SEC Filing | Qorvo, Inc.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended January 2, 2021


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

For the transition period from _____to _____

Commission File Number 001-36801

https://cdn.kscope.io/eec2068976a07f045f137e947bc18ca0-rfmd-20210102_g1.jpg

Qorvo, Inc.

(Exact name of registrant as specified in its charter)


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

7628 Thorndike Road
Greensboro,	North Carolina	27409-9421
(Address of principal executive office)		(Zip code)

(336) 664-1233

Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.0001 par value

QRVO

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

Table of Contents

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

As of January 25, 2021, there were 113,262,707 shares of the registrant’s common stock outstanding.

Table of Contents

QORVO, INC. AND SUBSIDIARIES

INDEX


			Page
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).
Condensed Consolidated Balance Sheets as of January 2 , 202 1 and March 28, 2020			3
Condensed Consolidated Statements of Income for the three and nine months ended January 2 , 202 1 and December 28, 2019			4
Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended January 2, 2021 and December 28, 2019			5
Condensed Consolidated Statements of Stockholders' Equity for the three and nine months ended January 2, 2021 and December 28, 2019			6
Condensed Consolidated Statements of Cash Flows for the nine months ended January 2, 2021 and December 28, 2019			8
Notes to Condensed Consolidated Financial Statements			9

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.			21
Item 3. Quantitative and Qualitative Disclosures About Market Risk.			29
Item 4. Controls and Procedures.			30

PART II — OTHER INFORMATION			31

Item 1A. Risk Factors.			31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.			32
Item 6. Exhibits.			33

SIGNATURES			34

Table of Contents

PART I — FINANCIAL INFORMATION

ITEM 1.

QORVO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)


	January 2, 2021		March 28, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	1,234,415	$	714,939

Accounts receivable, net of allowance of $560 and $55 as of January 2, 2021 and March 28, 2020, respectively	507,078		367,172
Inventories	479,340		517,198
Prepaid expenses	42,793		37,872
Other receivables	12,621		15,016
Other current assets	46,010		38,305

Total current assets	2,322,257		1,690,502
Property and equipment, net of accumulated depreciation of $1,519,829 and $1,415,397 as of January 2, 2021 and March 28, 2020, respectively	1,232,374		1,259,203
Goodwill	2,650,912		2,614,274
Intangible assets, net	656,239		808,892
Long-term investments	31,271		22,515
Other non-current assets	148,325		165,296
Total assets	$	7,041,378	$	6,560,682
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	301,576	$	246,954
Accrued liabilities	214,532		217,801
Current portion of long-term debt	5,091		6,893
Other current liabilities	92,699		67,355
Total current liabilities	613,898		539,003
Long-term debt	1,743,794		1,567,231

Other long-term liabilities	179,985		161,783
Total liabilities	2,537,677		2,268,017
Commitments and contingent liabilities (Note 9)
Stockholders’ equity:
Preferred stock, $.0001 par value; 5,000 shares authorized; no shares issued and outstanding	—		—
Common stock and additional paid-in capital, $.0001 par value; 405,000 shares authorized; 113,299 and 114,625 shares issued and outstanding at January 2, 2021 and March 28, 2020, respectively	4,262,883		4,290,377
Accumulated other comprehensive income, net of tax	47,489		2,288
Retained earnings	193,329		—
Total stockholders’ equity	4,503,701		4,292,665
Total liabilities and stockholders’ equity	$	7,041,378	$	6,560,682

See accompanying Notes to Condensed Consolidated Financial Statements.

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QORVO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)


	Three Months Ended				Nine Months Ended
	January 2, 2021		December 28, 2019		January 2, 2021		December 28, 2019
Revenue	$	1,094,834	$	869,073	$	2,942,577	$	2,451,369
Cost of goods sold	557,082		500,962		1,587,486		1,465,387
Gross profit	537,752		368,111		1,355,091		985,982
Operating expenses:
Research and development	136,697		122,851		423,110		357,385
Selling, general and administrative	93,139		81,205		289,115		258,458
Other operating expense	8,713		10,986		29,307		49,077
Total operating expenses	238,549		215,042		741,532		664,920
Operating income	299,203		153,069		613,559		321,062
Interest expense	(17,453)		(16,900)		(59,788)		(41,457)
Interest income	467		2,874		2,929		8,112
Other (expense) income, net	(58,701)		44,148		(36,106)		42,737

Income before income taxes	223,516		183,191		520,594		330,454

Income tax expense	(22,481)		(21,835)		(85,720)		(46,519)
Net income	$	201,035	$	161,356	$	434,874	$	283,935

Net income per share:
Basic	$	1.77	$	1.39	$	3.80	$	2.42
Diluted	$	1.74	$	1.36	$	3.74	$	2.37

Weighted average shares of common stock outstanding:
Basic	113,811		116,129		114,292		117,436
Diluted	115,690		118,455		116,257		119,712

See accompanying Notes to Condensed Consolidated Financial Statements.

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QORVO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)


	Three Months Ended				Nine Months Ended
	January 2, 2021		December 28, 2019		January 2, 2021		December 28, 2019
Net income	$	201,035	$	161,356	$	434,874	$	283,935
Other comprehensive income (loss), net of tax:



Foreign currency translation adjustment, including intra-entity foreign currency transactions that are of a long-term investment nature	20,837		781		45,125		(674)
Reclassification adjustments, net of tax:

Foreign currency loss realized upon liquidation of subsidiary	15		—		15		353
Amortization of pension actuarial loss	21		34		61		102
Other comprehensive income (loss)	20,873		815		45,201		(219)
Total comprehensive income	$	221,908	$	162,171	$	480,075	$	283,716

See accompanying Notes to Condensed Consolidated Financial Statements.

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QORVO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands)

(Unaudited)


				Accumulated Other Comprehensive Income (Loss)		Retained Earnings (Accumulated Deficit)
	Common Stock
Three Months Ended	Shares	Amount						Total
Balance, October 3, 2020	114,111	$	4,267,987	$	26,616	$	112,563	$	4,407,166
Net income	—	—		—		201,035		201,035
Other comprehensive income	—	—		20,873		—		20,873
Exercise of stock options and vesting of restricted stock units, net of shares withheld for employee taxes	63	372		—		—		372
Issuance of common stock in connection with employee stock purchase plan	188	15,608		—		—		15,608

Repurchase of common stock, including transaction costs	(1,063)	(39,754)		—		(120,269)		(160,023)
Stock-based compensation	—	18,670		—		—		18,670

Balance, January 2, 2021	113,299	$	4,262,883	$	47,489	$	193,329	$	4,503,701

Balance, September 28, 2019	116,294	$	4,471,656	$	(7,658)	$	(198,504)	$	4,265,494
Net income	—	—		—		161,356		161,356
Other comprehensive income	—	—		815		—		815
Exercise of stock options and vesting of restricted stock units, net of shares withheld for employee taxes	490	10,150		—		—		10,150
Issuance of common stock in connection with employee stock purchase plan	213	13,710		—		—		13,710

Repurchase of common stock, including transaction costs	(1,259)	(125,012)		—		—		(125,012)
Stock-based compensation	—	12,864		—		—		12,864
Balance, December 28, 2019	115,738	$	4,383,368	$	(6,843)	$	(37,148)	$	4,339,377

See accompanying Notes to Condensed Consolidated Financial Statements.

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QORVO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands)

(Unaudited)


				Accumulated Other Comprehensive Income (Loss)		Retained Earnings (Accumulated Deficit)
	Common Stock
Nine Months Ended	Shares	Amount						Total
Balance, March 28, 2020	114,625	$	4,290,377	$	2,288	$	—	$	4,292,665
Net income	—	—		—		434,874		434,874
Other comprehensive income	—	—		45,201		—		45,201
Exercise of stock options and vesting of restricted stock units, net of shares withheld for employee taxes	889	(31,999)		—		—		(31,999)
Issuance of common stock in connection with employee stock purchase plan	417	31,366		—		—		31,366
Cumulative-effect adoption of ASU 2016-13	—	—		—		(38)		(38)
Repurchase of common stock, including transaction costs	(2,632)	(98,584)		—		(241,487)		(340,071)
Stock-based compensation	—	71,723		—		—		71,723
Other	—	—		—		(20)		(20)
Balance, January 2, 2021	113,299	$	4,262,883	$	47,489	$	193,329	$	4,503,701

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

See accompanying Notes to Condensed Consolidated Financial Statements.

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QORVO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended
	January 2, 2021		December 28, 2019
Cash flows from operating activities:
Net income	$	434,874	$	283,935
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	152,337		172,314
Intangible assets amortization	217,781		177,930
Loss on debt extinguishment	61,991		—
Deferred income taxes	26,311		(1,207)

Gain on Cavendish investment	—		(43,008)




Stock-based compensation expense	71,154		62,210
Other, net	(128)		18,111
Changes in operating assets and liabilities:
Accounts receivable, net	(140,054)		(25,166)
Inventories	38,851		44,863
Prepaid expenses and other assets	(1,921)		2,942
Accounts payable and accrued liabilities	35,597		41,723
Income taxes payable and receivable	22,014		3,917
Other liabilities	(19,883)		(7,313)
Net cash provided by operating activities	898,924		731,251
Cash flows from investing activities:
Purchase of property and equipment	(109,505)		(129,004)

Purchase of businesses, net of cash acquired	(47,069)		(494,783)
Proceeds from sales of available-for-sale debt securities	—		1,950
Other investing activities	15,277		(1,263)
Net cash used in investing activities	(141,297)		(623,100)
Cash flows from financing activities:
Payment of debt	(1,086,744)		—
Proceeds from borrowings and debt issuances	1,206,750		659,000

Repurchase of common stock, including transaction costs	(340,071)		(390,117)
Proceeds from the issuance of common stock	28,659		37,530
Tax withholding paid on behalf of employees for restricted stock units	(37,069)		(21,013)

Other financing activities	(12,413)		(6,252)

Net cash (used in) provided by financing activities	(240,888)		279,148

Effect of exchange rate changes on cash, cash equivalents and restricted cash	2,569		(501)
Net increase in cash, cash equivalents and restricted cash	519,308		386,798
Cash, cash equivalents and restricted cash at the beginning of the period	715,612		711,382
Cash, cash equivalents and restricted cash at the end of the period	$	1,234,920	$	1,098,180

Non-cash investing information:
Capital expenditure adjustments included in liabilities	$	45,592	$	26,152

Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	1,234,415	$	1,097,724
Restricted cash included in "Other current assets" and "Other non-current assets"	505		456
Total cash, cash equivalents and restricted cash	$	1,234,920	$	1,098,180

See accompanying Notes to Condensed Consolidated Financial Statements.

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QORVO, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The accompanying Condensed Consolidated Financial Statements of Qorvo, Inc. and Subsidiaries (together, the “Company” or “Qorvo”) have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of these financial statements requires management to make estimates and assumptions, which could differ materially from actual results. In addition, certain information or footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed, or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, the financial statements include all adjustments (which are of a normal and recurring nature) necessary for the fair presentation of the results of the interim periods presented. These Condensed Consolidated Financial Statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in Qorvo’s Annual Report on Form 10-K for the fiscal year ended March 28, 2020.

The Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain items in the fiscal 2020 financial statements have been reclassified to conform with the fiscal 2021 presentation.

The Company uses a 52- or 53-week fiscal year ending on the Saturday closest to March 31 of each year. The first fiscal quarter of each year ends on the Saturday closest to June 30, the second fiscal quarter of each year ends on the Saturday closest to September 30 and the third fiscal quarter of each year ends on the Saturday closest to December 31. Fiscal 2020 was a 52-week year and fiscal 2021 is a 53-week year with the additional week included in the second fiscal quarter ended October 3, 2020.

2. RECENT ACCOUNTING PRONOUNCEMENTS

The Company assesses recently issued accounting standards by the Financial Accounting Standards Board ("FASB") to determine the expected impacts on the Company's financial statements. The summary below describes impacts from newly issued standards as well as material updates to our previous assessments, if any, from Qorvo’s Annual Report on Form 10-K for the fiscal year ended March 28, 2020.

In June 2016, the FASB issued Accounting Standards Update ("ASU") 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," which requires a current lifetime expected credit loss methodology to be used to measure impairments of accounts receivable and other financial assets. Using this methodology will result in earlier recognition of losses than under the previous incurred loss approach, which requires waiting to recognize a loss until it is probable of being incurred. The Company adopted this standard using the modified retrospective transition method, in the first quarter of fiscal 2021, which resulted in a cumulative-effect adjustment to retained earnings of less than $0.1 million.

Under this new standard, the Company's trade receivables are now evaluated on a collective (pool) basis and aggregated on the basis of similar risk characteristics. These aggregated risk pools will be reassessed at each measurement date. A combination of factors is considered in determining the appropriate estimate of expected credit losses which include broad-based economic indicators as well as customers' financial strength, credit standing, payment history and any historical defaults. The adoption of this standard did not have a material impact on the Company's condensed consolidated financial statements.

3. INVENTORIES

The components of inventories, net of reserves, are as follows (in thousands):


	January 2, 2021		March 28, 2020
Raw materials	$	126,695	$	112,671
Work in process	270,562		291,028
Finished goods	82,083		113,499
Total inventories	$	479,340	$	517,198

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QORVO, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

4. BUSINESS ACQUISITIONS

In the second quarter of fiscal 2021, the Company completed the acquisition of 7Hugs Labs S.A.S. ("7Hugs"). During fiscal 2020, the Company completed the acquisitions of Decawave Limited ("Decawave"), Custom MMIC Design Services, Inc. ("Custom MMIC"), Cavendish Kinetics Limited ("Cavendish") and Active-Semi International, Inc. ("Active-Semi"). The operating results of these companies have been included in the Company's consolidated financial statements as of the acquisition dates.

7Hugs Labs S.A.S.

On October 1, 2020, the Company acquired all of the outstanding equity interests of 7Hugs, a private developer of ultra-wide band ("UWB") software and solutions, for a total purchase price of $48.7 million, including cash acquired of $1.0 million. The acquisition expands the Company's product offerings and is expected to support the ongoing development and adoption of UWB products and solutions.

The purchase price was allocated to 7Hugs' net tangible liabilities (approximately $5.4 million, which includes debt assumed), deferred tax liability (approximately $8.2 million) and an intangible asset (approximately $40.1 million, entirely related to developed technology) based on their estimated fair values. The fair value of the developed technology was determined based on an income approach using the "relief from royalty method," which estimated the value by discounting the royalties avoided by acquiring the technology to present value as of the valuation date. The acquired developed technology asset is being amortized on a straight-line basis over the estimated useful life of 10 years. The excess of the purchase price over the value of the net tangible liabilities, deferred tax liability and intangible asset resulted in goodwill of approximately $22.2 million.

The purchase price allocation includes net adjustments of approximately $3.7 million recorded in the third quarter of fiscal 2021. The Company will continue to evaluate certain assets, liabilities and tax estimates over the measurement period (up to one year from the acquisition date). During the three and nine months ended January 2, 2021, the Company recorded acquisition and integration costs associated with the acquisition of 7Hugs of $0.7 million and $2.1 million, respectively, in "Other operating expense" in the Condensed Consolidated Statements of Income.

Decawave Limited

On February 21, 2020, the Company acquired all of the outstanding equity interests of Decawave, a pioneer in UWB technology and provider of UWB solutions for mobile, automotive and Internet of Things ("IoT") applications, for a total purchase price of $372.2 million. The acquisition expands the Company's product and technology offerings that enable real-time, highly accurate and reliable local area precision-location services.

During the nine months ended January 2, 2021, the Company recognized a decrease to goodwill of approximately $3.1 million as a result of purchase price allocation adjustments. The Company will continue to evaluate certain assets, liabilities, and tax estimates over the measurement period (up to one year from the acquisition date).

Custom MMIC Design Services, Inc.

On February 6, 2020, the Company acquired all of the outstanding equity interests of Custom MMIC, a supplier of high-performance gallium arsenide ("GaAs") and gallium nitride ("GaN") monolithic microwave integrated circuits ("MMICs") for defense and commercial applications, for a total purchase price of $91.7 million. The acquisition expands the Company's millimeter wave ("mmWave") capabilities in defense and commercial markets. On the acquisition date, the purchase price was comprised of cash consideration of $86.0 million and contingent consideration of $5.7 million (based on estimated fair value). The contingent consideration will be payable to the sellers in the first quarter of fiscal 2022 if certain revenue targets are attained over a one-year period from the acquisition date for a maximum amount payable of $10.0 million. The contingent consideration liability is included in "Accrued liabilities" and remeasured to fair value with changes recognized in "Other operating expense." The fair value of the contingent consideration liability as of January 2, 2021 was equal to the maximum amount payable of $10.0 million as a result of achieving revenue targets. See Note 6 for further information related to the fair value measurement.

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QORVO, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

During the nine months ended January 2, 2021, the Company recognized a decrease to goodwill of approximately $0.6 million as a result of purchase price allocation adjustments. The Company will continue to evaluate certain assets, liabilities, and tax estimates over the measurement period (up to one year from the acquisition date).

Cavendish Kinetics Limited

As of September 28, 2019, the Company had an investment in preferred shares in Cavendish, a private supplier of high-performance radio frequency ("RF") microelectromechanical system ("MEMS") technology for antenna tuning applications, with a carrying value of $59.4 million. The Company accounted for this investment as an equity investment without a readily determinable fair value using the measurement alternative in accordance with Accounting Standards Codification ("ASC") 321, "Investments-Equity Securities."

On October 4, 2019, the Company acquired the remaining issued and outstanding capital of Cavendish for cash consideration of $198.4 million. The acquisition advances RF MEMS technology for applications across the Company's products and the technology will be transitioned into high-volume manufacturing for mobile devices and other markets.

The purchase of the remaining equity interest in Cavendish was considered to be an acquisition achieved in stages, whereby the previously held equity interest was remeasured at its acquisition-date fair value. The Company determined that the fair value of its previously held equity investment was $102.4 million based on the purchase consideration exchanged to acquire the remaining issued and outstanding capital of Cavendish. This resulted in recognition of a gain of $43.0 million in the third quarter of fiscal 2020, which is recorded in "Other (expense) income, net" in the Condensed Consolidated Statements of Income.

In fiscal 2021, the Company recognized an increase to goodwill of approximately $2.0 million and a decrease to intangible assets of approximately $2.0 million as a result of finalizing the purchase price allocation.

Active-Semi International, Inc.

On May 6, 2019, the Company acquired all of the outstanding equity interests of Active-Semi, a private fabless supplier of programmable analog power management solutions, for a total purchase price of $307.9 million. The acquisition expanded the Company's product offerings in power management markets.

In fiscal 2021, the Company recognized an increase to goodwill of approximately $0.1 million in connection with finalizing the purchase price allocation.

5. GOODWILL AND INTANGIBLE ASSETS

The changes in the carrying amount of goodwill for the nine months ended January 2, 2021 are as follows (in thousands):


	Mobile Products		Infrastructure and Defense Products		Total
Balance as of March 28, 2020 (1)	$	2,005,432	$	608,842	$	2,614,274
Goodwill resulting from 7Hugs acquisition (Note 4)	22,195		—		22,195
Measurement period adjustments from prior acquisitions (Note 4)	(1,075)		(514)		(1,589)
Foreign currency translation	16,032		—		16,032
Balance as of January 2, 2021 (1)	$	2,042,584	$	608,328	$	2,650,912

(1) The Company’s goodwill balance is presented net of accumulated impairment losses and write-offs of $621.6 million.

Goodwill is allocated to the reporting units that are expected to benefit from the synergies of the business combinations generating the underlying goodwill.

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QORVO, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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


	January 2, 2021				March 28, 2020
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization

Developed technology	$	1,272,572	$	716,397	$	1,325,472	$	652,400
Customer relationships	458,150		399,505		463,772		346,799
Technology licenses	2,271		1,895		3,271		2,327
Backlog	1,600		1,467		1,600		267
Trade names	1,000		458		1,200		283

In-process research and development	9,600		N/A		9,600		N/A
Foreign currency translation	35,497		4,729		6,064		11
Total	$	1,780,690	$	1,124,451	$	1,810,979	$	1,002,087

At the beginning of each fiscal year, the Company removes the gross asset and accumulated amortization amounts of intangible assets that have reached the end of their useful lives and have been fully amortized. Useful lives are estimated based on expected economic benefit to be derived from the intangible assets.

Total intangible assets amortization expense was $73.3 million and $217.8 million for the three and nine months ended January 2, 2021, respectively, and $63.1 million and $177.9 million for the three and nine months ended December 28, 2019, respectively.

6. INVESTMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS

Equity Method Investments

The Company invests in limited partnerships which are accounted for using the equity method. The carrying amounts of these investments as of January 2, 2021 and March 28, 2020 were $25.7 million and $14.2 million, respectively, and are classified as “Long-term investments” in the Condensed Consolidated Balance Sheets. During the three and nine months ended January 2, 2021, the Company recorded $1.8 million and $17.4 million of income, respectively, based on its share of the limited partnerships' earnings. These amounts are included in “Other (expense) income, net” in the Condensed Consolidated Statements of Income. During the three months ended January 2, 2021, the Company received cash distributions of $5.9 million from one of these equity method investments. The distributions were recognized as a reduction to the carrying value of the investment, the majority of which represented a return of investment in cash flows from investing activities.

Equity Investments Without a Readily Determinable Fair Value

During the fourth quarter of fiscal 2020, the Company recorded an impairment of $18.3 million on an equity investment without a readily determinable fair value based on observable price changes present at the time. During the first quarter of fiscal 2021, the Company recorded an additional impairment of $2.8 million to fully impair this investment. This amount is recorded in “Other (expense) income, net” in the Condensed Consolidated Statement of Income.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Fair Value of Financial Instruments

The fair value of the financial assets and liabilities measured on a recurring basis was determined using the following levels of inputs as of January 2, 2021 and March 28, 2020 (in thousands):


				Total		Quoted Prices In Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
January 2, 2021
	Assets






		Marketable equity securities		$	644	$	644	$	—	$	—
		Invested funds in deferred compensation plan (1)		31,015		31,015		—		—
			Total assets measured at fair value	$	31,659	$	31,659	$	—	$	—
	Liabilities
		Deferred compensation plan obligation (1)		$	31,015	$	31,015	$	—	$	—
		Contingent earn-out liability (2)		10,000		—		—		10,000
			Total liabilities measured at fair value	$	41,015	$	31,015	$	—	$	10,000

March 28, 2020
	Assets

		Marketable equity securities		$	459	$	459	$	—	$	—


		Invested funds in deferred compensation plan (1)		19,398		19,398		—		—
			Total assets measured at fair value	$	19,857	$	19,857	$	—	$	—
	Liabilities
		Deferred compensation plan obligation (1)		$	19,398	$	19,398	$	—	$	—
		Contingent earn-out liability (2)		5,700		—		—		5,700
			Total liabilities measured at fair value	$	25,098	$	19,398	$	—	$	5,700

(1) The Company's non-qualified deferred compensation plan provides eligible employees and members of the Board of Directors with the opportunity to defer a specified percentage of their cash compensation. The Company includes the assets deferred by the participants in the “Other current assets” and “Other non-current assets” line items of its Condensed Consolidated Balance Sheets and the Company's obligation to deliver the deferred compensation in the “Other current liabilities” and “Other long-term liabilities” line items of its Condensed Consolidated Balance Sheets.

(2) The Company recorded a contingent earn-out liability in conjunction with the Custom MMIC acquisition. The fair value of this liability is estimated using an option pricing model and is remeasured to fair value each period with changes in fair value reported in “Other operating expense” in the Condensed Consolidated Statements of Income. As of January 2, 2021, the fair value of the contingent consideration liability was equal to the maximum amount payable of $10.0 million. No payments have been made for the contingent liability as the earn-out assessment period is still ongoing. Any anticipated payments are expected to be settled during the first quarter of fiscal 2022.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

7. LONG-TERM DEBT

Long-term debt as of January 2, 2021 and March 28, 2020 is as follows (in thousands):


	January 2, 2021		March 28, 2020
Term loan	$	198,750	$	100,000
7.00% senior notes due 2025	—		23,404
5.50% senior notes due 2026	—		900,000
4.375% senior notes due 2029	850,000		550,000
3.375% senior notes due 2031	700,000		—
Finance leases	1,648		2,252
Unamortized premium and issuance costs, net	(1,513)		(1,532)
Less current portion of long-term debt	(5,091)		(6,893)
Total long-term debt	$	1,743,794	$	1,567,231

Credit Agreement

On September 29, 2020, the Company and certain of its U.S. subsidiaries (the “Guarantors”) entered into a five-year unsecured senior credit facility pursuant to a credit agreement (the “2020 Credit Agreement”) with Bank of America, N.A. acting as administrative agent (the “Administrative Agent”) and a syndicate of lenders. The 2020 Credit Agreement amended and restated the previous credit agreement dated as of December 5, 2017 (the “2017 Credit Agreement”). The 2020 Credit Agreement includes a senior term loan (the “2020 Term Loan”) of up to $200.0 million and a senior revolving line of credit (the “Revolving Facility”) of up to $300.0 million (collectively the “Credit Facility”).

On the closing date of the 2020 Credit Agreement, the Company repaid the remaining principal balance of $97.5 million on the term loan under the 2017 Credit Agreement (the “2017 Term Loan”) and concurrently drew $200.0 million under the 2020 Term Loan.

Principal paid on the 2020 Term Loan during the three months ended January 2, 2021 was $1.3 million. Interest paid on the 2017 Term Loan and 2020 Term Loan during the three and nine months ended January 2, 2021 was $0.7 million and $1.5 million, respectively.

Pursuant to the 2020 Credit Agreement, the Company may request one or more additional tranches of term loans or increases to the Revolving Facility, up to an aggregate of $500.0 million and subject to securing additional funding commitments from the existing or new lenders. 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 general corporate purposes. Outstanding amounts are due in full on the maturity date of September 29, 2025, subject to scheduled amortization of the 2020 Term Loan principal prior to the maturity date as set forth in the 2020 Credit Agreement. During the nine months ended January 2, 2021, there were no borrowings under the Revolving Facility.

At the Company’s option, loans under the 2020 Credit Agreement will bear interest at (i) the Applicable Rate (as defined in the 2020 Credit Agreement) plus the Eurodollar Rate (as defined in the 2020 Credit Agreement) or (ii) the Applicable Rate plus a rate equal to the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate as set by the Administrative Agent, and (c) the Eurodollar Rate plus 1.0% (the “Base Rate”). All swing line loans will bear interest at a rate equal to the Applicable Rate plus the Base Rate. The Eurodollar Rate is the rate per annum equal to the reserve adjusted London Interbank Offered Rate (or a comparable or successor rate), for dollar deposits for interest periods of one, two, three or six months, as selected by the Company. The Applicable Rate for Eurodollar Rate loans ranges from 1.000% per annum to 1.250% per annum and is set at 1.125% per annum until the delivery of the Company’s first compliance certificate to the lenders following the fiscal quarter ended January 2, 2021. The Applicable Rate for Base Rate loans ranges from 0.000% per annum to 0.250% per annum, and is set at 0.125% per annum until the delivery of the Company’s first compliance certificate to the lenders following the fiscal quarter ended January 2, 2021. Undrawn amounts under the Credit Facility are subject to a commitment fee ranging from 0.150% to 0.200%. Interest for Eurodollar Rate loans is payable at the end of each applicable interest period or at three-month intervals if such interest period exceeds three months. Interest for Base Rate loans is payable quarterly in arrears.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The 2020 Credit Agreement contains various conditions, covenants and representations with which the Company must be in compliance in order to borrow funds and to avoid an event of default. As of January 2, 2021, the Company was in compliance with these covenants.

Senior Notes due 2025

On November 19, 2015, the Company issued $550.0 million aggregate principal amount of its 7.00% senior notes due December 1, 2025 (the “2025 Notes”). The 2025 Notes were senior unsecured obligations of the Company and guaranteed, jointly and severally, by the Guarantors.

In fiscal years 2018 and 2019, the Company retired $526.6 million of the 2025 Notes. On December 1, 2020, the Company redeemed the remaining $23.4 million principal amount of the 2025 Notes using cash on hand, at a redemption price equal to 103.50% of the principal amount, plus accrued and unpaid interest. In connection with the redemption, the Company recognized a loss on debt extinguishment of $1.0 million as "Other (expense) income, net" in the Condensed Consolidated Statements of Income. The loss on debt extinguishment consisted of a $0.8 million redemption premium and a $0.2 million write-off of the unamortized portion of the debt issuance costs.

Interest on the 2025 Notes was payable on June 1 and December 1 of each year. Interest paid on the 2025 Notes during the three and nine months ended January 2, 2021 was $0.8 million and $1.6 million, respectively. Interest paid on the 2025 Notes during the three and nine months ended December 28, 2019 was $0.8 million and $1.6 million, respectively.

Senior Notes due 2026

On July 16, 2018, the Company issued $500.0 million aggregate principal amount of its 5.50% senior notes due July 15, 2026 (the “Initial 2026 Notes”). On August 28, 2018 and March 5, 2019, the Company issued an additional $130.0 million and $270.0 million, respectively, aggregate principal amount of such notes (together with the Initial 2026 Notes, the “2026 Notes”). The 2026 Notes were senior unsecured obligations of the Company and guaranteed, jointly and severally, by the Guarantors.

On October 16, 2020, the Company redeemed all of the 2026 Notes at a redemption price equal to 106.363% of the $900.0 million principal amount, plus accrued and unpaid interest. The 2026 Notes were redeemed using proceeds from the issuance of the 2031 Notes (as defined below) combined with cash on hand plus borrowings under the 2020 Term Loan. In connection with the redemption, the Company recognized a loss on debt extinguishment of $61.0 million as "Other (expense) income, net" in the Condensed Consolidated Statements of Income. The loss on debt extinguishment consisted of a $57.3 million redemption premium and a $3.7 million net write-off of unamortized debt issuance costs and bond premium. The primary purpose of the redemption was to reduce future interest expense.

Interest on the 2026 Notes was payable on January 15 and July 15 of each year. No interest was paid on the 2026 Notes during the three months ended January 2, 2021 and December 28, 2019. Interest paid on the 2026 Notes during the nine months ended January 2, 2021 and December 28, 2019 was $24.8 million.

Senior Notes due 2029

On September 30, 2019, the Company issued $350.0 million aggregate principal amount of its 4.375% senior notes due 2029 (the “Initial 2029 Notes”). On December 20, 2019 and June 11, 2020, the Company issued an additional $200.0 million and $300.0 million, respectively, aggregate principal amount of such notes (together, the “Additional 2029 Notes” and together with the Initial 2029 Notes, the “2029 Notes”). The 2029 Notes will mature on October 15, 2029, unless earlier redeemed in accordance with their terms. The 2029 Notes are senior unsecured obligations of the Company and are guaranteed, jointly and severally, by the Guarantors.

The Initial 2029 Notes were issued pursuant to an indenture, dated as of September 30, 2019, by and among the Company, the Guarantors and MUFG Union Bank, N.A., as trustee, and the Additional 2029 Notes were issued pursuant to supplemental indentures, dated as of December 20, 2019 and June 11, 2020 (such indenture and supplemental indentures, collectively, the “2019 Indenture”). The 2019 Indenture contains customary events of default, including payment default, failure to provide certain notices thereunder and certain provisions related to bankruptcy events and also contains customary negative covenants.

Interest is payable on the 2029 Notes on April 15 and October 15 of each year. Interest paid on the 2029 Notes during the three and nine months ended January 2, 2021 was $18.6 million and $31.6 million, respectively.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Senior Notes due 2031

On September 29, 2020, the Company issued $700.0 million aggregate principal amount of its 3.375% senior notes due 2031 (the “2031 Notes”). Interest is payable on the 2031 Notes on April 1 and October 1 of each year, commencing April 1, 2021. The 2031 Notes will mature on April 1, 2031, unless earlier redeemed in accordance with their terms. The 2031 Notes are senior unsecured obligations of the Company and are guaranteed, jointly and severally, by the Guarantors.

The 2031 Notes were issued pursuant to an indenture, dated as of September 29, 2020, by and among the Company, the Guarantors and MUFG Union Bank, N.A., as trustee (the “2020 Indenture”). The 2020 Indenture contains customary events of default, including payment default, failure to provide certain notices thereunder and certain provisions related to bankruptcy events and also contains customary negative covenants.

The 2031 Notes have not been and will not be registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities laws, and may not be offered or sold in the United States absent an applicable exemption from the registration requirements of the Securities Act and applicable state securities laws.

Fair Value of Debt

The Company's debt is carried at amortized cost and is measured at fair value quarterly for disclosure purposes. The estimated fair value of the 2029 Notes and the 2031 Notes as of January 2, 2021 was $935.2 million and $720.1 million, respectively (compared to a carrying value of $850.0 million and $700.0 million, respectively). The estimated fair value of the 2025 Notes, the 2026 Notes and the 2029 Notes as of March 28, 2020 was $23.9 million, $962.8 million, and $489.5 million, respectively (compared to a carrying value of $23.4 million, $900.0 million, and $550.0 million, respectively). The Company considers its debt to be Level 2 in the fair value hierarchy. Fair values are estimated based on quoted market prices for identical or similar instruments. The 2029 Notes and the 2031 Notes currently trade – and the 2025 Notes and the 2026 Notes previously traded – over the counter and their fair values were estimated based upon the value of their last trade at the end of the period.

The 2020 Term Loan carries a variable interest rate set at current market rates, and as such, the fair value of the 2020 Term Loan approximated book value as of January 2, 2021.

Interest Expense

During the three and nine months ended January 2, 2021, the Company recognized total interest expense of $18.3 million and $62.9 million, respectively, primarily related to the 2026 Notes, the 2029 Notes and the 2031 Notes, which was partially offset by interest capitalized to property and equipment of $0.9 million and $3.1 million, respectively. During the three and nine months ended December 28, 2019, the Company recognized total interest expense of $18.3 million and $45.8 million, respectively, primarily related to the 2026 Notes and the 2029 Notes, which was partially offset by interest capitalized to property and equipment of $1.4 million and $4.4 million, respectively.

8. STOCK REPURCHASES

On October 31, 2019, the Company announced that its Board of Directors authorized a new share repurchase program to repurchase up to $1.0 billion of the Company's outstanding common stock, which included approximately $117.0 million authorized under the prior program which was terminated concurrent with the new authorization. Under this program, share repurchases are made in accordance with applicable securities laws on the open market or in privately negotiated transactions. The extent to which the Company repurchases its shares, the number of shares and the timing of any repurchases depends on general market conditions, regulatory requirements, alternative investment opportunities and other considerations. The program does not require the Company to repurchase a minimum number of shares, does not have a fixed term, and may be modified, suspended or terminated at any time without prior notice.

During the three and nine months ended January 2, 2021, the Company repurchased approximately 1.1 million and 2.6 million shares, respectively, of its common stock for approximately $160.0 million and $340.1 million, respectively, under the current share repurchase program. As of January 2, 2021, approximately $425.8 million remained available for repurchases under the current share repurchase program.

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

9. COMMITMENTS AND CONTINGENT LIABILITIES

Legal Matters

The Company accrues a liability for legal contingencies when it believes that it is both probable that a liability has been incurred and that it can reasonably estimate the amount of the loss. The Company reviews these accruals and adjusts them to reflect ongoing negotiations, settlements, rulings, advice of legal counsel and other relevant information. To the extent new information is obtained and the Company's views on the probable outcomes of claims, suits, assessments, investigations or legal proceedings change, changes in the Company's accrued liabilities would be recorded in the period in which such determination is made.

The Company is involved in various legal proceedings and claims that have arisen in the ordinary course of its business that have not been fully adjudicated. The aggregate range of reasonably possible losses in excess of accrued liabilities, if any, associated with these unresolved legal actions is not material. In some cases, the Company cannot reasonably estimate a range of loss because there is insufficient information regarding the matter. However, the Company believes there is no more than a remote chance that any liability arising from these matters would be material. Although it is not possible to predict with certainty the outcome of these unresolved legal actions, it is the opinion of management that these actions will not individually or in the aggregate have a material adverse effect on the Company’s consolidated financial position or results of operations.

10. REVENUE

The following table presents the Company's revenue disaggregated by geography, based on the location of the customers' headquarters (in thousands):


	Three Months Ended				Nine Months Ended
	January 2, 2021		December 28, 2019		January 2, 2021		December 28, 2019
United States	$	587,737	$	423,573	$	1,295,398	$	1,143,995
China	305,887		281,024		1,084,120		842,112
Other Asia	83,070		80,729		243,715		229,344
Taiwan	69,492		43,156		176,171		122,189
Europe	48,648		40,591		143,173		113,729

Total revenue	$	1,094,834	$	869,073	$	2,942,577	$	2,451,369

The Company also disaggregates revenue by operating segments (see Note 12).

11. RESTRUCTURING

During fiscal 2019, the Company initiated restructuring actions to reduce operating expenses and improve its manufacturing cost structure, including the phased closure of a wafer fabrication facility in Florida and idling production at a wafer fabrication facility in Texas. As a result of these restructuring actions, the Company has recorded cumulative restructuring related charges totaling $93.1 million as of the end of the third quarter of fiscal 2021, including accelerated depreciation of $47.4 million (to reflect changes in estimated useful lives of certain property and equipment), impairment charges of $15.9 million (to adjust the carrying value of certain property and equipment to reflect its fair value), employee termination benefits of $13.8 million and other exit costs of $16.0 million. The Company expects to record additional expenses of approximately $0.1 million for employee termination benefits and other exit costs as a result of these actions.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The following table summarizes the restructuring charges resulting from the 2019 restructuring event (in thousands):


	Three Months Ended January 2, 2021						Three Months Ended December 28, 2019
	Cost of Goods Sold		Other Operating Expense		Total		Cost of Goods Sold	Other Operating Expense	Total
One-time employee termination benefits (1)	$	—	$	141	$	141	$