ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This Annual Report on Form 10-K includes "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 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 use of terms such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “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. 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 U.S. federal securities laws. Our business is subject to numerous risks and uncertainties, including those relating to fluctuations in our operating results, our dependence on a few large customers for a substantial portion of our revenue, a loss of revenue if contracts with the U.S. government or defense and aerospace contractors are canceled or delayed, our ability to implement innovative technologies, our ability to bring new products to market and achieve design wins, the efficient and successful operation of our wafer fabrication and other facilities, our ability to adjust production capacity in a timely fashion in response to changes in demand for our products, variability in manufacturing yields, industry overcapacity, inaccurate product forecasts and corresponding inventory and manufacturing costs, dependence on third parties, our dependence on international sales and operations, our ability to attract and retain skilled personnel and develop leaders, the possibility that future acquisitions may dilute our stockholders’ ownership and cause us to incur debt and assume contingent liabilities, fluctuations in the price of our common stock, our ability to protect our intellectual property, claims of intellectual property infringement and other lawsuits, security breaches and other similar disruptions compromising our information, and the impact of government and stringent environmental regulations. These and other risks and uncertainties, which are described in more detail under Item 1A, “Risk Factors” in this Annual Report on Form 10-K and in other reports and statements that we file with the SEC, could cause actual results and developments to be materially different from those expressed or implied by any of these forward-looking statements.
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.
OVERVIEW
Company
On February 22, 2014, RFMD and TriQuint entered into the Merger Agreement, which provided for the combination of RFMD and TriQuint in a merger of equals and resulted in the Business Combination under a new holding company named Qorvo, Inc. The transactions contemplated by the Merger Agreement were consummated on January 1, 2015, and as a result, TriQuint's results of operations are included in Qorvo's fiscal 2015 Consolidated Statements of Operations for the period of January 1, 2015 through March 28, 2015 (the "Post-Combination Period") and for the full fiscal years of 2017 and 2016.
For financial reporting and accounting purposes, RFMD was the acquirer of TriQuint in the Business Combination. Unless otherwise noted, “we,” “our” or "us” in this report refers to RFMD and its subsidiaries prior to the closing of the Business Combination and to Qorvo and its subsidiaries after the closing of the Business Combination.
Qorvo® is a product and technology leader at the forefront of the growing global demand for always-on broadband connectivity. We combine a broad portfolio of RF solutions, highly differentiated semiconductor technologies, deep systems-level expertise and scale manufacturing to supply a diverse group of customers in expanding markets, including smartphones and other mobile devices, defense and aerospace, WiFi customer premises equipment, cellular base stations, optical networks, automotive connectivity, and smart home applications. Within these markets, our products enable a broad range of leading-edge applications - from very-high-power wired and wireless infrastructure solutions to ultra-low-power smart home solutions. Our products and technologies help transform how people around the world access their data, transact commerce, and interact with their communities.
Qorvo employs more than
8,600
people. We have world-class manufacturing facilities, and our fabrication facility in Richardson, Texas, is a U.S. DoD-accredited ‘Trusted Source’ (Category 1A) for GaAs, GaN and BAW technologies. Our design and manufacturing expertise covers many semiconductor process technologies, which we source both internally and through external suppliers. Our primary wafer fabrication facilities are in Texas, Florida, North Carolina and Oregon, and our primary assembly and test facilities are in China, Costa Rica, Germany and Texas. We also operate design, sales and manufacturing facilities throughout Asia, Europe and North America.
Business Segments
We design, develop, manufacture and market our products to leading U.S. and international OEMs and ODMs in the following operating segments:
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|
•
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Mobile Products (MP)
- MP supplies cellular RF and WiFi solutions into a variety of mobile devices, including smartphones, notebook computers, wearables, tablets, and cellular-based applications for the IoT. Mobile device manufacturers and mobile network operators are adopting new technologies to address the growing demand for data-intensive, increasingly cloud-based, distributed applications and for mobile devices with smaller form factors, improved signal quality, less heat and longer talk and standby times. New wireless communications standards are being deployed to utilize available spectrum more efficiently. Carrier aggregation is being implemented, primarily in the downlink, to support wider bandwidths, increase data rates and improve network performance. These trends increase the complexity of smartphones, require more RF content and place a premium on performance, integration, systems-level expertise, and product and technology portfolio breadth, all of which are MP strengths. We offer a comprehensive product portfolio of BAW and SAW filters, PAs, LNAs, switches, multimode multi-band PAs and transmit modules, RF power management ICs, diversity receive modules, antenna switch modules, antenna tuning and control solutions, modules incorporating PAs and duplexers and modules incorporating switches, PAs and duplexers.
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|
•
|
Infrastructure and Defense Products (IDP)
- IDP is a leading global supplier of RF solutions with a diverse portfolio of solutions that "connect and protect," spanning communications, network infrastructure and defense applications. These applications include high performance defense systems such as radar, electronic warfare and communication systems, WiFi customer premises equipment for home and work, high speed connectivity in LTE and 5G base stations, cloud connectivity via data center communications and telecom transport, automotive connectivity and smart home solutions. Our IDP products include high power GaAs and GaN PAs, LNAs, switches, CMOS system-on-a-chip solutions, premium BAW and SAW filter solutions and various multi-chip and hybrid assemblies.
|
As of
April 1, 2017
, our reportable segments are MP and IDP. 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 operating segment primarily based on operating income and operating income as a percentage of revenue. For financial information about the results of our operating segments for each of the last three fiscal years, see Note 16 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this report.
Fiscal
2017
Management Summary
|
|
•
|
Our revenue increased
16.2%
in fiscal
2017
to
$3,032.6 million
compared to
$2,610.7 million
in fiscal
2016
, primarily due to higher demand for our cellular RF solutions in support of marquee smartphones and customers based in China and higher sales of our wireless infrastructure, defense and aerospace and WiFi products.
|
|
|
•
|
Our gross margin for fiscal
2017
was
37.4%
compared to
40.2%
for fiscal
2016
. Gross margin was adversely impacted in fiscal 2017 by an unfavorable change in product mix towards lower margin low-band power amplifier + duplexer ("PAD") modules, product cost reductions lagging normal average selling price erosion, lower factory utilization and unfavorable inventory adjustments primarily due to lower than expected manufacturing and assembly yields on the low-band PAD modules in the second quarter of fiscal 2017. These adverse factors were partially offset by lower intangible amortization, stock-based compensation and other costs related to the Business Combination.
|
|
|
•
|
Our operating income was
$88.1 million
in fiscal
2017
compared to
$12.0 million
in fiscal
2016
. This increase was primarily due to higher gross profit from higher revenue and lower intangible amortization, stock-based compensation and other costs related to the Business Combination in fiscal
2017
as compared to fiscal
2016
.
|
|
|
•
|
Our net loss per diluted share was
$0.13
for fiscal
2017
as compared to net loss per diluted share of
$0.20
for fiscal
2016
.
|
|
|
•
|
We generated positive cash flow from operations of
$776.8 million
for fiscal
2017
as compared to
$687.9 million
for fiscal
2016
. This year-over-year increase was due primarily to improvement in working capital, partially offset by lower adjustments for non-cash items.
|
|
|
•
|
Capital expenditures totaled
$552.7 million
in fiscal
2017
, as compared to
$315.6 million
in fiscal
2016
, with the increase primarily related to projects for increasing premium filter capacity and manufacturing cost savings initiatives.
|
|
|
•
|
During fiscal
2017
, we recorded interest expense of
$69.9 million
(which was offset by
$13.6 million
of capitalized interest) on the $1.0 billion of senior notes that were issued in the third quarter of fiscal
2016
. Interest paid on these notes in fiscal
2017
was
$71.2 million
.
|
|
|
•
|
During fiscal
2017
, we repurchased approximately
3.7 million
shares of our common stock for approximately
$209.4 million
, as compared to
24.3 million
shares of our common stock for approximately
$1,300.0 million
during fiscal
2016
.
|
|
|
•
|
During fiscal
2017
and fiscal
2016
, we recorded integration and restructuring expenses related to the Business Combination of
$18.9 million
and
$36.6 million
, respectively. We expect these costs will continue to decline in future years.
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RESULTS OF OPERATIONS
Consolidated
The following table presents a summary of our results of operations for fiscal years
2017
,
2016
and
2015
:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
(In thousands, except percentages)
|
|
Dollars
|
|
% of
Revenue
|
|
Dollars
|
|
% of
Revenue
|
|
Dollars
|
|
% of
Revenue
|
Revenue
|
|
$
|
3,032,574
|
|
|
100.0
|
%
|
|
$
|
2,610,726
|
|
|
100.0
|
%
|
|
$
|
1,710,966
|
|
|
100.0
|
%
|
Cost of goods sold
|
|
1,897,062
|
|
|
62.6
|
|
|
1,561,173
|
|
|
59.8
|
|
|
1,021,658
|
|
|
59.7
|
|
Gross profit
|
|
1,135,512
|
|
|
37.4
|
|
|
1,049,553
|
|
|
40.2
|
|
|
689,308
|
|
|
40.3
|
|
Research and development
|
|
470,836
|
|
|
15.5
|
|
|
448,763
|
|
|
17.2
|
|
|
257,494
|
|
|
15.0
|
|
Selling, general, and administrative
|
|
545,588
|
|
|
18.0
|
|
|
534,099
|
|
|
20.4
|
|
|
249,886
|
|
|
14.6
|
|
Other operating expense
|
|
31,029
|
|
|
1.0
|
|
|
54,723
|
|
|
2.1
|
|
|
59,462
|
|
|
3.5
|
|
Operating income
|
|
$
|
88,059
|
|
|
2.9
|
%
|
|
$
|
11,968
|
|
|
0.5
|
%
|
|
122,466
|
|
|
7.2
|
%
|
Revenue
Our overall revenue increased
$421.8 million
, or
16.2%
, in fiscal
2017
as compared to fiscal
2016
, primarily due to higher demand for our cellular RF solutions in support of marquee smartphones and customers based in China and higher sales of our wireless infrastructure, defense and aerospace and WiFi products.
Our overall revenue increased
$899.8 million
, or
52.6%
, in fiscal
2016
as compared to fiscal
2015
, primarily because fiscal
2015
included only three months of TriQuint revenue.
We provided our products to our largest end customer, Apple, through sales to multiple contract manufacturers, which in the aggregate accounted for
34%
,
37%
and
32%
of total revenue in fiscal years
2017
,
2016
and
2015
, respectively. Huawei accounted for approximately
11%
,
12%
and
7%
of our total revenue in fiscal years
2017
,
2016
and
2015
, respectively. Samsung, accounted for approximately
7%
,
7%
and
14%
of our total revenue in fiscal years
2017
,
2016
and
2015
, respectively. These customers primarily purchase cellular RF and WiFi solutions offered by our MP segment for a variety of mobile devices, including smartphones, notebook computers, wearables, tablets and cellular-based applications for the IoT. In fiscal
2017
, Huawei was the largest customer for our IDP segment, primarily purchasing solutions for base stations, telecom transport and WiFi-enabled customer premise equipment applications.
International shipments amounted to
$2,565.5 million
in fiscal
2017
(approximately
85%
of revenue) compared to
$2,304.4 million
in fiscal
2016
(approximately
88%
of revenue) and
$1,395.2 million
in fiscal
2015
(approximately
82%
of revenue). Shipments to Asia totaled
$2,441.1 million
in fiscal
2017
(approximately
81%
of revenue) compared to
$2,162.1 million
in fiscal
2016
(approximately
83%
of revenue) and
$1,282.2 million
in fiscal
2015
(approximately
75%
of revenue). We expect our international and Asia shipments will remain relatively stable at these historical levels.
Gross Margin
Our overall gross margin for fiscal
2017
was
37.4%
as compared to
40.2%
in fiscal
2016
. Gross margin was adversely impacted in fiscal
2017
by an unfavorable change in product mix towards lower margin low-band PAD modules, product cost reductions lagging normal average selling price erosion, lower factory utilization and unfavorable inventory adjustments primarily due to lower than expected manufacturing and assembly yields on the low-band PAD modules in the second quarter of fiscal
2017
. The lower yield was associated with the device packaging, not device functionality; however the impact was significant because the issue was identified late in the production process. These adverse factors were partially offset by lower intangible amortization, stock-based compensation and other costs related to the Business Combination in fiscal
2017
as compared to fiscal
2016
.
Our overall gross margin for fiscal
2016
was
40.2%
as compared to
40.3%
in fiscal
2015
. This slight decrease was primarily due to higher cash and non-cash expenses related to the Business Combination (including intangible amortization and stock-based compensation) and average selling price erosion. This decrease was offset by increased revenue and profitability resulting from the addition of TriQuint's operations as well as the synergies created from the Business Combination, a favorable change in product mix towards higher margin products and manufacturing and sourcing-related cost reductions.
Operating Expenses
Research and Development
In fiscal
2017
, R&D spending increased
$22.1 million
, or
4.9%
, as compared to fiscal
2016
, primarily driven by costs associated with the design and development of high-performance filter based products and GaN-based technologies and products. The increased R&D expense was partially offset by lower stock-based compensation expense.
In fiscal
2016
, R&D spending increased
$191.3 million
, or
74.3%
, as compared to fiscal
2015
, primarily due to the inclusion of TriQuint R&D expense for a full fiscal year (fiscal 2015 included only three months of TriQuint expenses) and increases in headcount and product development costs related to new mobile products.
Selling, General and Administrative
In fiscal
2017
, selling, general and administrative expense increased
$11.5 million
, or
2.2%
, as compared to fiscal
2016
, primarily due to higher personnel related costs, partially offset by lower stock-based compensation expense.
In fiscal
2016
, selling, general, and administrative expense increased
$284.2 million
, or
113.7%
, as compared to fiscal
2015
, primarily due to marketing-related intangible asset amortization resulting from the Business Combination and the addition of TriQuint selling, general and administrative expense for a full fiscal year (fiscal 2015 included only three months of TriQuint expenses).
Other Operating Expense
In fiscal
2017
, other operating expense was
$31.0 million
, compared to
$54.7 million
for fiscal
2016
. In fiscal
2017
, we recorded integration costs of
$16.9 million
and restructuring costs of
$2.0 million
associated with the Business Combination, as well as
$9.7 million
of start-up costs related to new processes and operations in both existing and new facilities. In fiscal
2016
, we recorded integration costs of
$26.5 million
, and restructuring costs of
$10.1 million
(including stock-based compensation) associated with the Business Combination, as well as
$14.1 million
of start-up costs related to new processes and operations in both existing and new facilities.
In fiscal
2015
, other operating expense was
$59.5 million
, including acquisition costs of
$12.2 million
, integration costs of
$31.3 million
and restructuring costs of
$10.9 million
associated with the Business Combination.
Operating Income
Our overall operating income was
$88.1 million
for fiscal
2017
as compared to
$12.0 million
for fiscal
2016
. This increase was primarily due to higher gross profit from higher revenue and lower intangible amortization, stock-based compensation and other costs related to the Business Combination, partially offset by lower gross margin. Gross margin was adversely impacted primarily due to an unfavorable change in product mix towards lower margin low-band PAD modules, product cost reductions lagging normal average selling price erosion, lower factory utilization and unfavorable inventory adjustments primarily due to lower than expected manufacturing and assembly yields on the low-band PAD modules in the second quarter of fiscal 2017.
Our overall operating income was
$12.0 million
for fiscal
2016
as compared to
$122.5 million
for fiscal
2015
. This decrease was primarily due to higher intangible amortization, stock-based compensation and other costs related to the Business Combination and average selling price erosion, partially offset by increased revenue and profitability resulting from the addition of TriQuint's operations as well as the synergies created from the Business Combination, a favorable change in product mix towards higher margin products and manufacturing- and sourcing-related cost reductions.
Segment Product Revenue, Operating Income and Operating Income as a Percentage of Revenue
Mobile Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
(In thousands, except percentages)
|
|
2017
|
|
2016
|
|
2015
|
Revenue
|
|
$
|
2,384,041
|
|
|
$
|
2,083,334
|
|
|
$
|
1,395,035
|
|
Operating income
|
|
$
|
554,001
|
|
|
$
|
591,751
|
|
|
$
|
404,382
|
|
Operating income as a % of revenue
|
|
23.2
|
%
|
|
28.4
|
%
|
|
29.0
|
%
|
MP revenue increased
$300.7 million
, or
14.4%
, in fiscal
2017
as compared to fiscal
2016
primarily due to higher demand for our cellular RF solutions in support of marquee smartphones and customers based in China.
The decrease in MP operating income as a percentage of revenue in fiscal
2017
as compared to fiscal
2016
was primarily due to lower gross margin. Gross margin was adversely impacted in fiscal
2017
by an unfavorable change in product mix towards lower margin low-band PAD modules, product cost reductions lagging normal average selling price erosion, lower factory utilization, and unfavorable inventory adjustments primarily due to lower than expected manufacturing assembly yields on the low-band PAD modules in the second quarter of fiscal
2017
. The lower yield was associated with the device packaging, not device functionality; however the impact was significant because the issue was identified late in the production process.
MP revenue increased
$688.3 million
, or
49.3%
, in fiscal
2016
as compared to fiscal
2015
(primarily because fiscal 2015 included only three months of TriQuint revenue).
The decrease in MP operating income as a percentage of revenue in fiscal
2016
as compared to fiscal
2015
was primarily due to increased expenses related to the development of new mobile products, partially offset by higher
gross margins (resulting from a favorable change in product mix towards higher margin products and manufacturing and sourcing-related cost reductions, which were partially offset by average selling price erosion).
Infrastructure and Defense Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
(In thousands, except percentages)
|
|
2017
|
|
2016
|
|
2015
|
Revenue
|
|
$
|
644,653
|
|
|
$
|
523,512
|
|
|
$
|
313,274
|
|
Operating income
|
|
$
|
152,539
|
|
|
$
|
108,370
|
|
|
$
|
72,262
|
|
Operating income as a % of revenue
|
|
23.7
|
%
|
|
20.7
|
%
|
|
23.1
|
%
|
IDP revenue increased
$121.1 million
, or
23.1%
, in fiscal
2017
as compared to fiscal
2016
primarily due to higher sales of our wireless infrastructure, defense and aerospace and WiFi products.
IDP operating income increased
$44.2 million
, or
40.8%
, in fiscal
2017
as compared to fiscal
2016
driven by higher gross profit from increased revenue, favorable factory utilization and lower unfavorable inventory adjustments. This increase in gross profit was partially offset by higher personnel-related expenses.
IDP revenue increased
$210.2 million
, or
67.1%
, in fiscal
2016
as compared to fiscal
2015
, primarily because fiscal 2015 included only three months of TriQuint revenue.
The decrease in IDP operating income as a percentage of revenue in fiscal
2016
as compared to fiscal
2015
was primarily due to lower gross margins resulting from decreased demand for wireless infrastructure products during the first half of fiscal 2016. The demand for wireless infrastructure products began to show signs of recovery in the third quarter of fiscal 2016 and continued to improve in the fourth quarter of fiscal 2016.
See Note 16 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report for a reconciliation of segment operating income to the consolidated operating income for fiscal years
2017
,
2016
and
2015
.
OTHER (EXPENSE) INCOME AND INCOME TAXES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
(In thousands)
|
|
2017
|
|
2016
|
|
2015
|
Interest expense
|
|
$
|
(58,879
|
)
|
|
$
|
(23,316
|
)
|
|
$
|
(1,421
|
)
|
Interest income
|
|
1,212
|
|
|
2,068
|
|
|
450
|
|
Other (expense) income
|
|
(3,087
|
)
|
|
6,418
|
|
|
(254
|
)
|
Income tax (expense) benefit
|
|
(43,863
|
)
|
|
(25,983
|
)
|
|
75,062
|
|
Interest expense
We recognized
$69.9 million
and
$25.8 million
of interest expense in fiscal years
2017
and
2016
, respectively, related to the
$1.0 billion
of senior notes that were issued in the third quarter of fiscal 2016. Interest expense in the preceding table for fiscal years
2017
and
2016
is net of capitalized interest of
$13.6 million
and
$5.2 million
, respectively.
Other (expense) income
Other expense in fiscal
2017
of approximately
$3.1 million
was related primarily to a net loss from foreign currency. The foreign currency loss was driven primarily by the appreciation of the U.S. dollar against the Renminbi as well as by the changes in the local currency denominated balance sheet accounts. In fiscal 2016 we recognized net income primarily due to a gain from the sale of equity securities.
Income tax (expense) benefit
Income tax expense for fiscal
2017
was
$43.9 million
, which was primarily comprised of tax expense related to domestic and international operations generating pre-tax book income and an increase in gross unrecognized tax
benefits offset by tax benefits related to international operations generating pre-tax book losses and tax credits generated. For fiscal
2017
, this resulted in an annual effective tax rate of
160.6%
.
Income tax expense for fiscal
2016
was
$26.0 million
, which was primarily comprised of tax expense related to international operations, an increase in gross unrecognized tax benefits and a
$25.1 million
increase in the valuation allowance against domestic state tax net operating loss and credit deferred tax assets and foreign net operating loss deferred tax assets, offset by tax benefits arising from domestic operations and tax credits generated. For fiscal
2016
, this resulted in an annual effective tax rate of
(908.0)%
.
Income tax benefit for fiscal
2015
was
$75.1 million
, which was primarily comprised of tax expense related to domestic and international operations offset by tax benefits from tax credits generated and
$135.8 million
related to a decrease in the valuation allowance against domestic deferred tax assets. For fiscal
2015
, this resulted in an annual effective tax rate of
(61.9)%
.
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 tax deferred 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
2017
,
2016
and
2015
, the valuation allowance against domestic and foreign deferred tax assets was
$33.1 million
,
$34.7 million
, and
$13.8 million
, respectively.
The valuation allowance against net deferred tax assets
decreased
by
$1.6 million
in fiscal
2017
. The
decrease
was comprised of a
$5.2 million
decrease in the valuation allowance for foreign deferred tax assets primarily resulting from the removal of the valuation allowance at a China subsidiary as management has determined it is more likely than not that the related deferred tax assets will be realized. This was partially offset by a
$2.8 million
increase in the valuation allowance for deferred tax assets for federal foreign tax credits, state net operating losses and state tax credits, and a
$0.8 million
increase for other foreign net operating loss deferred tax assets. At the end of fiscal 2017, a
$0.8 million
valuation allowance remained against net deferred tax assets at other foreign subsidiaries and a
$32.3 million
valuation allowance remained against domestic deferred tax assets as management has determined it is more likely than not that the related deferred tax assets will not be realized, effectively increasing the domestic net deferred tax liabilities.
During fiscal 2017, the China subsidiary which operates as a cost plus manufacturer for another Qorvo subsidiary, exited its start-up operational phase and generated sufficient income to substantially offset the losses earned in prior years, with the balance expected to be offset by income in the first half of fiscal 2018 as production at the assembly and test facility continues to increase.
The valuation allowance against net deferred tax assets increased by
$20.9 million
in fiscal
2016
. The increase was comprised of a
$20.2 million
increase in the valuation allowance for state deferred tax assets for net operating losses and tax credits, a
$5.0 million
increase in the valuation allowance for foreign net operating loss deferred tax assets, and a
$4.3 million
decrease in the valuation allowance related to a deferred tax asset recorded in the initial purchase price accounting for the Business Combination. The Business Combination adjustment related to a deferred tax asset that was recorded during fiscal 2015 in the initial purchase price accounting with a full valuation allowance, but which deferred tax asset was determined in fiscal 2016 to not exist as of the acquisition date. Accordingly, in fiscal 2016, that deferred tax asset was removed along with the offsetting deferred tax asset valuation allowance. At the end of fiscal 2016, a
$5.2 million
valuation allowance remained against foreign net deferred tax assets and a
$29.5 million
valuation allowance remained against domestic deferred tax assets as management has determined it is more likely than not that the related deferred tax assets will not be realized, effectively increasing the domestic net deferred tax liabilities.
During fiscal 2016, North Carolina enacted legislation to reduce the corporate income tax rate from
5%
to
4%
and phase-in over a three-year period a single sales factor apportionment methodology. In addition, the Company underwent operational changes to leverage existing resources and capabilities of its Singapore subsidiary and consolidate operations and responsibilities associated with its foreign manufacturing operations and foreign customers in that Singapore subsidiary. Together these changes resulted in a significant decrease in the amount of future taxable income expected to be allocated to North Carolina and other states in which the Company's net operating loss and credit carryovers exist. As a result, it was no longer more likely than not that the deferred tax assets related to those state net operating loss and credit carryovers for which a valuation
allowance is being provided will be realized before they expire. The foreign net operating losses relate to the China subsidiary that owns an assembly and test facility that became operational during fiscal 2016, and which has incurred start-up losses since inception.
The valuation allowance against net deferred tax assets
decreased
in fiscal
2015
by
$129.5 million
. The decrease was comprised of
$135.7 million
for domestic deferred tax assets for which realization was determined to be more likely than not with the increase in domestic deferred tax liabilities related to domestic amortizable intangible assets arising in connection with the Business Combination and other changes in the net deferred tax assets for foreign subsidiaries during the fiscal year, offset by an increase of
$6.2 million
related to deferred tax assets acquired in the Business Combination which are not more likely than not of being realized. At the end of fiscal
2015
, a
$0.2 million
valuation allowance remained against foreign net deferred tax assets and a
$13.6 million
valuation allowance remained against domestic deferred tax assets as it is more likely than not that the related deferred tax assets will not be realized, effectively increasing the domestic net deferred tax liabilities.
As of
April 1, 2017
, we had federal loss carryovers of approximately
$202.6 million
that expire in fiscal years 2020 to 2036 if unused and state losses of approximately
$209.3 million
that expire in fiscal years 2018 to 2036 if unused. Federal research credits of
$104.8 million
, federal foreign tax credits of
$5.0 million
, and state credits of
$57.4 million
may expire in fiscal years 2018 to 2037, 2018 to 2027, and 2018 to 2032, respectively. Federal alternative minimum tax credits of
$3.2 million
carry forward indefinitely. Foreign losses in China of approximately $3.3 million and in the Netherlands of approximately $55.4 million expire in fiscal year 2021 and fiscal years 2018 to 2026, respectively. Included in the amounts above are certain net operating losses and other tax attribute assets acquired in conjunction with the GreenPeak acquisition during the current fiscal year and acquisitions of Sirenza Microdevices, Inc.; Silicon Wave, Inc.; Amalfi Semiconductor Inc.; and the Business Combination in prior years. The utilization of these acquired domestic tax assets is subject to certain annual limitations as required under Internal Revenue Code Section 382 and similar state income tax provisions.
Our gross unrecognized tax benefits totaled
$90.6 million
as of
April 1, 2017
,
$69.1 million
as of
April 2, 2016
, and
$59.4 million
as of
March 28, 2015
. Of these amounts,
$84.4 million
(net of federal benefit of state taxes),
$64.2 million
(net of federal benefit of state taxes), and
$55.0 million
(net of federal benefit of state taxes) as of
April 1, 2017
,
April 2, 2016
, and
March 28, 2015
, respectively, represent the amounts of unrecognized tax benefits that, if recognized, would impact the effective tax rate in each of the fiscal years.
It is our policy to recognize interest and penalties related to uncertain tax positions as a component of income tax expense. During fiscal years
2017
,
2016
and
2015
, we recognized
$2.1 million
,
$1.6 million
and
$1.2 million
, respectively, of interest and penalties related to uncertain tax positions. Accrued interest and penalties related to unrecognized tax benefits totaled
$7.1 million
,
$5.0 million
and
$3.4 million
as of
April 1, 2017
,
April 2, 2016
and
March 28, 2015
, respectively. Within the next 12 months, we believe it is reasonably possible that only a minimal amount of gross unrecognized tax benefits will be reduced as a result of reductions for tax positions taken in prior years where the only uncertainty was related to the timing of the tax deduction.
STOCK-BASED COMPENSATION
Under Financial Accounting Standards Board ("FASB") 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
April 1, 2017
, total remaining unearned compensation cost related to unvested restricted stock units and options was
$70.5 million
, which will be amortized over the weighted-average remaining service period of approximately
1.2 years
.
LIQUIDITY AND CAPITAL RESOURCES
Cash generated by operations is our primary source of liquidity. As of
April 1, 2017
, we had working capital of approximately
$1,042.8 million
, including
$545.5 million
in cash and cash equivalents, compared to working capital of
$1,135.4 million
, including
$425.9 million
in cash and cash equivalents, as of
April 2, 2016
.
Our
$545.5 million
of total cash and cash equivalents as of
April 1, 2017
includes approximately
$318.7 million
held by our foreign subsidiaries. If the undistributed earnings of our foreign subsidiaries are needed in the U.S., we may be required to accrue and pay U.S. taxes to repatriate. Our current plans are to permanently reinvest the undistributed earnings of our foreign subsidiaries.
Stock Repurchase
On February 5, 2015, our Board of Directors authorized the repurchase of up to
$200.0 million
of our outstanding common stock from time to time on the open market or in privately negotiated transactions. On August 11, 2015, we announced completion of this program.
On August 11, 2015, our Board of Directors authorized the repurchase of up to
$400.0 million
of our outstanding common stock from time to time on the open market or in privately negotiated transactions. On September 10, 2015, we announced the completion of this program.
On November 5, 2015, our Board of Directors authorized a share repurchase program to repurchase up to
$1.0 billion
of our outstanding common stock through November 4, 2016. On February 16, 2016, as part of the
$1.0 billion
share repurchase program, we entered into variable maturity accelerated share repurchase ("ASR") agreements (a $250.0 million collared agreement and a $250.0 million uncollared agreement) with Bank of America, N.A. For the upfront payment of $500.0 million, in fiscal 2016, we received an aggregate of
10.0 million
shares of our common stock under the ASR agreements. Final settlements of the ASR agreements were completed during the first quarter of fiscal 2017 with
0.4 million
shares received resulting in a total of
10.4 million
shares of our common stock repurchased under the ASR agreements.
On November 3, 2016, our Board of Directors authorized a share repurchase program to repurchase up to
$500.0 million
of our outstanding stock. Under this program, share repurchases will be 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 will depend 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 and does not have a fixed term, and may be modified, suspended or terminated at any time without prior notice. This new program includes approximately
$150.0 million
authorized on the
$1.0 billion
repurchase program that expired November 4, 2016.
We repurchased
4.1 million
shares (inclusive of the
0.4 million
shares received in final settlement of the ASR agreement),
24.3 million
shares (inclusive of the
10.0 million
shares received under the ASR agreement) and
0.8 million
shares of our common stock during fiscal years 2017, 2016 and 2015, respectively, at an aggregate cost of
$209.4 million
,
$1,300.0 million
and
$50.9 million
, respectively, in accordance with the share repurchase programs described above. As of April 1, 2017,
$382.0 million
remains available for future repurchases under our current share repurchase program.
Cash Flows from Operating Activities
Operating activities in fiscal
2017
provided cash of
$776.8 million
, compared to
$687.9 million
in fiscal
2016
. This year-over-year increase was due primarily to improvement in working capital, partially offset by lower adjustments for non-cash items. The adjustments for non-cash items were lower due primarily to stock-based compensation expense and deferred taxes, partially offset by higher depreciation.
Operating activities in fiscal
2016
provided cash of
$687.9 million
, compared to
$305.6 million
in fiscal
2015
. This year-over-year increase was due primarily to improved profitability from the addition of TriQuint's operations exclusive of non-cash Business Combination expenses.
Cash Flows from Investing Activities
Net cash used in investing activities in fiscal
2017
was
$490.5 million
, compared to
$278.7 million
in fiscal
2016
. This increase was primarily due to higher capital expenditures related to projects for increasing premium filter capacity and manufacturing cost savings initiatives and the acquisition of GreenPeak, partially offset by higher net proceeds from available-for-sale securities.
Net cash used in investing activities in fiscal
2016
was
$278.7 million
, compared to
$63.9 million
in fiscal
2015
. This increase was primarily due to the Business Combination in fiscal
2015
that accounted for an increase in cash provided by investing activities of approximately
$224.3 million
. Additionally, there were higher capital expenditures in fiscal
2016
compared to fiscal
2015
, primarily related to projects for increasing premium filter capacity and manufacturing cost savings initiatives, partially offset by increased proceeds from higher net proceeds from available-for-sale securities.
Cash Flows from Financing Activities
Net cash used in financing activities in fiscal
2017
was
$165.6 million
, compared to
$282.9 million
in fiscal
2016
. This decrease was primarily due to lower share repurchase activity, partially offset by lower net proceeds from borrowings.
Net cash used in financing activities in
2016
was
$282.9 million
, compared to
$112.9 million
in fiscal
2015
. This increase was primarily due to the repurchase of
24.3 million
shares of our common stock for approximately
$1,300.0 million
, partially offset by the net proceeds from the issuance of our Notes of approximately
$987.8 million
. During fiscal 2015, the remaining
$87.5 million
principal balance of our
1.00%
Convertible Subordinated Notes due 2014 was paid with cash on hand.
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 revolving 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 in the event that growth is faster than we had anticipated, 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. We cannot be sure that any additional equity or debt financing will not 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
2017
,
2016
and
2015
. Our financial results in fiscal 2018 could be adversely affected by wage and commodity price inflation (including precious metals).
OFF-BALANCE SHEET ARRANGEMENTS
As of
April 1, 2017
, we had no off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
CONTRACTUAL OBLIGATIONS
The following table summarizes our significant contractual obligations and commitments (in thousands) as of
April 1, 2017
, and the effect such obligations are expected to have on our liquidity and cash flows in future periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Period
|
|
Total Payments
|
|
Fiscal
2018
|
|
Fiscal 2019-2020
|
|
Fiscal 2021-2022
|
|
Fiscal 2023 and thereafter
|
Capital commitments
|
$
|
97,697
|
|
|
$
|
97,697
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Long-term debt obligations
|
1,559,125
|
|
|
68,875
|
|
|
137,750
|
|
|
137,750
|
|
|
1,214,750
|
|
Operating leases
|
63,456
|
|
|
13,720
|
|
|
18,838
|
|
|
13,632
|
|
|
17,266
|
|
Purchase obligations
|
215,758
|
|
|
206,769
|
|
|
8,464
|
|
|
525
|
|
|
—
|
|
Cross-licensing liability
|
12,880
|
|
|
2,540
|
|
|
4,940
|
|
|
4,800
|
|
|
600
|
|
Deferred compensation
|
10,237
|
|
|
674
|
|
|
1,227
|
|
|
757
|
|
|
7,579
|
|
Total
|
$
|
1,959,153
|
|
|
$
|
390,275
|
|
|
$
|
171,219
|
|
|
$
|
157,464
|
|
|
$
|
1,240,195
|
|
Capital Commitments
On
April 1, 2017
, we had capital commitments of approximately
$97.7 million
, primarily related to projects to increase our premium filter capacity, constructing a new office and design center, projects for manufacturing cost savings initiatives, equipment replacements and general corporate purposes. We expect capital expenditures in fiscal 2018 will be lower than capital expenditures in fiscal 2017.
Long-Term Debt Obligations
On November 19, 2015, we completed the offering of the Notes, which were sold in the United States to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States pursuant to Regulation S under the Securities Act. The Notes were issued pursuant to an indenture, dated as of November 19, 2015 (the “Indenture”), by and among the Company, our domestic subsidiaries that guarantee our obligations under our revolving credit facility, as guarantors (the “Guarantors”), and MUFG Union Bank, N.A., as trustee. Interest is payable on the 2023 Notes at a rate of
6.75%
per annum and on the 2025 Notes at a rate of
7.00%
per annum. Interest on both series of Notes is payable semi-annually on June 1 and December 1 of each year, and commenced on June 1, 2016.
At any time prior to December 1, 2018, we may redeem all or part of the 2023 Notes, at a redemption price equal to their principal amount, plus a “make whole” premium as of the redemption date, and accrued and unpaid interest. In addition, at any time prior to December 1, 2018, we may redeem up to
35%
of the original aggregate principal amount of the 2023 Notes with the proceeds of one or more equity offerings, at a redemption price equal to
106.75%
, plus accrued and unpaid interest. Furthermore, at any time on or after December 1, 2018, we may redeem the 2023 Notes, in whole or in part, at once or over time, at the specified redemption prices set forth in the Indenture plus accrued and unpaid interest thereon to the redemption date (subject to the rights of holders of record on the relevant record date to receive interest due on the relevant interest payment date).
At any time prior to December 1, 2020, we may redeem all or part of the 2025 Notes, at a redemption price equal to their principal amount, plus a “make whole” premium as of the redemption date, and accrued and unpaid interest. In addition, at any time prior to December 1, 2018, we may redeem up to
35%
of the original aggregate principal amount of the 2025 Notes with the proceeds of one or more equity offerings, at a redemption price equal to
107.00%
, plus accrued and unpaid interest. Furthermore, at any time on or after December 1, 2020, we may redeem the 2025 Notes, in whole or in part, at once or over time, at the specified redemption prices set forth in the Indenture plus accrued and unpaid interest thereon to the redemption date (subject to the rights of holders of record on the relevant record date to receive interest due on the relevant interest payment date).
The Indenture contains customary events of default, including payment default, failure to provide certain notices thereunder and certain provisions related to bankruptcy events. The Indenture also contains customary negative covenants.
In connection with the offering of the Notes, we agreed to provide the holders of the Notes with an opportunity to exchange the Notes for registered notes having terms substantially identical to the Notes. On September 19, 2016, we completed an exchange offer, in which all of the 2023 Notes and substantially all of the 2025 Notes were exchanged for new notes that have been registered under the Securities Act.
Operating Leases
We lease certain of our corporate, wafer fabrication and other facilities from multiple third-party real estate developers. The remaining terms of these operating leases range from less than
one year
to
11 years
. Several of these leases have renewal options of up to
two
,
ten
-year periods and several also include standard inflation escalation terms. Several of these leases also include rent escalation, rent holidays and leasehold improvement incentives, which are recognized to expense on a straight-line basis. The amortization period of leasehold improvements made either at the inception of the lease or during the lease term is amortized over the lesser of the remaining life of the lease term (including renewals that are reasonably assured) or the useful life of the asset. We also lease various machinery and equipment and office equipment under non-cancelable operating leases. The remaining terms of these operating leases range from less than
one
year to approximately
three
years.
Purchase Obligations
Our purchase obligations, totaling approximately
$215.8 million
, are primarily for the purchase of raw materials and manufacturing services that are not recorded as liabilities on our balance sheet because we had not received the related goods or services as of
April 1, 2017
.
Cross-Licensing Liability
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
April 1, 2017
.
Deferred Compensation
Commitments for deferred compensation represents the liability under our Non-Qualified Deferred Compensation Plan (the "NDCP"). The NDCP provides eligible employees and members of the Board of Directors with the opportunity to defer a specified percentage of their cash compensation. The deferred earnings are invested at the discretion of each participating employee or director and the deferred compensation we are obligated to deliver is adjusted for increases or decreases in the deferred amount due to such investment. The current portion and non-current portion of the deferred compensation obligation is included in "Accrued liabilities" and "Other long-term liabilities" in the Consolidated Balance Sheets.
Other Contractual Obligations
As of
April 1, 2017
, in addition to the amounts shown in the Contractual Obligations table above, we had
$97.7 million
of unrecognized income tax benefits and accrued interest, of which
$16.6 million
had been recorded as a liability. We are uncertain as to if, or when, such amounts may be settled.
As discussed in Note 9 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report, we have two pension plans in Germany with a combined benefit obligation of approximately
$11.4 million
as of
April 1, 2017
. Pension benefit payments are not included in the schedule above as they are not available for all periods presented. Pension benefit payments were less than
$0.2 million
in fiscal
2017
and are expected to be similar in fiscal
2018
.
Credit Agreement
On April 7, 2015, we and our Guarantors entered into a five-year unsecured senior credit facility with Bank of America, N.A., as administrative agent (in such capacity, the “Administrative Agent”), swing line lender, and
L/C issuer, and a syndicate of lenders (the “Credit Agreement”). The Credit Agreement includes a
$300.0 million
revolving credit facility, which includes a
$25.0 million
sublimit for the issuance of standby letters of credit and a
$10.0 million
sublimit for swing line loans. We may request, at any time and from time to time, that the revolving credit facility be increased by an amount not to exceed
$150.0 million
. The revolving credit facility is available to finance working capital, capital expenditures and other corporate purposes. Our obligations under the Credit Agreement are jointly and severally guaranteed by the Guarantors. As of
April 1, 2017
, we have no outstanding amounts under the Credit Agreement.
At our option, loans under the Credit Agreement will bear interest at (i) the Applicable Rate (as defined in the Credit Agreement) plus the Eurodollar Rate (as defined in the 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 of the Administrative Agent, or (c) the Eurodollar Base 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 Base Rate is the rate per annum equal to the London Interbank Offered Rate, as published by Bloomberg, for dollar deposits for interest periods of one, two, three or six months, as selected by us. The Applicable Rate for Eurodollar Rate loans ranges from
1.50%
per annum to
2.00%
per annum. The Applicable Rate for Base Rate loans ranges from
0.50%
per annum to
1.00%
per annum. Interest for Eurodollar Rate loans will be 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 will be payable quarterly in arrears. We will pay a letter of credit fee equal to the Applicable Rate multiplied by the daily amount available to be drawn under any letter of credit, a fronting fee, and any customary documentary and processing charges for any letter of credit issued under the Credit Agreement.
The Credit Agreement contains various conditions, covenants and representations with which we must be in compliance in order to borrow funds and to avoid an event of default, including financial covenants that we must maintain. On November 12, 2015, the Credit Agreement was amended to increase the size of certain of the negative covenant baskets and the threshold for certain negative covenant incurrence-based permissions and to raise the consolidated leverage ratio test from
2.50
to
1.00
to
3.00
to
1.00
as of the end of any fiscal quarter. We must also maintain a consolidated interest coverage ratio of not less than
3.00
to
1.00
as of the end of any fiscal quarter. As of
April 1, 2017
, we were in compliance with all of these covenants.
The Credit Agreement also contains customary events of default, and the occurrence of an event of default will increase the applicable rate of interest by
2.00%
and could result in the termination of commitments under the revolving credit facility, the declaration that all outstanding loans are due and payable in whole or in part and the requirement of cash collateral deposits in respect of outstanding letters of credit. Outstanding amounts are due in full on the maturity date of April 7, 2020 (with amounts borrowed under the swing line option due in full no later than ten business days after such loan is made).
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 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
2017
,
2016
and
2015
.
Revenue Recognition.
Net revenue is generated principally from sales of semiconductor products. We recognize revenue from product sales when the fundamental criteria are met, such as the time at which the title and risk and rewards of product ownership are transferred to the customer, price and terms are fixed or determinable, no significant vendor obligation exists and collection of the resulting receivable is reasonably assured.
Sales of products are generally made through either our sales force, manufacturers' representatives or through a distribution network. Revenue from the majority of our products is recognized upon shipment of the product to the customer from a Company-owned or third-party location. Some revenue is recognized upon receipt of the shipment by the customer. We have limited rebate programs offering price protection to certain distributors. These rebates represent approximately
7%
of net revenue in fiscal
2017
and can be reasonably estimated based on specific criteria included in the rebate agreements and other known factors at the time. We reduce revenue and record reserves for product returns and allowances for price protection, stock rotation, and scrap allowance based on historical experience or specific identification depending on the contractual terms of the arrangement.
We also recognize a portion of our net revenue through other agreements such as non-recurring engineering fees, contracts for R&D work, royalty income, intellectual property ("IP") revenue, and service revenue. These agreements are collectively less than
1%
of consolidated revenue on an annual basis. Revenue from these agreements is recognized when the service is completed or upon certain milestones, as provided for in the agreements.
Revenue from certain contracts is recognized on the percentage of completion method based on the costs incurred to date and the total contract amount, plus the contractual fee. If these contracts experience cost overruns, the percentage of completion method is used to determine revenue recognition. Revenue from fixed price contracts is recognized when the required deliverable is satisfied.
Royalty income is recognized based on a percentage of sales of the relevant product reported by licensees during the period.
In addition, we license or sell our rights to use portions of our IP portfolio, which includes certain patent rights useful in the manufacture and sales of certain products. IP revenue recognition is dependent on the terms of each agreement. We will recognize IP revenue (i) upon delivery of the IP and (ii) if we have no substantive future obligation to perform under the arrangement. We will defer recognition of IP revenue where future performance obligations are required to earn the revenue or the revenue is not guaranteed. Revenue from services is recognized during the period that the service is performed.
Accounts receivable are recorded for all revenue items listed above and do not bear interest. We evaluate the collectability of accounts receivable based on a combination of factors. In cases where we are aware of circumstances that may impair a specific customer’s ability to meet its financial obligations subsequent to the original sale, we will record an allowance against amounts due, and thereby reduce the receivable to the amount we reasonably believe will be collected. For all other customers, we recognize allowances for doubtful accounts based on the length of time the receivables are past due, industry and geographic concentrations, the current business environment and our historical experience.
Our terms and conditions do not give our customers a right of return associated with the original sale of our products. However, we will authorize sales returns under certain circumstances, which include perceived quality problems, courtesy returns and like-kind exchanges. We evaluate our estimate of returns by analyzing all types of returns and the timing of such returns in relation to the original sale. Reserves are adjusted to reflect changes in the estimated returns versus the original sale of product.
Goodwill and Intangible Assets.
Goodwill is recorded when the purchase price paid for a business exceeds the estimated fair value of the net identified
tangible and intangible assets acquired. Intangibles are recorded when such assets are acquired by purchase or license. The value of our intangibles, including goodwill, could be impacted by future adverse changes such as: (i) any future declines in our
operating results; (ii) a decline in the value of technology company stocks, including the value of our common stock; (iii) a prolonged or more significant slowdown in the worldwide economy or the semiconductor industry; or (iv) failure to meet the performance projections included in our forecasts of future operating results.
We account for goodwill and indefinite-lived intangible assets in accordance with the FASB's guidance, which requires annual testing for impairment or whenever events or circumstances make it more likely than not that an impairment may have occurred. We perform our annual impairment tests on the first day of the fourth quarter in each fiscal year. Our i
ndefinite-lived intangible assets consist of in-process research and development ("IPRD").
We have the option to perform a qualitative assessment (commonly referred to as "step zero") to determine whether further quantitative analysis for impairment of goodwill or indefinite-lived intangible assets is necessary. In performing step zero for our impairment test, we are required to make assumptions and judgments including the following: the evaluation of macroeconomic conditions as related to our business; industry and market trends; and the overall future financial performance of our reporting units and future opportunities in the markets in which they operate. We also consider recent fair value calculations of our indefinite-lived intangible assets and reporting units as well as cost factors such as changes in raw materials, labor or other costs. If the step zero analysis indicates that it is more likely than not that the fair value of a reporting unit or indefinite-lived asset is less than its respective carrying value including goodwill, then we would perform an additional quantitative analysis. For goodwill, this involves a two-step process. The first step compares the fair value of the reporting unit, including its goodwill, to its carrying value. If the carrying value of the reporting unit exceeds its fair value, then the second step of the process is performed to determine the amount of impairment. The second step compares the implied fair value of the reporting unit's goodwill to the carrying value of the goodwill. An impairment charge is recognized for the amount the carrying value of the reporting unit's goodwill exceeds its implied fair value.
For indefinite-lived intangible assets, the quantitative analysis compares the carrying value of the asset to its fair value and an impairment charge is recognized for the amount its carrying value exceeds its fair value. Determining the fair value of reporting units, indefinite-lived intangible assets and implied fair value of a reporting unit's goodwill is reliant upon estimated future revenues, profitability and cash flows and consideration of market factors. Assumptions, judgments and estimates are complex, subjective and can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy or our internal forecasts. Although we believe the assumptions, judgments and estimates we have made have been reasonable and appropriate, different assumptions, judgments and estimates could materially affect our results of operations.
Goodwill
Goodwill is allocated to our reporting units based on the expected benefit from the synergies of the business combinations generating the underlying goodwill. For fis
cal
2017
, we performed a qualitative assessment of the fair value of our reporting units and as a result of our analysis, we determined that there were no indicators of impairment and no further quantitative impairment test was deemed necessary.
For fiscal
2016
, although there were no indicators of impairment, we opted to bypass the qualitative assessment and proceeded to perform fair value assessments of our reporting units (the first step of the quantitative impairment analysis) as the fair value of the reporting units had changed (due to the Business Combination) since the last time we performed a quantitative analysis. The quantitative assessments performed reaffirmed that there were no indicators of impairment for fiscal
2016
.
In performing these quantitative assessments, consistent with our historical approach, we used both the income and market approaches to estimate the fair value of our reporting units. The income approach involves discounting future estimated cash flows. The sum of the reporting unit cash flow projections was compared to our market capitalization in a discounted cash flow framework to calculate an overall implied internal rate of return (or discount rate) for the Company. Our market capitalization was adjusted to a control basis assuming a reasonable control premium, which resulted in an implied
discount rate. This implied discount rate serves as a baseline for estimating the specific discount rate for each reporting unit.
The discount rate used is the value-weighted average of our estimated cost of equity and debt (“cost of capital”) derived using both known and estimated customary market metrics. Our weighted average cost of capital is adjusted for each reporting unit to reflect a risk factor, if necessary, for each reporting unit. We perform sensitivity tests with respect to growth rates and discount rates used in the income approach. We believe the income approach is appropriate because it provides a fair value estimate based upon the respective reporting unit’s expected long-term operations and cash flow performance.
We considered historical rates and current market conditions when determining the discount and growth rates used in our analysis. For fiscal
2016
, the material assumptions used for the income approach were
eight
years of projected net cash flows and a long-term growth rate of
3%
for both the MP and IDP reporting units. A discount rate of
15%
and
16%
was used for the MP and IDP reporting units, respectively.
In applying the market approach, valuation multiples are derived from historical and projected operating data of selected guideline companies, which are evaluated and adjusted, if necessary, based on the strengths and weaknesses of the reporting unit relative to the selected guideline companies. The valuation multiples are then applied to the appropriate historical and/or projected operating data of the reporting unit to arrive at an indication of fair value. We believe the market approach is appropriate because it provides a fair value using multiples from companies with operations and economic characteristics similar to its reporting units. We weighted the results of the income approach and the results of the market approach at 50% each and for the MP and IDP reporting units, concluded that the fair value of the reporting units was determined to be substantially in excess of the carrying value, and as such, no further analysis was warranted.
Under the income approach, the following indicates the sensitivity of key assumptions utilized in the assessment. A one percentage point decrease in the discount rate would have increased the fair value of the MP and IDP reporting units by approximately
$660.0 million
and
$140.0 million
, respectively, while a one percentage point increase in the discount rate would have decreased the fair value of the MP and IDP reporting units by approximately
$560.0 million
and
$110.0 million
, respectively. A one percentage point decrease in the long-term growth rate would have decreased the fair value of the MP and IDP reporting units by approximately
$290.0 million
and
$50.0 million
, respectively, while a one percentage point increase in the long-term growth rate would have increased the fair value of the MP and IDP reporting units by approximately
$340.0 million
and
$70.0 million
, respectively.
In fiscal year 2015, we performed a qualitative assessment of our reporting units and as a result of our analysis, we determined that there were no indicators of impairment and no further quantitative impairment test was deemed necessary.
Intangible Assets with Indefinite Lives
In fiscal 2015, as a result of the Business Combination, we recorded IPRD of
$470.0 million
. IPRD was recorded at fair value as of the date of acquisition as an indefinite-lived intangible asset until t
he completion or abandonment of the associated R&D efforts or impairment. The fair value of the acquired IPRD was determined based on an income approach using the "excess earnings method," which
estimated the value of the intangible assets by discounting the future projected earnings of the asset to present value as of the valuation date. Upon completion of development, acquired IPRD assets are transferred to finite-lived intangible assets and amortized over their useful lives. During fiscal years
2017
and
2016
, we completed and transferred into developed technology approximately
$220.0 million
and
$203.0 million
, respectively, of IPRD. We performed a qualitative assessment of the remaining IPRD during fiscal
2017
and concluded that IPRD was not impaired.
Intangible Assets
with Definite Lives
Intangible assets are recorded when such assets are acquired by purchase or license.
Finite-lived intangible assets consist primarily of technology licenses, customer relationships, developed technology, a wafer supply agreement, trade names and backlog resulting from business combinations and are subject to amortization.
Technology licenses are recorded at cost and are amortized on a straight-line basis over the lesser of the estimated useful life of the technology or the term of the license agreement, ranging from approximately
five
to
eight
years.
The fair value of customer relationships acquired during fiscal years 2013, 2015 and 2017 was determined based on an income approach using the “with and without method," in which the value of the asset is determined by the difference in discounted cash flows of the profitability of the Company "with" the asset and the profitability of the Company "without" the asset. Customer relationships are amortized on a straight-line basis over the estimated useful life, ranging from
three
to
ten
years.
The fair value of developed technology acquired during fiscal years 2013, 2015 and 2017 was determined based on an income approach using the "excess earnings method," which estimated the value of the intangible assets by discounting the future projected earnings of the asset to present value as of the valuation date. Developed technology is amortized on a straight-line basis over the estimated useful life, ranging from
three
to
six
years.
The fair value of a wafer supply agreement acquired in fiscal 2013 was determined using the incremental income method, which is a discounted cash flow method within the income approach. Under this method, the fair value was estimated by discounting to present value the additional savings from expense reductions in operations at a discount rate to reflect the risk inherent in the wafer supply agreement as well as any tax benefits. The wafer supply agreement was amortized on a units of use activity method over its useful life of approximately
four
years and was fully amortized as of April 2, 2016.
The fair value of trade names acquired in fiscal years 2015 and 2017 was determined based on an income approach using the "relief from royalty method," in which the value of the asset is determined by discounting the future projected cash flows generated from the trade name's estimated royalties. Trade names are amortized on a straight-line basis over the estimated useful life of
two
to
three
years.
The fair value of backlog acquired in fiscal 2015 was determined based on an income approach using the "excess earnings method" and was fully amortized as of April 2, 2016.
The fair value of the non-compete agreements acquired in fiscal 2017 was determined based on an income approach using the "incremental income method" over the useful life of
two
years.
We regularly review identified intangible assets to determine if facts and circumstances indicate that the useful life has changed from the original estimate or 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 amount over the fair value of those assets and occur in the period in which the impairment determination was made.
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 in 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 likely (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 12 of the Notes to the Consolidated Financial Statements 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 12 of the Notes to the Consolidated Financial Statements 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
Accounting Pronouncements Not Yet Effective
In January 2017, the FASB issued Accounting Standards Update ("ASU") 2017-04,
"Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment."
The new guidance simplifies the subsequent measurement of goodwill by eliminating the second step from the quantitative goodwill impairment test. We will continue to have the option to perform a qualitative assessment to determine if a quantitative goodwill impairment test is necessary. The new standard will become effective for us beginning in fiscal 2021 with early adoption permitted. We do not believe it will have a significant impact on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01,
"Business Combinations (Topic 805): Clarifying the Definition of a Business."
The new guidance clarifies the definition of a business and provides further guidance for evaluating whether a transaction will be accounted for as an acquisition of an asset or a business. The new standard will become effective for us beginning in the first quarter of fiscal 2019 with early adoption permitted. The update should be applied prospectively. We do not believe it will have a significant impact on our consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18,
"Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)."
The new guidance requires the inclusion of restricted cash along with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The new standard will become effective for us beginning in the first quarter of fiscal 2019 with early adoption permitted. We do not believe it will have a significant impact on our consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16,
"Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory
," which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The new standard will become effective for us in the first quarter of fiscal 2019 with early adoption permitted. We are currently evaluating the effects this new guidance will have on our consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15,
"Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the FASB’s Emerging Issues Task Force)."
The new guidance addresses eight specific cash flow issues with the objective of reducing the existing diversity in
practice. The new standard will become effective for us beginning in the first quarter of fiscal 2019 with early adoption permitted. We do not believe it will have a significant impact on our consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13,
"Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments."
The new guidance requires entities to use a current lifetime expected credit loss methodology to measure impairments of certain financial instruments. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The new standard will become effective for us beginning in the first quarter of fiscal 2021 with early adoption permitted. We do not believe it will have a significant impact on our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09,
"Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting."
The new guidance will simplify certain aspects of accounting for share-based payment transactions, including income tax consequences, forfeitures, classification of awards on the balance sheet and presentation on the statement of cash flows. The new standard will become effective for us beginning in the first quarter of fiscal 2018. Upon adoption, we expect to recognize a cumulative-effect adjustment to reduce our accumulated deficit and we plan to continue our existing practice of estimating expected forfeitures in determining compensation cost. We do not believe adoption will have a significant impact on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
"Leases (Topic 842)."
The new guidance requires lessees to recognize a right-of-use asset and a lease liability for all leases with a term longer than 12 months, including those previously described as operating leases. Consistent with current U.S. GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will primarily depend on its classification as a finance or operating lease. The new guidance will become effective for us in the first quarter of fiscal 2020. We expect the valuation of the right-of-use assets and lease liabilities, for leases previously described as operating leases, to be the present value of our forecasted future lease commitments. We are continuing to assess the overall impacts of the new standard, including the discount rate to be applied in these valuations.
In January 2016, the FASB issued ASU 2016-01,
"Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities."
The new standard will affect the accounting for equity investments, financial liabilities measured under the fair value option and presentation and disclosure requirements for financial instruments. In addition, the FASB clarified guidance related to the assessment of valuation allowances when recognizing deferred tax assets related to unrealized losses on available-for-sale debt securities. The new standard is effective for us beginning in the first quarter of fiscal 2019. We do not believe it will have a significant impact on our consolidated financial statements.
In July 2015, the FASB issued ASU 2015-11,
"Inventory (Topic 330): Simplifying the Measurement of Inventory."
The new guidance changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value. ASU 2015-11 defines net realizable value as the estimated selling price in the ordinary course of business less reasonably predictable costs to completion, transportation, or disposal. We will adopt the provisions of this standard in the first quarter of fiscal 2018 and we do not believe adoption will have a significant impact on our consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, "
Revenue from Contracts with Customers (Topic 606)
," with several amendments subsequently issued. This new standard provides an updated framework for revenue recognition, resulting in a single revenue model to be applied by reporting companies under U.S. GAAP. Under the new model, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additional disclosures will be required regarding the nature, amount, timing and uncertainty of cash flows. The new guidance will become effective for us in the first quarter of fiscal 2019 and permits the use of either a retrospective approach or a modified retrospective approach, whereby the cumulative effect of adoption is recognized at the date of initial application. We have established a cross-functional team to assess the potential impact of the new revenue standard and our assessment will be completed during fiscal 2018. Our assessment process consists of reviewing our current accounting policies and practices to identify potential differences that may result from applying the requirements of the new standard to our revenue contracts and identifying appropriate changes to our business processes, systems and controls to support revenue recognition
and disclosure requirements under the new standard. We currently anticipate adopting the standard using the modified retrospective approach.
Accounting Pronouncements Recently Adopted
In April 2015, the FASB issued ASU 2015-05
, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement
" which provides additional guidance to customers about whether a cloud computing arrangement includes a software license. Under this guidance, if a cloud computing arrangement contains a software license, customers should account for the license element of the arrangement in a manner consistent with the acquisition of other software licenses. If the arrangement does not contain a software license, customers should account for the arrangement as a service contract. We adopted the provisions of this standard in the first quarter of fiscal 2017, and there was no impact on our consolidated financial statements.
In September 2015, the FASB issued ASU 2015-16,
"Business Combinations (Topic 805): Simplifying the Accounting for Measurement Period Adjustments."
This standard requires an acquirer in a business combination to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The effect on earnings of changes in depreciation, amortization or other income effects, as a result of the change in provisional amounts, are to be included in the same period’s financial statements, calculated as if the accounting had been completed at the acquisition date. The amendments in this update became effective for us beginning in the first quarter of fiscal 2017 and will be applied prospectively to adjustments to provisional amounts that occur in the future.
|
|
|
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
|
|
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
Page
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qorvo, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands)
|
|
|
|
|
|
|
|
|
|
April 1, 2017
|
|
April 2, 2016
|
ASSETS
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
(Notes 1 & 3)
|
$
|
545,463
|
|
|
$
|
425,881
|
|
Short-term investments
(Notes 1 & 3)
|
—
|
|
|
186,808
|
|
Accounts receivable, less allowance of $58 and $143 as of April 1, 2017 and April 2, 2016, respectively
|
357,948
|
|
|
316,356
|
|
Inventories
(Notes 1 & 4)
|
430,454
|
|
|
427,551
|
|
Prepaid expenses
|
36,229
|
|
|
63,850
|
|
Other receivables
(Note 1)
|
65,247
|
|
|
47,380
|
|
Other current assets
(Notes 1 & 9)
|
26,264
|
|
|
41,384
|
|
Total current assets
|
1,461,605
|
|
|
1,509,210
|
|
Property and equipment, net
(Notes 1 & 5)
|
1,391,932
|
|
|
1,046,888
|
|
Goodwill
(Notes 1, 6 & 7)
|
2,173,914
|
|
|
2,135,697
|
|
Intangible assets, net
(Notes 1, 6 & 7)
|
1,400,563
|
|
|
1,812,515
|
|
Long-term investments
(Notes 1 & 3)
|
35,494
|
|
|
26,050
|
|
Other non-current assets
(Notes 9 & 12)
|
58,815
|
|
|
66,459
|
|
Total assets
|
$
|
6,522,323
|
|
|
$
|
6,596,819
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable
|
$
|
216,246
|
|
|
$
|
205,364
|
|
Accrued liabilities
(Notes 1, 9, 10, & 11)
|
170,584
|
|
|
137,889
|
|
Other current liabilities (
Note 12
)
|
31,998
|
|
|
30,548
|
|
Total current liabilities
|
418,828
|
|
|
373,801
|
|
Long-term debt
(Note 8)
|
989,154
|
|
|
988,130
|
|
Deferred tax liabilities (
Note 12
)
|
131,511
|
|
|
152,160
|
|
Other long-term liabilities
(Notes 9, 10, 11 & 12)
|
86,108
|
|
|
83,056
|
|
Total liabilities
|
1,625,601
|
|
|
1,597,147
|
|
Commitments and contingent liabilities
(Note 10)
|
|
|
|
|
|
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; 126,464 and 127,386 shares issued and outstanding at April 1, 2017 and April 2, 2016, respectively
|
5,357,394
|
|
|
5,442,613
|
|
Accumulated other comprehensive loss, net of tax
|
(4,306
|
)
|
|
(3,133
|
)
|
Accumulated deficit
|
(456,366
|
)
|
|
(439,808
|
)
|
Total stockholders’ equity
|
4,896,722
|
|
|
4,999,672
|
|
Total liabilities and stockholders’ equity
|
$
|
6,522,323
|
|
|
$
|
6,596,819
|
|
See accompanying notes.
Qorvo, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
|
|
|
Revenue
|
$
|
3,032,574
|
|
|
$
|
2,610,726
|
|
|
$
|
1,710,966
|
|
Cost of goods sold (
Note 7)
|
1,897,062
|
|
|
1,561,173
|
|
|
1,021,658
|
|
Gross profit
|
1,135,512
|
|
|
1,049,553
|
|
|
689,308
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
Research and development
|
470,836
|
|
|
448,763
|
|
|
257,494
|
|
Selling, general and administrative
(Note 7)
|
545,588
|
|
|
534,099
|
|
|
249,886
|
|
Other operating expense
(Notes 6 & 11)
|
31,029
|
|
|
54,723
|
|
|
59,462
|
|
Total operating expenses
|
1,047,453
|
|
|
1,037,585
|
|
|
566,842
|
|
Income from operations
|
88,059
|
|
|
11,968
|
|
|
122,466
|
|
|
|
|
|
|
|
Interest expense (
Note 8)
|
(58,879
|
)
|
|
(23,316
|
)
|
|
(1,421
|
)
|
Interest income
|
1,212
|
|
|
2,068
|
|
|
450
|
|
Other (expense) income
|
(3,087
|
)
|
|
6,418
|
|
|
(254
|
)
|
Income (loss) before income taxes
|
$
|
27,305
|
|
|
$
|
(2,862
|
)
|
|
$
|
121,241
|
|
|
|
|
|
|
|
Income tax (expense) benefit
(Note 12)
|
(43,863
|
)
|
|
(25,983
|
)
|
|
75,062
|
|
Net (loss) income
|
$
|
(16,558
|
)
|
|
$
|
(28,845
|
)
|
|
$
|
196,303
|
|
|
|
|
|
|
|
Net (loss) income per share
(Note 13):
|
|
|
|
|
|
Basic
|
$
|
(0.13
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
2.17
|
|
Diluted
|
$
|
(0.13
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
2.11
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding
(Note 13)
:
|
|
|
|
|
|
Basic
|
127,121
|
|
|
141,937
|
|
|
90,477
|
|
Diluted
|
127,121
|
|
|
141,937
|
|
|
93,211
|
|
|
|
|
|
|
|
See accompanying notes.
Qorvo, Inc. and Subsidiaries
Consolidated Statements of Comprehensive (Loss) Income
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2017
|
|
2016
|
|
2015
|
Net (loss) income
|
$
|
(16,558
|
)
|
|
$
|
(28,845
|
)
|
|
$
|
196,303
|
|
Other comprehensive (loss) income:
|
|
|
|
|
|
Unrealized gain on marketable securities, net of tax
|
53
|
|
|
742
|
|
|
3,920
|
|
Change in pension liability, net of tax
|
(339
|
)
|
|
1,153
|
|
|
(2,894
|
)
|
Foreign currency translation adjustment, including intra-entity foreign currency transactions that are of a long-term-investment nature
|
(1,014
|
)
|
|
(89
|
)
|
|
(392
|
)
|
Reclassification adjustments, net of tax:
|
|
|
|
|
|
Recognized gain on marketable securities
|
—
|
|
|
(4,994
|
)
|
|
—
|
|
Amortization of pension actuarial loss
|
127
|
|
|
179
|
|
|
27
|
|
Other comprehensive (loss) income
|
(1,173
|
)
|
|
(3,009
|
)
|
|
661
|
|
Total comprehensive (loss) income
|
$
|
(17,731
|
)
|
|
$
|
(31,854
|
)
|
|
$
|
196,964
|
|
See accompanying notes.
Qorvo, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Common Stock
|
|
Comprehensive
|
|
Accumulated
|
|
|
|
Shares
|
|
Amount
|
|
(Loss) Income
|
|
Deficit
|
|
Total
|
Balance, March 29, 2014
|
71,215
|
|
|
$
|
1,284,402
|
|
|
$
|
(785
|
)
|
|
$
|
(607,266
|
)
|
|
$
|
676,351
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
196,303
|
|
|
196,303
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
661
|
|
|
—
|
|
|
661
|
|
Exercise of stock options and vesting of restricted stock units, net of shares withheld for employee taxes
|
3,199
|
|
|
5,167
|
|
|
—
|
|
|
—
|
|
|
5,167
|
|
Issuance of common stock for Business Combination
|
75,306
|
|
|
5,254,367
|
|
|
—
|
|
|
—
|
|
|
5,254,367
|
|
Issuance of common stock in connection with employee stock purchase plan
|
98
|
|
|
2,730
|
|
|
—
|
|
|
—
|
|
|
2,730
|
|
Tax benefit from exercised stock options
|
—
|
|
|
9,834
|
|
|
—
|
|
|
—
|
|
|
9,834
|
|
Repurchase of common stock, including transaction costs
|
(759
|
)
|
|
(50,874
|
)
|
|
—
|
|
|
—
|
|
|
(50,874
|
)
|
Stock-based compensation expense
|
—
|
|
|
78,621
|
|
|
—
|
|
|
—
|
|
|
78,621
|
|
Balance, March 28, 2015
|
149,059
|
|
|
$
|
6,584,247
|
|
|
$
|
(124
|
)
|
|
$
|
(410,963
|
)
|
|
$
|
6,173,160
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(28,845
|
)
|
|
(28,845
|
)
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
(3,009
|
)
|
|
—
|
|
|
(3,009
|
)
|
Exercise of stock options and vesting of restricted stock units, net of shares withheld for employee taxes
|
2,156
|
|
|
4,406
|
|
|
—
|
|
|
—
|
|
|
4,406
|
|
Issuance of common stock in connection with employee stock purchase plan
|
429
|
|
|
17,967
|
|
|
—
|
|
|
—
|
|
|
17,967
|
|
Tax benefit from exercised stock options
|
—
|
|
|
636
|
|
|
—
|
|
|
—
|
|
|
636
|
|
Repurchase of common stock, including transaction costs
|
(24,258
|
)
|
|
(1,300,009
|
)
|
|
—
|
|
|
—
|
|
|
(1,300,009
|
)
|
Stock-based compensation expense
|
—
|
|
|
135,366
|
|
|
—
|
|
|
—
|
|
|
135,366
|
|
Balance, April 2, 2016
|
127,386
|
|
|
$
|
5,442,613
|
|
|
$
|
(3,133
|
)
|
|
$
|
(439,808
|
)
|
|
$
|
4,999,672
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(16,558
|
)
|
|
(16,558
|
)
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
(1,173
|
)
|
|
—
|
|
|
(1,173
|
)
|
Exercise of stock options and vesting of restricted stock units, net of shares withheld for employee taxes
|
2,484
|
|
|
16,832
|
|
|
—
|
|
|
—
|
|
|
16,832
|
|
Issuance of common stock in connection with employee stock purchase plan
|
678
|
|
|
25,640
|
|
|
—
|
|
|
—
|
|
|
25,640
|
|
Tax deficiency from exercised stock options
|
|
|
|
(56
|
)
|
|
—
|
|
|
—
|
|
|
(56
|
)
|
Repurchase of common stock, including transaction costs
|
(4,084
|
)
|
|
(209,357
|
)
|
|
—
|
|
|
—
|
|
|
(209,357
|
)
|
Stock-based compensation expense
|
|
|
81,722
|
|
|
—
|
|
|
—
|
|
|
81,722
|
|
Balance, April 1, 2017
|
126,464
|
|
|
$
|
5,357,394
|
|
|
$
|
(4,306
|
)
|
|
$
|
(456,366
|
)
|
|
$
|
4,896,722
|
|
See accompanying notes.
Qorvo, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2017
|
|
2016
|
|
2015
|
Cash flows from operating activities:
|
|
|
|
|
|
Net (loss) income
|
$
|
(16,558
|
)
|
|
$
|
(28,845
|
)
|
|
$
|
196,303
|
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation
|
209,825
|
|
|
180,362
|
|
|
74,239
|
|
Intangible assets amortization
(Note 7)
|
494,752
|
|
|
494,589
|
|
|
142,749
|
|
Non-cash interest expense and amortization of debt issuance costs
|
1,709
|
|
|
112
|
|
|
843
|
|
Excess tax benefit from exercises of stock options
|
(65
|
)
|
|
(935
|
)
|
|
(13,993
|
)
|
Deferred income taxes
|
(28,027
|
)
|
|
(12,189
|
)
|
|
(109,970
|
)
|
Foreign currency adjustments
|
(36
|
)
|
|
1,705
|
|
|
(242
|
)
|
Loss (income) on investments and other assets, net
|
5,478
|
|
|
(4,705
|
)
|
|
8,986
|
|
Stock-based compensation expense
|
88,845
|
|
|
139,516
|
|
|
64,941
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
Accounts receivable, net
|
(36,873
|
)
|
|
36,682
|
|
|
(30,369
|
)
|
Inventories
|
(6,442
|
)
|
|
(84,116
|
)
|
|
10,423
|
|
Prepaid expenses and other current and non-current assets
|
20,285
|
|
|
(28,871
|
)
|
|
(26,384
|
)
|
Accounts payable
|
(1,035
|
)
|
|
(461
|
)
|
|
(30,107
|
)
|
Accrued liabilities
|
26,866
|
|
|
3,862
|
|
|
(3,884
|
)
|
Income tax payable/(recoverable)
|
13,414
|
|
|
4,300
|
|
|
12,704
|
|
Other assets and liabilities
|
4,682
|
|
|
(13,079
|
)
|
|
9,385
|
|
Net cash provided by operating activities
|
776,820
|
|
|
687,927
|
|
|
305,624
|
|
Investing activities:
|
|
|
|
|
|
Purchase of available-for-sale securities
|
(469
|
)
|
|
(340,527
|
)
|
|
(387,734
|
)
|
Proceeds from maturities of available-for-sale securities
|
186,793
|
|
|
390,009
|
|
|
261,185
|
|
Purchase of business, net of cash acquired
(Note 6)
|
(118,133
|
)
|
|
—
|
|
|
224,324
|
|
Purchase of property and equipment
|
(552,702
|
)
|
|
(315,624
|
)
|
|
(169,862
|
)
|
Other investing
|
(5,976
|
)
|
|
(12,572
|
)
|
|
8,145
|
|
Net cash used in investing activities
|
(490,487
|
)
|
|
(278,714
|
)
|
|
(63,942
|
)
|
Financing activities:
|
|
|
|
|
|
Proceeds from debt issuances
|
—
|
|
|
1,175,000
|
|
|
—
|
|
Payment of debt
|
—
|
|
|
(175,000
|
)
|
|
(87,503
|
)
|
Excess tax benefit from exercises of stock options
|
65
|
|
|
935
|
|
|
13,993
|
|
Debt issuance costs
|
—
|
|
|
(13,588
|
)
|
|
(36
|
)
|
Proceeds from the issuance of common stock
|
59,148
|
|
|
51,875
|
|
|
46,072
|
|
Repurchase of common stock, including transaction costs
|
(209,357
|
)
|
|
(1,300,009
|
)
|
|
(50,874
|
)
|
Tax withholding paid on behalf of employees for restricted stock units
|
(15,516
|
)
|
|
(22,168
|
)
|
|
(34,250
|
)
|
Other financing
|
14
|
|
|
103
|
|
|
(300
|
)
|
Net cash used in financing activities
|
(165,646
|
)
|
|
(282,852
|
)
|
|
(112,898
|
)
|
Effect of exchange rate changes on cash
|
(1,105
|
)
|
|
(294
|
)
|
|
(868
|
)
|
Net increase in cash and cash equivalents
|
119,582
|
|
|
126,067
|
|
|
127,916
|
|
Cash and cash equivalents at the beginning of the period
|
425,881
|
|
|
299,814
|
|
|
171,898
|
|
Cash and cash equivalents at the end of the period
|
$
|
545,463
|
|
|
$
|
425,881
|
|
|
$
|
299,814
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
Cash paid during the year for interest
|
$
|
71,171
|
|
|
$
|
2,164
|
|
|
$
|
930
|
|
Cash paid during the year for income taxes
|
$
|
52,656
|
|
|
$
|
34,942
|
|
|
$
|
34,590
|
|
Non-cash investing and financing information:
|
|
|
|
|
|
Capital expenditure adjustments included in liabilities
|
$
|
75,340
|
|
|
$
|
33,548
|
|
|
$
|
9,346
|
|
Fair value of equity consideration related to Business Combination
(Note 6)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,254,367
|
|
See accompanying notes.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
April 1, 2017
|
|
1.
|
THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
|
On February 22, 2014, RF Micro Devices, Inc. ("RFMD" and referred to herein as the "Company" prior to January 1, 2015) and TriQuint Semiconductor, Inc. ("TriQuint") entered into an Agreement and Plan of Merger and Reorganization (as subsequently amended on July 15, 2014, the "Merger Agreement") providing for the business combination of RFMD and TriQuint (the "Business Combination") under a new holding company named Qorvo, Inc. (formerly named Rocky Holding, Inc.) ("Qorvo" and referred to herein as the "Company" as of and following January 1, 2015). The stockholders of both RFMD and TriQuint approved the Merger Agreement at each company's special meeting of stockholders on September 5, 2014. During the third quarter of fiscal 2015, all necessary regulatory approvals were received to complete the Business Combination. The Business Combination closed on January 1, 2015 (fourth quarter of fiscal 2015). For financial reporting and accounting purposes, RFMD was the acquirer of TriQuint. The results presented in the Consolidated Financial Statements and Notes to the Consolidated Financial Statements reflect those of RFMD prior to the completion of the Business Combination on January 1, 2015 and those of Qorvo subsequent to the completion of the Business Combination.
The Company is a product and technology leader at the forefront of the growing global demand for always-on broadband connectivity. The Company combines a broad portfolio of radio frequency (“RF”) solutions, highly differentiated semiconductor technologies, deep systems-level expertise and scale manufacturing to supply a diverse group of customers in expanding markets, including smartphones and other mobile devices, defense and aerospace, WiFi customer premises equipment, cellular base stations, optical networks, automotive connectivity, and smart home applications. Within these markets, the Company's products enable a broad range of leading-edge applications - from very-high-power wired and wireless infrastructure solutions to ultra-low-power smart home solutions. The Company's products and technologies help transform how people around the world access their data, transact commerce, and interact with their communities.
The Company’s design and manufacturing expertise covers many semiconductor process technologies, which it sources both internally and through external suppliers. The Company’s primary wafer fabrication facilities are located in Texas, Florida, North Carolina and Oregon and its primary assembly and test facilities are located in China, Costa Rica, Germany and Texas. The Company operates design, sales and manufacturing facilities throughout Asia, Europe and North America.
Principles of Consolidation and Basis of Presentation
The 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 2016 financial statements have been reclassified to conform to the fiscal 2017 presentation.
The results of operations, assets and liabilities associated with the Business Combination have been included in the Company's financial statements from the acquisition date of January 1, 2015 (see Note 6).
Accounting Periods
The Company uses a 52- or 53-week fiscal year ending on the Saturday closest to March 31 of each year. The most recent three fiscal years ended on
April 1, 2017
,
April 2, 2016
, and
March 28, 2015
. Fiscal years 2017 and 2015 were 52-week years and fiscal year 2016 was a 53-week year.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The actual results that the Company experiences may differ materially from its estimates. The Company makes estimates for the returns reserve, rebates, allowance for doubtful accounts, inventory valuation including reserves, warranty reserves, income tax valuation, current and deferred income taxes, uncertain tax positions, non-marketable equity investments, other-than-temporary impairments of investments, goodwill, long-lived assets and other financial statement amounts on a regular basis and makes adjustments based on historical experiences and expected future conditions. Accounting estimates require difficult and subjective judgments and actual results may differ from the Company’s estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of demand deposit accounts, money market funds, and other temporary, highly-liquid investments with original maturities of three months or less when purchased.
Investments
Investments available-for-sale at
April 1, 2017
consisted of auction rate securities ("ARS"). Investments available-for-sale at
April 2, 2016
consisted of U.S. government/agency securities, corporate debt and ARS. Available-for-sale investments with an original maturity date greater than approximately
three months
and less than
one year
are classified as current investments. Available-for-sale investments with an original maturity date exceeding
one year
are classified as long-term.
Available-for-sale securities are carried at fair value with the unrealized gains and losses, net of tax, reported in “Other comprehensive (loss) income.” The cost of securities sold is based on the specific identification method and any realized gain or loss is included in “Other (expense) income.” The cost of available-for-sale securities is adjusted for premiums and discounts, with the amortization or accretion of such amounts included as a portion of interest.
The Company assesses individual investments for impairment quarterly. Investments are impaired when the fair value is less than the amortized cost. If an investment is impaired, the Company evaluates whether the impairment is other-than-temporary. A debt investment impairment is considered other-than-temporary if (i) the Company intends to sell the security, (ii) it is more likely than not that the Company will be required to sell the security before recovery of the entire amortized cost basis, or (iii) the Company does not expect to recover the entire amortized cost basis of the security (a credit loss). Other-than-temporary declines in the Company's debt securities are recognized as a loss in the statement of operations if due to credit loss; all other losses on debt securities are recorded in "Other comprehensive (loss) income." The previous amortized cost basis less the other-than-temporary impairment becomes the new cost basis and is not adjusted for subsequent recoveries in fair value.
Inventories
Inventories are stated at the lower of cost or market based on standard costs, which approximate actual average costs. The Company’s business is subject to the risk of technological and design changes. The Company evaluates inventory levels quarterly against sales forecasts on a product family basis to evaluate its overall inventory risk. Reserves are adjusted to reflect inventory values in excess of forecasted sales and management's analysis and assessment of overall inventory risk. In the event the Company sells inventory that had been covered by a specific inventory reserve, the sale is recorded at the actual selling price and the related cost of goods sold is recorded at the full inventory cost, net of the reserve. Abnormal production levels are charged to the income statement in the period incurred rather than as a portion of inventory cost.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Product Warranty
The Company generally sells products with a limited warranty on product quality. The Company accrues for known warranty issues if a loss is probable and can be reasonably estimated, and accrues for estimated incurred but unidentified issues based on historical activity. The accrual and the related expense for known product warranty issues were not significant during the periods presented. Due to product testing and the short time typically between product shipment and the detection and correction of product failures and the historical rate of losses, the accrual and related expense for estimated incurred but unidentified issues was not significant during the periods presented.
Other Receivables
The Company records miscellaneous non-product receivables that are collectible within 12 months in “Other receivables,” such as value-added tax receivables (
$55.4 million
as of
April 1, 2017
and
$37.3 million
as of
April 2, 2016
, which are reported on a net basis), precious metal reclaims submitted for payment and other miscellaneous items.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the assets, ranging from
one year
to
thirty-nine years
. The Company’s assets acquired under capital leases and leasehold improvements are amortized over the lesser of the asset life or lease term (which is reasonably assured) and included in depreciation.
The Company performs a review if facts and circumstances indicate that the carrying amount of assets may not be recoverable or that useful lives have changed from the original estimate. The Company assesses the recoverability of the assets held for use 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. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. If the Company determines that the useful lives have changed from the original estimate, the net book value of the assets is depreciated over the remaining period of the new useful lives. The Company identifies property and equipment as “held for sale” based on the current expectation that, more likely than not, an asset or asset group will be sold or otherwise disposed. Once assets are classified to the held for sale category, depreciation ceases and the assets are recorded at the lesser of their carrying value or their fair market value less costs to sell.
The Company capitalizes the portion of the interest expense related to certain assets that are not ready for their intended use and this amount is depreciated over the estimated useful lives of the qualified assets. The Company additionally records capital-related government grants earned as a reduction to property and equipment and depreciates such grants over the estimated useful lives of the associated assets.
Goodwill and Intangible Assets
Goodwill is recorded when the purchase price paid for a business exceeds the estimated fair value of the net identified
tangible and intangible assets acquired. Intangibles are recorded when such assets are acquired by purchase or license. The value of the Company's intangibles, including goodwill, could be impacted by future adverse changes such as: (i) any future declines in the Company's operating results; (ii) a decline in the value of technology company stocks, including the value of the Company's common stock; (iii) a prolonged or more significant slowdown in the worldwide economy or the semiconductor industry; or (iv) failure to meet the performance projections included in the Company's forecasts of future operating results.
The Company accounts for goodwill and indefinite-lived intangible assets in accordance with the Financial Accounting Standards Board's ("FASB") guidance, which requires annual testing for impairment or whenever events or circumstances make it more likely than not that an impairment may have occurred. The Company performs its annual impairment tests on the first day of the fourth quarter in each fiscal year.
Indefinite-lived intangible assets consists of in-process research and development ("IPRD").
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The Company has the option to perform a qualitative assessment (commonly referred to as "step zero") to determine whether further quantitative analysis for impairment of goodwill or indefinite-lived intangible assets is necessary. In performing step zero for its impairment test, the Company is required to make assumptions and judgments, including the following: the evaluation of macroeconomic conditions as related to the Company's business; industry and market trends; and the overall future financial performance of the Company's reporting units and future opportunities in the markets in which they operate. The Company also considers recent fair value calculations of its indefinite-lived intangible assets and reporting units as well as cost factors such as changes in raw materials, labor or other costs. If the step zero analysis indicates that it is more likely than not that the fair value of a reporting unit or indefinite-lived asset is less than its respective carrying value including goodwill, then the Company would perform an additional quantitative analysis. For goodwill, this involves a two-step process. The first step compares the fair value of the reporting unit, including its goodwill, to its carrying value. If the carrying value of the reporting unit exceeds its fair value, then the second step of the process is performed to determine the amount of impairment. The second step compares the implied fair value of the reporting unit's goodwill to the carrying value of the goodwill. An impairment charge is recognized for the amount the carrying value of the reporting unit's goodwill exceeds its implied fair value.
For indefinite-lived intangible assets, the quantitative analysis compares the carrying value of the asset to its fair value and an impairment charge is recognized for the amount its carrying value exceeds its fair value. Determining the fair value of reporting units, indefinite-lived intangible assets and implied fair value of a reporting unit's goodwill is reliant upon estimated future revenues, profitability and cash flows and consideration of market factors. Assumptions, judgments and estimates are complex, subjective and can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in the Company's business strategy or its internal forecasts. Although the Company believes the assumptions, judgments and estimates it has made have been reasonable and appropriate, different assumptions, judgments and estimates could materially affect its results of operations.
Goodwill
Goodwill is allocated to the Company's reporting units based on the expected benefit from the synergies of the business combinations generating the underlying goodwill. As of
April 1, 2017
, the Company's goodwill balance of
$2,173.9 million
is allocated between its Mobile Products ("MP") and Infrastructure and Defense Products ("IDP") reporting units.
In fiscal
2017
, the Company completed a qualitative assessment of the fair value of its reporting units and concluded that goodwill was not impaired.
For fiscal
2016
, although there were no indicators of impairment, the Company opted to bypass the qualitative assessment and proceeded to perform fair value assessments of its reporting units (the first step of the quantitative impairment analysis) as the fair value of the reporting units had changed (due to the Business Combination) since the last time the Company performed a quantitative analysis. The quantitative assessments performed reaffirmed that there were no indicators of impairment for fiscal 2016.
In performing these quantitative assessments, consistent with its historical approach, the Company used both the income and market approaches to estimate the fair value of its reporting units. The income approach involves discounting future estimated cash flows. The sum of the reporting unit cash flow projections was compared to the Company's market capitalization in a discounted cash flow framework to calculate an overall implied internal rate of return (or discount rate) for the Company. The Company's market capitalization was adjusted to a control basis assuming a reasonable control premium, which resulted in an implied discount rate. This implied discount rate serves as a baseline for estimating the specific discount rate for each reporting unit.
The discount rate used is the value-weighted average of the Company's estimated cost of equity and debt (“cost of capital”) derived using both known and estimated customary market metrics. The Company's weighted average cost of capital is adjusted for each reporting unit to reflect a risk factor, if necessary, for each reporting unit. The Company performs sensitivity tests with respect to growth rates and discount rates used in the income approach. The Company believes the income approach is appropriate because it provides a fair value estimate based upon the respective reporting unit’s expected long-term operations and cash flow performance.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The Company considered historical rates and current market conditions when determining the discount and growth rates used in its analysis. For fiscal
2016
, the material assumptions used for the income approach were
eight
years of projected net cash flows and a long-term growth rate of
3%
for both the MP and IDP reporting units. A discount rate of
15%
and
16%
was used for the MP and IDP reporting units, respectively.
In applying the market approach, valuation multiples are derived from historical and projected operating data of selected guideline companies, which are evaluated and adjusted, if necessary, based on the strengths and weaknesses of the reporting unit relative to the selected guideline companies. The valuation multiples are then applied to the appropriate historical and/or projected operating data of the reporting unit to arrive at an indication of fair value. The Company believes the market approach is appropriate because it provides a fair value using multiples from companies with operations and economic characteristics similar to its reporting units. The Company weighted the results of the income approach and the results of the market approach at 50% each and for the MP and IDP reporting units, concluded that the fair value of the reporting units was determined to be substantially in excess of the carrying value, and as such, no further analysis was warranted.
Under the income approach described above, the following indicates the sensitivity of key assumptions utilized in the assessment. A one percentage point decrease in the discount rate would have increased the fair value of the MP and IDP reporting units by approximately
$660.0 million
and
$140.0 million
, respectively, while a one percentage point increase in the discount rate would have decreased the fair value of the MP and IDP reporting units by approximately
$560.0 million
and
$110.0 million
, respectively. A one percentage point decrease in the long-term growth rate would have decreased the fair value of the MP and IDP reporting units by approximately
$290.0 million
and
$50.0 million
, respectively, while a one percentage point increase in the long-term growth rate would have increased the fair value of the MP and IDP reporting units by approximately
$340.0 million
and
$70.0 million
, respectively.
In fiscal year 2015, the Company performed a qualitative assessment of its reporting units and as a result of this analysis, determined that there were no indicators of impairment and no further quantitative impairment test was deemed necessary.
Intangible Assets with Indefinite Lives
In fiscal 2015, as a result of the Business Combination, the Company recorded IPRD of
$470.0 million
. IPRD was recorded at fair value as of the date of acquisition as an indefinite-lived intangible asset until t
he completion or abandonment of the associated research and development ("R&D") efforts or impairment. The fair value of the acquired IPRD was determined based on an income approach using the "excess earnings method," which
estimated the value of the intangible assets by discounting the future projected earnings of the asset to present value as of the valuation date. Upon completion of development, acquired IPRD assets are transferred to finite-lived intangible assets and amortized over their useful lives. During fiscal years
2017
and
2016
, the Company completed and transferred into developed technology approximately
$220.0 million
and
$203.0 million
, respectively, of IPRD. The Company performed a qualitative assessment of the remaining IPRD during fiscal
2017
and concluded that IPRD was not impaired.
Intangible Assets
with Definite Lives
Intangible assets are recorded when such assets are acquired by purchase or license.
Finite-lived intangible assets consist primarily of technology licenses, customer relationships, developed technology, a wafer supply agreement, trade names and backlog resulting from business combinations and are subject to amortization.
Technology licenses are recorded at cost and are amortized on a straight-line basis over the lesser of the estimated useful life of the technology or the term of the license agreement, ranging from approximately
five
to
eight
years.
The fair value of customer relationships acquired during fiscal years 2013, 2015 and 2017 was determined based on an income approach using the “with and without method," in which the value of the asset is determined by the difference in discounted cash flows of the profitability of the Company "with" the asset and the profitability of the Company "without" the asset. Customer relationships are amortized on a straight-line basis over the estimated useful life, ranging from
three
to
ten
years.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The fair value of developed technology acquired during fiscal years 2013, 2015 and 2017 was determined based on an income approach using the "excess earnings method," which estimated the value of the intangible assets by discounting the future projected earnings of the asset to present value as of the valuation date. Developed technology is amortized on a straight-line basis over the estimated useful life, ranging from
three
to
six
years.
The fair value of the wafer supply agreement was determined using the incremental income method, which is a discounted cash flow method within the income approach. Under this method, the fair value was estimated by discounting to present value the additional savings from expense reductions in operations at a discount rate to reflect the risk inherent in the wafer supply agreement as well as any tax benefits. The wafer supply agreement was amortized on a units of use activity method over its useful life of approximately
four
years and was fully amortized as of April 2, 2016.
The fair value of trade names acquired in fiscal years 2015 and 2017 was determined based on an income approach using the "relief from royalty method," in which the value of the asset is determined by discounting the future projected cash flows generated from the trade name's estimated royalties. Trade names are amortized on a straight-line basis over the estimated useful life of
two
to
three
years.
The fair value of backlog acquired in fiscal 2015 was determined based on an income approach using the "excess earnings method" and was fully amortized as of April 2, 2016.
The Company regularly reviews identified intangible assets to determine if facts and circumstances indicate that the useful lives have changed from the original estimate or that the carrying amount of the assets may not be recoverable. If such facts and circumstances exist, the Company assesses 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 amount over the fair value of those assets and occur in the period in which the impairment determination was made.
Accrued Liabilities
The "Accrued liabilities" balance as of
April 1, 2017
and
April 2, 2016
includes accrued compensation and benefits of
$98.7 million
and
$76.3 million
, respectively, and interest payable of
$23.2 million
and
$25.5 million
, respectively.
Revenue Recognition
The Company's net revenue is generated principally from sales of semiconductor products. The Company recognizes revenue from product sales when the fundamental criteria are met, such as the time at which the title and risk and rewards of product ownership are transferred to the customer, price and terms are fixed or determinable, no significant vendor obligation exists and collection of the resulting receivable is reasonably assured.
Sales of products are generally made through either the Company's sales force, manufacturers' representatives or through a distribution network. Revenue from the majority of the Company's products is recognized upon shipment of the product to the customer from a Company-owned or third-party location. Some revenue is recognized upon receipt of the shipment by the customer. The Company has limited rebate programs offering price protection to certain distributors. These rebates represent less than
7%
of net revenue and can be reasonably estimated based on specific criteria included in the rebate agreements and other known factors at the time. The Company reduces revenue and records reserves for product returns and allowances for price protection, stock rotation, and scrap allowance based on historical experience or specific identification depending on the contractual terms of the arrangement.
The Company also recognizes a portion of its net revenue through other agreements such as non-recurring engineering fees, contracts for R&D work, royalty income, intellectual property ("IP") revenue, and service revenue. These agreements are collectively less than
1%
of consolidated revenue on an annual basis. Revenue from these
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
agreements is recognized when the service is completed or upon certain milestones, as provided for in the agreements.
Revenue from certain contracts is recognized on the percentage of completion method based on the costs incurred to date and the total contract amount, plus the contractual fee. If these contracts experience cost overruns, the percentage of completion method is used to determine revenue recognition. Revenue from fixed price contracts is recognized when the required deliverable is satisfied.
Royalty income is recognized based on a percentage of sales of the relevant product reported by licensees during the period.
The Company additionally licenses or sells its rights to use portions of its IP portfolio, which includes certain patent rights useful in the manufacture and sales of certain products. IP revenue recognition is dependent on the terms of each agreement. The Company will recognize IP revenue (i) upon delivery of the IP and (ii) if the Company has no substantive future obligation to perform under the arrangement. The Company will defer recognition of IP revenue where future performance obligations are required to earn the revenue or the revenue is not guaranteed. Revenue from services is recognized during the period that the service is performed.
Accounts receivable are recorded for all revenue items listed above and do not bear interest. The Company evaluates the collectability of accounts receivable based on a combination of factors. In cases where the Company is aware of circumstances that may impair a specific customer’s ability to meet its financial obligations subsequent to the original sale, the Company will record an allowance against amounts due, and thereby reduce the receivable to the amount the Company reasonably believes will be collected. For all other customers, the Company recognizes allowances for doubtful accounts based on the length of time the receivables are past due, industry and geographic concentrations, the current business environment and the Company’s historical experience.
The Company's terms and conditions do not give its customers a right of return associated with the original sale of its products. However, the Company will authorize sales returns under certain circumstances, which include perceived quality problems, courtesy returns and like-kind exchanges. The Company evaluates its estimate of returns by analyzing all types of returns and the timing of such returns in relation to the original sale. Reserves are adjusted to reflect changes in the estimated returns versus the original sale of product.
Shipping and Handling Cost
The Company recognizes amounts billed to a customer in a sale transaction related to shipping and handling as revenue. The costs incurred by the Company for shipping and handling are classified as cost of goods sold in the Consolidated Statements of Operations.
Research and Development
The Company charges all R&D costs to expense as incurred.
Precious Metals Reclaim
The Company uses historical experience to estimate the amount of reclaim on precious metals used in manufacturing at the end of each period and states the reclaim value at the lower of average cost or market. The estimated value to be received from precious metal reclaim is included in "Other current assets" and reclaims submitted for payment are included in "Other receivables" in the Consolidated Balance Sheets.
Income Taxes
The Company accounts for income taxes under the liability method, which requires recognition of deferred tax assets and liabilities for the temporary differences between the financial reporting and tax basis of assets and liabilities and for tax carryforwards. Deferred tax assets and liabilities for each tax jurisdiction are measured using the enacted statutory tax rates in effect for the years in which the differences are expected to reverse. A valuation
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
allowance is provided against deferred tax assets to the extent the Company determines it is more likely than not (a likelihood of more than
50 percent
) that some portion or all of its deferred tax assets will not be realized.
A minimum recognition threshold is required to be met before the Company recognizes the benefit of an income tax position in its financial statements. The Company’s policy is to recognize accrued interest and penalties, if incurred, on any unrecognized tax benefits as a component of income tax expense.
It is the Company’s current intent and policy to invest the earnings of foreign subsidiaries indefinitely outside the U.S. Accordingly, the Company does not record a deferred tax liability for U.S. income taxes on unremitted foreign earnings.
Stock-Based Compensation
Under FASB 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
April 1, 2017
, total remaining unearned compensation cost related to unvested restricted stock units and options was
$70.5 million
, which will be amortized over the weighted-average remaining service period of approximately
1.2 years
.
Foreign Currency Translation
The financial statements of foreign subsidiaries have been translated into U.S. dollars in accordance with FASB ASC 830, “
Foreign Currency Matters.
” The functional currency for most of the Company’s international operations is the U.S. dollar. The functional currency for the remainder of the Company’s foreign subsidiaries is the local currency. Assets and liabilities denominated in foreign currencies are translated using the exchange rates on the balance sheet dates. Revenues and expenses are translated using the average exchange rates throughout the year. Translation adjustments are shown separately as a component of “Accumulated other comprehensive loss” within “Stockholders’ equity” in the Consolidated Balance Sheets. Foreign currency transaction gains or losses (transactions denominated in a currency other than the functional currency) are reported in “Other income (expense)” in the Consolidated Statements of Operations.
Recent Accounting Pronouncements
Accounting Pronouncements Not Yet Effective
In January 2017, the FASB issued Accounting Standards Update ("ASU") 2017-04,
"Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment."
The new guidance simplifies the subsequent measurement of goodwill by eliminating the second step from the quantitative goodwill impairment test. The Company will continue to have the option to perform a qualitative assessment to determine if a quantitative goodwill impairment test is necessary. The new standard will become effective for the Company beginning in fiscal 2021 with early adoption permitted. The Company does not believe it will have a significant impact on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01,
"Business Combinations (Topic 805): Clarifying the Definition of a Business."
The new guidance clarifies the definition of a business and provides further guidance for evaluating whether a transaction will be accounted for as an acquisition of an asset or a business. The new standard will become effective for the Company beginning in the first quarter of fiscal 2019 with early adoption permitted. The update should be applied prospectively. The Company does not believe it will have a significant impact on its consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18,
"Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)."
The new guidance requires the inclusion of restricted cash along with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
shown on the statement of cash flows. The new standard will become effective for the Company beginning in the first quarter of fiscal 2019 with early adoption permitted. The Company does not believe it will have a significant impact on its consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16,
"Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory
," which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The new standard will become effective for the Company in the first quarter of fiscal 2019 with early adoption permitted. The Company is currently evaluating the effects this new guidance will have on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15,
"Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the FASB’s Emerging Issues Task Force)."
The new guidance addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The new standard will become effective for the Company beginning in the first quarter of fiscal 2019 with early adoption permitted. The Company does not believe it will have a significant impact on its consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13,
"Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments."
The new guidance requires entities to use a current lifetime expected credit loss methodology to measure impairments of certain financial instruments. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The new standard will become effective for the Company beginning in the first quarter of fiscal 2021 with early adoption permitted. The Company does not believe it will have a significant impact on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09,
"Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting."
The new guidance will simplify certain aspects of accounting for share-based payment transactions, including income tax consequences, forfeitures, classification of awards on the balance sheet and presentation on the statement of cash flows. The new standard will become effective for the Company beginning in the first quarter of fiscal 2018. Upon adoption, the Company expects to recognize a cumulative-effect adjustment to reduce the Company's accumulated deficit and plans to continue its existing practice of estimating expected forfeitures in determining compensation cost. The Company does not believe adoption will have a significant impact on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
"Leases (Topic 842)."
The new guidance requires lessees to recognize a right-of-use asset and a lease liability for all leases with a term longer than 12 months, including those previously described as operating leases. Consistent with current U.S. GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will primarily depend on its classification as a finance or operating lease. The new guidance will become effective for the Company in the first quarter of fiscal 2020. The Company expects the valuation of the right-of-use assets and lease liabilities, for leases previously described as operating leases, to be the present value of its forecasted future lease commitments. The Company is continuing to assess the overall impacts of the new standard, including the discount rate to be applied in these valuations.
In January 2016, the FASB issued ASU 2016-01,
"Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities."
This new standard will affect the accounting for equity investments, financial liabilities measured under the fair value option and presentation and disclosure requirements for financial instruments. In addition, the FASB clarified guidance related to the assessment of valuation allowances when recognizing deferred tax assets related to unrealized losses on available-for-sale debt securities. The new standard is effective for the Company beginning in the first quarter of fiscal 2019. The Company does not believe it will have a significant impact on its consolidated financial statements.
In July 2015, the FASB issued ASU 2015-11,
"Inventory (Topic 330): Simplifying the Measurement of Inventory."
The new guidance changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value. ASU 2015-11 defines net realizable value as the estimated selling price in the ordinary course of business less reasonably predictable costs to completion, transportation, or disposal. The Company will
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
adopt the provisions of this standard in the first quarter of fiscal 2018 and does not believe adoption will have a significant impact on its consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, "
Revenue from Contracts with Customers (Topic 606)
," with several amendments subsequently issued. This new standard provides an updated framework for revenue recognition, resulting in a single revenue model to be applied by reporting companies under U.S. GAAP. Under the new model, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additional disclosures will be required regarding the nature, amount, timing and uncertainty of cash flows. The new guidance will become effective for the Company in the first quarter of fiscal 2019 and permits the use of either a retrospective approach or a modified retrospective approach, whereby the cumulative effect of adoption is recognized at the date of initial application. The Company has established a cross-functional team to assess the potential impact of the new revenue standard and its assessment will be completed during fiscal 2018. The Company's assessment process consists of reviewing its current accounting policies and practices to identify potential differences that may result from applying the requirements of the new standard to its revenue contracts and identifying appropriate changes to its business processes, systems and controls to support revenue recognition and disclosure requirements under the new standard. The Company currently anticipates adopting the standard using the modified retrospective approach.
Accounting Pronouncements Recently Adopted
In April 2015, the FASB issued ASU 2015-05
, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement
" which provides additional guidance to customers about whether a cloud computing arrangement includes a software license. Under this guidance, if a cloud computing arrangement contains a software license, customers should account for the license element of the arrangement in a manner consistent with the acquisition of other software licenses. If the arrangement does not contain a software license, customers should account for the arrangement as a service contract. The Company adopted the provisions of this standard in the first quarter of fiscal 2017, and there was no impact on its consolidated financial statements.
In September 2015, the FASB issued ASU 2015-16,
"Business Combinations (Topic 805): Simplifying the Accounting for Measurement Period Adjustments."
This standard requires an acquirer in a business combination to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The effect on earnings of changes in depreciation, amortization or other income effects, as a result of the change in provisional amounts, are to be included in the same period’s financial statements, calculated as if the accounting had been completed at the acquisition date. The amendments in this update became effective for the Company beginning in the first quarter of fiscal 2017 and will be applied prospectively to adjustments to provisional amounts that occur in the future.
2. CONCENTRATIONS OF CREDIT RISK
The Company’s principal financial instrument subject to potential concentration of credit risk is accounts receivable, which is unsecured. The Company provides an allowance for doubtful accounts equal to estimated losses expected to be incurred in the collection of accounts receivable. The Company has adopted credit policies and standards intended to accommodate industry growth and inherent risk and it believes that credit risks are moderated by the financial stability of its major customers, conservative payment terms and the Company’s strict credit policies.
Revenue from significant customers, those representing 10% or more of total revenue for the respective periods, are summarized as follows:
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2017
|
|
2016
|
|
2015
|
Apple Inc. ("Apple")
|
34%
|
|
37%
|
|
32%
|
Huawei Technologies Co., Ltd. ("Huawei")
|
11%
|
|
12%
|
|
7%
|
Samsung Electronics, Co., Ltd. ("Samsung")
|
7%
|
|
7%
|
|
14%
|
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The Company provided its products to Apple through sales to multiple contract manufacturers.
These customers primarily purchase cellular RF and WiFi solutions offered by the Company's MP segment for a variety of mobile devices, including smartphones, notebook computers, wearables, tablets and cellular-based applications for the IoT. In fiscal 2017, Huawei was the largest customer for the Company's IDP segment.
Accounts receivable related to these customers (which includes multiple contract manufacturers) accounted for
48%
,
51%
, and
50%
of the Company's total net accounts receivable balance as of
April 1, 2017
,
April 2, 2016
and
March 28, 2015
, respectively.
3. INVESTMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Investments
The following is a summary of cash equivalents and available-for-sale securities as of
April 1, 2017
and
April 2, 2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Estimated Fair
Value
|
April 1, 2017
|
|
|
|
|
|
|
|
Auction rate securities
|
$
|
2,150
|
|
|
$
|
—
|
|
|
$
|
(429
|
)
|
|
$
|
1,721
|
|
Money market funds
|
14
|
|
|
—
|
|
|
—
|
|
|
14
|
|
|
$
|
2,164
|
|
|
$
|
—
|
|
|
$
|
(429
|
)
|
|
$
|
1,735
|
|
April 2, 2016
|
|
|
|
|
|
|
|
U.S. government/agency securities
|
$
|
149,874
|
|
|
$
|
19
|
|
|
$
|
(1
|
)
|
|
$
|
149,892
|
|
Auction rate securities
|
2,150
|
|
|
—
|
|
|
(350
|
)
|
|
1,800
|
|
Corporate debt
|
45,510
|
|
|
—
|
|
|
—
|
|
|
45,510
|
|
Money market funds
|
146,779
|
|
|
—
|
|
|
—
|
|
|
146,779
|
|
|
$
|
344,313
|
|
|
$
|
19
|
|
|
$
|
(351
|
)
|
|
$
|
343,981
|
|
The estimated fair value of available-for-sale securities was based on the prevailing market values on
April 1, 2017
and
April 2, 2016
. The Company determines the cost of an investment sold based on the specific identification method.
There were
no
gross realized gains and insignificant gross realized losses recognized on available-for-sale securities for fiscal
2017
. There were
$10.0 million
of gross realized gains and insignificant gross realized losses recognized on available-for-sale securities for fiscal
2016
.
There were no unrealized losses on available-for-sale investments in a continuous loss position for fewer than 12 months as of
April 1, 2017
, and as of
April 2, 2016
, such unrealized losses were insignificant. Unrealized losses on available-for-sale investments in a continuous loss position for 12 months or greater were
$0.4 million
as of
April 1, 2017
and
April 2, 2016
.
The aggregate amount of available-for-sale securities in an unrealized loss position at
April 1, 2017
was
$1.7 million
with
$0.4 million
in unrealized losses. The aggregate amount of available-for-sale securities in an unrealized loss position at
April 2, 2016
was
$55.6 million
with
$0.4 million
in unrealized losses.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The expected maturity distribution of cash equivalents and available-for-sale debt securities is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1, 2017
|
|
April 2, 2016
|
|
Cost
|
|
Estimated
Fair Value
|
|
Cost
|
|
Estimated
Fair Value
|
Due in less than one year
|
$
|
14
|
|
|
$
|
14
|
|
|
$
|
342,163
|
|
|
$
|
342,181
|
|
Due after ten years
|
2,150
|
|
|
1,721
|
|
|
2,150
|
|
|
1,800
|
|
Total investments in debt securities
|
$
|
2,164
|
|
|
$
|
1,735
|
|
|
$
|
344,313
|
|
|
$
|
343,981
|
|
Other Investments
On August 4, 2015, the Company invested
$25.0 million
to acquire shares of Series F Preferred Stock of Cavendish Kinetics Limited, a private limited company incorporated in England and Wales. This investment was accounted for as a cost method investment and classified in "Long-term investments" in the Consolidated Balance Sheet.
Fair Value of Financial Instruments
Marketable securities are measured at fair value and recorded in "Cash and cash equivalents," "Short-term investments" and "Long-term investments" in the Consolidated Balance Sheets, and the related unrealized gains and losses are included in "Accumulated other comprehensive loss," a component of stockholders’ equity, net of tax.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Recurring Fair Value Measurements
The fair value of the financial assets measured at fair value on a recurring basis was determined using the following levels of inputs as of
April 1, 2017
and
April 2, 2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Quoted Prices In
Active Markets For
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
April 1, 2017
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Money market funds
|
$
|
14
|
|
|
$
|
14
|
|
|
$
|
—
|
|
|
|
Total cash and cash equivalents
|
14
|
|
|
14
|
|
|
—
|
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
Auction rate securities
(1)
|
1,721
|
|
|
—
|
|
|
1,721
|
|
|
|
Total available-for-sale securities
|
1,721
|
|
|
—
|
|
|
1,721
|
|
|
|
Invested funds in deferred compensation plan
(3)
|
10,237
|
|
|
10,237
|
|
|
—
|
|
|
|
|
|
Total assets measured at fair value
|
$
|
11,972
|
|
|
$
|
10,251
|
|
|
$
|
1,721
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Deferred compensation plan obligation
(3)
|
$
|
10,237
|
|
|
$
|
10,237
|
|
|
$
|
—
|
|
|
|
|
|
Total liabilities measured at fair value
|
$
|
10,237
|
|
|
$
|
10,237
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
April 2, 2016
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
Money market funds
|
$
|
146,779
|
|
|
$
|
146,779
|
|
|
$
|
—
|
|
|
|
Total cash and cash equivalents
|
146,779
|
|
|
146,779
|
|
|
—
|
|
|
|
Available for-sale securities:
|
|
|
|
|
|
|
|
|
|
U.S. government/agency securities
|
149,892
|
|
|
149,892
|
|
|
—
|
|
|
|
|
|
Auction rate securities
(1)
|
1,800
|
|
|
—
|
|
|
1,800
|
|
|
|
|
|
Corporate debt
(2)
|
45,510
|
|
|
—
|
|
|
45,510
|
|
|
|
Total available-for-sale securities
|
197,202
|
|
|
149,892
|
|
|
47,310
|
|
|
|
Invested funds in deferred compensation plan
(3)
|
6,468
|
|
|
6,468
|
|
|
—
|
|
|
|
|
|
Total assets measured at fair value
|
$
|
350,449
|
|
|
$
|
303,139
|
|
|
$
|
47,310
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Deferred compensation plan obligation
(3)
|
$
|
6,468
|
|
|
$
|
6,468
|
|
|
$
|
—
|
|
|
|
|
|
Total liabilities measured at fair value
|
$
|
6,468
|
|
|
$
|
6,468
|
|
|
$
|
—
|
|
(1) ARS are debt instruments with interest rates that reset through periodic short-term auctions. The Company's Level 2 ARS are valued based on quoted prices for identical or similar instruments in markets that are not active.
(2) Corporate debt includes corporate bonds and commercial paper which are valued using observable market prices for identical securities that are traded in less active markets.
(3) The 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 asset deferred by the participants in the “Other current assets” and “Other non-current assets” line items of its 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 Consolidated Balance Sheets.
As of
April 1, 2017
and
April 2, 2016
, the Company did not have any Level 3 assets or liabilities.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Nonrecurring Fair Value Measurements
The Company's non-financial assets, such as intangible assets and property and equipment, are measured at fair value when there is an indicator of impairment, and recorded at fair value only when an impairment charge is recognized.
Other Fair Value Disclosures
The carrying values of cash and cash equivalents, accounts receivable, accounts payable and other accrued liabilities approximate fair values because of the relatively short-term maturities of these instruments. See Note 8 for the fair value of the Company's long-term debt.
4.
INVENTORIES
The components of inventories, net of reserves, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
April 1, 2017
|
|
April 2, 2016
|
Raw materials
|
$
|
92,282
|
|
|
$
|
89,928
|
|
Work in process
|
198,339
|
|
|
228,626
|
|
Finished goods
|
139,833
|
|
|
108,997
|
|
Total inventories
|
$
|
430,454
|
|
|
$
|
427,551
|
|
5.
PROPERTY AND EQUIPMENT
The components of property and equipment, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
April 1, 2017
|
|
April 2, 2016
|
Land
|
$
|
25,025
|
|
|
$
|
25,255
|
|
Building and leasehold improvements
|
384,784
|
|
|
337,875
|
|
Machinery and equipment
|
1,565,233
|
|
|
1,188,310
|
|
Furniture and fixtures
|
14,482
|
|
|
13,884
|
|
Computer equipment and software
|
79,689
|
|
|
51,641
|
|
|
2,069,213
|
|
|
1,616,965
|
|
Less accumulated depreciation
|
(981,328
|
)
|
|
(751,898
|
)
|
|
1,087,885
|
|
|
865,067
|
|
Construction in progress
|
304,047
|
|
|
181,821
|
|
Total property and equipment, net
|
$
|
1,391,932
|
|
|
$
|
1,046,888
|
|
6. BUSINESS ACQUISITIONS
Acquisition of GreenPeak Technologies, B.V.
On April 29, 2016, the Company completed the acquisition of GreenPeak Technologies, B.V. ("GreenPeak"), a leader in ultra-low power, short RF communication technology. The acquisition expanded the Company's offerings to include integrated RF solutions and systems-on-a-chip ("SoCs") for the connected home. The Company acquired 100% of the outstanding equity securities of GreenPeak for a purchase price of
$118.1 million
, net of cash acquired of
$0.7 million
. The total purchase price was allocated to GreenPeak's assets and liabilities based upon fair values as determined by the Company and resulted in goodwill of
$38.2 million
. The measurement period (up to one year from the acquisition date pursuant to ASC Topic 805
"Business Combinations"
) will conclude during the first quarter of fiscal 2018.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Business Combination between RFMD and TriQuint
Effective January 1, 2015, pursuant to the Merger Agreement, RFMD and TriQuint completed a strategic combination of their respective businesses through the “merger of equals” Business Combination.
Based on an evaluation of the provisions of FASB ASC Topic 805, “
Business Combinations
,” RFMD was determined to be the acquirer for accounting purposes. Under FASB ASC Topic 805, RFMD was treated as having acquired TriQuint in an all-stock transaction for an estimated total purchase price of approximately
$5,254.4 million
. The calculation of the total purchase price was based on the outstanding shares of TriQuint common stock as of the acquisition date multiplied by the exchange ratio of
1.6749
, and the resulting shares were then adjusted by the
one-for-four
reverse stock split and multiplied by the Qorvo split-adjusted share price of
$66.36
on the date of acquisition. The purchase price also included the fair value of replacement equity awards attributable to service prior to the closing of the Business Combination, which was estimated based on the ratio of the service period rendered as of the acquisition date to the total service period.
The initial allocation to goodwill of
$2,036.7 million
represented the excess of the purchase price over the fair value of assets acquired and liabilities assumed, which amount was allocated to the Company's MP operating segment (
$1,745.5 million
) and IDP operating segment (
$291.2 million
). During the measurement period (which was concluded during the third quarter of fiscal 2016), adjustments of
$3.8 million
and
$1.1 million
were made to reduce goodwill and increase property and equipment and deferred taxes, respectively. Goodwill recognized from the Business Combination is not deductible for income tax purposes.
TriQuint's results of operations (revenue of
$259.5 million
and a net loss of
$132.5 million
) were included in the Company’s fiscal 2015 Consolidated Statements of Operations for the period of January 1, 2015 through March 28, 2015. The net loss includes adjustments for amortization expense of the acquired intangible assets, inventory step-up, stock-based compensation related to the Business Combination and restructuring expenses.
During fiscal years
2017
,
2016
and 2015, the Company incurred integration costs of approximately
$16.9 million
,
$26.5 million
, and
$31.3 million
, respectively, associated with the Business Combination. During fiscal years
2017
,
2016
and 2015, the Company incurred restructuring costs of approximately
$2.0 million
,
$10.1 million
, and
$10.9 million
, respectively, associated with the Business Combination. In addition, during fiscal 2015, the Company incurred acquisition costs of
$12.2 million
associated with the Business Combination.
The acquisition, integration and restructuring costs are being expensed as incurred and are presented in the Consolidated Statements of Operations as "Other operating expense." See Note 11 for further information on the restructuring.
Pro forma financial information (unaudited)
The following unaudited pro forma consolidated financial information for fiscal 2015 assumes that the Business Combination was completed as of March 29, 2014 (in thousands, except per share data):
|
|
|
|
|
|
2015
|
Revenue
|
$
|
2,556,045
|
|
Net income
|
30,447
|
|
Basic net income per share
|
$
|
0.21
|
|
Diluted net income per share
|
$
|
0.20
|
|
Pro forma revenue includes adjustments for the purchases by RFMD of various products from TriQuint. These results are not intended to be a projection of future results and do not reflect the actual revenue that might have been achieved by Qorvo. Pro forma net income includes adjustments for amortization expense of acquired intangible assets, stock-based compensation, acquisition-related costs, and an adjustment for income taxes. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the revenue or operating results that would have been achieved had the acquisition actually taken place as of March 29, 2014.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. GOODWILL AND INTANGIBLE ASSETS
The changes in the carrying amount of goodwill for fiscal years
2016
and
2017
, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile Products
|
|
Infrastructure and Defense Products
|
|
Total
|
Balance as of March 28, 2015
(1)
|
$
|
1,755,693
|
|
|
384,893
|
|
|
$
|
2,140,586
|
|
Measurement period adjustments from Business Combination
(Note 6)
|
(4,190
|
)
|
|
(699
|
)
|
|
(4,889
|
)
|
Balance as of April 2, 2016
(1)
|
1,751,503
|
|
|
384,194
|
|
|
2,135,697
|
|
GreenPeak acquisition
(Note 6)
|
—
|
|
|
38,217
|
|
|
38,217
|
|
Balance as of April 1, 2017
(1)
|
$
|
1,751,503
|
|
|
$
|
422,411
|
|
|
$
|
2,173,914
|
|
(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.
The following summarizes information regarding the gross carrying amounts and accumulated amortization of intangibles assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1, 2017
|
|
April 2, 2016
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
Intangible Assets:
|
|
|
|
|
|
|
|
Customer relationships
|
$
|
1,272,725
|
|
|
$
|
656,688
|
|
|
$
|
1,267,103
|
|
|
$
|
377,357
|
|
Developed technology
|
1,209,335
|
|
|
481,441
|
|
|
915,163
|
|
|
277,736
|
|
Backlog
|
65,000
|
|
|
65,000
|
|
|
65,000
|
|
|
65,000
|
|
Trade names
|
29,353
|
|
|
21,912
|
|
|
29,000
|
|
|
12,083
|
|
Wafer supply agreement
|
20,443
|
|
|
20,443
|
|
|
20,443
|
|
|
20,443
|
|
Technology licenses
|
13,346
|
|
|
11,711
|
|
|
12,446
|
|
|
11,021
|
|
Non-compete agreement
|
1,026
|
|
|
470
|
|
|
—
|
|
|
—
|
|
IPRD
|
47,000
|
|
|
N/A
|
|
|
267,000
|
|
|
N/A
|
|
Total
|
$
|
2,658,228
|
|
|
$
|
1,257,665
|
|
|
$
|
2,576,155
|
|
|
$
|
763,640
|
|
The GreenPeak acquisition resulted in an increase in intangible assets of
$82.1 million
. The more significant intangible assets acquired were developed technology of
$74.2 million
(which is being amortized over
7
years) and customer relationships of
$5.6 million
(which is being amortized over
3
years).
As a result of the Business Combination, intangible assets increased by
$2,394.0 million
. The following summarizes the related amortization expense recognized and its geography in the Consolidated Statements of Operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Cost of goods sold
|
$
|
190,792
|
|
|
$
|
199,257
|
|
|
$
|
49,583
|
|
Selling, general and administrative
|
283,000
|
|
|
283,000
|
|
|
70,750
|
|
Total
|
$
|
473,792
|
|
|
$
|
482,257
|
|
|
$
|
120,333
|
|
The IPRD acquired in the Business Combination of
$470.0 million
relates to the MP operating segment (
$350.0 million
) and the IDP operating segment (
$120.0 million
), and encompasses a broad technology portfolio of product innovations in RF applications for MP and IDP products. These technologies include a variety of semiconductor processes in GaAs and GaN for power and switching applications and surface acoustic wave ("SAW") and bulk acoustic wave ("BAW") structures for filter applications. Included in IPRD are continuous improvements in the process for design and
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
manufacturing as well as innovation in fundamental research areas such as materials, simulation and modeling, circuit design, device packaging and test. During fiscal 2016,
$203.0 million
of IPRD assets were completed, transferred to finite-lived intangible assets, and are being amortized over their useful lives of
4
to
6 years
.
During fiscal
2017
,
$220.0 million
of IPRD assets were completed, transferred to finite-lived intangible assets, and are being amortized over their useful lives of
4
years. As of
April 1, 2017
, the IPRD remaining for the MP operating segment totaled approximately
$37.0 million
, all of which was completed and transferred to finite-lived intangible assets in April 2017. As of
April 1, 2017
, the IPRD remaining for the IDP operating segment totaled approximately
$10.0 million
and is expected to be completed during fiscal 2019 with remaining costs to complete of approximately
$2.0 million
to
$3.0 million
.
The remaining IPRD asset is classified as an indefinite lived intangible asset that is not currently subject to amortization but is reviewed for impairment annually or whenever events or changes in circumstances indicate that the carrying value of such asset may not be recoverable. The IPRD asset will be subject to amortization upon completion of its respective research and at the start of commercialization. The fair value assigned to the IPRD asset was determined using the income approach based on estimates and judgments regarding risks inherent in the development process, including the likelihood of achieving technological success and market acceptance. If the IPRD is abandoned, the acquired technology attributable to the efforts will be expensed in the Consolidated Statements of Operations.
Total intangible assets amortization expense was
$494.8 million
,
$494.6 million
and
$142.7 million
in fiscal years
2017
,
2016
and
2015
, respectively.
The following table provides the Company's estimated amortization expense for intangible assets based on current amortization periods for the periods indicated (in thousands):
|
|
|
|
|
Fiscal Year
|
Estimated
Amortization
Expense
|
2018
|
$
|
540,954
|
|
2019
|
455,451
|
|
2020
|
206,986
|
|
2021
|
155,525
|
|
2022
|
26,849
|
|
8. DEBT
Debt as of
April 1, 2017
and
April 2, 2016
is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
April 1, 2017
|
|
April 2, 2016
|
6.75% Senior Notes due 2023
|
$
|
450,000
|
|
|
$
|
450,000
|
|
7.00% Senior Notes due 2025
|
550,000
|
|
|
550,000
|
|
Less unamortized issuance costs
|
(10,846
|
)
|
|
(11,870
|
)
|
Total long-term debt
|
$
|
989,154
|
|
|
$
|
988,130
|
|
Senior Notes
On November 19, 2015, the Company completed an offering of
$450.0 million
aggregate principal amount of its
6.75%
senior notes due December 1, 2023 (the “2023 Notes”) and
$550.0 million
aggregate principal amount of its
7.00%
senior notes due December 1, 2025 (the “2025 Notes” and, together with the 2023 Notes, the “Notes”). The Notes were sold in the United States to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States pursuant to Regulation S under the Securities Act.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The Notes were issued pursuant to an indenture, dated as of November 19, 2015 (the “Indenture”), by and among the Company, the Company’s domestic subsidiaries that guarantee the Company’s obligations under its revolving credit facility, as guarantors (the “Guarantors”), and MUFG Union Bank, N.A., as trustee. The Company used the net proceeds of the offering of the Notes for general corporate purposes, including share repurchases and merger and acquisition activity.
Interest is payable on the 2023 Notes at a rate of
6.75%
per annum and on the 2025 Notes at a rate of
7.00%
per annum. During
fiscal 2017
, the Company recognized
$69.9 million
of interest expense related to the Notes which was offset by
$13.6 million
of interest capitalized to property and equipment. During
fiscal 2016
, the Company recognized
$25.8 million
of interest expense related to the Notes, which was offset by
$5.2 million
of interest capitalized to property and equipment. Interest on both series of Notes is payable semi-annually on June 1 and December 1 of each year, and commenced on June 1, 2016. Interest paid on the Notes during
fiscal 2017
was
$71.2 million
.
At any time prior to December 1, 2018, the Company may redeem all or part of the 2023 Notes, at a redemption price equal to their principal amount, plus a “make whole” premium as of the redemption date, and accrued and unpaid interest. In addition, at any time prior to December 1, 2018, the Company may redeem up to
35%
of the original aggregate principal amount of the 2023 Notes with the proceeds of one or more equity offerings, at a redemption price equal to
106.75%
, plus accrued and unpaid interest. Furthermore, at any time on or after December 1, 2018, the Company may redeem the 2023 Notes, in whole or in part, at once or over time, at the specified redemption prices set forth in the Indenture plus accrued and unpaid interest thereon to the redemption date (subject to the rights of holders of record on the relevant record date to receive interest due on the relevant interest payment date).
At any time prior to December 1, 2020, the Company may redeem all or part of the 2025 Notes, at a redemption price equal to their principal amount, plus a “make whole” premium as of the redemption date, and accrued and unpaid interest. In addition, at any time prior to December 1, 2018, the Company may redeem up to
35%
of the original aggregate principal amount of the 2025 Notes with the proceeds of one or more equity offerings, at a redemption price equal to
107.00%
, plus accrued and unpaid interest. Furthermore, at any time on or after December 1, 2020, the Company may redeem the 2025 Notes, in whole or in part, at once or over time, at the specified redemption prices set forth in the Indenture plus accrued and unpaid interest thereon to the redemption date (subject to the rights of holders of record on the relevant record date to receive interest due on the relevant interest payment date).
The Indenture contains customary events of default, including payment default, failure to provide certain notices and certain provisions related to bankruptcy events. The Indenture also contains customary negative covenants.
In connection with the offering of the Notes, the Company agreed to provide the holders of the Notes with an opportunity to exchange the Notes for registered notes having terms substantially identical to the Notes. On September 19, 2016, the Company completed an exchange offer, in which all of the 2023 Notes and substantially all of the 2025 Notes were exchanged for new notes that have been registered under the Securities Act.
The 2023 Notes and the 2025 Notes are traded over the counter and their fair values as of
April 1, 2017
of
$489.4 million
and
$607.8 million
, respectively (compared to carrying values of
$450.0 million
and
$550.0 million
, respectively) were estimated based upon the values of their last trade at the end of the period. The fair values of the 2023 Notes and the 2025 Notes were
$465.8 million
and
$581.6 million
, respectively, as of
April 2, 2016
.
Credit Agreement
On April 7, 2015, the Company and the Guarantors entered into a five-year unsecured senior credit facility with Bank of America, N.A., as administrative agent (in such capacity, the “Administrative Agent”), swing line lender, and L/C issuer, and a syndicate of lenders (the “Credit Agreement”). The Credit Agreement includes a
$300.0 million
revolving credit facility, which includes a
$25.0 million
sublimit for the issuance of standby letters of credit and a
$10.0 million
sublimit for swing line loans. The Company may request, at any time and from time to time, that the revolving credit facility be increased by an amount not to exceed
$150.0 million
. The revolving credit facility is available to finance working capital, capital expenditures and other corporate purposes. The Company’s obligations under the Credit Agreement are jointly and severally guaranteed by the Guarantors. During
fiscal 2017
,
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
there were no borrowings under the revolving credit facility. The Company had no outstanding amounts under the Credit Agreement as of
April 1, 2017
and
April 2, 2016
.
At the Company's option, loans under the Credit Agreement will bear interest at (i) the Applicable Rate (as defined in the Credit Agreement) plus the Eurodollar Rate (as defined in the 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 of the Administrative Agent, or (c) the Eurodollar Base 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 Base Rate is the rate per annum equal to the London Interbank Offered Rate, as published by Bloomberg, 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
1.50%
per annum to
2.00%
per annum. The Applicable Rate for Base Rate loans ranges from
0.50%
per annum to
1.00%
per annum. Interest for Eurodollar Rate loans will be 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 will be payable quarterly in arrears. The Company will pay a letter of credit fee equal to the Applicable Rate multiplied by the daily amount available to be drawn under any letter of credit, a fronting fee, and any customary documentary and processing charges for any letter of credit issued under the Credit Agreement.
The Credit Agreement contains various conditions, covenants and representations with which the Company must be in compliance in order to borrow funds and to avoid an event of default, including financial covenants that the Company must maintain. On November 12, 2015, the Credit Agreement was amended to increase the size of certain of the negative covenant baskets and the threshold for certain negative covenant incurrence-based permissions and to raise the consolidated leverage ratio test from
2.50
to
1.00
to
3.00
to
1.00
as of the end of any fiscal quarter. The Company must also maintain a consolidated interest coverage ratio of not less than
3.00
to
1.00
as of the end of any fiscal quarter. As of
April 1, 2017
, the Company was in compliance with all of these covenants.
The Credit Agreement also contains customary events of default, and the occurrence of an event of default will increase the applicable rate of interest by
2.00%
and could result in the termination of commitments under the revolving credit facility, the declaration that all outstanding loans are due and payable in whole or in part and the requirement of cash collateral deposits in respect of outstanding letters of credit. Outstanding amounts are due in full on the maturity date of April 7, 2020 (with amounts borrowed under the swing line option due in full no later than ten business days after such loan is made).
9. RETIREMENT BENEFIT PLANS
Defined Contribution Plans
The Company offers tax-beneficial retirement contribution plans to eligible employees in the U.S and certain other countries. Eligible employees in certain countries outside of the U.S. are eligible to participate in stakeholder or national pension plans with differing eligibility and contributory requirements based on local and national regulations. U.S. employees are eligible to participate in the Company's fully qualified 401(k) plan immediately upon hire. An employee may invest pretax earnings in the 401(k) plan up to the maximum legal limits (as defined by Federal regulations). Employer contributions to the 401(k) plan are made at the discretion of the Company’s Board of Directors. Employees are immediately vested in their own contributions as well as employer matching contributions.
In total, the Company contributed
$11.5 million
,
$11.7 million
and
$6.5 million
to its domestic and foreign defined contribution plans during fiscal years
2017
,
2016
and
2015
, respectively.
Defined Benefit Pension Plans
As a result of the Business Combination, the Company maintains
two
qualified defined benefit pension plans for its subsidiaries located in Germany.
One
of the plans is funded through a self-paid reinsurance program with
$3.3 million
and
$3.4 million
of assets valued as of
April 1, 2017
and
April 2, 2016
, respectively. Assets of the funded plan are included in "Other non-current assets" in the Consolidated Balance Sheets. The net periodic benefit obligations of both plans was
$11.4 million
and
$11.3 million
as of
April 1, 2017
and
April 2, 2016
, respectively, which is included in “Accrued liabilities” and “Other long-term liabilities” in the Consolidated Balance Sheets. The assumptions used in calculating the benefit obligations for the plans are dependent on the local economic conditions
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
and were measured as of
April 1, 2017
and
April 2, 2016
. The net periodic benefit costs were approximately
$0.6 million
,
$0.8 million
and
$0.4 million
for fiscal years
2017
,
2016
and
2015
, respectively.
Non-Qualified Deferred Compensation Plan
Certain employees and members of the Board of Directors are eligible to participate in the Company's Non-Qualified Deferred Compensation Plan (the "NDCP"), which was assumed, amended and restated by Qorvo on January 1, 2015 as a result of the Business Combination. The NDCP provides eligible participants the opportunity to defer and invest a specified percentage of their cash compensation. The NDCP is a non-qualified plan that is maintained in a rabbi trust. The amount of compensation to be deferred by each participant is based on their own elections and is adjusted for any investment changes that the participant directs. The deferred compensation obligation and the fair value of the investments held in the rabbi trust were
$10.2 million
and
$6.5 million
as of
April 1, 2017
and
April 2, 2016
, respectively. The current portion of the deferred compensation obligation and fair value of the assets held in the rabbi trust were
$0.7 million
and
$0.5 million
as of
April 1, 2017
and
April 2, 2016
, respectively, and are included in "Other current assets" and "Accrued liabilities" in the Consolidated Balance Sheets. The non-current portion of the deferred compensation obligation and fair value of the assets held in the rabbi trust were
$9.5 million
and
$6.0 million
as of
April 1, 2017
and
April 2, 2016
, respectively, and are included in "Other non-current assets" and "Other long-term liabilities" in the Consolidated Balance Sheets.
10. COMMITMENTS AND CONTINGENT LIABILITIES
The Company leases certain of its corporate, wafer fabrication and other facilities from multiple third-party real estate developers. The remaining terms of these operating leases range from less than
one
year to
11 years
. Several of these leases have renewal options of up to
two
,
ten
-year periods and several also include standard inflation escalation terms. Several of these leases also include rent escalation, rent holidays, and leasehold improvement incentives which are recognized to expense on a straight-line basis. The amortization period of leasehold improvements made either at the inception of the lease or during the lease term is amortized over the lesser of the remaining life of the lease term (including renewals that are reasonably assured) or the useful life of the asset. The Company also leases various machinery and equipment and office equipment under non-cancelable operating leases. The remaining terms of these operating leases range from less than
one
year to approximately
three
years. As of
April 1, 2017
, the total future minimum lease payments related to facility and equipment operating leases is approximately
$63.5 million
.
Minimum future lease payments under non-cancelable operating leases as of
April 1, 2017
, are as follows (in thousands):
|
|
|
|
|
|
Fiscal Year
|
|
|
2018
|
|
$
|
13,720
|
|
2019
|
|
10,802
|
|
2020
|
|
8,036
|
|
2021
|
|
7,439
|
|
2022
|
|
6,193
|
|
Thereafter
|
|
17,266
|
|
Total minimum payment
|
|
$
|
63,456
|
|
Rent expense under operating leases, including facilities and equipment, was approximately
$14.8 million
,
$14.2 million
, and
$12.1 million
for fiscal years
2017
,
2016
and
2015
, respectively.
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.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
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. These actions, when finally concluded and determined, will not, in the opinion of management, have a material adverse effect upon the Company’s consolidated financial position or results of operations.
11. RESTRUCTURING
During fiscal years
2017
,
2016
and
2015
, the Company recorded restructuring expenses (including employee termination benefits, stock-based compensation and ongoing expenses related to exited leased facilities) in "Other operating expense" of approximately
$2.1 million
,
$10.2 million
and
$12.4 million
respectively, primarily as a result of the Business Combination (see Note 6). As of
April 1, 2017
and
April 2, 2016
, restructuring obligations relating to employee termination benefits totaled
$1.6 million
and are included in “Accrued liabilities” in the Consolidated Balance Sheets. As of
April 1, 2017
and
April 2, 2016
, restructuring obligations relating to lease obligations totaled
$2.1 million
and
$2.5 million
, respectively, and are included in "Other long-term liabilities" in the Consolidated Balance Sheets.
12. INCOME TAXES
Income (loss) before income taxes consists of the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2017
|
|
2016
|
|
2015
|
United States
|
$
|
2,439
|
|
|
$
|
(35,923
|
)
|
|
$
|
127,281
|
|
Foreign
|
24,866
|
|
|
33,061
|
|
|
(6,040
|
)
|
Total
|
$
|
27,305
|
|
|
$
|
(2,862
|
)
|
|
$
|
121,241
|
|
The components of the income tax provision are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2017
|
|
2016
|
|
2015
|
Current (expense) benefit:
|
|
|
|
|
|
Federal
|
$
|
(23,835
|
)
|
|
$
|
(4,285
|
)
|
|
$
|
(15,862
|
)
|
State
|
(476
|
)
|
|
(541
|
)
|
|
(2,871
|
)
|
Foreign
|
(47,579
|
)
|
|
(33,346
|
)
|
|
(16,175
|
)
|
|
(71,890
|
)
|
|
(38,172
|
)
|
|
(34,908
|
)
|
Deferred benefit (expense):
|
|
|
|
|
|
Federal
|
$
|
2,762
|
|
|
$
|
27,794
|
|
|
$
|
100,884
|
|
State
(1)
|
3,659
|
|
|
(31,229
|
)
|
|
3,928
|
|
Foreign
|
21,606
|
|
|
15,624
|
|
|
5,158
|
|
|
28,027
|
|
|
12,189
|
|
|
109,970
|
|
Total
|
$
|
(43,863
|
)
|
|
$
|
(25,983
|
)
|
|
$
|
75,062
|
|
(1) In fiscal
2016
, the state deferred tax expense included a
$31.0 million
income tax expense related to an increase in the valuation allowance for the deferred tax asset related to state net operating losses and tax credits.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
A reconciliation of the (provision for) or benefit from income taxes to income tax (expense) or benefit computed by applying the statutory federal income tax rate to pre-tax income (loss) for fiscal years
2017
,
2016
and
2015
is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2017
|
|
2016
|
|
2015
|
|
Amount
|
Percentage
|
|
Amount
|
Percentage
|
|
Amount
|
Percentage
|
Income tax (expense) benefit at statutory federal rate
|
$
|
(9,557
|
)
|
35.00
|
%
|
|
$
|
1,002
|
|
35.00
|
%
|
|
$
|
(42,434
|
)
|
35.00
|
%
|
(Increase) decrease resulting from:
|
|
|
|
|
|
|
|
|
State benefit (provision), net of federal (provision) benefit
|
(662
|
)
|
2.42
|
|
|
(1,320
|
)
|
(46.14
|
)
|
|
(6,710
|
)
|
5.53
|
|
Tax credits
|
15,352
|
|
(56.22
|
)
|
|
15,459
|
|
540.21
|
|
|
3,538
|
|
(2.92
|
)
|
Effect of changes in income tax rate applied to net deferred tax assets
|
1,163
|
|
(4.26
|
)
|
|
(2,716
|
)
|
(94.92
|
)
|
|
(20
|
)
|
0.02
|
|
Foreign tax rate difference
|
(11,298
|
)
|
41.38
|
|
|
4,114
|
|
143.77
|
|
|
(13,342
|
)
|
11.00
|
|
Foreign permanent differences
|
(8,432
|
)
|
30.88
|
|
|
(1,700
|
)
|
(59.40
|
)
|
|
—
|
|
—
|
|
Change in valuation allowance
|
1,363
|
|
(4.99
|
)
|
|
(25,120
|
)
|
(877.84
|
)
|
|
135,812
|
|
(112.02
|
)
|
Stock-based compensation
|
(3,228
|
)
|
11.82
|
|
|
(5,362
|
)
|
(187.37
|
)
|
|
(1,309
|
)
|
1.08
|
|
Tax reserve adjustments
|
(21,789
|
)
|
79.80
|
|
|
(8,699
|
)
|
(303.99
|
)
|
|
(3,928
|
)
|
3.24
|
|
Deemed dividend
|
(6,989
|
)
|
25.60
|
|
|
(3,984
|
)
|
(139.21
|
)
|
|
(2,751
|
)
|
2.27
|
|
Domestic production activities deduction
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
2,620
|
|
(2.16
|
)
|
Other income tax (expense) benefit
|
214
|
|
(0.79
|
)
|
|
2,343
|
|
81.89
|
|
|
3,586
|
|
(2.95
|
)
|
|
$
|
(43,863
|
)
|
160.64
|
%
|
|
$
|
(25,983
|
)
|
(908.00
|
)%
|
|
$
|
75,062
|
|
(61.91
|
)%
|
|
|
|
|
|
|
|
|
|
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the basis used for income tax purposes. The deferred income tax assets and liabilities are measured in each taxing jurisdiction using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Significant components of the Company’s net deferred income taxes are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2017
|
|
2016
|
Deferred income tax assets:
|
|
|
|
Inventory reserve
|
$
|
15,599
|
|
|
$
|
19,588
|
|
Equity compensation
|
83,333
|
|
|
93,340
|
|
Accumulated depreciation/basis difference
|
—
|
|
|
11,512
|
|
Net operating loss carry-forwards
|
40,575
|
|
|
52,050
|
|
Research and other credits
|
92,793
|
|
|
85,782
|
|
Employee benefits
|
13,247
|
|
|
12,659
|
|
Other deferred assets
|
23,355
|
|
|
19,876
|
|
Total deferred income tax assets
|
268,902
|
|
|
294,807
|
|
Valuation allowance
|
(33,104
|
)
|
|
(34,682
|
)
|
Total deferred income tax assets, net of valuation allowance
|
$
|
235,798
|
|
|
$
|
260,125
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
Amortization and purchase accounting basis difference
|
$
|
(258,422
|
)
|
|
$
|
(322,578
|
)
|
Accumulated depreciation/basis difference
|
(91,337
|
)
|
|
(70,140
|
)
|
Deferred gain
|
—
|
|
|
(1,227
|
)
|
Total deferred income tax liabilities
|
(349,759
|
)
|
|
(393,945
|
)
|
Net deferred income tax liabilities
|
$
|
(113,961
|
)
|
|
$
|
(133,820
|
)
|
|
|
|
|
Amounts included in the Consolidated Balance Sheets:
|
|
|
|
Non-current assets
|
17,550
|
|
|
18,340
|
|
Non-current liabilities
|
(131,511
|
)
|
|
(152,160
|
)
|
|
|
|
|
Net deferred income tax liabilities
|
$
|
(113,961
|
)
|
|
$
|
(133,820
|
)
|
The Company has recorded a
$33.1 million
and a
$34.7 million
valuation allowance against the U.S. deferred tax assets and deferred tax assets at foreign subsidiaries as of
April 1, 2017
and
April 2, 2016
, respectively. These valuation allowances were established based upon management's opinion that it is more likely than not (a likelihood of more than 50 percent) that the benefit of these deferred tax assets may 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 tax deferred assets exist. Management reevaluates the ability to realize the benefit of the deferred tax assets of the Company on a quarterly basis.
The valuation allowance against deferred tax assets
decreased
by
$1.6 million
in fiscal
2017
. The
decrease
was comprised of a
$5.2 million
decrease in the valuation allowance for foreign deferred tax assets primarily resulting from the removal of the valuation allowance at a China manufacturing subsidiary as management has determined it is more likely than not that the related deferred tax assets will be realized. This decrease was offset by a
$2.8 million
increase in the valuation allowance for federal deferred tax assets for foreign tax credits and state deferred tax assets for net operating losses and tax credits and a
$0.8 million
increase for deferred tax assets for net operating losses at other foreign subsidiaries. At the end of fiscal 2017, a
$0.8 million
valuation allowance remained against deferred tax assets at other foreign subsidiaries and a
$32.3 million
valuation allowance remained against domestic deferred tax assets as management has determined it is more likely than not that the related deferred tax assets will not be realized.
During fiscal 2017 the China manufacturing subsidiary, which operates as a cost plus manufacturer for another Qorvo subsidiary, exited its start-up operational phase and generated sufficient income to substantially offset the losses earned in prior years. The balance of the cumulative pre-tax book loss is expected to be offset by income in the first half of fiscal 2018 as production at the assembly and test facility continues to increase as the Company continues to reduce its dependence on outside assembly and test subcontractors. After evaluating the positive and negative evidence, management determined that it was more likely than not that the deferred tax assets of this China
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
manufacturing subsidiary would be realized and a valuation allowance would not be provided as of the end of fiscal 2017.
The valuation allowance against deferred tax assets increased by
$20.9 million
in fiscal
2016
. The increase was comprised of a
$20.2 million
increase in the valuation allowance for state deferred tax assets for net operating losses and tax credits, a
$5.0 million
increase in the valuation allowance for foreign net operating loss deferred tax assets, and a
$4.3 million
decrease in the valuation allowance related to a deferred tax asset recorded in the initial purchase price accounting for the Business Combination. The Business Combination adjustment related to a deferred tax asset which was recorded during fiscal 2015 in the initial purchase price accounting with a full valuation allowance, but which deferred tax asset was determined in fiscal 2016 to not exist as of the acquisition date. Accordingly, in fiscal 2016, that deferred tax asset was removed along with the offsetting deferred tax asset valuation allowance. At the end of fiscal 2016, a
$5.2 million
valuation allowance remained against foreign deferred tax assets and a
$29.5 million
valuation allowance remained against domestic deferred tax assets as management has determined it is more likely than not that the related deferred tax assets will not be realized, effectively increasing the domestic net deferred tax liabilities.
During fiscal 2016, North Carolina enacted legislation to reduce the corporate income tax rate from
5%
to
4%
and phase-in over a three-year period a move to a single sales factor apportionment methodology. In addition, the Company underwent operational changes to leverage existing resources and capabilities of its Singapore subsidiary and consolidate operations and responsibilities associated with its foreign back-end manufacturing operations and foreign customers in that Singapore subsidiary. Together these changes result in a significant decrease in the amount of future taxable income expected to be allocated to North Carolina and other states in which the net operating loss and tax credit carryovers existed. As a result, it was no longer more likely than not that the deferred tax assets related to those state net operating loss and tax credit carryovers for which a valuation allowance was being provided will be used before they expire. The deferred tax asset for foreign net operating losses primarily relates to the China subsidiary which owns the internal assembly and test facility that became operational during fiscal 2016 and had incurred losses since inception.
The valuation allowance against deferred tax assets decreased by
$129.5 million
in fiscal
2015
. The decrease was comprised of
$135.7 million
related to domestic deferred tax assets for which realization became more likely than not with the increase in domestic deferred tax liabilities related to domestic amortizable intangible assets arising in connection with the Business Combination and other changes in the net deferred tax assets for foreign subsidiaries during the fiscal year, offset by an increase of
$6.2 million
related to deferred tax assets acquired in the Business Combination that were not more likely than not of being realized. As of the end of fiscal 2015, a
$0.2 million
valuation allowance remained against foreign deferred tax assets and a
$13.6 million
valuation allowance remained against domestic deferred tax assets as it was more likely than not that the related deferred tax assets would not be realized, effectively increasing the domestic net deferred tax liabilities.
As of
April 1, 2017
, the Company had federal loss carryovers of approximately
$202.6 million
that expire in fiscal years 2020 to 2036 if unused and state losses of approximately
$209.3 million
that expire in fiscal years 2018 to 2036 if unused. Federal research credits of
$104.8 million
, federal foreign tax credits of
$5.0 million
, and state credits of
$57.4 million
may expire in fiscal years
2018
to
2037
,
2018
to
2027
, and
2018
to
2032
, respectively. Federal alternative minimum tax credits of
$3.2 million
will carry forward indefinitely. Foreign losses in China of approximately
$3.3 million
and in the Netherlands of approximately
$55.4 million
expire in fiscal
2021
and fiscal years
2018
to
2026
, respectively. Included in the amounts above are certain net operating losses and other tax attribute assets acquired in conjunction with acquisitions in the current and prior years. The utilization of acquired domestic assets is subject to certain annual limitations as required under Internal Revenue Code Section 382 and similar state income tax provisions.
The Company has continued to expand its operations and increase its investments in numerous international jurisdictions. These activities expose the Company to taxation in multiple foreign jurisdictions. It is management's opinion that current and future undistributed foreign earnings will be permanently reinvested. Accordingly, no provision for U.S. federal and state income taxes has been made thereon. It is not practical to estimate the additional tax that would be incurred, if any, if the permanently reinvested earnings were repatriated. At
April 1, 2017
, the Company has not provided U.S. taxes on approximately
$993.0 million
of undistributed earnings of foreign subsidiaries that have been indefinitely reinvested outside the U.S.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
In the Business Combination, the Company acquired foreign subsidiaries with tax holiday agreements in Costa Rica and Singapore. These tax holiday agreements have varying rates and expire in March 2024 and December 2021, respectively. In February 2017, Singapore enacted legislation that will exclude from the Company's existing Development and Expansion Incentive grant the benefit of the reduced tax rate for intellectual property income earned after June 30, 2021. Incentives from these countries are subject to the Company meeting certain employment and investment requirements. Income tax expense decreased by
$2.7 million
(approximately
$0.02
per basic and diluted share impact) in fiscal
2017
and
$8.3 million
(approximately
$0.06
per basic and diluted share impact) in fiscal
2016
as a result of these agreements.
The Company’s gross unrecognized tax benefits totaled
$90.6 million
as of
April 1, 2017
,
$69.1 million
as of
April 2, 2016
, and
$59.4 million
as of
March 28, 2015
. Of these amounts,
$84.4 million
(net of federal benefit of state taxes),
$64.2 million
(net of federal benefit of state taxes), and
$55.0 million
(net of federal benefit of state taxes) as of
April 1, 2017
,
April 2, 2016
, and
March 28, 2015
, respectively, represent the amounts of unrecognized tax benefits that, if recognized, would impact the effective tax rate in each of the fiscal years.
A reconciliation of fiscal
2015
through fiscal
2017
beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2017
|
|
2016
|
|
2015
|
Beginning balance
|
$
|
69,052
|
|
|
$
|
59,397
|
|
|
$
|
39,423
|
|
Additions based on positions related to current year
|
20,036
|
|
|
9,374
|
|
|
1,246
|
|
Additions for tax positions in prior years
|
1,878
|
|
|
2,723
|
|
|
23,986
|
|
Reductions for tax positions in prior years
|
(29
|
)
|
|
(1,973
|
)
|
|
(5,258
|
)
|
Expiration of statute of limitations
|
(322
|
)
|
|
(469
|
)
|
|
—
|
|
Ending balance
|
$
|
90,615
|
|
|
$
|
69,052
|
|
|
$
|
59,397
|
|
Of the fiscal 2015 additions to tax positions in prior years,
$17.1 million
was assumed by the Company in the Business Combination and relates to positions taken on tax returns for pre-acquisition periods.
It is the Company’s policy to recognize interest and penalties related to uncertain tax positions as a component of income tax expense. During fiscal years
2017
,
2016
and
2015
, the Company recognized
$2.1 million
,
$1.6 million
, and
$1.2 million
, respectively, of interest and penalties related to uncertain tax positions. Accrued interest and penalties related to unrecognized tax benefits totaled
$7.1 million
,
$5.0 million
, and
$3.4 million
as of
April 1, 2017
,
April 2, 2016
and
March 28, 2015
, respectively.
The unrecognized tax benefits of
$90.6 million
and accrued interest and penalties of
$7.1 million
at the end of fiscal
2017
are recorded on the balance sheet as a
$16.6 million
long-term liability, with the balance reducing the carrying value of the gross deferred tax assets.
Within the next
12 months
, the Company believes it is reasonably possible that only a minimal amount of gross unrecognized tax benefits will be reduced as a result of reductions for tax positions taken in prior years where the only uncertainty was related to the timing of the tax deduction.
Income taxes payable of
$31.7 million
and
$29.9 million
as of
April 1, 2017
and
April 2, 2016
, respectively, are included in "Other current liabilities" in the Consolidated Balance Sheets.
RFMD's and TriQuint's federal, North Carolina, and California tax returns for fiscal 2014 and calendar 2013, respectively, and subsequent tax years remain open for examination. The federal tax return for the short period ended January 1, 2015 for RFMD is currently under examination by the Internal Revenue Service and the Singapore tax return for calendar year 2012 is currently under examination by the Singapore tax authorities. The Company's China subsidiary in Beijing received notice in April 2017 for an audit of its calendar year 2013 through 2015 tax returns. An examination by the German taxing authorities of the returns for calendar years 2013 through 2015 was completed during fiscal 2017 with minimal adjustments and returns for subsequent fiscal tax years remain open for examination. The other material jurisdiction that is subject to examination by tax authorities is the U.K. (fiscal 2016
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
through present). Tax attributes (including net operating loss and credit carryovers) arising in earlier fiscal years remain open to adjustment.
13. NET (LOSS) INCOME PER SHARE
Pursuant to the terms of the Merger Agreement, effective January 1, 2015, the Company effected a one-for-four reverse stock split of the Company's issued and outstanding shares of common stock. In accordance with Staff Accounting Bulletin Topic 4.C, all share and per share information contained in the accompanying Consolidated Financial Statements, Notes to the Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operation (included in Item 7 of this report) have been retroactively adjusted to reflect the reverse stock split for all periods presented. See Note 6 for a further discussion of the Business Combination.
The following table sets forth the computation of basic and diluted net (loss) income per share (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Fiscal Year
|
|
2017
|
|
2016
|
|
2015
|
Numerator:
|
|
|
|
|
|
Numerator for basic and diluted net (loss) income per share — net (loss) income available to common stockholders
|
$
|
(16,558
|
)
|
|
$
|
(28,845
|
)
|
|
$
|
196,303
|
|
Denominator:
|
|
|
|
|
|
Denominator for basic net (loss) income per share — weighted average shares
|
127,121
|
|
|
141,937
|
|
|
90,477
|
|
Effect of dilutive securities:
|
|
|
|
|
|
Stock-based awards
|
—
|
|
|
—
|
|
|
2,734
|
|
Denominator for diluted net (loss) income per share — adjusted weighted average shares and assumed conversions
|
127,121
|
|
|
141,937
|
|
|
93,211
|
|
Basic net (loss) income per share
|
$
|
(0.13
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
2.17
|
|
Diluted net (loss) income per share
|
$
|
(0.13
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
2.11
|
|
In the computation of diluted net loss per share for fiscal years
2017
and
2016
, approximately
4.8 million
shares and
5.0 million
shares, respectively, were excluded because the effect of their inclusion would have been anti-dilutive. In the computation of diluted net income per share for fiscal
2015
, less than
0.1 million
shares were excluded because the exercise price of the options was greater than the average market price of the underlying common stock and the effect of their inclusion would have been anti-dilutive.
14. STOCK-BASED COMPENSATION
Summary of Stock Option Plans
2003 Stock Incentive Plan - RF Micro Devices, Inc.
The 2003 Stock Incentive Plan (the "2003 Plan") was approved by the Company's stockholders on July 22, 2003, and the Company was permitted to grant stock options and other types of equity incentive awards, such as stock appreciation rights, restricted stock awards, performance shares and performance units, under the 2003 Plan.
No
further awards can be granted under this plan.
2006 Directors’ Stock Option Plan - RF Micro Devices, Inc.
At the Company’s 2006 annual meeting of stockholders, stockholders of the Company adopted the 2006 Directors’ Stock Option Plan, which replaced the Non-Employee Directors’ Stock Option Plan and reserved an additional
0.3 million
shares of common stock for issuance to non-employee directors. Under the terms of this plan, non-employee directors were entitled to receive options to acquire shares of common stock.
No
further awards can be granted under this plan.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1996 Stock Incentive Program - TriQuint Semiconductor, Inc.
Effective upon the closing of the Business Combination, the Company assumed the TriQuint, Inc. 1996 Stock Incentive Program (the “TriQuint 1996 Stock Incentive Program”), originally adopted by TriQuint. The TriQuint 1996 Stock Incentive Program provided for the grant of incentive and non-qualified stock options to officers, outside directors and other employees of TriQuint or any parent or subsidiary. The TriQuint 1996 Stock Incentive Program was amended in 2002 to provide that options granted thereunder must have an exercise price per share no less than
100%
of the fair market value of the share price on the grant date. In 2005, the TriQuint 1996 Stock Incentive Program was further amended to extend the term of the program to 2015 and permit the award of restricted stock, restricted stock units, stock appreciation rights, performance shares and performance units in addition to the grant of stock options. In addition, the amendment provided specific performance criteria that the plan administrator may use to establish performance objectives. The terms of each grant under the TriQuint 1996 Stock Incentive Program could not exceed
ten years
.
No
further awards can be granted under this program.
2008 Inducement Award Plan- TriQuint Semiconductor, Inc.
Effective upon the closing of the Business Combination, the Company assumed the sponsorship of the TriQuint, Inc. 2008 Inducement Award Plan (the “TriQuint 2008 Inducement Award Plan”), originally adopted by TriQuint. The TriQuint 2008 Inducement Award Plan provided for the grant of nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights and other stock or cash awards to employees of TriQuint or any parent or subsidiary. The options granted thereunder were required to have an exercise price per share no less than
100%
of the fair market value per share on the date of grant. The terms of each grant under the plan could not exceed
ten years
.
No
further awards can be granted under this plan.
2009 and 2012 Incentive Plans - TriQuint Semiconductor, Inc.
Effective upon the closing of the Business Combination, the Company assumed the TriQuint, Inc. 2009 Incentive Plan and TriQuint, Inc. 2012 Incentive Plan (the “TriQuint Incentive Plans”), originally adopted by TriQuint. The TriQuint Incentive Plans provided for the grant of stock options, restricted stock units, stock appreciation rights and other stock or cash awards to employees, officers, directors, consultants, agents, advisors and independent contractors of TriQuint and its subsidiaries and affiliates. The options granted thereunder were required to have an exercise price per share no less than
100%
of the fair market value per share on the date of grant. The terms of each grant under the TriQuint Incentive Plans could not exceed
ten years
.
No
further awards can be granted under these plans.
2012 Stock Incentive Plan - Qorvo, Inc.
The Company currently grants stock options and restricted stock units to employees and directors under the 2012 Stock Incentive Plan (the "2012 Plan"), which was approved by the Company's stockholders on August 16, 2012 and assumed by the Company in connection with the Business Combination. Under the 2012 Plan, the Company is permitted to grant stock options and other types of equity incentive awards, such as stock appreciation rights, restricted stock awards, performance shares and performance units. The maximum number of shares issuable under the 2012 Plan may not exceed the sum of (a)
4.3 million
shares, plus (b) any shares of common stock (i) remaining available for issuance as of the effective date of the 2012 Plan under the Company's prior plans and (ii) subject to an award granted under a prior plan, which awards are forfeited, canceled, terminated, expire or lapse for any reason. As of
April 1, 2017
,
3.9 million
shares were available for issuance under the 2012 Plan. The aggregate number of shares subject to performance-based restricted stock units awarded for fiscal
2017
under the 2012 Plan was
0.2 million
shares.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2013 Incentive Plan - Qorvo, Inc.
Effective upon the closing of the Business Combination, the Company assumed the TriQuint, Inc. 2013 Incentive Plan (the “TriQuint 2013 Incentive Plan”), originally adopted by TriQuint, allowing Qorvo to issue awards under this plan. The TriQuint 2013 Incentive Plan replaces the TriQuint 2012 Incentive Plan and provides for the grant of stock options, restricted stock units, stock appreciation rights and other stock or cash awards to employees, officers, directors, consultants, agents, advisors and independent contractors of TriQuint and its subsidiaries and affiliates who were such prior to the Business Combination or who become employed by the Company or its affiliates after the closing of the Business Combination. Former employees, officers and directors of RFMD are not eligible for awards under the TriQuint 2013 Incentive Plan. The options granted thereunder must have an exercise price per share no less than
100%
of the fair market value per share on the date of grant. The terms of each grant under the TriQuint 2013 Incentive Plan may not exceed
ten years
. As of
April 1, 2017
,
2.9 million
shares were available for issuance under the TriQuint 2013 Incentive Plan.
2015 Inducement Stock Plan - Qorvo, Inc.
The 2015 Inducement Stock Plan (the "2015 Inducement Plan") provides for the grant of equity awards to persons as a material inducement to become employees of the Company or its affiliates. The plan provides for the grant of stock options, restricted stock units, stock appreciation rights and other stock-based awards. The maximum number of shares issuable under the 2015 Inducement Plan may not exceed the sum of (a)
0.3 million
shares, plus (b) any shares of common stock (i) remaining available for issuance as of the effective date of the 2015 Inducement Stock Plan under the TriQuint 2008 Inducement Award Plan and (ii) subject to an award granted under the TriQuint 2008 Inducement Award Plan, which awards are forfeited, canceled, terminated, expire or lapse for any reason.
No
awards were made under the 2015 Inducement Plan in fiscal years 2017, 2016 or 2015.
Employee Stock Purchase Plan - Qorvo, Inc.
Effective upon closing of the Business Combination, the Company assumed the TriQuint Employee Stock Purchase Plan ("ESPP"), which is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code. All regular full-time employees of the Company (including officers) and all other employees who meet the eligibility requirements of the plan may participate in the ESPP. The ESPP provides eligible employees an opportunity to acquire the Company’s common stock at
85.0%
of the lower of the closing price per share of the Company’s common stock on the first or last day of each
six
-month purchase period. At
April 1, 2017
,
5.1 million
shares were available for future issuance under this plan. The Company makes no cash contributions to the ESPP, but bears the expenses of its administration. The Company issued
0.7 million
,
0.4 million
and
0.1 million
shares under the ESPP in fiscal years
2017
,
2016
and
2015
, respectively.
For fiscal years
2017
,
2016
and
2015
, the primary stock-based awards and their general terms and conditions are as follows:
Stock options are granted to employees with an exercise price equal to the market price of the Company’s stock at the date of grant, generally vest over a
four
-year period from the grant date, and generally expire
10 years
from the grant date. Restricted stock units granted by the Company in fiscal years
2017
,
2016
and
2015
are either service-based, performance and service-based, or based on total stockholder return. Service-based restricted stock units generally vest over a
four
-year period from the grant date. Performance and service-based restricted stock units are earned based on Company performance of stated metrics generally during the fiscal year and, if earned, vest one-half when earned and the balance over
two
years. Restricted stock units based on total stockholder return are earned based upon total stockholder return of the Company in comparison to the total stockholder return of a benchmark index and can be earned over
one
-,
two
- and
three
-year performance periods. Under the 2012 Plan for fiscal 2015, stock options granted to non-employee directors (other than initial options, as described below) had an exercise price equal to the fair market value of the Company’s stock at the date of grant, vested immediately upon grant and expire
10 years
from the grant date. In fiscal 2017, each non-employee director was eligible to receive an annual grant of restricted stock units.
The options and restricted stock units granted to certain officers of the Company generally will, in the event of the officer's termination other than for cause and subject to the officer executing certain agreements in favor of the Company, continue to vest pursuant to the same vesting schedule as if the officer had remained an employee of the
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Company and as a result, these awards are expensed at grant date. In fiscal
2017
, stock-based compensation of
$21.0 million
was recognized upon the grant of
0.4 million
restricted share units to certain officers of the Company.
Stock-Based Compensation
Under ASC 718, 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.
ASC 718 covers a wide range of stock-based compensation arrangements including stock options, restricted share plans, performance-based awards, share appreciation rights and employee stock purchase plans.
Total pre-tax stock-based compensation expense recognized in the Consolidated Statements of Operations was
$88.8 million
for fiscal
2017
, net of expense capitalized into inventory. For fiscal years
2016
and
2015
, the total pre-tax stock-based compensation expense recognized was
$139.5 million
and
$64.9 million
, respectively, net of expense capitalized into inventory.
A summary of activity of the Company’s director and employee stock option plans follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
(in thousands)
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-Average Remaining Contractual Term (in years)
|
|
Aggregate
Intrinsic
Value
(in thousands)
|
Outstanding as of April 2, 2016
|
6,134
|
|
$
|
18.93
|
|
|
|
|
|
Granted
|
0
|
|
$
|
0.00
|
|
|
|
|
|
Exercised
|
(1,915)
|
|
$
|
16.91
|
|
|
|
|
|
Canceled
|
(34)
|
|
$
|
33.26
|
|
|
|
|
|
Forfeited
|
(8)
|
|
$
|
30.26
|
|
|
|
|
|
Outstanding as of April 1, 2017
|
4,177
|
|
$
|
19.72
|
|
|
4.36
|
|
$
|
204,035
|
|
Vested and expected to vest as of April 1, 2017
|
4,176
|
|
$
|
19.71
|
|
|
4.36
|
|
$
|
204,012
|
|
Options exercisable as of April 1, 2017
|
3,960
|
|
$
|
19.00
|
|
|
4.33
|
|
$
|
196,233
|
|
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value, based upon the Company’s closing stock price of
$68.56
as of March 31, 2017 (the last business day prior to the fiscal year end on
April 1, 2017
), that would have been received by the option holders had all option holders with in-the-money options exercised their options as of that date. As of
April 1, 2017
, total remaining unearned compensation cost related to unvested option awards was
$3.2 million
, which will be amortized over the weighted-average remaining service period of approximately
0.8
years.
The fair value of each option award is estimated on the date of grant using a Black-Scholes option-pricing model based on the assumptions noted in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2017
|
|
2016
|
|
2015
|
Expected volatility
|
N/A
|
|
42.8
|
%
|
|
40.6
|
%
|
Expected dividend yield
|
N/A
|
|
0.0
|
%
|
|
0.0
|
%
|
Expected term (in years)
|
N/A
|
|
5.7
|
|
|
5.6
|
|
Risk-free interest rate
|
N/A
|
|
1.6
|
%
|
|
1.7
|
%
|
Weighted-average grant-date fair value of options granted during the period
|
N/A
|
|
$
|
32.62
|
|
|
$
|
22.49
|
|
The total intrinsic value of options exercised during fiscal
2017
, was
$81.0 million
. For fiscal years
2016
and
2015
, the total intrinsic value of options exercised was
$74.9 million
and
$83.7 million
, respectively.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Cash received from the exercise of stock options and from participation in the employee stock purchase plan (excluding accrued unremitted employee funds) was approximately
$58.0 million
for fiscal
2017
and is reflected in cash flows from financing activities in the Consolidated Statements of Cash Flows. The Company settles employee stock options with newly issued shares of the Company's common stock.
The Company used the implied volatility of market-traded options on the Company’s common stock for the expected volatility assumption input to the Black-Scholes option-pricing model, consistent with the guidance in ASC 718. The selection of implied volatility data to estimate expected volatility was based upon the availability of actively-traded options on the Company’s common stock and the Company’s assessment that implied volatility is more representative of future common stock price trends than historical volatility.
The dividend yield assumption is based on the Company’s history and expectation of future dividend payouts and may be subject to change in the future. The Company has never paid a dividend.
The expected life of employee stock options represents the weighted-average period that the stock options are expected to remain outstanding. The Company’s method of calculating the expected term of an option is based on the assumption that all outstanding options will be exercised at the midpoint of the current date and full contractual term, combined with the average life of all options that have been exercised or canceled. The Company believes that this method provides a better estimate of the future expected life based on analysis of historical exercise behavioral data.
The risk-free interest rate assumption is based upon observed interest rates appropriate for the terms of the Company’s employee stock options.
ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Based upon historical pre-vesting forfeiture experience, the Company assumed an annualized forfeiture rate of
1.6%
for both stock options and restricted stock units.
The following activity has occurred with respect to restricted stock unit awards:
|
|
|
|
|
|
|
|
|
Shares
(in thousands)
|
|
Weighted-Average
Grant-Date
Fair Value
|
Balance at April 2, 2016
|
2,095
|
|
|
$
|
47.09
|
|
Granted
|
1,223
|
|
|
52.80
|
|
Vested
|
(857)
|
|
|
37.59
|
|
Forfeited
|
(86)
|
|
|
53.10
|
|
Balance at April 1, 2017
|
2,375
|
|
|
$
|
53.00
|
|
As of
April 1, 2017
, total remaining unearned compensation cost related to unvested restricted stock units was
$67.3 million
, which will be amortized over the weighted-average remaining service period of approximately
1.3 years
.
The total fair value of restricted stock units that vested during fiscal
2017
was
$46.1 million
, based upon the fair market value of the Company’s common stock on the vesting date. For fiscal years
2016
and
2015
, the total fair value of restricted stock units that vested was
$60.2 million
and
$93.5 million
, respectively.
15. STOCKHOLDERS’ EQUITY
Stock Repurchase
On February 5, 2015, the Company announced that its Board of Directors authorized the repurchase of up to
$200.0 million
of the Company's outstanding common stock from time to time on the open market or in privately negotiated transactions. On August 11, 2015, the Company announced completion of this program.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
On August 11, 2015, the Company announced that its Board of Directors authorized the repurchase of up to
$400.0 million
of the Company's outstanding common stock from time to time on the open market or in privately negotiated transactions. On September 10, 2015, the Company announced the completion of this program.
On November 5, 2015, the Company announced that its Board of Directors authorized a share repurchase program to repurchase up to
$1.0 billion
of the Company's outstanding common stock through November 4, 2016. On February 16, 2016, as part of the
$1.0 billion
share repurchase program, the Company entered into variable maturity accelerated share repurchase ("ASR") agreements (a
$250.0 million
collared agreement and a
$250.0 million
uncollared agreement) with Bank of America, N.A. For the upfront payment of
$500.0 million
, the Company received
3.1 million
shares of its common stock under the collared agreement (representing
50%
of the shares the Company would have repurchased assuming an average share price of
$40.78
) and
4.9 million
shares of the Company's common stock under the uncollared agreement (representing
80%
of the shares the Company would have repurchased assuming an average share price of
$40.78
). On March 10, 2016, the Company received an additional
2.0 million
shares of its common stock under the collared agreement. Final settlements of the ASR agreements were completed during the first quarter of fiscal 2017 with
0.4 million
shares received resulting in a total of
10.4 million
shares of the Company's common stock repurchased under the ASR agreements. The shares were retired in the periods they were delivered, and the upfront payment was accounted for as a reduction to stockholders' equity in the Consolidated Balance Sheet in the period the payment was made. The Company reflected each ASR as a repurchase of common stock in the period delivered for purposes of calculating earnings per share.
On November 3, 2016, the Company announced that its Board of Directors authorized a share repurchase program to repurchase up to
$500.0 million
of the Company's outstanding stock. Under this program, share repurchases will be 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 will depend 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 and does not have a fixed term, and may be modified, suspended or terminated at any time without prior notice. This new program includes approximately
$150.0 million
authorized on the
$1.0 billion
repurchase program that expired November 4, 2016.
The Company repurchased
4.1 million
shares (inclusive of the
0.4 million
shares received under the ASR agreement),
24.3 million
shares (inclusive of
10.0 million
shares received under the ASR agreement) and
0.8 million
shares of its common stock during fiscal years 2017, 2016 and 2015, respectively, at an aggregate cost of
$209.4 million
,
$1,300.0 million
and
$50.9 million
, respectively, in accordance with the share repurchase programs described above. As of
April 1, 2017
,
$382.0 million
remains available for future repurchases under our current share repurchase program.
In connection with the Business Combination, each share of RFMD common stock was converted into the right to receive
0.25
of a share of Qorvo common stock plus cash in lieu of fractional shares, and each share of TriQuint common stock was converted into the right to receive
0.4187
of a share of Qorvo common stock plus cash in lieu of fractional shares. Approximately
13,160
fractional shares were repurchased for
$0.9 million
.
Common Stock Reserved For Future Issuance
At
April 1, 2017
, the Company had reserved a total of approximately
18.7 million
of its authorized
405.0 million
shares of common stock for future issuance as follows (in thousands):
|
|
|
Outstanding stock options under formal directors’ and employees’ stock option plans
|
4,177
|
Possible future issuance under Company stock incentive plans
|
6,989
|
Employee stock purchase plan
|
5,135
|
Restricted stock-based units granted
|
2,375
|
Total shares reserved
|
18,676
|
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
16. OPERATING SEGMENT AND GEOGRAPHIC INFORMATION
The Company's operating segments as of
April 1, 2017
are MP and IDP based on the organizational structure and information reviewed by the Company's Chief Executive Officer, who is the Company's chief operating decision maker ("CODM"), and these segments are managed separately based on the end markets and applications they support. The CODM allocates resources and assesses the performance of each operating segment primarily based on non-GAAP operating income (loss) and non-GAAP operating income (loss) as a percentage of revenue.
MP supplies cellular RF and WiFi solutions into a variety of mobile devices, including smartphones, notebook computers, wearables, tablets, and cellular-based applications for the IoT. Mobile device manufacturers and mobile network operators are adopting new technologies to address the growing demand for data-intensive, increasingly cloud-based, distributed applications and for mobile devices with smaller form factors, improved signal quality, less heat and longer talk and standby times. New wireless communications standards are being deployed to utilize available spectrum more efficiently. Carrier aggregation is being implemented, primarily in the downlink, to support wider bandwidths, increase data rates and improve network performance. These trends increase the complexity of smartphones, require more RF content and place a premium on performance, integration, systems-level expertise, and product and technology portfolio breadth, all of which are MP strengths. MP offers a comprehensive product portfolio of BAW and SAW filters, power amplifiers ("PAs"), low noise amplifiers ("LNAs"), switches, multimode multi-band PAs and transmit modules, RF power management integrated circuits, diversity receive modules, antenna switch modules, antenna tuning and control solutions, modules incorporating PAs and duplexers and modules incorporating switches, PAs and duplexers.
IDP is a leading global supplier of RF solutions with a diverse portfolio of solutions that "connect and protect," spanning communications, network infrastructure and defense applications. These applications include high performance defense systems such as radar, electronic warfare and communication systems, WiFi customer premises equipment for home and work, high speed connectivity in Long-Term Evolution and 5G base stations, cloud connectivity via data center communications and telecom transport, automotive connectivity and smart home solutions. IDP products include high power GaAs and GaN PAs, LNAs, switches, CMOS SoC solutions, premium BAW and SAW filter solutions and various multi-chip and hybrid assemblies.
The “All other” category includes operating expenses such as stock-based compensation, amortization of intangible assets, acquisition and integration related costs, acquired inventory step-up and revaluation, intellectual property rights ("IPR") litigation settlement (costs), restructuring and disposal costs, start-up costs, gain (loss) on assets and other miscellaneous corporate overhead expenses that the Company does not allocate to its reportable segments because these expenses are not included in the segment operating performance measures evaluated by the Company’s CODM. The CODM does not evaluate operating segments using discrete asset information. The Company’s operating segments do not record intercompany revenue. The Company does not allocate gains and losses from equity investments, interest and other income, or taxes to operating segments. Except as discussed above regarding the “All other” category, the Company’s accounting policies for segment reporting are the same as for the Company as a whole.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The following tables present details of the Company’s reportable segments and a reconciliation of the “All other” category (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2017
|
|
2016
|
|
2015
|
Revenue:
|
|
|
|
|
|
MP
|
$
|
2,384,041
|
|
|
$
|
2,083,334
|
|
|
$
|
1,395,035
|
|
IDP
|
644,653
|
|
|
523,512
|
|
|
313,274
|
|
All other (1)
|
3,880
|
|
|
3,880
|
|
|
2,657
|
|
Total revenue
|
$
|
3,032,574
|
|
|
$
|
2,610,726
|
|
|
$
|
1,710,966
|
|
Income from operations:
|
|
|
|
|
|
MP
|
$
|
554,001
|
|
|
$
|
591,751
|
|
|
$
|
404,382
|
|
IDP
|
152,539
|
|
|
108,370
|
|
|
72,262
|
|
All other
|
(618,481
|
)
|
|
(688,153
|
)
|
|
(354,178
|
)
|
Income from operations
|
$
|
88,059
|
|
|
$
|
11,968
|
|
|
$
|
122,466
|
|
Interest expense
|
$
|
(58,879
|
)
|
|
$
|
(23,316
|
)
|
|
$
|
(1,421
|
)
|
Interest income
|
1,212
|
|
|
2,068
|
|
|
450
|
|
Other (expense) income
|
(3,087
|
)
|
|
6,418
|
|
|
(254
|
)
|
Income (loss) before income taxes
|
$
|
27,305
|
|
|
$
|
(2,862
|
)
|
|
$
|
121,241
|
|
(1) "All other" revenue relates to royalty income that is not allocated to MP or IDP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2017
|
|
2016
|
|
2015
|
Reconciliation of “All other” category:
|
|
|
|
|
|
Stock-based compensation expense
|
$
|
(88,845
|
)
|
|
$
|
(139,516
|
)
|
|
$
|
(64,941
|
)
|
Amortization of intangible assets
|
(494,387
|
)
|
|
(494,589
|
)
|
|
(142,749
|
)
|
Acquired inventory step-up and revaluation
|
(1,517
|
)
|
|
—
|
|
|
(72,850
|
)
|
Acquisition and integration related costs
|
(25,391
|
)
|
|
(26,503
|
)
|
|
(41,539
|
)
|
Restructuring and disposal costs
|
(1,696
|
)
|
|
(4,235
|
)
|
|
(14,175
|
)
|
IPR litigation settlement (costs)
|
4,337
|
|
|
(1,205
|
)
|
|
(8,263
|
)
|
Start-up costs
|
(9,694
|
)
|
|
(14,110
|
)
|
|
(1,698
|
)
|
Other expenses (including (gain) loss on assets and other miscellaneous corporate overhead)
|
(1,288
|
)
|
|
(7,995
|
)
|
|
(7,963
|
)
|
Loss from operations for “All other”
|
$
|
(618,481
|
)
|
|
$
|
(688,153
|
)
|
|
$
|
(354,178
|
)
|
The consolidated financial statements include revenue to customers by geographic region that are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2017
|
|
2016
|
|
2015
|
Revenue:
|
|
|
|
|
|
United States
|
$
|
467,031
|
|
|
$
|
306,328
|
|
|
$
|
315,775
|
|
International
|
2,565,543
|
|
|
2,304,398
|
|
|
1,395,191
|
|
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2017
|
|
2016
|
|
2015
|
Revenue:
|
|
|
|
|
|
United States
|
15%
|
|
12%
|
|
18%
|
Asia
|
81
|
|
83
|
|
75
|
Europe
|
3
|
|
4
|
|
6
|
Other
|
1
|
|
1
|
|
1
|
Sales, for geographic disclosure purposes, are based on the “sold to” address of the customer. The “sold to” address is not always an accurate representation of the location of final consumption of the Company’s components. Of the Company’s total revenue for fiscal
2017
, approximately
62%
(
$1,866.0 million
) was from customers in China and
13%
(
$398.4 million
) from customers in Taiwan. Of the Company’s total revenue for fiscal years
2016
and
2015
, approximately
61%
(
$1,601.0 million
) and
49%
(
$841.0 million
), respectively, was from customers in China and
14%
(
$365.1 million
) and
19%
(
$332.5 million
), respectively, was from customers in Taiwan.
The consolidated financial statements include the following long-lived tangible asset amounts related to operations of the Company by geographic region (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1, 2017
|
|
April 2, 2016
|
|
March 28, 2015
|
Long-lived tangible assets:
|
|
|
|
|
|
United States
|
$
|
1,082,754
|
|
|
$
|
816,882
|
|
|
$
|
697,305
|
|
China
|
244,728
|
|
|
183,836
|
|
|
126,509
|
|
Other countries
|
64,450
|
|
|
46,170
|
|
|
59,557
|
|
17. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
In accordance with the indenture dated as of November 19, 2015, governing the Company's
$450.0 million
aggregate principal amount of its
6.75%
senior notes due December 1, 2023 and
$550.0 million
aggregate principal amount of its
7.00%
senior notes due December 1, 2025, certain of the Company's subsidiaries have guaranteed the Company's obligations under these Notes. The Notes are fully and unconditionally guaranteed on a joint and several basis by each Guarantor, each of which is 100% owned, directly or indirectly, by Qorvo, Inc. A Guarantor can be released in certain customary circumstances.
The following presents the condensed consolidating financial information separately for:
|
|
(i)
|
Parent Company, the issuer of the guaranteed obligations;
|
|
|
(ii)
|
Guarantor subsidiaries, on a combined basis, as specified in the indenture;
|
|
|
(iii)
|
Non-guarantor subsidiaries, on a combined basis;
|
|
|
(iv)
|
Consolidating entries and eliminations representing adjustments to (a) eliminate intercompany transactions between or among Parent Company, the guarantor subsidiaries and the non-guarantor subsidiaries, (b) eliminate intercompany profit in inventory, (c) eliminate the investments in the Company’s subsidiaries and (d) record consolidating entries; and
|
|
|
(v)
|
The Company, on a consolidated basis.
|
Each entity in the condensed consolidating financial information follows the same accounting policies as described in the consolidated financial statements, except for the use by the Parent Company and guarantor subsidiaries of the equity method of accounting to reflect ownership interests in subsidiaries that are eliminated upon consolidation. The financial information may not necessarily be indicative of the financial position, results of operations, comprehensive (loss) income, and cash flows, had the Parent Company, guarantor or non-guarantor subsidiaries operated as independent entities.
The Company has made certain immaterial corrections to the prior period Condensed Consolidating Balance Sheet and Statement of Operations and Comprehensive (Loss) Income. An adjustment to goodwill between the guarantor and non-guarantor subsidiaries of
$750.2 million
has been presented within the Condensed Consolidating Balance Sheet as of April 2, 2016 to properly reflect the pushdown of goodwill to the non-guarantor subsidiaries. An adjustment to investment in subsidiaries for the guarantor subsidiaries of
$942.5 million
has been presented within the Condensed
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Consolidating Balance Sheet as of April 2, 2016 and an adjustment to income (loss) in subsidiaries and net income (loss)of
$13.6 million
and
$(1.3) million
has been presented in the Condensed Consolidating Statement of Operations and Comprehensive (Loss) Income for the years ended April 2, 2016 and March 28, 2015, respectively, to properly reflect the equity method accounting for the guarantor subsidiaries’ ownership interests in non-guarantor subsidiaries.
These immaterial corrections relate solely to presentation between the Company and its subsidiaries and only impact the financial statements included in this footnote. These corrections do not affect the Company’s consolidated financial statements.
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet
|
|
April 1, 2017
|
(in thousands)
|
Parent Company
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
226,186
|
|
|
$
|
319,277
|
|
|
$
|
—
|
|
|
$
|
545,463
|
|
Accounts receivable, less allowance
|
—
|
|
|
57,874
|
|
|
300,074
|
|
|
—
|
|
|
357,948
|
|
Intercompany accounts and note receivable
|
—
|
|
|
392,075
|
|
|
36,603
|
|
|
(428,678
|
)
|
|
—
|
|
Inventories
|
—
|
|
|
131,225
|
|
|
322,559
|
|
|
(23,330
|
)
|
|
430,454
|
|
Prepaid expenses
|
—
|
|
|
29,032
|
|
|
7,197
|
|
|
—
|
|
|
36,229
|
|
Other receivables
|
—
|
|
|
7,239
|
|
|
58,008
|
|
|
—
|
|
|
65,247
|
|
Other current assets
|
—
|
|
|
25,534
|
|
|
730
|
|
|
—
|
|
|
26,264
|
|
Total current assets
|
—
|
|
|
869,165
|
|
|
1,044,448
|
|
|
(452,008
|
)
|
|
1,461,605
|
|
Property and equipment, net
|
—
|
|
|
1,078,761
|
|
|
314,910
|
|
|
(1,739
|
)
|
|
1,391,932
|
|
Goodwill
|
—
|
|
|
1,121,941
|
|
|
1,051,973
|
|
|
—
|
|
|
2,173,914
|
|
Intangible assets, net
|
—
|
|
|
599,618
|
|
|
800,945
|
|
|
—
|
|
|
1,400,563
|
|
Long-term investments
|
—
|
|
|
25,971
|
|
|
9,523
|
|
|
—
|
|
|
35,494
|
|
Long-term intercompany accounts and notes receivable
|
—
|
|
|
447,613
|
|
|
138,398
|
|
|
(586,011
|
)
|
|
—
|
|
Investment in subsidiaries
|
6,142,568
|
|
|
2,596,172
|
|
|
—
|
|
|
(8,738,740
|
)
|
|
—
|
|
Other non-current assets
|
820
|
|
|
33,249
|
|
|
24,746
|
|
|
—
|
|
|
58,815
|
|
Total assets
|
$
|
6,143,388
|
|
|
$
|
6,772,490
|
|
|
$
|
3,384,943
|
|
|
$
|
(9,778,498
|
)
|
|
$
|
6,522,323
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
—
|
|
|
$
|
111,799
|
|
|
$
|
104,447
|
|
|
$
|
—
|
|
|
$
|
216,246
|
|
Intercompany accounts and notes payable
|
—
|
|
|
36,603
|
|
|
392,075
|
|
|
(428,678
|
)
|
|
—
|
|
Accrued liabilities
|
23,150
|
|
|
111,700
|
|
|
35,734
|
|
|
—
|
|
|
170,584
|
|
Other current liabilities
|
—
|
|
|
55
|
|
|
31,943
|
|
|
—
|
|
|
31,998
|
|
Total current liabilities
|
23,150
|
|
|
260,157
|
|
|
564,199
|
|
|
(428,678
|
)
|
|
418,828
|
|
Long-term debt
|
989,154
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
989,154
|
|
Deferred tax liabilities
|
(83,333
|
)
|
|
171,284
|
|
|
43,560
|
|
|
—
|
|
|
131,511
|
|
Long-term intercompany accounts and notes payable
|
317,695
|
|
|
138,398
|
|
|
129,918
|
|
|
(586,011
|
)
|
|
—
|
|
Other long-term liabilities
|
—
|
|
|
35,014
|
|
|
51,094
|
|
|
—
|
|
|
86,108
|
|
Total liabilities
|
1,246,666
|
|
|
604,853
|
|
|
788,771
|
|
|
(1,014,689
|
)
|
|
1,625,601
|
|
Total stockholders’ equity
|
4,896,722
|
|
|
6,167,637
|
|
|
2,596,172
|
|
|
(8,763,809
|
)
|
|
4,896,722
|
|
Total liabilities and stockholders’ equity
|
$
|
6,143,388
|
|
|
$
|
6,772,490
|
|
|
$
|
3,384,943
|
|
|
$
|
(9,778,498
|
)
|
|
$
|
6,522,323
|
|
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet
|
|
April 2, 2016
|
(in thousands)
|
Parent Company
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
220,633
|
|
|
$
|
205,248
|
|
|
$
|
—
|
|
|
$
|
425,881
|
|
Short-term investments
|
—
|
|
|
186,808
|
|
|
—
|
|
|
—
|
|
|
186,808
|
|
Accounts receivable, less allowance
|
—
|
|
|
203,488
|
|
|
112,868
|
|
|
—
|
|
|
316,356
|
|
Intercompany accounts and notes receivable
|
—
|
|
|
532,508
|
|
|
404,330
|
|
|
(936,838
|
)
|
|
—
|
|
Inventories
|
—
|
|
|
186,627
|
|
|
325,346
|
|
|
(84,422
|
)
|
|
427,551
|
|
Prepaid expenses
|
—
|
|
|
56,151
|
|
|
7,699
|
|
|
—
|
|
|
63,850
|
|
Other receivables
|
—
|
|
|
37,033
|
|
|
10,347
|
|
|
—
|
|
|
47,380
|
|
Other current assets
|
—
|
|
|
40,866
|
|
|
518
|
|
|
—
|
|
|
41,384
|
|
Total current assets
|
—
|
|
|
1,464,114
|
|
|
1,066,356
|
|
|
(1,021,260
|
)
|
|
1,509,210
|
|
Property and equipment, net
|
—
|
|
|
807,586
|
|
|
239,495
|
|
|
(193
|
)
|
|
1,046,888
|
|
Goodwill
|
—
|
|
|
1,118,642
|
|
|
1,017,055
|
|
|
—
|
|
|
2,135,697
|
|
Intangible assets, net
|
—
|
|
|
786,314
|
|
|
1,026,201
|
|
|
—
|
|
|
1,812,515
|
|
Long-term investments
|
—
|
|
|
26,050
|
|
|
—
|
|
|
—
|
|
|
26,050
|
|
Long-term intercompany accounts and notes receivable
|
—
|
|
|
564,397
|
|
|
267,823
|
|
|
(832,220
|
)
|
|
—
|
|
Investment in subsidiaries
|
6,151,120
|
|
|
2,588,302
|
|
|
—
|
|
|
(8,739,422
|
)
|
|
—
|
|
Other non-current assets
|
1,091
|
|
|
39,478
|
|
|
25,890
|
|
|
—
|
|
|
66,459
|
|
Total assets
|
$
|
6,152,211
|
|
|
$
|
7,394,883
|
|
|
$
|
3,642,820
|
|
|
$
|
(10,593,095
|
)
|
|
$
|
6,596,819
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
—
|
|
|
$
|
141,792
|
|
|
$
|
66,508
|
|
|
$
|
(2,936
|
)
|
|
$
|
205,364
|
|
Intercompany accounts and notes payable
|
—
|
|
|
404,330
|
|
|
532,508
|
|
|
(936,838
|
)
|
|
—
|
|
Accrued liabilities
|
25,445
|
|
|
93,609
|
|
|
18,835
|
|
|
—
|
|
|
137,889
|
|
Other current liabilities
|
—
|
|
|
20,122
|
|
|
10,426
|
|
|
—
|
|
|
30,548
|
|
Total current liabilities
|
25,445
|
|
|
659,853
|
|
|
628,277
|
|
|
(939,774
|
)
|
|
373,801
|
|
Long-term debt
|
988,130
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
988,130
|
|
Deferred tax liabilities
|
(93,340
|
)
|
|
195,462
|
|
|
50,038
|
|
|
—
|
|
|
152,160
|
|
Long-term intercompany accounts and notes payable
|
232,303
|
|
|
267,823
|
|
|
332,094
|
|
|
(832,220
|
)
|
|
—
|
|
Other long-term liabilities
|
—
|
|
|
39,288
|
|
|
43,768
|
|
|
—
|
|
|
83,056
|
|
Total liabilities
|
1,152,538
|
|
|
1,162,426
|
|
|
1,054,177
|
|
|
(1,771,994
|
)
|
|
1,597,147
|
|
Total stockholders’ equity
|
4,999,673
|
|
|
6,232,457
|
|
|
2,588,643
|
|
|
(8,821,101
|
)
|
|
4,999,672
|
|
Total liabilities and stockholders’ equity
|
$
|
6,152,211
|
|
|
$
|
7,394,883
|
|
|
$
|
3,642,820
|
|
|
$
|
(10,593,095
|
)
|
|
$
|
6,596,819
|
|
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Operations and Comprehensive (Loss) Income
|
|
Fiscal Year 2017
|
(in thousands)
|
Parent Company
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Revenue
|
$
|
—
|
|
|
$
|
1,316,576
|
|
|
$
|
2,918,865
|
|
|
$
|
(1,202,867
|
)
|
|
3,032,574
|
|
Cost of goods sold
|
—
|
|
|
979,190
|
|
|
2,023,715
|
|
|
(1,105,843
|
)
|
|
1,897,062
|
|
Gross profit
|
—
|
|
|
337,386
|
|
|
895,150
|
|
|
(97,024
|
)
|
|
1,135,512
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Research and development
|
35,379
|
|
|
40,918
|
|
|
416,869
|
|
|
(22,330
|
)
|
|
470,836
|
|
Selling, general and administrative
|
53,465
|
|
|
253,531
|
|
|
370,812
|
|
|
(132,220
|
)
|
|
545,588
|
|
Other operating expense
|
—
|
|
|
16,065
|
|
|
8,409
|
|
|
6,555
|
|
|
31,029
|
|
Total operating expenses
|
88,844
|
|
|
310,514
|
|
|
796,090
|
|
|
(147,995
|
)
|
|
1,047,453
|
|
Income (loss) from operations
|
(88,844
|
)
|
|
26,872
|
|
|
99,060
|
|
|
50,971
|
|
|
88,059
|
|
Interest expense
|
(57,344
|
)
|
|
(2,619
|
)
|
|
(3,129
|
)
|
|
4,213
|
|
|
(58,879
|
)
|
Interest income
|
—
|
|
|
4,457
|
|
|
759
|
|
|
(4,004
|
)
|
|
1,212
|
|
Other (expense) income
|
—
|
|
|
426
|
|
|
(1,999
|
)
|
|
(1,514
|
)
|
|
(3,087
|
)
|
Income (loss) before income taxes
|
(146,188
|
)
|
|
29,136
|
|
|
94,691
|
|
|
49,666
|
|
|
27,305
|
|
Income tax (expense) benefit
|
46,003
|
|
|
(63,893
|
)
|
|
(25,973
|
)
|
|
—
|
|
|
(43,863
|
)
|
Income in subsidiaries
|
83,627
|
|
|
68,718
|
|
|
—
|
|
|
(152,345
|
)
|
|
—
|
|
Net (loss) income
|
$
|
(16,558
|
)
|
|
$
|
33,961
|
|
|
$
|
68,718
|
|
|
$
|
(102,679
|
)
|
|
$
|
(16,558
|
)
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income
|
$
|
(17,731
|
)
|
|
$
|
34,014
|
|
|
$
|
67,492
|
|
|
$
|
(101,506
|
)
|
|
$
|
(17,731
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Operations and Comprehensive (Loss) Income
|
|
Fiscal Year 2016
|
(in thousands)
|
Parent Company
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Revenue
|
$
|
—
|
|
|
$
|
2,212,062
|
|
|
$
|
2,762,150
|
|
|
$
|
(2,363,486
|
)
|
|
2,610,726
|
|
Cost of goods sold
|
—
|
|
|
1,778,336
|
|
|
2,060,702
|
|
|
(2,277,865
|
)
|
|
1,561,173
|
|
Gross profit
|
—
|
|
|
433,726
|
|
|
701,448
|
|
|
(85,621
|
)
|
|
1,049,553
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Research and development
|
67,158
|
|
|
106,560
|
|
|
304,219
|
|
|
(29,174
|
)
|
|
448,763
|
|
Selling, general and administrative
|
72,358
|
|
|
151,814
|
|
|
360,593
|
|
|
(50,666
|
)
|
|
534,099
|
|
Other operating expense
|
—
|
|
|
50,928
|
|
|
2,447
|
|
|
1,348
|
|
|
54,723
|
|
Total operating expenses
|
139,516
|
|
|
309,302
|
|
|
667,259
|
|
|
(78,492
|
)
|
|
1,037,585
|
|
Income (loss) from operations
|
(139,516
|
)
|
|
124,424
|
|
|
34,189
|
|
|
(7,129
|
)
|
|
11,968
|
|
Interest expense
|
(21,895
|
)
|
|
(2,419
|
)
|
|
(3,029
|
)
|
|
4,027
|
|
|
(23,316
|
)
|
Interest income
|
—
|
|
|
2,650
|
|
|
3,003
|
|
|
(3,585
|
)
|
|
2,068
|
|
Other income (expense)
|
—
|
|
|
5,467
|
|
|
(298
|
)
|
|
1,249
|
|
|
6,418
|
|
(Loss) income before income taxes
|
(161,411
|
)
|
|
130,122
|
|
|
33,865
|
|
|
(5,438
|
)
|
|
(2,862
|
)
|
Income tax (expense) benefit
|
44,014
|
|
|
(49,751
|
)
|
|
(20,246
|
)
|
|
—
|
|
|
(25,983
|
)
|
Income in subsidiaries
|
88,552
|
|
|
13,619
|
|
|
—
|
|
|
(102,171
|
)
|
|
—
|
|
Net (loss) income
|
$
|
(28,845
|
)
|
|
$
|
93,990
|
|
|
$
|
13,619
|
|
|
$
|
(107,609
|
)
|
|
$
|
(28,845
|
)
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income
|
$
|
(31,854
|
)
|
|
$
|
89,738
|
|
|
$
|
14,862
|
|
|
$
|
(104,600
|
)
|
|
$
|
(31,854
|
)
|
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
|
|
Fiscal Year 2015
|
(in thousands)
|
Parent Company
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Revenue
|
$
|
—
|
|
|
$
|
2,523,495
|
|
|
$
|
1,408,913
|
|
|
$
|
(2,221,442
|
)
|
|
1,710,966
|
|
Cost of goods sold
|
—
|
|
|
1,910,297
|
|
|
1,260,814
|
|
|
(2,149,453
|
)
|
|
1,021,658
|
|
Gross profit
|
—
|
|
|
613,198
|
|
|
148,099
|
|
|
(71,989
|
)
|
|
689,308
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Research and development
|
18,335
|
|
|
202,337
|
|
|
45,751
|
|
|
(8,929
|
)
|
|
257,494
|
|
Selling, general and administrative
|
23,776
|
|
|
160,538
|
|
|
90,055
|
|
|
(24,483
|
)
|
|
249,886
|
|
Other operating expense
|
—
|
|
|
55,774
|
|
|
3,475
|
|
|
213
|
|
|
59,462
|
|
Total operating expenses
|
42,111
|
|
|
418,649
|
|
|
139,281
|
|
|
(33,199
|
)
|
|
566,842
|
|
Income (loss) from operations
|
(42,111
|
)
|
|
194,549
|
|
|
8,818
|
|
|
(38,790
|
)
|
|
122,466
|
|
Interest expense
|
—
|
|
|
(2,770
|
)
|
|
(1,583
|
)
|
|
2,932
|
|
|
(1,421
|
)
|
Interest income
|
—
|
|
|
1,009
|
|
|
2,281
|
|
|
(2,840
|
)
|
|
450
|
|
Other (expense) income
|
—
|
|
|
(906
|
)
|
|
694
|
|
|
(42
|
)
|
|
(254
|
)
|
Income (loss) before income taxes
|
(42,111
|
)
|
|
191,882
|
|
|
10,210
|
|
|
(38,740
|
)
|
|
121,241
|
|
Income tax benefit (expense)
|
13,350
|
|
|
73,268
|
|
|
(11,556
|
)
|
|
—
|
|
|
75,062
|
|
Income (loss) in subsidiaries
|
35,243
|
|
|
(1,346
|
)
|
|
—
|
|
|
(33,894
|
)
|
|
—
|
|
Net income (loss)
|
$
|
6,482
|
|
|
$
|
263,804
|
|
|
$
|
(1,346
|
)
|
|
$
|
(72,634
|
)
|
|
$
|
196,303
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
$
|
6,482
|
|
|
$
|
267,724
|
|
|
$
|
(4,605
|
)
|
|
$
|
(72,637
|
)
|
|
$
|
196,964
|
|
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows
|
|
Fiscal Year 2017
|
(in thousands)
|
Parent Company
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Net cash provided by operating activities
|
$
|
165,660
|
|
|
$
|
175,988
|
|
|
$
|
435,172
|
|
|
$
|
—
|
|
|
$
|
776,820
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
Purchase of available-for-sale securities
|
—
|
|
|
(469
|
)
|
|
—
|
|
|
—
|
|
|
(469
|
)
|
Proceeds from maturities of available-for-sale securities
|
—
|
|
|
186,793
|
|
|
—
|
|
|
—
|
|
|
186,793
|
|
Purchase of a business, net of cash acquired
|
—
|
|
|
—
|
|
|
(118,133
|
)
|
|
—
|
|
|
(118,133
|
)
|
Purchase of property and equipment
|
—
|
|
|
(424,175
|
)
|
|
(128,527
|
)
|
|
—
|
|
|
(552,702
|
)
|
Other investing activities
|
—
|
|
|
3,924
|
|
|
(9,900
|
)
|
|
—
|
|
|
(5,976
|
)
|
Net transactions with related parties
|
—
|
|
|
61,891
|
|
|
—
|
|
|
(61,891
|
)
|
|
—
|
|
Net cash used in investing activities
|
—
|
|
|
(172,036
|
)
|
|
(256,560
|
)
|
|
(61,891
|
)
|
|
(490,487
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
Excess tax benefit from exercises of stock options
|
65
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
65
|
|
Proceeds from the issuance of common stock
|
59,148
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
59,148
|
|
Repurchase of common stock, including transaction costs
|
(209,357
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(209,357
|
)
|
Tax withholding paid on behalf of employees for restricted stock units
|
(15,516
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15,516
|
)
|
Other financing activities
|
—
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
14
|
|
Net transactions with related parties
|
—
|
|
|
1,587
|
|
|
(63,478
|
)
|
|
61,891
|
|
|
—
|
|
Net cash (used in) provided by financing activities
|
(165,660
|
)
|
|
1,601
|
|
|
(63,478
|
)
|
|
61,891
|
|
|
(165,646
|
)
|
Effect of exchange rate changes on cash
|
—
|
|
|
—
|
|
|
(1,105
|
)
|
|
—
|
|
|
(1,105
|
)
|
Net increase (decrease) in cash and cash equivalents
|
—
|
|
|
5,553
|
|
|
114,029
|
|
|
—
|
|
|
119,582
|
|
Cash and cash equivalents at the beginning of the period
|
—
|
|
|
220,633
|
|
|
205,248
|
|
|
—
|
|
|
425,881
|
|
Cash and cash equivalents at the end of the period
|
$
|
—
|
|
|
$
|
226,186
|
|
|
$
|
319,277
|
|
|
$
|
—
|
|
|
$
|
545,463
|
|
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows
|
|
Fiscal Year 2016
|
(in thousands)
|
Parent Company
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Net cash provided by operating activities
|
$
|
282,955
|
|
|
$
|
273,171
|
|
|
$
|
131,801
|
|
|
$
|
—
|
|
|
$
|
687,927
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
Purchase of available-for-sale securities
|
—
|
|
|
(340,527
|
)
|
|
—
|
|
|
—
|
|
|
(340,527
|
)
|
Proceeds from maturities and sales of available-for-sale securities
|
—
|
|
|
390,009
|
|
|
—
|
|
|
—
|
|
|
390,009
|
|
Purchase of property and equipment
|
—
|
|
|
(244,817
|
)
|
|
(70,807
|
)
|
|
—
|
|
|
(315,624
|
)
|
Other investing activities
|
—
|
|
|
(12,830
|
)
|
|
258
|
|
|
—
|
|
|
(12,572
|
)
|
Net cash used in investing activities
|
—
|
|
|
(208,165
|
)
|
|
(70,549
|
)
|
|
—
|
|
|
(278,714
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from debt issuances
|
1,175,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,175,000
|
|
Payment of debt
|
(175,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(175,000
|
)
|
Excess tax benefit from exercises of stock options
|
935
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
935
|
|
Debt issuance costs
|
(13,588
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(13,588
|
)
|
Proceeds from the issuance of common stock
|
51,875
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
51,875
|
|
Repurchase of common stock, including transaction costs
|
(1,300,009
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,300,009
|
)
|
Tax withholding paid on behalf of employees for restricted stock units
|
(22,168
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(22,168
|
)
|
Other financing activities
|
—
|
|
|
103
|
|
|
—
|
|
|
—
|
|
|
103
|
|
Net transactions with related parties
|
—
|
|
|
1,192
|
|
|
(1,192
|
)
|
|
—
|
|
|
—
|
|
Net cash (used in) provided by financing activities
|
(282,955
|
)
|
|
1,295
|
|
|
(1,192
|
)
|
|
—
|
|
|
(282,852
|
)
|
Effect of exchange rate changes on cash
|
—
|
|
|
—
|
|
|
(294
|
)
|
|
—
|
|
|
(294
|
)
|
Net increase in cash and cash equivalents
|
—
|
|
|
66,301
|
|
|
59,766
|
|
|
—
|
|
|
126,067
|
|
Cash and cash equivalents at the beginning of the period
|
—
|
|
|
154,332
|
|
|
145,482
|
|
|
—
|
|
|
299,814
|
|
Cash and cash equivalents at the end of the period
|
$
|
—
|
|
|
$
|
220,633
|
|
|
$
|
205,248
|
|
|
$
|
—
|
|
|
$
|
425,881
|
|
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Cash Flows
|
|
Fiscal Year 2015
|
(in thousands)
|
Parent Company
|
|
Guarantor Subsidiaries
|
|
Non-guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Net cash provided by operating activities
|
$
|
25,059
|
|
|
$
|
187,786
|
|
|
$
|
92,779
|
|
|
$
|
—
|
|
|
$
|
305,624
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
Purchase of available-for-sale securities
|
—
|
|
|
(370,734
|
)
|
|
(17,000
|
)
|
|
—
|
|
|
(387,734
|
)
|
Proceeds from maturities of available-for-sale securities
|
—
|
|
|
234,185
|
|
|
27,000
|
|
|
—
|
|
|
261,185
|
|
Purchase of business, net of cash acquired
|
—
|
|
|
165,665
|
|
|
58,659
|
|
|
—
|
|
|
224,324
|
|
Purchase of property and equipment
|
—
|
|
|
(116,868
|
)
|
|
(52,994
|
)
|
|
—
|
|
|
(169,862
|
)
|
Other investing
|
—
|
|
|
8,489
|
|
|
(344
|
)
|
|
—
|
|
|
8,145
|
|
Net cash (used in) provided by investing activities
|
—
|
|
|
(79,263
|
)
|
|
15,321
|
|
|
—
|
|
|
(63,942
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
Payment of debt
|
—
|
|
|
(87,503
|
)
|
|
—
|
|
|
—
|
|
|
(87,503
|
)
|
Excess tax benefit from exercises of stock options
|
13,993
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,993
|
|
Debt issuance cost
|
—
|
|
|
(36
|
)
|
|
—
|
|
|
—
|
|
|
(36
|
)
|
Proceeds from the issuance of common stock
|
46,072
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
46,072
|
|
Repurchase of common stock, including transaction costs
|
(50,874
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(50,874
|
)
|
Tax withholding paid on behalf of employees for restricted stock units
|
(34,250
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(34,250
|
)
|
Other financing
|
—
|
|
|
(300
|
)
|
|
—
|
|
|
—
|
|
|
(300
|
)
|
Net transactions with related parties
|
—
|
|
|
1,376
|
|
|
(1,376
|
)
|
|
—
|
|
|
—
|
|
Net cash used in financing activities
|
(25,059
|
)
|
|
(86,463
|
)
|
|
(1,376
|
)
|
|
—
|
|
|
(112,898
|
)
|
Effect of exchange rate changes on cash
|
—
|
|
|
—
|
|
|
(868
|
)
|
|
—
|
|
|
(868
|
)
|
Net increase in cash and cash equivalents
|
—
|
|
|
22,060
|
|
|
105,856
|
|
|
—
|
|
|
127,916
|
|
Cash and cash equivalents at the beginning of the period
|
—
|
|
|
132,272
|
|
|
39,626
|
|
|
—
|
|
|
171,898
|
|
Cash and cash equivalents at the end of the period
|
$
|
—
|
|
|
$
|
154,332
|
|
|
$
|
145,482
|
|
|
$
|
—
|
|
|
$
|
299,814
|
|
Qorvo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
18. QUARTERLY FINANCIAL SUMMARY (UNAUDITED):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2017 Quarter
|
|
|
|
|
|
|
|
|
(in thousands, except
|
|
|
|
|
|
|
|
|
per share data)
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
Revenue
|
$
|
698,537
|
|
|
$
|
864,698
|
|
|
$
|
826,347
|
|
|
$
|
642,992
|
|
|
Gross profit
|
276,475
|
|
|
316,799
|
|
|
310,642
|
|
|
231,596
|
|
|
Net (loss) income
|
(5,675
|
)
|
(1),(2),(3)
|
11,847
|
|
(1),(2),(3)
|
(78,638
|
)
|
(1),(2),(3),(4)
|
55,908
|
|
(1),(2),(3),(5)
|
Net (loss) income per share:
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.04
|
)
|
|
$
|
0.09
|
|
|
$
|
(0.62
|
)
|
|
$
|
0.44
|
|
|
Diluted
|
$
|
(0.04
|
)
|
|
$
|
0.09
|
|
|
$
|
(0.62
|
)
|
|
$
|
0.43
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2016 Quarter
|
|
|
|
|
|
|
|
|
(in thousands, except
|
|
|
|
|
|
|
|
|
per share data)
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
Revenue
|
$
|
673,641
|
|
|
$
|
708,335
|
|
|
$
|
620,681
|
|
|
$
|
608,069
|
|
|
Gross profit
|
279,517
|
|
|
284,848
|
|
|
230,988
|
|
|
254,200
|
|
|
Net income (loss)
|
2,036
|
|
(1),(2)
|
4,448
|
|
(1),(2),(6)
|
(11,127
|
)
|
(1),(2),(3)
|
(24,202
|
)
|
(1),(2),(3),(7)
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.01
|
|
|
$
|
0.03
|
|
|
$
|
(0.08
|
)
|
|
$
|
(0.18
|
)
|
|
Diluted
|
$
|
0.01
|
|
|
$
|
0.03
|
|
|
$
|
(0.08
|
)
|
|
$
|
(0.18
|
)
|
|
1. The Company recorded integration related expenses of
$5.3 million
,
$5.0 million
,
$3.9 million
and
$2.7 million
in the first, second, third and fourth quarters of fiscal
2017
, respectively, associated with the Business Combination. The Company recorded integration related expenses of
$10.4 million
,
$5.6 million
,
$5.0 million
, and
$5.5 million
in the first, second, third and fourth quarters of fiscal
2016
, respectively, associated with the Business Combination (Note 6).
2. The Company recorded restructuring expenses of
$0.8 million
,
$0.5 million
,
$0.4 million
, and
$0.4 million
in the first, second, third and fourth quarters of fiscal
2017
, respectively. The Company recorded restructuring expenses of
$2.9 million
,
$3.8 million
,
$3.0 million
, and
$0.5 million
in the first, second, third and fourth quarters of fiscal
2016
(Note 11).
3. In the third quarter of fiscal 2016, the Company issued
$450.0 million
aggregate principal amount of
6.75%
Senior Notes due 2023 and
$550.0 million
aggregate principal amount of
7.00%
Senior Notes due 2025. The Company recorded interest expense of
$14.5 million
,
$14.9 million
,
$13.8 million
and
$13.1 million
(net of capitalized interest) in the first, second, third, and fourth quarters of fiscal
2017
, respectively. The Company recorded interest expense of
$6.7 million
and
$13.9 million
(net of capitalized interest), in the third and fourth quarters of fiscal
2016
, respectively (Note 8).
4. Income tax expense of
$123.2 million
for the third quarter of fiscal 2017, relates primarily to the timing of income and loss recognition in the various tax jurisdictions for the quarter (Note 12).
5. Income tax benefit of
$93.2 million
for the fourth quarter of fiscal 2017, relates primarily to the timing of income and loss recognition in the various tax jurisdictions for the quarter (Note 12).
6. Income tax expense of
$13.8 million
for the second quarter of fiscal 2016, includes a discrete period expense of
$4.6 million
related to reductions to state deferred tax assets (Note 12).
7. Income tax expense of
$21.5 million
for the fourth quarter of fiscal 2016, includes a discrete period expense of
$16.3 million
related to increases in the valuation allowance for state net operating loss and state credit deferred tax assets (Note 12).
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. Each quarter of fiscal 2017 contained a comparable number of weeks (13 weeks). Fiscal year 2016 was a 53-week fiscal year, with the second quarter of fiscal 2016 having an extra week (14 weeks).
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Qorvo, Inc.:
We have audited the accompanying consolidated balance sheets of Qorvo, Inc. and subsidiaries (the Company) as of
April 1, 2017
and
April 2, 2016
, and the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity, and cash flows for each of the years in the three-year period ended
April 1, 2017
. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Qorvo, Inc. and subsidiaries as of
April 1, 2017
and
April 2, 2016
, and the results of their operations and their cash flows for each of the years in the three-year period ended
April 1, 2017
, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Qorvo, Inc.’s internal control over financial reporting as of
April 1, 2017
, based on criteria established in
Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated
May 23, 2017
expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ KPMG LLP
Greensboro, North Carolina
May 23, 2017
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Qorvo, Inc.:
We have audited Qorvo, Inc.’s internal control over financial reporting as of
April 1, 2017
, based on criteria established in
Internal Control ‑ Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Qorvo, Inc.'s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Assessment of Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Qorvo, Inc. maintained, in all material respects, effective internal control over financial reporting as of
April 1, 2017
, based on criteria established in
Internal Control-Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Qorvo, Inc. and subsidiaries as of
April 1, 2017
and
April 2, 2016
, and the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity, and cash flows for each of the years in the three-year period ended
April 1, 2017
and our report dated
May 23, 2017
expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Greensboro, North Carolina
May 23, 2017