poor manufacturing yields, our operating results may suffer.
Our products have unique designs and are fabricated using multiple semiconductor process technologies that are highly complex. In many cases, our products are assembled in customized packages. Many of our products consist of multiple components in a single module and feature enhanced levels of integration and complexity. Our customers insist that our products be designed to meet their exact specifications for quality, performance and reliability. Our manufacturing yield is a combination of yields across the entire supply chain, including wafer fabrication, assembly and test yields. Defects in a single component in an assembled module product can impact the yield for the entire module, which means the adverse economic impacts of an individual defect can be multiplied many times over if we fail to discover the defect before the module is assembled. Due to the complexity of our products, we periodically experience difficulties in achieving acceptable yields and other quality issues, particularly with respect to new products.
Our customers test our products once they have been assembled into their products. The number of usable products that result from our production process can fluctuate as a result of many factors, including:
defects in photomasks (which are used to print circuits on a wafer);
minute impurities and variations in materials used;
contamination of the manufacturing environment;
equipment failure or variations in the manufacturing processes;
losses from broken wafers or other human error; and
defects in substrates and packaging.
We constantly seek to improve our manufacturing yields. Typically, for a given level of sales, when our yields improve, our gross margins improve, and when our yields decrease, our unit costs are higher, our margins are lower, and our operating results are adversely affected.
Costs of product defects and deviations from required specifications include the following:
scrapping products that cannot be fixed;
accepting returns of products that have been shipped;
providing product replacements at no charge;
reimbursement of direct and indirect costs incurred by our customers in recalling or reworking their products due to defects in our products;
travel and personnel costs to investigate potential product quality issues and to identify or confirm the failure mechanism or root cause of product defects; and
defending against litigation.
These costs could be significant and could reduce our gross margins. Our reputation with customers also could be damaged as a result of product defects and quality issues, and product demand could be reduced, which could harm our business and financial results.
We are subject to inventory risks and costs because we build our products based on forecasts provided by customers before receiving purchase orders for the products.
In order to ensure availability of our products for some of our largest end customers, we start manufacturing certain products in advance of receiving purchase orders based on forecasts provided by these customers. However, these forecasts do not represent binding purchase commitments and we do not recognize sales for these products until they are shipped to or consumed by the customer. As a result, we incur significant inventory and manufacturing costs in advance of anticipated sales. Because demand for our products may not materialize, or may be lower than expected, manufacturing based on forecasts subjects us to heightened risks of higher inventory carrying costs, increased obsolescence and higher operating costs. These inventory risks are exacerbated when our customers purchase indirectly through contract manufacturers or hold component inventory levels greater than their consumption rate because this reduces our visibility regarding the customers’ accumulated levels of inventory. If product demand decreases or we fail to forecast demand accurately, we could be required to write off inventory, which would have a negative impact on our gross margin and other operating results.
We sell certain of our products based on reference designs of platform providers, and our inability to effectively manage or maintain our evolving relationships with these companies may have an adverse effect on our business.
Platform providers are typically large companies that provide system reference designs for OEMs and ODMs that include the platform provider’s baseband and other complementary products. A platform provider may own or control IP that gives it a strong market position for its baseband products for certain air interface standards, which provides it with significant influence and control over sales of RF products for these standards. Platform providers historically looked to us and our competitors to provide RF products to their customers as part of the overall system design, and we competed with other RF companies to have our products included in the platform provider’s system reference design. This market dynamic has evolved as platform providers have worked to develop more fully integrated solutions that include their own RF technologies and components.
Platform providers may be in a different business from ours or we may be their customer or direct competitor. Accordingly, we must balance our interest in obtaining new business with competitive and other factors. Because platform providers control the overall system reference design, if they offer competitive RF technologies or their own RF solutions as a part of their reference design and exclude our products from the design, we are at a distinct competitive disadvantage with OEMs and ODMs that are seeking a turn-key design solution, even if our products offer superior performance. This requires us to work more closely with OEMs and ODMs to secure the design of our products in their handsets and other devices.
Our relationships with platform providers are complex and evolving, and the inability to effectively manage or maintain these relationships could have an adverse effect on our business, financial condition and results of operations.
We are subject to risks from international sales and operations.
We operate globally with sales offices and R&D activities as well as manufacturing, assembly and test facilities in multiple countries, and some of our business activities are concentrated in Asia. As a result, we are subject to regulatory, geopolitical and other risks associated with doing business outside the U.S., including:
global and local economic, social and political conditions and uncertainty;
currency controls and fluctuations;
formal or informal imposition of export, import or doing-business regulations, including trade sanctions, tariffs and other related restrictions;
labor market conditions and workers’ rights affecting our manufacturing operations or those of our customers or suppliers;
disruptions in capital and securities and commodities trading markets;
occurrences of geopolitical crises such as terrorist activity, armed conflict, civil or military unrest or political instability, which may disrupt manufacturing, assembly, logistics, security and communications and result in reduced demand for our products;
compliance with laws and regulations that differ among jurisdictions, including those covering taxes, intellectual property ownership and infringement, imports and exports, anti-corruption and anti-bribery, antitrust and competition, data privacy, and environment, health, and safety; and
pandemics and similar major health concerns, including the COVID-19 outbreak, which could adversely affect our business and our customer order patterns.
Sales to customers located outside the U.S. accounted for approximately 55% of our revenue in fiscal 2020, of which approximately 34% and 5% were attributable to sales to customers located in China and Taiwan, respectively. We expect that revenue from international sales to China and other markets will continue to be a significant part of our total revenue. Any weakness in the Chinese economy could result in a decrease in demand for consumer products that contain our products, which could materially and adversely affect our business. The imposition by the U.S. of tariffs on goods imported from China, countermeasures imposed by China in response, U.S. export restrictions on sales of products to China and other government actions that restrict or otherwise adversely affect our ability to sell our products to Chinese customers, could increase our manufacturing costs and reduce our product sales in China and other markets.
As a global company, our results are affected by movements in currency exchange rates. Our exposure may increase or decrease over time as our foreign business levels fluctuate in the countries where we have operations, and these changes could have a material impact on our financial results. The functional currency for most of our international operations is the U.S. dollar. We have foreign operations in Asia, Europe and Central America, and a substantial portion of our revenue is derived from sales to customers outside the U.S. Our international revenue is primarily denominated in U.S. dollars. Operating expenses and certain working capital items related to our foreign-based operations are, in some instances, denominated in the local foreign currencies and therefore are affected by changes in the U.S. dollar exchange rate in relation to foreign currencies, such as the Costa Rican Colon, Euro, Pound Sterling, Renminbi and Singapore Dollar. If the U.S. dollar weakens compared to these and other currencies, our operating expenses for foreign operations will be higher when remeasured back into U.S. dollars.
Economic regulation in China could adversely impact our business and results of operations.
We have a significant portion of our assembly and testing capacity in China. For many years, the Chinese economy has experienced periods of rapid growth and wide fluctuations in the rate of inflation. In response to these factors, the Chinese government has, from time to time, adopted measures to regulate growth and to contain inflation, including currency controls and measures designed to restrict credit, control prices or set currency exchange rates. Such actions in the future, as well as other changes in Chinese laws and regulations, including actions in furtherance of China’s stated policy of reducing its dependence on foreign semiconductor manufacturers, could increase the cost of doing business in China, foster the emergence of Chinese-based competitors, decrease the demand for our products in China, or reduce the supply of critical materials for our products, which could have a material adverse effect on our business and results of operations.
Changes in government trade policies, including the imposition of tariffs and export restrictions, could limit our ability to sell our products to certain customers, which may materially adversely affect our sales and results of operations.
The U.S. or foreign governments may take administrative, legislative or regulatory action that could materially interfere with our ability to sell products in certain countries, particularly in China. For example, between July 2018 and June 2019, the Office of the United States Trade Representative imposed 25% tariffs on specified product lists, including certain electronic components and equipment, totaling approximately $250 billion in Chinese imports. In response, China imposed or proposed new or higher tariffs on U.S. products. The U.S. government also imposed 15% tariffs on an additional $120 billion of Chinese imports, with China imposing retaliatory tariffs. While the imposition of these tariffs did not have a direct, material adverse impact on our business during fiscal year 2020, the direct and indirect effects of tariffs and other restrictive trade policies are difficult to measure and are only one part of a larger U.S./China economic and trade policy disagreement. For example, imposition of tariffs on our customers’ products that are imported from China to the U.S. could harm sales of such products, which would harm
our business. We cannot predict what further actions may ultimately be taken with respect to tariffs or trade relations between the U.S. and China or other countries, what products may be subject to such actions, or what actions may be taken by the other countries in retaliation.
Furthermore, we have experienced restrictions on our ability to sell products to certain foreign customers where sales of products require export licenses or are prohibited by government action. The U.S. government has in the past issued export restrictions that effectively banned American companies from selling products to ZTE Corporation, one of our customers, and in May 2019, the Bureau of Industry (BIS) and Security of the U.S. Department of Commerce added Huawei Technologies Co., Ltd. and over 100 of its affiliates to the “Entity List” maintained by the Department. Huawei accounted for 10%, 15% and 8% of our total revenue during fiscal years 2020, 2019 and 2018, respectively. While we subsequently restarted shipments to Huawei of certain products from outside the U.S. that are not subject to the Export Administration Regulations (EAR), and while we have also applied for a license to ship other products that are subject to the EAR, as required by the rules governing the Entity List, our sales to Huawei will continue to be impacted by trade restrictions.
As of the date of this report, we are unable to predict the scope and duration of the export restrictions imposed on Huawei and the corresponding future effects on our business. Even if such restrictions are lifted, any financial or other penalties or continuing export restrictions imposed on Huawei could have a continuing negative impact on our future revenue and results of operations. In addition, Huawei or other foreign customers affected by future U.S. government sanctions or threats of sanctions may respond by developing their own solutions to replace our products or by adopting our foreign competitors’ solutions.
Moreover, U.S. government actions targeting exports of certain technologies to China are becoming more pervasive. For example, in 2018, the U.S. adopted new laws designed to address concerns about the export of emerging and foundational technologies to China. In addition, in May 2019, an executive order was issued that invoked national emergency economic powers to implement a framework to regulate the acquisition or transfer of information communications technology in transactions that imposed undue national security risks. These actions could lead to additional restrictions on the export of products that include or enable certain technologies, including products we provide to China-based customers.
The loss or temporary loss of Huawei or other foreign customers or the imposition of restrictions on our ability to sell products to such customers as a result of tariffs, export restrictions or other U.S. regulatory actions could materially adversely affect our sales, business and results of operations.
We operate in a very competitive industry and must continue to implement innovative technologies.
We compete with several companies primarily engaged in the business of designing, manufacturing and selling RF solutions, as well as suppliers of discrete integrated circuits and modules. In addition to our direct competitors, some of our largest end customers and leading platform partners also compete with us to some extent by designing and manufacturing their own products. Increased competition from any source could adversely affect our operating results through lower prices for our products, reduced demand for our products, losses of existing design slots with key customers and a corresponding reduction in our ability to recover development, engineering and manufacturing costs.
Many of our existing and potential competitors have entrenched market positions, historical affiliations with OEMs, considerable internal manufacturing capacity, established IP rights and substantial technological capabilities. The semiconductor industry has experienced increased industry consolidation over the last several years, a trend we expect to continue. Many of our existing and potential competitors may have greater financial, technical, manufacturing or marketing resources than we do. We cannot be sure that we will be able to compete successfully with our competitors.
Industry overcapacity could cause us to underutilize our manufacturing facilities and have a material adverse effect on our financial performance.
It is difficult to predict future demand for our products, which makes it difficult to estimate future requirements for production capacity and avoid periods of overcapacity. Fluctuations in the growth rate of industry capacity relative to the growth rate in demand for our products also can lead to overcapacity and contribute to cyclicality in the semiconductor market.
Capacity expansion projects have long lead times and require capital commitments based on forecasted product trends and demand well in advance of production orders from customers. In recent years, we have made significant capital investments to expand our premium filter capacity to address forecasted future demand patterns. In certain cases, these capacity additions exceeded the near-term demand requirements, leading to overcapacity situations and underutilization of our manufacturing facilities.
As many of our manufacturing costs are fixed, these costs cannot be reduced in proportion to the reduced revenues experienced during periods of underutilization. Underutilization of our manufacturing facilities can adversely affect our gross margin and other operating results. If demand for our products experiences a prolonged decrease, we may be required to close or idle facilities and write down our long-lived assets or shorten the useful lives of underutilized assets and accelerate depreciation, which would increase our expenses. For example, to address manufacturing overcapacity, in the third quarter of fiscal 2019 we commenced a phased closure of a SAW filter manufacturing facility in Florida and a transfer of production to our North Carolina facility, which was completed in fiscal 2020. Also, in the fourth quarter of fiscal 2019, we announced the temporary idling of a BAW manufacturing facility in Texas. These actions resulted in impairment charges, accelerated depreciation and other restructuring related charges and expenses.
We may not be able to borrow funds under our credit facility or secure future financing.
On December 5, 2017, we entered into a five-year unsecured senior credit facility pursuant to a credit agreement with Bank of America, N.A., as administrative agent, swing line lender and L/C issuer, and a syndicate of lenders (as amended, the "Credit Agreement"). The Credit Agreement includes a $300.0 million revolving credit facility, which is available for working capital, capital expenditures and other corporate purposes. The Credit Agreement contains various conditions, covenants and representations with which we must be in compliance in order to borrow funds. We cannot assure that we will be in compliance with these conditions, covenants and representations in the future when we may need to borrow funds under this facility.
We may not be able to generate sufficient cash to service all of our debt, including our Notes, or to fund capital expenditures and may be forced to take other actions to satisfy our debt obligations and financing requirements, which may not be successful or on terms favorable to us.
The Credit Agreement includes a $400.0 million senior delayed draw term loan (the "Term Loan"), of which $100.0 million was funded at closing and then subsequently repaid during 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. We may request one or more additional tranches of term loans or increases in the revolving credit facility, up to an aggregate of $300.0 million and subject to securing additional funding commitments from the existing or new lenders.
In November 2015, we issued $550.0 million aggregate principal amount of 7.00% Senior Notes due 2025 (the "2025 Notes") pursuant to an indenture dated as of November 19, 2015 (as supplemented, the "2015 Indenture"). We subsequently completed the repurchase of all but $23.4 million of the 2025 Notes. Additionally, in July 2018, August 2018 and March 2019, we issued $500.0 million, $130.0 million and $270.0 million, respectively, aggregate principal amount of 5.50% Senior Notes due 2026 (the "2026 Notes") pursuant to an indenture dated as of July 16, 2018 (as supplemented, the “2018 Indenture”). In September 2019 and December 2019, we issued $350.0 million and $200.0 million, respectively, aggregate principal amount of 4.375% Senior Notes due 2029 (the “2029 Notes” and together with the 2025 Notes and the 2026 Notes, the “Notes”) pursuant to an indenture dated as of September 30, 2019 (as supplemented, the “2019 Indenture” and together with the 2015 Indenture and the 2018 Indenture, the “Indentures”).
Our ability to make scheduled payments on or to refinance our debt obligations, including the Term Loan and the Notes, and to fund working capital, planned capital expenditures and expansion efforts and any strategic alliances or acquisitions we may make in the future depends on our ability to generate cash in the future and on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We cannot be sure that we will maintain a level of cash flows from operating activities sufficient to permit us to pay our debt, including the Term Loan and the Notes. If our cash flows and capital resources are insufficient to fund our debt service obligations, we may face liquidity issues and be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital
or restructure or refinance our debt. These alternative measures may not be successful and may not permit us to meet our scheduled debt service and other obligations. Additionally, the Credit Agreement and the Indentures limit the use of the proceeds from any disposition; as a result, we may not be allowed under these documents to use proceeds from such dispositions to satisfy our debt service obligations. Further, we may need to refinance all or a portion of our debt at or before maturity, and we cannot be sure that we will be able to refinance any of our debt on commercially reasonable terms or at all.
The agreements and instruments governing our debt impose restrictions that may limit our operating and financial flexibility.
The Credit Agreement governing our revolving credit facility and the Term Loan and the Indentures governing the Notes contain a number of significant restrictions and covenants that limit our ability to:
pay dividends, make other distributions or repurchase or redeem our capital stock;
prepay, redeem or repurchase certain debt;
make loans and investments;
sell, transfer or otherwise dispose of assets;
incur or permit to exist certain liens;
enter into certain types of transactions with affiliates;
enter into agreements restricting our subsidiaries’ ability to pay dividends; and
consolidate, amalgamate, merge or sell all or substantially all of our assets.
These covenants could have the effect of limiting our flexibility in planning for or reacting to changes in our business and the markets in which we compete. In addition, the Credit Agreement requires us to comply with certain financial maintenance covenants. Operating results below current levels or other adverse factors, including a significant increase in interest rates, could result in our being unable to comply with the financial covenants contained in our revolving credit facility. If we violate covenants under the Credit Agreement and are unable to obtain a waiver from our lenders, our debt under our revolving credit facility would be in default and could be accelerated by our lenders. Because of cross-default provisions in the agreements and instruments governing our debt, a default under one agreement or instrument could result in a default under, and the acceleration of, our other debt. If our debt is accelerated, we may not be able to repay our debt or borrow sufficient funds to refinance it. Even if we are able to obtain new financing, it may not be on commercially reasonable terms, or terms that are acceptable to us. If our debt is in default for any reason, our business, financial condition and results of operations could be materially and adversely affected. In addition, complying with these covenants may also cause us to take actions that are not favorable to holders of the notes and may make it more difficult for us to successfully execute our business strategy and compete against companies that are not subject to such restrictions.
The price of our common stock has recently been and may in the future be volatile.
The price of our common stock, which is traded on the Nasdaq Global Select Market, has been and may continue to be volatile and subject to wide fluctuations. In addition, the trading volume of our common stock may fluctuate and cause significant price variations to occur. Some of the factors that could cause fluctuations in the stock price or trading volume of our common stock include:
general market and economic and political conditions, including market conditions in the semiconductor industry;
actual or expected variations in quarterly operating results;
pandemics and similar major health concerns, including the COVID-19 outbreak;
differences between actual operating results and those expected by investors and analysts;
changes in recommendations by securities analysts;
operations and stock performance of competitors and major customers;
accounting charges, including charges relating to the impairment of goodwill and restructuring;
significant acquisitions, strategic alliances, capital commitments, or new products announced by us or by our competitors;
sales of our common stock, including sales by our directors and officers or significant investors;
repurchases of our common stock;
recruitment or departure of key personnel; and
We cannot assure that the price of our common stock will not fluctuate or decline significantly in the future. In addition, the stock market in general can experience considerable price and volume fluctuations that are unrelated to our performance.
Damage to our reputation or brand could negatively impact our business, financial condition and results of operations.
Our reputation is a critical factor in our relationships with customers, employees, governments, suppliers and other stakeholders. If we fail to address issues that give rise to reputational risk, including those described throughout this “Risk Factors” section, we could significantly harm our reputation and our brand. Our reputation may also be damaged by how we respond to corporate crises. Corporate crises can arise from catastrophic events as well as from incidents involving product quality, security, or safety issues; allegations of unethical behavior or misconduct or legal noncompliance; internal control failures; corporate governance issues; data or privacy breaches; workplace safety incidents; environmental incidents; the use of our products for illegal or objectionable applications; media statements; the conduct of our suppliers or representatives; and other issues or incidents that, whether actual or perceived, result in adverse publicity. If we fail to respond quickly and effectively to address such crises, the ensuing negative public reaction could significantly harm our reputation and our brands and could lead to litigation or subject us to regulatory actions or restrictions. Damage to our reputation could harm customer relations, reduce demand for our products, reduce investor confidence in us, adversely affect our stock price, and may also limit our ability to be seen as an employer of choice when competing for highly skilled employees. Moreover, repairing our reputation and brands may be difficult, time-consuming and expensive.
We may have fluctuations in the amount and frequency of our stock repurchases.
We are not obligated to make repurchases under our stock repurchase program and the program may be modified, suspended or terminated at any time without notice. The amount and timing of our stock repurchases may vary based on a number of factors, including our priorities regarding the use of our cash such as capital investments and acquisitions, restrictions under securities laws and existing debt agreements, the availability of attractive financing sources and the optimization of our capital structure, as well as changes in our cash flows, tax laws and the market price of our common stock.
Our recent and future acquisitions and other strategic investments, could fail to achieve our financial or strategic objectives, disrupt our ongoing business, and adversely impact our results of operations.
As part of our business strategy and as demonstrated in our recent acquisitions, we expect to continue to review potential acquisitions and strategic investments that could complement our current product offerings, augment our market coverage or enhance our technical capabilities, or that may otherwise offer growth or margin improvement
opportunities. In the event of future acquisitions of businesses, products or technologies, we could issue equity securities that would dilute our current stockholders’ ownership, incur substantial debt or other financial obligations or assume contingent liabilities. Such actions could harm our results of operations or the price of our common stock. Acquisitions and strategic investments also entail numerous other risks that could adversely affect our business, results of operations and financial condition, including:
failure to complete a transaction in a timely manner, if at all, due to our inability to obtain required government or other approvals, IP disputes or other litigation, difficulty in obtaining financing on terms acceptable to us, or other unforeseen factors;
controls, processes, and procedures of an acquired business may not adequately ensure compliance with laws and regulations, and we may fail to identify compliance issues or liabilities;
unanticipated costs, capital expenditures or working capital requirements;
acquisition-related charges and amortization of acquired technology and other intangibles;
the potential loss of key employees from a company we acquire or in which we invest;
diversion of management’s attention from our business;
disruption of our ongoing operations;
dissynergies or other harm to existing business relationships with suppliers and customers;
losses or impairment of investments from unsuccessful research and development by companies in which we invest;
failure to successfully integrate acquired businesses, operations, products, technologies and personnel; and
unrealized expected synergies.
Moreover, our resources are limited and our decision to pursue a transaction has opportunity costs; accordingly, if we pursue a particular transaction, we may need to forgo the prospect of entering into other transactions that could help us achieve our financial or strategic objectives. Any of these risks could have a material adverse effect on our business, results of operations, financial condition, or cash flows, particularly in the case of a large acquisition.
In order to compete, we must attract, retain, and motivate key employees, and our failure to do so could harm our business and our results of operations.
In order to compete effectively, we must:
hire and retain qualified employees;
continue to develop leaders for key business units and functions;
expand our presence in international locations and adapt to cultural norms of foreign locations; and
train and motivate our employee base.
Our future operating results and success depend on keeping key technical personnel and management and expanding our sales and marketing, R&D and administrative support. We do not have employment agreements with the vast majority of our employees. We must also continue to attract qualified personnel. The competition for qualified personnel is intense, and the number of people with experience, particularly in RF engineering, integrated circuit and filter design, and technical marketing and support, is limited. In addition, existing or new immigration laws, policies or regulations in the U.S. may limit the pool of available talent. Travel bans, difficulties obtaining visas and other restrictions on international travel could make it more difficult to effectively manage our international operations, operate as a global company or service our international customer base. Changes in the interpretation and
application of employment-related laws to our workforce practices may also result in increased operating costs and less flexibility in how we meet our changing workforce needs. We cannot be sure that we will be able to attract and retain skilled personnel in the future, which could harm our business and our results of operations.
We rely on our intellectual property portfolio and may not be able to successfully protect against the use of our intellectual property by third parties.
We rely on a combination of patents, trademarks, trade secret laws, confidentiality procedures and licensing arrangements to protect our intellectual property rights. We cannot be certain that patents will be issued from any of our pending applications or that patents will be issued in all countries where our products can be sold. Further, we cannot be certain that any claims allowed from pending applications will be of sufficient scope or strength to provide meaningful protection against our competitors. Our competitors may also be able to design around our patents.
The laws of some countries in which our products are developed, manufactured or sold may not protect our products or intellectual property rights to the same extent as U.S. laws. This increases the possibility of misappropriation or infringement of our technology and products. Although we intend to vigorously defend our intellectual property rights, we may not be able to prevent misappropriation of our technology. Additionally, our competitors may be able to independently develop non-infringing technologies that are substantially equivalent or superior to ours.
We may need to engage in legal actions to enforce or defend our intellectual property rights. Generally, intellectual property litigation is both expensive and unpredictable. Our involvement in intellectual property litigation could divert the attention of our management and technical personnel and have a material, adverse effect on our business.
We may be subject to claims of infringement of third-party intellectual property rights.
Our operating results may be adversely affected if third parties were to assert claims that our products infringed their patent, copyright or other intellectual property rights. Such assertions could lead to expensive and unpredictable litigation, diverting the attention of management and technical personnel. An unsuccessful result in any such litigation could have adverse effects on our business, which may include injunctions, exclusion orders and royalty payments to third parties. In addition, if one of our customers or another supplier to one of our customers were found to be infringing on third-party intellectual property rights, such finding could adversely affect the demand for our products.
Security breaches and other disruptions could compromise our proprietary information and expose us to liability, which would cause our business and reputation to suffer.
We rely on trade secrets, technical know-how and other unpatented proprietary information relating to our product development and manufacturing activities to provide us with competitive advantages. We protect this information by entering into confidentiality agreements with our employees, consultants, strategic partners and other third parties. We also design our computer networks and implement various procedures to restrict unauthorized access to dissemination of our proprietary information.
We face internal and external data security threats. Current, departing or former employees or third parties could attempt to improperly use or access our computer systems and networks to copy, obtain or misappropriate our proprietary information or otherwise interrupt our business. Like others, we are also subject to significant system or network disruptions from numerous causes, including computer viruses and other cyber-attacks, facility access issues, new system implementations and energy blackouts.
Security breaches, computer malware, phishing, spoofing, and other cyber-attacks have become more prevalent and sophisticated in recent years. While we defend against these threats on a daily basis, we do not believe that such attacks to date have caused us any material damage. Because the techniques used by computer hackers and others to access or sabotage networks constantly evolve and generally are not recognized until launched against a target, we may be unable to anticipate, counter or ameliorate all of these techniques. As a result, our and our customers' proprietary information may be misappropriated and the impact of any future incident cannot be predicted. Any loss of such information could harm our competitive position, result in a loss of customer confidence in the adequacy of our threat mitigation and detection processes and procedures, cause us to incur significant costs to remedy the damages caused by the incident, and divert management and other resources. We routinely implement
improvements to our network security safeguards and we are devoting increasing resources to the security of our information technology systems. We cannot, however, assure that such system improvements will be sufficient to prevent or limit the damage from any future cyber-attack or network disruptions.
The costs related to cyber-attacks or other security threats or computer systems disruptions typically would not be fully insured or indemnified by others. Occurrence of any of the events described above could result in loss of competitive advantages derived from our R&D efforts or our IP. Moreover, these events may result in the early obsolescence of our products, product development delays, or diversion of the attention of management and key information technology and other resources, or otherwise adversely affect our internal operations and reputation or degrade our financial results and stock price.
We may be subject to theft, loss, or misuse of personal data by or about our employees, customers or other third parties, which could increase our expenses, damage our reputation, or result in legal or regulatory proceedings.
In the ordinary course of our business, we have access to sensitive, confidential or personal data or information regarding our employees and others that is subject to privacy and security laws and regulations. The theft, loss, or misuse of personal data collected, used, stored, or transferred by us to run our business, or by our third-party service providers, including business process software applications providers and other vendors that have access to sensitive data, could result in damage to our reputation, disruption of our business activities, significantly increased business and security costs or costs related to defending legal claims.
Global privacy legislation, enforcement, and policy activity in this area are rapidly expanding and creating a complex regulatory compliance environment. For example, the European Union has adopted the General Data Protection Regulation ("GDPR"), which requires companies to comply with rules regarding the handling of personal data, including its use, protection and the ability of persons whose data is stored to correct or delete such data about themselves. Failure to meet GDPR requirements could result in penalties of up to 4% of worldwide revenue. In addition, the interpretation and application of consumer and data protection laws in the U.S., Europe and elsewhere are often uncertain and fluid, and may be interpreted and applied in a manner that is inconsistent with our data practices. Complying with these changing laws has caused, and could continue to cause, us to incur substantial costs, which could have an adverse effect on our business and results of operations. Further, failure to comply with existing or new rules may result in significant penalties or orders to stop the alleged non-compliant activity. Finally, even our inadvertent failure to comply with federal, state, or international privacy-related or data protection laws and regulations could result in audits, regulatory inquiries or proceedings against us by governmental entities or others.
We are subject to warranty claims, product recalls and product liability.
From time to time, we may be subject to warranty or product liability claims that could lead to significant expense. We may also be exposed to such claims as a result of any acquisition we may undertake in the future. Although we maintain reserves for reasonably estimable liabilities and purchase product liability insurance, we may elect to self-insure with respect to certain matters and our reserves may be inadequate to cover the uninsured portion of such claims.
Product liability insurance is subject to significant deductibles, and such insurance may be unavailable or inadequate to protect against all claims. If one of our customers recalls a product containing one of our devices, we may incur significant costs and expenses, including replacement costs, direct and indirect product recall-related costs, diversion of technical and other resources and reputational harm. Our customer contracts typically contain warranty and indemnification provisions, and in certain cases may also contain liquidated damages provisions, relating to product quality issues. The potential liabilities associated with such provisions are significant, and in some cases, including in agreements with some of our largest end customers, are potentially unlimited. Any such liabilities may greatly exceed any revenue we receive from sale of the relevant products. Costs, payments or damages incurred or paid by us in connection with warranty and product liability claims and product recalls could materially and adversely affect our financial condition and results of operations.
We are subject to risks associated with environmental, health and safety regulations and climate change.
We are subject to a broad array of U.S. and foreign environmental, health and safety laws and regulations. These laws and regulations include those related to the use, transportation, storage, handling, emission, discharge and
recycling or disposal of hazardous materials used in our manufacturing, assembly and testing processes. Our failure to comply with any of these existing or future laws or regulations could result in:
regulatory penalties and fines;
legal liabilities, including financial responsibility for remedial measures if our properties are contaminated;
expenses to secure required permits and governmental approvals;
suspension or curtailment of our manufacturing, assembly and test processes; and
increased costs to acquire pollution abatement or remediation equipment or to modify our equipment, facilities or manufacturing processes to bring them into compliance with applicable laws and regulations.
Existing and future environmental laws and regulations could also impact our product designs and limit or restrict the materials or components that are included in our products. In addition, many of our largest end customers require us to comply with corporate social responsibility policies, which often include employment, health, safety, environmental and other requirements that exceed applicable legal requirements. Compliance with these policies increases our operating expenses, and non-compliance can adversely affect customer relationships and harm our business.
New climate change laws and regulations could require us to change our manufacturing processes or procure substitute raw materials that may cost more or be more difficult to procure. In addition, new restrictions on emissions of carbon dioxide or other greenhouse gases could result in increased costs for us and our suppliers. Various jurisdictions are developing other climate change-based regulations that also may increase our expenses and adversely affect our operating results. We expect increased worldwide regulatory activity relating to climate change in the future. Future compliance with these laws and regulations may adversely affect our business and results of operations.
Compliance with regulations regarding the use of “conflict minerals” could limit the supply and increase the cost of certain metals used in manufacturing our products.
Regulations in the U.S. currently require that we determine whether certain materials used in our products, referred to as conflict minerals, originated in the Democratic Republic of the Congo or adjoining countries, or were from recycled or scrap sources. We may face challenges with government regulators and our customers and suppliers if we are unable to sufficiently make any required determination that the metals used in our products are conflict free.
Our certificate of incorporation and bylaws and the General Corporation Law of the State of Delaware may discourage takeovers and business combinations that our stockholders might consider to be in their best interests.
Certain provisions in our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of delaying, deterring, preventing or rendering more difficult, a change in control of Qorvo that our stockholders might consider to be in their best interests. These provisions include:
granting to the board of directors sole power to set the number of directors and fill any vacancy on the board of directors, whether such vacancy occurs as a result of an increase in the number of directors or otherwise;
the ability of the board of directors to designate and issue one or more series of preferred stock without stockholder approval, the terms of which may be determined at the sole discretion of the board of directors;
the inability of stockholders to call special meetings of stockholders;
establishment of advance notice requirements for stockholder proposals and nominations for election to the board of directors at stockholder meetings; and
the inability of stockholders to act by written consent.
In addition, the General Corporation Law of the State of Delaware contains provisions that regulate “business combinations” between corporations and interested stockholders who own 15% or more of the corporation’s voting stock, except under certain circumstances. These provisions could also discourage potential acquisition proposals and delay or prevent a change in control.
These provisions may prevent our stockholders from receiving the benefit of any premium to the market price of our common stock offered by a bidder in a takeover context and may also make it more difficult for a third party to replace directors on our board of directors. Further, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging takeover attempts in the future.
Our operating results could vary as a result of the methods, estimates and judgments we use in applying our accounting policies.
The methods, estimates and judgments we use in applying our accounting policies have a significant impact on our results of operations (see "Critical Accounting Policies and Estimates" in Part II, Item 7 of this report). Such methods, estimates and judgments are, by their nature, subject to substantial risks, uncertainties and assumptions, and factors may arise over time that lead us to change our methods, estimates and judgments that could significantly affect our results of operations.
Decisions we make about the scope of our future operations could affect our future financial results.
From time to time, changes in the business environment have led us to change the scope of our operations or business, which has resulted in restructuring and asset impairment charges, and this could occur in the future. The amount and timing of such charges can be difficult to predict. Factors that contribute to the amount and timing of such charges include:
the timing and execution of plans and programs that are subject to local labor law requirements, including consultation with appropriate work councils;
changes in assumptions related to severance and post-retirement costs;
the timing of future divestitures and the amount and type of proceeds realized from such divestitures; and
changes in the fair value of certain long-lived assets and goodwill.
Changes in our effective tax rate may adversely impact our results of operations.
We are subject to taxation in China, Germany, Singapore, the U.S. and numerous other foreign taxing jurisdictions. Our effective tax rate is subject to fluctuations as it is impacted by a number of factors, including the following:
changes in our overall profitability and the amount of profit determined to be earned and taxed in jurisdictions with differing statutory tax rates;
the resolution of issues arising from tax audits with various tax authorities, including those described in Note 13 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this report;
changes in the valuation of either our gross deferred tax assets or gross deferred tax liabilities;
adjustments to income taxes upon finalization of various tax returns;
changes in expenses not deductible for tax purposes;
changes in available tax credits; and
changes in tax laws, domestic and foreign, or the interpretation of such tax laws, and changes in generally accepted accounting principles.
Any significant increase in our future effective tax rates could reduce net income for future periods.
Changes in the favorable tax status of our subsidiaries in Singapore and Costa Rica would have an adverse impact on our operating results.
Our subsidiaries in Singapore and Costa Rica have been granted tax holidays that effectively minimize our tax expense and that are expected to be effective through December 2021 and December 2027, respectively. In their efforts to deal with budget deficits, governments around the world are focusing on increasing tax revenues through increased audits and, potentially, increased tax rates for corporations. As part of this effort, governments continue to review their policies on granting tax holidays. In February 2017, Singapore enacted legislation that will exclude from our existing Development and Expansion Incentive grant the benefit of the reduced tax rate for intellectual property income earned after June 30, 2021. Future changes in the status of either tax holiday could have a negative effect on our net income in future years.
The enactment of international or domestic tax legislation, or changes in regulatory guidance, may adversely impact our results of operations.
Corporate tax reform, base-erosion efforts, and increased tax transparency continue to be high priorities in many tax jurisdictions in which we have business operations. In 2017, the U.S. enacted comprehensive tax legislation, commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”), which included a number of changes to U.S. tax laws that impacted us, including the one-time transition tax on certain unrepatriated earnings of foreign subsidiaries (the “Transitional Repatriation Tax”) and the Global Intangible Low-Taxed Income (“GILTI”) provisions. In addition, other countries are beginning to implement legislation and other guidance to align their international tax rules with the Organisation for Economic Co-operation and Development’s Base Erosion and Profit Shifting recommendations and action plan, which aim to standardize and modernize global corporate tax policy, including changes to cross-border tax, transfer pricing documentations rules, and nexus-based tax incentive practices. Legislative changes, interpretations and guidance, and changes in prior tax rulings and decisions by tax authorities regarding treatments and positions of corporate income taxes resulting from these initiatives, could increase our effective tax rate and result in taxes we previously paid being subject to change, which may adversely impact our financial position and results of operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
ITEM 2. PROPERTIES.
Our corporate headquarters (leased) and our MP headquarters (owned) are in Greensboro, North Carolina, and our IDP headquarters (owned) is in Richardson, Texas. In the U.S., we have the following production facilities: (1) a wafer fabrication facility (owned) in Greensboro, North Carolina, (2) a wafer fabrication facility (leased) in Bend, Oregon, (3) a wafer fabrication facility (owned) in Hillsboro, Oregon, and (4) a facility (owned) in Richardson, Texas for wafer fabrication, assembly and test. During fiscal 2020, our wafer fabrication facility (owned) in Farmers Branch, Texas, was idled and the wafer fabrication operations in our Apopka, Florida facility (owned) were consolidated into our Greensboro, North Carolina facility. The Apopka, Florida facility has been repurposed solely as a research and development center.
Outside of the U.S., we have the following primary production facilities: (1) a module assembly and test facility (the building is owned and we hold a land-use right for the land), in Beijing, China, (2) a module assembly and test facility (the building is leased and we hold a land-use right for the land) in Dezhou, China, (3) a filter assembly and test facility (owned) in Heredia, Costa Rica, and (4) a packaging and test facility (leased) in Nuremberg, Germany.
In the fourth quarter of fiscal 2018, we signed a definitive lease for an assembly and test facility in Beijing, China, which we expect to start utilizing in fiscal 2021. This lease will allow us to consolidate several leased facilities in Beijing, China.
We believe our properties have been well-maintained, are in sound operating condition and contain all equipment and facilities necessary to operate at present levels. While we believe all our facilities are suitable and adequate for
our present purposes, we continually evaluate our business and facilities and may decide to expand, add or dispose of facilities in the future. The majority of our production facilities are shared by our operating segments.
ITEM 3. LEGAL PROCEEDINGS.
See the information under the heading "Legal Matters" in Note 11 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this report.
ITEM 4. MINE SAFETY DISCLOSURES.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock is traded on the Nasdaq Global Select Market under the symbol "QRVO." As of May 12, 2020, there were 685 holders of record of our common stock.
Total Return Index for:
Nasdaq Electronic Components
A. The index level for all series assumes that $100.00 was invested in our common stock and each index on March 28, 2015.
The lines represent monthly index levels derived from compounded daily returns, assuming reinvestment of all dividends.
The indexes are reweighted daily using the market capitalization on the previous trading day.
If the month end is not a trading day, the preceding trading day is used.
Qorvo, Inc. was added to the S&P 500 Index on June 12, 2015.
Issuer Purchases of Equity Securities
Total number of shares purchased (in thousands)
Average price paid per share
Total number of shares purchased as part of publicly announced plans or programs (in thousands)
Approximate dollar value of shares that may yet be purchased under the plans or programs
December 29, 2019 to January 25, 2020
January 26, 2020 to February 22, 2020
February 23, 2020 to March 28, 2020
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. See Note 16 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this report for a further discussion of our share repurchase program.
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data set forth below for the fiscal years indicated were derived from our audited consolidated financial statements. The information should be read in conjunction with our consolidated financial statements and with "Management’s Discussion and Analysis of Financial Condition and Results of Operations" appearing in Item 7 of this report.
(In thousands, except per share data)
Operating costs and expenses:
Cost of goods sold
Research and development
Selling, general and administrative
Other operating expense
Total operating costs and expenses
Other income (expense)
Income (loss) before income taxes
Income tax (expense) benefit
Net income (loss)
Net income (loss) per share:
Weighted average shares of common stock outstanding
As of Fiscal Year End
Cash and cash equivalents
Long-term debt and finance lease obligations, less current portion
1 Other operating expense for fiscal 2016 includes integration related expenses of $26.5 million and restructuring related charges of $10.2 million.
2 During fiscal 2016, we issued $450.0 million aggregate principal amount of 6.75% Senior Notes due 2023 (the "2023 Notes") and the 2025 Notes. We recorded $28.5 million of interest expense primarily related to the 2023 Notes and the 2025 Notes, which was partially offset by $5.2 million of capitalized interest.
3 Income tax expense for fiscal 2016 includes the effects of the income tax expense generated by the increase in the valuation allowance against domestic state deferred tax assets.
4 Accounting Standards Update 2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes," was adopted in fiscal 2016 which required deferred tax assets and deferred tax liabilities to be presented as non-current in a classified balance sheet.
5 Other operating expense for fiscal 2017 includes integration related expenses of $16.9 million and restructuring related charges of $2.1 million.
6 During fiscal 2017, we recorded $72.5 million of interest expense primarily related to the 2023 Notes and the 2025 Notes, which was partially offset by $13.6 million of capitalized interest.
7 Income tax expense for fiscal 2017 includes the effects of the increase in our unrecognized tax benefits.
8 Other operating expense for fiscal 2018 includes integration related expenses of $6.2 million and restructuring related charges of $67.7 million (see Note 12 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this report).
9 During fiscal 2018, we recorded $73.2 million of interest expense primarily related to the 2023 Notes and the 2025 Notes, which was partially offset by $13.6 million of capitalized interest (see Note 9 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this report).
10 Income tax expense for fiscal 2018 includes the effects from the enactment of the Tax Act, including the one-time Transitional Repatriation Tax, which was partially offset by the benefit from remeasuring deferred taxes for the decrease in the U.S. corporate tax rate from 35% to 21% (see Note 13 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this report).
11 Other operating expense for fiscal 2019 includes restructuring related charges of $29.4 million (see Note 12 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this report).
12 During fiscal 2019, we issued the 2026 Notes and recorded $52.8 million of interest expense primarily related to the 2023 Notes, the 2025 Notes and the 2026 Notes, which was partially offset by $8.8 million of capitalized interest (see Note 9 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this report).
13 During fiscal 2019, we recorded a loss on debt extinguishment of $90.2 million related to the repurchases of the 2023 Notes and the 2025 Notes (see Note 9 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this report).
14 Income tax benefit for fiscal 2019 includes the effects of the Tax Act measurement period adjustments, including revisions to the provisional one-time Transitional Repatriation Tax and the remeasurement of deferred tax assets, tax benefits associated with finalization of federal and international tax returns, and the recognition of previously unrecognized tax benefits (see Note 13 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this report).
15 During fiscal 2019, we repurchased $444.5 million of the 2023 Notes and $525.1 million of the 2025 Notes and issued a total of $900.0 million aggregate principal amount of the 2026 Notes (see Note 9 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this report).
16 Other operating expense for fiscal 2020 includes acquisition and integration related expenses of $50.9 million and restructuring related charges of $13.4 million (see Note 5 and Note 12 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this report).
17 During fiscal 2020, we recorded $66.0 million of interest expense primarily related to the 2026 Notes and the 2029 Notes, which was partially offset by $5.6 million of capitalized interest (see Note 9 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this report).
18 During fiscal 2020, we recorded a gain of $43.0 million related to the remeasurement of our previously held equity interest in Cavendish in connection with our purchase of the remaining issued and outstanding capital of the entity (see Note 5 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this report). During fiscal 2020, we recorded an impairment of $18.3 million on an equity investment without a readily determinable fair value (see Note 7 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this report).
19 Income tax expense for fiscal 2020 includes the effects associated with the release of our permanent reinvestment assertion on certain unrepatriated foreign earnings previously subject to U.S. federal taxation (see Note 13 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this report).
20 During fiscal 2020, we issued $550.0 million aggregate principal amount of the 2029 Notes and drew $100.0 million of the Term Loan (see Note 9 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this report).
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with, and is qualified in its entirety by reference to, our audited consolidated financial statements, including the notes thereto, set forth in Part II, Item 8 of this report.
Qorvo® is a leader in the development and commercialization of technologies and products for wireless and wired connectivity. We combine a broad portfolio of innovative RF solutions, highly differentiated semiconductor technologies, systems-level expertise and global manufacturing scale to supply a diverse set of customers a broad range of products that enable a more connected world.
During the fourth quarter of fiscal 2020, our customer demand, supply chain and global operations were modestly impacted by the COVID-19 outbreak. However, the potential duration and future impact of the outbreak on the global economy and on our business are difficult to predict and cannot be estimated with any degree of certainty; the outbreak has resulted in significant disruption of global financial markets, increases in levels of unemployment, and economic uncertainty, which may adversely affect our business, and may lead to significant negative impacts on customer spending, demand for our products, the ability of our customers to pay, our financial condition and the financial condition of our suppliers, and our access to external sources of financing to fund our operations and capital expenditures.
We remain committed to protecting the health and safety of our employees in all locations, and we are working to ensure our compliance with government-imposed restrictions while also maintaining business continuity. Qorvo has implemented multiple protocols in its facilities worldwide, including increased cleaning and sanitation procedures, pre-shift temperature screenings, and enhanced use of personal protective equipment. In addition, Qorvo has taken steps to effectively implement social distancing, including rotating shifts and remote-work options whenever possible.
We design, develop, manufacture and market our products to U.S. and international OEMs and ODMs in two operating segments, which are also our reportable segments: Mobile Products ("MP") and Infrastructure and Defense Products ("IDP").
MP is a global supplier of cellular, UWB and Wi-Fi solutions for a variety of high-volume markets, including smartphones, wearables, laptops, tablets and IoT applications.
IDP is a global supplier of RF, SoC and power management solutions for wireless infrastructure, defense, smart home, automotive and other IoT applications.
These business segments are based on the organizational structure and information reviewed by our Chief Executive Officer, who is our chief operating decision maker ("CODM") and are managed separately based on the end markets and applications they support. The CODM allocates resources and evaluates the performance of each reportable segment primarily based on non-GAAP operating income. For financial information about the results of our reportable operating segments for each of the last three fiscal years, see Note 17 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this report.
Fiscal 2020 Management Summary
Revenue increased 4.8% in fiscal 2020 to $3,239.1 million, compared to $3,090.3 million in fiscal 2019, primarily due to higher demand for our mobile products in support of customers based in China, a Korea-based customer and our largest end customer, partially offset by lower demand for our base station products as a result of trade restrictions.
Gross margin for fiscal 2020 was 40.8%, compared to 38.7% in fiscal 2019. This increase was primarily due to favorable changes in product mix, lower intangible amortization expense and lower manufacturing costs, partially offset by average selling price erosion and lower factory utilization.
Operating income was $423.2 million in fiscal 2020, compared to $216.5 million in fiscal 2019. This increase was primarily due to lower intangible amortization expense, higher gross margin and higher revenue, partially offset by higher acquisition and integration costs.
Net income per diluted share was $2.80 for fiscal 2020, compared to net income per diluted share of $1.05 for fiscal 2019.
Cash flow from operations was $945.6 million for fiscal 2020, compared to $810.4 million for fiscal 2019. This year-over-year increase was primarily due to favorable changes in working capital driven by improvements in days sales outstanding and improved inventory management in fiscal 2020.
Capital expenditures were $164.1 million in fiscal 2020, compared to $220.9 million in fiscal 2019. Our capital expenditures in fiscal 2020 included strategic investments in premium filter capacity and GaN technology capabilities.
We completed the acquisitions of Active-Semi, Cavendish, Custom MMIC and Decawave for a total of $946.0 million, net of cash acquired, and incurred acquisition and integration related charges of $55.1 million (primarily post-combination compensation expense and third-party fees). Upon our acquisition of Cavendish, our previously held equity interest was remeasured, which resulted in the recognition of a gain of $43.0 million.
We recognized an impairment of $18.3 million on an equity investment without a readily determinable fair value.
We issued $550.0 million aggregate principal amount of the 2029 Notes and drew $100.0 million of the Term Loan.
We repurchased approximately 6.4 million shares of our common stock for approximately $515.1 million.
RESULTS OF OPERATIONS
The table below presents a summary of our results of operations for fiscal years 2020 and 2019. See Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended March 30, 2019, filed with the SEC on May 17, 2019, for a summary of our results of operations for the fiscal year ended March 31, 2018, which is incorporated by reference herein.
(In thousands, except percentages)
% of Revenue
% of Revenue
Cost of goods sold
Research and development
Selling, general and administrative
Other operating expense
Revenue increased primarily due to higher demand for our mobile products in support of customers based in China, a Korea-based customer and our largest end customer, partially offset by lower demand for our base station products as a result of trade restrictions.
We provided our products to our largest end customer (Apple) through sales to multiple contract manufacturers, which in the aggregate accounted for 33% and 32% of total revenue in fiscal years 2020 and 2019, respectively. Huawei accounted for approximately 10% and 15% of total revenue in fiscal years 2020 and 2019, respectively. These customers primarily purchase RF solutions for a variety of mobile devices.
Our sales to Huawei have been and will continue to be impacted by trade restrictions (see Note 2 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this report).
International shipments amounted to $1,770.8 million in fiscal 2020 (approximately 55% of revenue) compared to $1,710.8 million in fiscal 2019 (approximately 55% of revenue). Shipments to Asia totaled $1,616.4 million in fiscal 2020 (approximately 50% of revenue) compared to $1,554.6 million in fiscal 2019 (approximately 50% of revenue).
Gross margin increased primarily due to favorable changes in product mix, lower intangible amortization expense and lower manufacturing costs, partially offset by average selling price erosion and lower factory utilization.
Research and Development
R&D spending increased primarily due to higher personnel related costs.
Selling, General and Administrative
Selling, general and administrative expense decreased primarily due to lower intangible amortization expense.
Other Operating Expense
In fiscal 2020, we recognized $50.9 million of expense related to the acquisitions of Active-Semi, Cavendish, Custom MMIC and Decawave (see Note 5 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this report for information on business acquisitions). In fiscal 2020, we also recorded restructuring related charges of $13.4 million related to employee termination benefits and other exit costs as a result of restructuring actions (see Note 12 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this report for information on restructuring actions).
In fiscal 2019, we recognized $15.9 million of asset impairment charges (to adjust the carrying value of certain property and equipment to reflect fair value) and $13.5 million of restructuring related charges (primarily employee termination benefits) as a result of restructuring actions (see Note 12 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this report for information on restructuring actions). In fiscal 2019, we also recorded $18.0 million of start-up costs related to new processes and operations in existing facilities.
Segment Product Revenue, Operating Income and Operating Income as a Percentage of Revenue
(In thousands, except percentages)
Operating income as a % of revenue
MP revenue increased primarily due to higher demand for our mobile products in support of customers based in China, a Korea-based customer and our largest end customer, partially offset by lower shipments to Huawei.
MP operating income increased primarily due to higher revenue and higher gross margin. Gross margin was positively impacted by favorable changes in product mix and lower manufacturing costs, partially offset by average selling price erosion and lower factory utilization.
Infrastructure and Defense Products
(In thousands, except percentages)
Operating income as a % of revenue
IDP revenue decreased primarily due to lower demand for our base station products as a result of trade restrictions and lower demand for our Wi-Fi products, partially offset by sales of our programmable power management products as a result of the acquisition of Active-Semi.
IDP operating income decreased primarily due to higher operating expenses, lower gross margin and lower revenue. The increase in operating expenses was primarily due to higher personnel costs and the addition of Active-Semi expenses. Gross margin was negatively impacted by lower factory utilization, inventory charges and average selling price erosion.
See Note 17 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this report for a reconciliation of segment operating income to the consolidated operating income for fiscal years 2020, 2019 and 2018.
OTHER (EXPENSE) INCOME AND INCOME TAXES
Other income (expense)
Income tax (expense) benefit
We recognized $66.0 million of interest expense in fiscal 2020 primarily related to the 2026 Notes and the 2029 Notes. We recognized $52.8 million of interest expense in fiscal 2019 primarily related to the 2023 Notes, the 2025 Notes and the 2026 Notes. Interest expense in the preceding table for fiscal years 2020 and 2019 is net of capitalized interest of $5.6 million and $8.8 million, respectively.
Other income (expense)
During fiscal 2020 we recorded a gain of $43.0 million related to the remeasurement of our previously held equity interest in Cavendish in connection with our purchase of the remaining issued and outstanding capital of the entity (see Note 5 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 for additional information regarding the Cavendish acquisition). During fiscal 2020 we recorded an impairment of $18.3 million on an equity investment without a readily determinable fair value (see Note 7 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 for additional information regarding our investments).
During fiscal 2019 we recorded a loss on debt extinguishment of $90.2 million (see Note 9 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 for additional information regarding our debt extinguishment activity).
Income tax (expense) benefit
Income tax expense for fiscal 2020 was $60.8 million. This was primarily comprised of tax expense related to international operations generating pre-tax book income, the impact of the Tax Act's GILTI provisions, the reversal of the permanent reinvestment assertion with regards to certain unrepatriated foreign earnings, and an increase in gross unrecognized tax benefits, offset by a tax benefit related to domestic and international operations generating pre-tax book losses and domestic tax credits. For fiscal 2020, this resulted in an annual effective tax rate of 15.4%.
Income tax benefit for fiscal 2019 was $41.3 million. This was primarily comprised of tax benefits related to domestic and international operations generating pre-tax book losses, tax credits, adjustments related to provisional estimates for the impact of the Tax Act, and a decrease in gross unrecognized tax benefits, offset by tax expenses related to international operations generating pre-tax book income and tax expense related to the GILTI inclusions. For fiscal 2019, this resulted in an annual effective tax rate of (45.0)%.
A valuation allowance has been established against deferred tax assets in the taxing jurisdictions where, based upon the positive and negative evidence available, it is more likely than not that the related deferred tax assets will not be realized. Realization is dependent upon generating future income in the taxing jurisdictions in which the operating loss carryovers, credit carryovers, depreciable tax basis, and other deferred tax assets exist. Management reevaluates the ability to realize the benefit of these deferred tax assets on a quarterly basis. As of the end of fiscal years 2020 and 2019, the valuation allowance against domestic and foreign deferred tax assets was $35.3 million and $40.4 million, respectively.
See Note 13 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this report for additional information regarding income taxes.
Under Financial Accounting Standards Board Accounting Standards Codification ("ASC") 718, "Compensation – Stock Compensation," stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award using an option pricing model for stock options (Black-Scholes) and market price for restricted stock units, and is recognized as expense over the employee's requisite service period.
As of March 28, 2020, total remaining unearned compensation cost related to unvested restricted stock units was $87.4 million, which will be amortized over the weighted-average remaining service period of approximately 1.3 years.
LIQUIDITY AND CAPITAL RESOURCES
Cash generated by operations is our primary source of liquidity. As of March 28, 2020, we had working capital of approximately $1,151.5 million, including $714.9 million in cash and cash equivalents, compared to working capital of $1,249.2 million, including $711.0 million in cash and cash equivalents, as of March 30, 2019.
Our $714.9 million of total cash and cash equivalents as of March 28, 2020, includes approximately $345.3 million held by our foreign subsidiaries, of which $266.4 million is held by Qorvo International Pte. Ltd. in Singapore. If the undistributed earnings of our foreign subsidiaries are needed in the U.S., we may be required to pay state income and/or foreign local withholding taxes to repatriate these earnings.
At this time, we are not able to estimate the long-term impact of the COVID-19 outbreak on our business, financial condition, results of operations, and/or cash flow. We believe we have sufficient liquidity available from operating cash flow, cash on hand, and availability under our revolving credit facility. However, as the situation evolves, we will continue to assess our liquidity needs, evaluate available alternatives and take appropriate actions.
On December 5, 2017, we and certain of our material domestic subsidiaries (the "Guarantors") entered into the Credit Agreement with Bank of America, N.A., as administrative agent (in such capacity, the "Administrative Agent"). The Credit Agreement included the Term Loan and a $300.0 million senior revolving line of credit (the "Revolving Facility"). In addition, we 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", and collectively 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 was subsequently repaid in March 2018). On June 17, 2019, we 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 fiscal 2020, there were no borrowings under the Revolving Facility.
See Note 9 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this report for further information about the Credit Agreement, including applicable interest rates and financial covenants. As of March 28, 2020, we were in compliance with all the financial covenants under the Credit Agreement.
On October 31, 2019, we announced that our Board of Directors authorized a new share repurchase program to repurchase up to $1.0 billion of our 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 we repurchase our 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 us 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.
We repurchased 6.4 million shares, 9.1 million shares and 2.9 million shares of our common stock during fiscal years 2020, 2019 and 2018, respectively, at an aggregate cost of $515.1 million, $638.1 million and $219.9 million, respectively, in accordance with the current and prior share repurchase programs. As of March 28, 2020, $765.9 million remains available for future repurchases under our current share repurchase program.
Cash Flows from Operating Activities
Operating activities in fiscal 2020 provided cash of $945.6 million, compared to $810.4 million in fiscal 2019. This year-over-year increase was primarily due to favorable changes in working capital driven by improvements in days sales outstanding and improved inventory management in fiscal 2020.
Cash Flows from Investing Activities
Net cash used in investing activities in fiscal 2020 was $1,105.7 million, compared to $247.6 million in fiscal 2019. This year-over-year increase was primarily due to the acquisitions of Active-Semi, Cavendish, Custom MMIC and Decawave in fiscal 2020.
Cash Flows from Financing Activities
Net cash provided by financing activities in fiscal 2020 was $165.6 million, compared to net cash used in financing activities of $776.7 million in fiscal 2019. In fiscal 2019, cash disbursed in connection with the retirement of all of the 2023 Notes and a majority of the 2025 Notes was partially offset by cash proceeds received from the issuance of the 2026 Notes. During fiscal 2020, we received cash proceeds of $559.0 million from the issuance of the 2029 Notes and $100.0 million from the draw on the Term Loan.
Our future capital requirements may differ materially from those currently anticipated and will depend on many factors, including market acceptance of and demand for our products, acquisition opportunities, technological advances and our relationships with suppliers and customers. Based on current and projected levels of cash flow from operations, coupled with our existing cash and cash equivalents and our Credit Facility, we believe that we have sufficient liquidity to meet both our short-term and long-term cash requirements. However, if there is a significant decrease in demand for our products, or if our revenue grows faster than we anticipate, operating cash flows may be insufficient to meet our needs. If existing resources and cash from operations are not sufficient to meet our future requirements or if we perceive conditions to be favorable, we may seek additional debt or equity financing. Additional equity or debt financing could be dilutive to holders of our common stock. Further, we cannot be sure that additional equity or debt financing, if required, will be available on favorable terms, if at all.
IMPACT OF INFLATION
We do not believe that the effects of inflation had a significant impact on our revenue or operating income during fiscal years 2020 and 2019. However, there can be no assurance that our business will not be affected by inflation in the future.
OFF-BALANCE SHEET ARRANGEMENTS
As of March 28, 2020, we had no off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
The following table summarizes our significant contractual obligations and commitments (in thousands) as of March 28, 2020, and the effect such obligations are expected to have on our liquidity and cash flows in future periods.
Payments Due By Period
Fiscal 2026 and thereafter
Capital commitments (1)
Long-term debt obligations (2)
Finance leases (3)
Purchase obligations (4)
Cross-licensing liability (5)
Deferred compensation (6)
(1) Capital commitments represent obligations for the purchase of property and equipment, a majority of which are not recorded as liabilities on our Consolidated Balance Sheet because we had not received the related goods or services as of March 28, 2020.
(2) Long-term debt obligations represent future cash payments of principal and interest over the life of the 2025 Notes, the 2026 Notes, the 2029 Notes and the Term Loan, including anticipated interest payments not recorded as liabilities on our Consolidated Balance Sheet as of March 28, 2020. Debt obligations are classified based on their stated maturity date, and any future redemptions would impact our cash payments. See Note 9 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this report for further information.
(3) The finance lease obligation primarily relates to a lease that was signed in fiscal 2018 for an assembly and test facility in Beijing, China. This lease will allow us to consolidate several leased facilities in Beijing, China. The lease is not recorded on our Consolidated Balance Sheet as of March 28, 2020 because the lease term is not expected to commence until fiscal 2021.
(4) Purchase obligations represent payments due related to the purchase of materials and manufacturing services, a majority of which are not recorded as liabilities on our Consolidated Balance Sheet because we had not received the related goods or services as of March 28, 2020.
(5) The cross-licensing liability represents payables under a cross-licensing agreement and are included in "Accrued liabilities" and "Other long-term liabilities" in the Consolidated Balance Sheet as of March 28, 2020.
(6) Commitments for deferred compensation represent the liability under our Non-Qualified Deferred Compensation Plan. See Note 10 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this report for further information.
Other Contractual Obligations
As of March 28, 2020, in addition to the amounts shown in the contractual obligations table above, we have $124.6 million of unrecognized income tax benefits and accrued interest and penalties, of which $19.4 million has been recorded as a liability. We are uncertain as to if, or when, such amounts may be settled. We also have an obligation related to the Transitional Repatriation Tax. We have elected to pay the remaining obligation of $5.6 million, which has been recorded as a liability, over eight years.
As discussed in Note 10 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this report, we have two pension plans in Germany with a combined benefit obligation of approximately $12.3 million as of March 28, 2020. Pension benefit payments are not included in the schedule above because they are not available for all periods presented. Pension benefit payments were approximately $0.2 million in fiscal 2020 and are expected to be approximately $0.3 million in fiscal 2021.
SUPPLEMENTAL PARENT AND GUARANTOR FINANCIAL INFORMATION
In accordance with the Indentures, our obligations under the Notes are fully and unconditionally guaranteed on a joint and several unsecured basis by the Guarantors, each of which is 100% owned, directly or indirectly, by Qorvo, Inc. ("Parent"). A Guarantor can be released in certain customary circumstances. Our other U.S. subsidiaries and our non-U.S. subsidiaries do not guarantee the Notes (such subsidiaries are referred to as the "Non-Guarantors").
The following presents summarized financial information for the Parent and the Guarantors on a combined basis as of and for the periods indicated, after eliminating (i) intercompany transactions and balances among the Parent and Guarantors, and (ii) equity earnings from, and investments in, any Non-Guarantor. The summarized financial information may not necessarily be indicative of the financial position and results of operations had the combined Parent and Guarantors operated independently from the Non-Guarantors.
Summarized Balance Sheet
March 28, 2020
Current assets (1)
Long-term liabilities (2)
(1) Includes current receivable from Non-Guarantors of $484.2 million.
(2) Includes non-current payable to Non-Guarantors of $249.9 million.
Summarized Statement of Operations
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of consolidated financial statements requires management to use judgment and estimates. The level of uncertainty in estimates and assumptions increases with the length of time until the underlying transactions are completed. Actual results could differ from those estimates. The accounting policies that are most critical in the preparation of our consolidated financial statements are those that are both important to the presentation of our financial condition and results of operations and require significant judgment and estimates on the part of management. Our critical accounting policies are reviewed periodically with the Audit Committee of the Board of Directors. We also have other policies that we consider key accounting policies; however, these policies typically do not require us to make estimates or judgments that are difficult or subjective (see Note 1 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this report).
Inventory Reserves. The valuation of inventory requires us to estimate obsolete or excess inventory. The determination of obsolete or excess inventory requires us to estimate the future demand for our products within specific time horizons, generally 12 to 24 months. The estimates of future demand that we use in the valuation of inventory reserves are the same as those used in our revenue forecasts and are also consistent with the estimates used in our manufacturing plans to enable consistency between inventory valuations and build decisions. Product-specific facts and circumstances reviewed in the inventory valuation process include a review of the customer base, market conditions, and customer acceptance of our products and technologies, as well as an assessment of the selling price in relation to the product cost.
Historically, inventory reserves have fluctuated as new technologies have been introduced and customers’ demand has shifted. Inventory reserves had an impact on margins of less than 2% in fiscal years 2020 and 2019.
Property and Equipment. Periodically, we evaluate the period over which we expect to recover the economic value of our property and equipment, considering factors such as changes in machinery and equipment technology, our ability to re-use equipment across generations of process technology and historical usage trends. When we determine that the useful lives of assets are shorter or longer than we had originally estimated, we adjust the rate of depreciation to reflect the revised useful lives of the assets.
We assess property and equipment for impairment when events or changes in circumstances indicate that the carrying value of the assets or the asset group may not be recoverable. Factors that we consider in deciding when to perform an impairment review include an adverse change in our use of the assets or an expectation that the assets will be sold or otherwise disposed. We assess the recoverability of the assets held and used by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining estimated useful lives against their respective carrying amounts. Assets identified as "held for sale" are recorded at the lesser of their carrying value or their fair market value less costs to sell. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. The process of evaluating property and equipment for impairment is highly subjective and requires significant judgment as we are required to make assumptions about items such as future demand for our products and industry trends.
Business Acquisitions. We record goodwill when the consideration paid for a business acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. Goodwill is assigned to our reporting unit that is expected to benefit from the synergies of the business combination.
A number of assumptions, estimates and judgments are used in determining the fair value of acquired assets and liabilities, particularly with respect to the intangible assets acquired. The valuation of intangible assets requires our use of valuation techniques such as the income approach. The income approach includes management’s estimation of future cash flows (including expected revenue growth rates and profitability), the underlying product or technology life cycles and the discount rates applied to future cash flows.
Further judgment is required in estimating the fair values of deferred tax assets and liabilities, uncertain tax positions and tax-related valuation allowances, which are initially estimated as of the acquisition date, as well as inventory, property and equipment, pre-existing liabilities or legal claims, deferred revenue and contingent consideration, each as may be applicable.
While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recognized in our Consolidated Statements of Operations.
Goodwill. We perform an annual impairment assessment of goodwill at the reporting unit level on the first day of the fourth quarter in each fiscal year, or more frequently if indicators of potential impairment exist. Reporting units, as defined by ASC 350, "Intangibles - Goodwill and Other," may be operating segments as a whole or an operation one level below an operating segment, referred to as a component. We have determined that our reporting units are our two operating and reportable segments, MP and IDP.
In accordance with ASC 350, we may assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value, including goodwill.
In performing a qualitative assessment, we consider (i) our overall historical and projected future operating results, (ii) if there was a significant decline in our stock price for a sustained period, (iii) if there was a significant change in our market capitalization relative to our net book value, and (iv) if there was a prolonged or more significant slowdown in the worldwide economy of the semiconductor industry, as well as other relevant events and factors affecting the reporting unit. If we assess these qualitative factors and conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, or if we decide not to perform a qualitative assessment, then a quantitative impairment test is performed.
In fiscal years 2019 and 2018, we completed qualitative assessments and concluded that based on the relevant facts and circumstances, it was more likely than not that each reporting unit’s fair value exceeded its related carrying value and no further impairment testing was required.
In fiscal 2020, we performed a quantitative impairment test. Our quantitative impairment test considered both the income approach and the market approach to estimate each reporting unit’s fair value. Under the income approach, the fair value of each reporting unit is based on the present value of estimated future cash flows. Cash flow projections are based on our estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rate used to determine the present value of future cash flows is based on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the business's ability to execute on the projected cash flows. The market approach estimates fair value based on market multiples of revenue and earnings derived from comparable publicly traded companies with similar operating and investment characteristics. The resulting fair value, based on the income and market approaches, is then compared to the carrying value to determine if impairment is necessary.
As a result of the quantitative analysis performed in fiscal 2020, it was determined that the fair value of each of our reporting units substantially exceeded their carrying values. As the assumptions used in the income approach and market approach can have a material impact on the fair value determinations, we performed a sensitivity analysis of key assumptions used in the assessment and determined that a one percentage point increase in the discount rate along with a one percentage point decrease in the long-term growth rate would not result in an impairment of goodwill for either reporting unit and their fair values substantially exceeded their carrying values.
Identified Intangible Assets. We amortize finite-lived intangible assets (including developed technology, customer relationships, trade names, technology licenses and backlog) over their estimated useful life. In-process research and development ("IPRD") assets represent the fair value of incomplete R&D projects that had not reached technological feasibility as of the date of the acquisition; initially, these are classified as IPRD and are not subject to amortization. Upon completion of development, IPRD assets are transferred to developed technology and are amortized over their useful lives. The asset balances relating to abandoned projects are impaired and expensed to R&D. We perform a quarterly review of significant intangible assets to determine whether facts and circumstances (including external factors such as industry and economic trends and internal factors such as changes in our business strategy and forecasts) indicate that the carrying amount of the assets may not be recoverable. If such facts and circumstances exist, we assess the recoverability of identified intangible assets by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Impairments, if any, are based on the excess of the carrying amounts over the fair value of those assets and occur in the period in which the impairment determination was made.
Revenue Recognition. We generate 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 our customers, in an amount that reflects the consideration we expect to be entitled in exchange for those goods or services. A majority of our 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 our distributors is recognized upon shipment of the product to the distributors (sell-in). Revenue is recognized from our 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). We apply a five-step approach as defined in ASC 606, "Revenue from Contracts with Customers," 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, our standard terms and conditions apply. We consider a customer's
purchase order, which is governed by a sales agreement or our standard terms and conditions, to be the contract with the customer.
Our pricing terms are negotiated independently, on a stand-alone basis. In determining the transaction price, we evaluate whether the price is subject to a refund or adjustment to determine the net consideration to which we expect to be entitled. Variable consideration in the form of rebate programs is offered to certain customers, including distributors. A majority of these rebates are accrued and classified as a contra accounts receivable and represent less than 5% of net revenue. We determine variable consideration by estimating the most likely amount of consideration we expect to receive from the customer. Our terms and conditions do not give our customers a right of return associated with the original sale of our products. However, we may authorize sales returns under certain circumstances, which include courtesy returns and like-kind exchanges. Sales returns are classified as a refund liability. We reduce revenue and record 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.
Our accounts receivable balance is from contracts with customers and represents our unconditional right to receive consideration from our customers. Payments are due upon completion of the performance obligation and subsequent invoicing. Substantially all payments are collected within our 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 Consolidated Balance Sheets were immaterial as of March 28, 2020 and March 30, 2019.
We invoice customers upon shipment and recognize revenues in accordance with delivery terms. As of March 28, 2020, we had $37.8 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 12 months.
We include shipping charges billed to customers in "Revenue" and include the related shipping costs in "Cost of goods sold" in the 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 Consolidated Statements of Operations.
We incur 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 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.
Income Taxes. In determining income for financial statement purposes, we must make certain estimates and judgments in the calculation of tax expense, the resultant tax liabilities, and the recoverability of deferred tax assets that arise from temporary differences between the tax and financial statement recognition of revenue and expense.
As part of our financial process, we assess on a tax jurisdictional basis the likelihood that our deferred tax assets can be recovered. If recovery is not more likely than not (a likelihood of less than 50 percent), the provision for taxes must be increased by recording a reserve in the form of a valuation allowance for the deferred tax assets that are estimated not to ultimately be recoverable. In this process, certain relevant criteria are evaluated including: the amount of income or loss in prior years, the existence of deferred tax liabilities that can be used to absorb deferred tax assets, the taxable income in prior carryback years that can be used to absorb net operating losses and credit carrybacks, future expected taxable income, and prudent and feasible tax planning strategies. Changes in taxable income, market conditions, U.S. or international tax laws, and other factors may change our judgment regarding whether we will be able to realize the deferred tax assets. These changes, if any, may require material adjustments to the net deferred tax assets and an accompanying reduction or increase in income tax expense which will result in a corresponding increase or decrease in net income in the period when such determinations are made. See Note 13 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this report for additional information regarding changes in the valuation allowance and net deferred tax assets.
As part of our financial process, we also assess the likelihood that our tax reporting positions will ultimately be sustained. To the extent it is determined it is more likely than not (a likelihood of more than 50 percent) that some portion or all of a tax reporting position will ultimately not be recognized and sustained, a provision for unrecognized tax benefit is provided by either reducing the applicable deferred tax asset or accruing an income tax liability. Our judgment regarding the sustainability of our tax reporting positions may change in the future due to changes in U.S. or international tax laws and other factors. These changes, if any, may require material adjustments to the related deferred tax assets or accrued income tax liabilities and an accompanying reduction or increase in income tax expense which will result in a corresponding increase or decrease in net income in the period when such determinations are made. See Note 13 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this report for additional information regarding our uncertain tax positions and the amount of unrecognized tax benefits.
RECENT ACCOUNTING PRONOUNCEMENTS
For a description of recent accounting pronouncements, including those recently adopted and not yet effective, see Note 1 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Financial Risk Management
We are exposed to financial market risks, including changes in interest rates, foreign currency exchange rates, equity prices and certain commodity prices. The overall objective of our financial risk management program is to seek a reduction in the potential negative earnings effects from changes in interest rates, foreign currency exchange rates, equity prices, and commodity prices arising from our business activities. We manage these financial exposures through operational means and by using various financial instruments, when deemed appropriate. These practices may change as economic conditions change.
Interest Rate Risk
We are exposed to interest rate risk via the terms of our Credit Facility, which is comprised of a Term Loan and Revolving Facility with interest rates (see Note 9 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this report). The outstanding balance related to the Credit Facility as of March 28, 2020 was $100.0 million. A potential change in the associated interest rates would be immaterial to the results of our operations.
Foreign Currency Exchange Rate Risk
As a global company, our results are affected by movements in currency exchange rates. Our exposure may increase or decrease over time as our foreign business levels fluctuate in the countries where we have operations, and these changes could have a material impact on our financial results. The functional currency for most of our international operations is the U.S. dollar. We have foreign operations in Asia, Central America and Europe, and a substantial portion of our revenue is derived from sales to customers outside the U.S. Our international revenue is primarily denominated in U.S. dollars. Operating expenses and certain working capital items related to our foreign-based operations are, in some instances, denominated in the local foreign currencies and therefore are affected by changes in the U.S. dollar exchange rate in relation to foreign currencies, such as the Costa Rican Colon, Euro, Pound Sterling, Renminbi, and Singapore Dollar. If the U.S. dollar weakens compared to these and other currencies, our operating expenses for foreign operations will be higher when remeasured back into U.S. dollars. We seek to manage our foreign currency exchange risk in part through operational means.
For fiscal 2020, we incurred a foreign currency loss of $2.2 million as compared to a loss of $2.1 million in fiscal 2019, which is recorded in “Other income (expense).”
Our financial instrument holdings, including foreign receivables, cash and payables at March 28, 2020, were analyzed to determine their sensitivity to foreign exchange rate changes. In this sensitivity analysis, we assumed that the change in one currency's rate relative to the U.S. dollar would not have an effect on other currencies' rates relative to the U.S. dollar. All other factors were held constant. If the U.S. dollar declined in value 10% in relation to the re-measured foreign currency instruments, our net income would have decreased by approximately $2.8
million. If the U.S. dollar increased in value 10% in relation to the re-measured foreign currency instruments, our net income would have increased by approximately $2.3 million.
Equity Price Risk
Our marketable equity investments in publicly traded companies are subject to equity market price risk. Accordingly, a fluctuation in the price of each equity security could have an adverse impact on the fair value of our investments. As of March 28, 2020, our equity investments were immaterial (see Note 7 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this report).
Commodity Price Risk
We routinely use precious metals in the manufacture of our products. Supplies for such commodities may from time to time become restricted, or general market factors and conditions may affect the pricing of such commodities. We also have an active reclamation process to capture any unused gold. While we attempt to mitigate the risk of increases in commodities-related costs, there can be no assurance that we will be able to successfully safeguard against potential short-term and long-term commodity price fluctuations.
Qorvo, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except per share data)
March 28, 2020
March 30, 2019
Cash and cash equivalents
Accounts receivable, less allowance of $55 and $40 as of March 28, 2020 and March 30, 2019, respectively
Other current assets
Total current assets
Property and equipment, net
Intangible assets, net
Other non-current assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt
Other current liabilities
Total current liabilities
Other long-term liabilities
Commitments and contingent liabilities
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; 114,625 and 119,063 shares issued and outstanding at March 28, 2020 and March 30, 2019, respectively
Accumulated other comprehensive income (loss), net of tax