UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended March 30, 201928, 2020

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

For the transition period from              to             .

Commission file number 000-49602

 

SYNAPTICS INCORPORATED

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

77-0118518

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

1251 McKay Drive

San Jose, California 95131

(Address of principal executive offices) (Zip code)

(408) 904-1100

(Registrant’s telephone number, including area code)

 

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

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $.001 per share

SYNA

The Nasdaq Global Select Market

 

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

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

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

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

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

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

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $.001 per share

SYNA

The NASDAQ Global Select Market

Number of shares of Common Stock outstanding at May 2, 2019: 34,498,484April 30, 2020: 34,035,706

 

 

 


SYNAPTICS INCORPORATED

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED MARCH 30, 201928, 2020

TABLE OF CONTENTS

 

 

 

 

  

 

  

Page

Part I. Financial Information

  

 

 

 

 

 

   

 

Item 1.

   

Condensed Consolidated Financial Statements (Unaudited):

  

3

 

 

 

 

 

 

 

  

Condensed Consolidated Balance Sheets—March 31, 20192020 and June 30, 20182019

  

3

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations—Income—Three and Nine Months Ended March 31, 20192020 and 20182019

 

4

 

 

 

 

 

 

 

  

Condensed Consolidated Statements of Comprehensive Income/(Loss)—Income—Three and Nine Months Ended March 31, 20192020 and 20182019

  

5

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity

 

6

 

 

 

 

 

 

 

 

 

 

  

Condensed Consolidated Statements of Cash Flows—Nine Months Ended March 31, 20192020 and 20182019

  

8

 

 

 

 

 

 

 

  

Notes to Condensed Consolidated Financial Statements

  

9

 

 

 

 

 

 

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

2326

 

 

 

 

 

 

Item 3.

 ��

Quantitative and Qualitative Disclosures About Market Risk

  

3335

 

 

 

 

 

 

Item 4.

  

Controls and Procedures

  

3335

 

 

Part II. Other Information

  

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

3436

 

 

 

 

 

 

 

 

 

Item 1A.

 

Risk Factors

 

3436

 

 

 

 

 

 

 

 

 

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

  

3437

 

 

 

 

 

 

Item 6.

  

Exhibits

  

3538

 

 

 

 

 

 

 

Signatures

  

3639

 

 

 


PART

PART I—FINANCIAL INFORMATION

 

 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SYNAPTICS INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except par value and share amounts)

(unaudited)

 

 

 

March 31,

 

 

June 30,

 

 

 

2019

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

323.8

 

 

$

301.0

 

Accounts receivable, net of allowances of $2.1 and $1.8 at March 31, 2019 and

   June 30, 2018, respectively

 

 

266.8

 

 

 

289.1

 

Inventories

 

 

153.1

 

 

 

131.2

 

Prepaid expenses and other current assets

 

 

23.2

 

 

 

18.2

 

Total current assets

 

 

766.9

 

 

 

739.5

 

Property and equipment at cost, net of accumulated depreciation of $137.7

   and $127.4 at March 31, 2019 and June 30, 2018, respectively

 

 

104.8

 

 

 

117.8

 

Goodwill

 

 

372.8

 

 

 

372.8

 

Acquired intangibles, net

 

 

163.1

 

 

 

219.2

 

Non-current other assets

 

 

61.0

 

 

 

50.5

 

 

 

$

1,468.6

 

 

$

1,499.8

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

117.9

 

 

$

156.9

 

Accrued compensation

 

 

22.1

 

 

 

25.4

 

Income taxes payable

 

 

1.0

 

 

 

13.1

 

Acquisition-related liabilities

 

 

 

 

 

8.7

 

Other accrued liabilities

 

 

99.1

 

 

 

79.7

 

Total current liabilities

 

 

240.1

 

 

 

283.8

 

Convertible notes, net

 

 

463.8

 

 

 

450.7

 

Other long-term liabilities

 

 

38.0

 

 

 

36.0

 

Total liabilities

 

 

741.9

 

 

 

770.5

 

Stockholders' Equity:

 

 

 

 

 

 

 

 

Common stock:

 

 

 

 

 

 

 

 

$0.001 par value; 120,000,000 shares authorized,

   63,942,166 and 62,889,679 shares issued, and 34,452,290 and 35,249,803 shares

   outstanding, at March 31, 2019 and June 30, 2018, respectively

 

 

0.1

 

 

 

0.1

 

Additional paid-in capital

 

 

1,248.1

 

 

 

1,195.2

 

Treasury stock: 29,489,876 and 27,639,876 common treasury shares at

   March 31, 2019 and June 30, 2018, respectively, at cost

 

 

(1,151.2

)

 

 

(1,073.9

)

Accumulated other comprehensive income

 

 

 

 

 

1.5

 

Retained earnings

 

 

629.7

 

 

 

606.4

 

Total stockholders' equity

 

 

726.7

 

 

 

729.3

 

 

 

$

1,468.6

 

 

$

1,499.8

 

See accompanying notes to condensed consolidated financial statements (unaudited).


SYNAPTICS INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)

(unaudited)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net revenue

 

$

334.0

 

 

$

394.0

 

 

$

1,177.1

 

 

$

1,241.8

 

Cost of revenue

 

 

218.0

 

 

 

271.1

 

 

 

770.4

 

 

 

889.3

 

Gross margin

 

 

116.0

 

 

 

122.9

 

 

 

406.7

 

 

 

352.5

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

82.6

 

 

 

93.7

 

 

 

256.9

 

 

 

273.0

 

Selling, general, and administrative

 

 

34.2

 

 

 

37.9

 

 

 

103.6

 

 

 

115.6

 

Acquired intangibles amortization

 

 

3.0

 

 

 

1.4

 

 

 

8.8

 

 

 

8.5

 

Restructuring costs

 

 

 

 

 

2.2

 

 

 

10.4

 

 

 

8.6

 

Total operating expenses

 

 

119.8

 

 

 

135.2

 

 

 

379.7

 

 

 

405.7

 

Operating income/(loss)

 

 

(3.8

)

 

 

(12.3

)

 

 

27.0

 

 

 

(53.2

)

Interest and other expense, net

 

 

(4.3

)

 

 

(4.7

)

 

 

(10.5

)

 

 

(15.4

)

Income/(loss) before provision for income taxes and

   equity investment loss

 

 

(8.1

)

 

 

(17.0

)

 

 

16.5

 

 

 

(68.6

)

Provision/(benefit) for income taxes

 

 

(15.3

)

 

 

(3.9

)

 

 

(8.1

)

 

 

52.6

 

Equity investment loss

 

 

(0.5

)

 

 

(0.6

)

 

 

(1.3

)

 

 

(1.4

)

Net income/(loss)

 

$

6.7

 

 

$

(13.7

)

 

$

23.3

 

 

$

(122.6

)

Net income/(loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.19

 

 

$

(0.40

)

 

$

0.67

 

 

$

(3.61

)

Diluted

 

$

0.19

 

 

$

(0.40

)

 

$

0.66

 

 

$

(3.61

)

Shares used in computing net income/(loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

34.4

 

 

 

34.5

 

 

 

34.7

 

 

 

34.0

 

Diluted

 

 

35.0

 

 

 

34.5

 

 

 

35.5

 

 

 

34.0

 

 

 

March 31,

 

 

June 30,

 

 

 

2020

 

 

2019

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

472.1

 

 

$

327.8

 

Accounts receivable, net of allowances of $1.7 at March 31, 2020 and $2.1 at June 30, 2019

 

 

238.4

 

 

 

230.0

 

Inventories

 

 

95.5

 

 

 

158.7

 

Current assets held for sale

 

 

12.5

 

 

 

-

 

Prepaid expenses and other current assets

 

 

14.4

 

 

 

14.6

 

Total current assets

 

 

832.9

 

 

 

731.1

 

Property and equipment at cost, net of accumulated depreciation of $139.1 and $133.1 at

   March 31, 2020 and June 30, 2019, respectively

 

 

83.4

 

 

 

103.0

 

Non-current assets held for sale

 

 

17.6

 

 

 

 

Goodwill

 

 

361.8

 

 

 

372.8

 

Acquired intangibles, net

 

 

104.4

 

 

 

144.8

 

Non-current other assets

 

 

81.0

 

 

 

58.1

 

 

 

$

1,481.1

 

 

$

1,409.8

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

86.9

 

 

$

98.3

 

Accrued compensation

 

 

47.7

 

 

 

30.4

 

Income taxes payable

 

 

11.8

 

 

 

19.1

 

Other accrued liabilities

 

 

92.8

 

 

 

106.1

 

Total current liabilities

 

 

239.2

 

 

 

253.9

 

Convertible notes, net

 

 

482.0

 

 

 

468.3

 

Other long-term liabilities

 

 

47.0

 

 

 

30.3

 

Total liabilities

 

 

768.2

 

 

 

752.5

 

Stockholders' Equity:

 

 

 

 

 

 

 

 

Common stock:

 

 

 

 

 

 

 

 

$0.001 par value; 120,000,000 shares authorized, 65,752,215 and 64,283,948 shares

   issued, and 34,004,920 and 33,349,735 shares outstanding, at March 31, 2020

   and June 30, 2019, respectively

 

 

0.1

 

 

 

0.1

 

Additional paid-in capital

 

 

1,323.9

 

 

 

1,266.1

 

Treasury stock: 31,747,295 and 30,934,213 common treasury shares at March 31,

   2020 and June 30, 2019, respectively, at cost

 

 

(1,222.5

)

 

 

(1,192.4

)

Retained earnings

 

 

611.4

 

 

 

583.5

 

Total stockholders' equity

 

 

712.9

 

 

 

657.3

 

 

 

$

1,481.1

 

 

$

1,409.8

 

 

See accompanying notes to condensed consolidated financial statements (unaudited).


SYNAPTICS INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)INCOME

(in millions)millions, except per share data)

(unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income/(loss)

 

$

6.7

 

 

$

(13.7

)

 

$

23.3

 

 

$

(122.6

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized net gain on investment

 

 

 

 

 

 

 

 

(1.5

)

 

 

 

Net current period-other comprehensive loss

 

 

 

 

 

 

 

 

(1.5

)

 

 

 

Comprehensive income/(loss)

 

$

6.7

 

 

$

(13.7

)

 

$

21.8

 

 

$

(122.6

)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net revenue

 

$

328.1

 

 

$

334.0

 

 

$

1,056.3

 

 

$

1,177.1

 

Cost of revenue

 

 

192.5

 

 

 

218.0

 

 

 

635.2

 

 

 

770.4

 

Gross margin

 

 

135.6

 

 

 

116.0

 

 

 

421.1

 

 

 

406.7

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

75.8

 

 

 

82.6

 

 

 

238.8

 

 

 

256.9

 

Selling, general, and administrative

 

 

31.6

 

 

 

34.2

 

 

 

90.6

 

 

 

103.6

 

Acquired intangibles amortization

 

 

2.9

 

 

 

3.0

 

 

 

8.8

 

 

 

8.8

 

Restructuring costs

 

 

6.3

 

 

 

-

 

 

 

26.2

 

 

 

10.4

 

Total operating expenses

 

 

116.6

 

 

 

119.8

 

 

 

364.4

 

 

 

379.7

 

Operating income

 

 

19.0

 

 

 

(3.8

)

 

 

56.7

 

 

 

27.0

 

Interest and other expense, net

 

 

(3.2

)

 

 

(4.3

)

 

 

(9.1

)

 

 

(10.5

)

Income/(loss) before provision/(benefit) for income taxes

   and equity investment loss

 

 

15.8

 

 

 

(8.1

)

 

 

47.6

 

 

 

16.5

 

Provision/(benefit) for income taxes

 

 

10.2

 

 

 

(15.3

)

 

 

17.3

 

 

 

(8.1

)

Equity investment loss

 

 

(0.6

)

 

 

(0.5

)

 

 

(1.5

)

 

 

(1.3

)

Net income

 

$

5.0

 

 

$

6.7

 

 

$

28.8

 

 

$

23.3

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.15

 

 

$

0.19

 

 

$

0.86

 

 

$

0.67

 

Diluted

 

$

0.14

 

 

$

0.19

 

 

$

0.83

 

 

$

0.66

 

Shares used in computing net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

34.0

 

 

 

34.4

 

 

 

33.5

 

 

 

34.7

 

Diluted

 

 

35.0

 

 

 

35.0

 

 

 

34.5

 

 

 

35.5

 

 

See accompanying notes to condensed consolidated financial statements (unaudited).


SYNAPTICS INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

(unaudited)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net income

 

$

5.0

 

 

$

6.7

 

 

$

28.8

 

 

$

23.3

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized net gain on investment

 

 

 

 

 

 

 

 

 

 

 

(1.5

)

Comprehensive income

 

$

5.0

 

 

$

6.7

 

 

$

28.8

 

 

$

21.8

 

See accompanying notes to condensed consolidated financial statements (unaudited).


SYNAPTICS INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in millions, except share amounts)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

Total

 

 

Common Stock

 

 

Paid-in

 

 

Treasury

 

 

Retained

 

 

Stockholders'

 

 

Common Stock

 

 

Paid-in

 

 

Treasury

 

 

Comprehensive

 

 

Retained

 

 

Stockholders'

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Earnings

 

 

Equity

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Income

 

 

Earnings

 

 

Equity

 

Balance at June 30, 2018

 

 

62,889,679

 

 

$

0.1

 

 

$

1,195.2

 

 

$

(1,073.9

)

 

$

1.5

 

 

$

606.4

 

 

$

729.3

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.8

 

 

 

3.8

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1.5

)

 

 

 

 

 

(1.5

)

Issuance of common stock for share-

based award compensation plans

 

 

140,379

 

 

 

 

 

 

2.1

 

 

 

 

 

 

 

 

 

 

 

 

2.1

 

Payroll taxes for deferred stock units

 

 

 

 

 

 

 

 

(0.9

)

 

 

 

 

 

 

 

 

 

 

 

(0.9

)

Purchases of treasury stock

 

 

 

 

 

 

 

 

 

 

 

(39.4

)

 

 

 

 

 

 

 

 

(39.4

)

Share-based compensation

 

 

 

 

 

 

 

 

16.7

 

 

 

 

 

 

 

 

 

 

 

 

16.7

 

Balance at September 30, 2018

 

 

63,030,058

 

 

 

0.1

 

 

 

1,213.1

 

 

 

(1,113.3

)

 

 

 

 

 

610.2

 

 

 

710.1

 

Balance at June 30, 2019, as reported

 

 

64,283,948

 

 

$

0.1

 

 

$

1,266.1

 

 

$

(1,192.4

)

 

$

583.5

 

 

$

657.3

 

Cumulative effect of changes in accounting

principles

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(0.9

)

 

$

(0.9

)

Balance at June 30, 2019, as adjusted

 

 

64,283,948

 

 

 

0.1

 

 

 

1,266.1

 

 

 

(1,192.4

)

 

 

582.6

 

 

 

656.4

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12.8

 

 

 

12.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.0

 

 

 

4.0

 

Issuance of common stock for share-

based award compensation plans

 

 

773,486

 

 

 

 

 

 

9.3

 

 

 

 

 

 

 

 

 

 

 

 

9.3

 

 

 

209,110

 

 

 

 

 

 

1.7

 

 

 

 

 

 

 

 

 

1.7

 

Payroll taxes for deferred stock units

 

 

 

 

 

 

 

 

(6.3

)

 

 

 

 

 

 

 

 

 

 

 

(6.3

)

 

 

 

 

 

 

 

 

(1.5

)

 

 

 

 

 

 

 

 

(1.5

)

Purchases of treasury stock

 

 

 

 

 

 

 

 

 

 

 

(37.9

)

 

 

 

 

 

 

 

 

(37.9

)

 

 

 

 

 

 

 

 

 

 

 

(17.0

)

 

 

 

 

 

(17.0

)

Share-based compensation

 

 

 

 

 

 

 

 

16.2

 

 

 

 

 

 

 

 

 

 

 

 

16.2

 

 

 

 

 

 

 

 

 

11.2

 

 

 

 

 

 

 

 

 

11.2

 

Balance at December 31, 2018

 

 

63,803,544

 

 

 

0.1

 

 

 

1,232.3

 

 

 

(1,151.2

)

 

 

 

 

 

623.0

 

 

 

704.2

 

Balance at September 30, 2019

 

 

64,493,058

 

 

 

0.1

 

 

 

1,277.5

 

 

 

(1,209.4

)

 

 

586.6

 

 

 

654.8

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6.7

 

 

 

6.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19.8

 

 

 

19.8

 

Issuance of common stock for share-

based award compensation plans

 

 

138,622

 

 

 

 

 

 

1.7

 

 

 

 

 

 

 

 

 

 

 

 

1.7

 

 

 

895,755

 

 

 

 

 

 

11.8

 

 

 

 

 

 

 

 

 

11.8

 

Payroll taxes for deferred stock units

 

 

 

 

 

 

 

 

(1.8

)

 

 

 

 

 

 

 

 

 

 

 

(1.8

)

 

 

 

 

 

 

 

 

(7.2

)

 

 

 

 

 

 

 

 

(7.2

)

Share-based compensation

 

 

 

 

 

 

 

 

15.9

 

 

 

 

 

 

 

 

 

 

 

 

15.9

 

 

 

 

 

 

 

 

 

12.1

 

 

 

 

 

 

 

 

 

12.1

 

Balance at March 31, 2019

 

 

63,942,166

 

 

$

0.1

 

 

$

1,248.1

 

 

$

(1,151.2

)

 

$

 

 

$

629.7

 

 

$

726.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2019

 

 

65,388,813

 

 

 

0.1

 

 

 

1,294.2

 

 

 

(1,209.4

)

 

 

606.4

 

 

 

691.3

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5.0

 

 

 

5.0

 

Issuance of common stock for share-

based award compensation plans

 

 

363,402

 

 

 

 

 

 

16.5

 

 

 

 

 

 

 

 

 

16.5

 

Payroll taxes for deferred stock units

 

 

 

 

 

 

 

 

(0.6

)

 

 

 

 

 

 

 

 

(0.6

)

Purchases of treasury stock

 

 

 

 

 

 

 

 

 

 

 

(13.1

)

 

 

 

 

 

(13.1

)

Share-based compensation

 

 

 

 

 

 

 

 

13.8

 

 

 

 

 

 

 

 

 

13.8

 

Balance at March 31, 2020

 

 

65,752,215

 

 

$

0.1

 

 

$

1,323.9

 

 

$

(1,222.5

)

 

$

611.4

 

 

$

712.9

 

 

See accompanying notes to condensed consolidated financial statements (unaudited).


SYNAPTICS INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in millions, except share amounts)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

Total

 

 

Common Stock

 

 

Paid-in

 

 

Treasury

 

 

Comprehensive

 

 

Retained

 

 

Stockholders'

 

 

Common Stock

 

 

Paid-in

 

 

Treasury

 

 

Comprehensive

 

 

Retained

 

 

Stockholders'

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Income

 

 

Earnings

 

 

Equity

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Income

 

 

Earnings

 

 

Equity

 

Balance at June 30, 2017

 

 

60,579,911

 

 

$

0.1

 

 

$

1,005.8

 

 

$

(980.3

)

 

$

1.5

 

 

$

730.5

 

 

$

757.6

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26.5

)

 

 

(26.5

)

Balance at June 30, 2018

 

 

62,889,679

 

 

$

0.1

 

 

$

1,195.2

 

 

$

(1,073.9

)

 

$

1.5

 

 

$

606.4

 

 

$

729.3

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.8

 

 

 

3.8

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1.5

)

 

 

 

 

 

(1.5

)

Issuance of common stock for share-

based award compensation plans

 

 

68,858

 

 

 

 

 

 

1.1

 

 

 

 

 

 

 

 

 

 

 

 

1.1

 

 

 

140,379

 

 

 

 

 

 

2.1

 

 

 

 

 

 

 

 

 

 

 

 

2.1

 

Issuance of common stock for acquisition

 

 

726,666

 

 

 

 

 

 

 

39.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

39.1

 

Payroll taxes for deferred stock units

 

 

 

 

 

 

 

 

(0.5

)

 

 

 

 

 

 

 

 

 

 

 

(0.5

)

 

 

 

 

 

 

 

 

(0.9

)

 

 

 

 

 

 

 

 

 

 

 

(0.9

)

Purchases of treasury stock

 

 

 

 

 

 

 

 

 

 

 

(93.6

)

 

 

 

 

 

 

 

 

(93.6

)

 

 

 

 

 

 

 

 

 

 

 

(39.4

)

 

 

 

 

 

 

 

 

(39.4

)

Share-based compensation

 

 

 

 

 

 

 

 

16.5

 

 

 

 

 

 

 

 

 

 

 

 

16.5

 

 

 

 

 

 

 

 

 

16.7

 

 

 

 

 

 

 

 

 

 

 

 

16.7

 

Issuance of Convertible debt

 

 

 

 

 

 

 

 

52.1

 

 

 

 

 

 

 

 

 

 

 

 

52.1

 

Balance at September 30, 2017

 

 

61,375,435

 

 

 

0.1

 

 

 

1,114.1

 

 

 

(1,073.9

)

 

 

1.5

 

 

 

704.0

 

 

 

745.8

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(82.4

)

 

 

(82.4

)

Balance at September 30, 2018

 

 

63,030,058

 

 

 

0.1

 

 

 

1,213.1

 

 

 

(1,113.3

)

 

 

 

 

 

610.2

 

 

 

710.1

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12.8

 

 

 

12.8

 

Issuance of common stock for share-

based award compensation plans

 

 

773,486

 

 

 

 

 

 

9.3

 

 

 

 

 

 

 

 

 

 

 

 

9.3

 

Payroll taxes for deferred stock units

 

 

 

 

 

 

 

 

(6.3

)

 

 

 

 

 

 

 

 

 

 

 

(6.3

)

Purchases of treasury stock

 

 

 

 

 

 

 

 

 

 

 

(37.9

)

 

 

 

 

 

 

 

 

(37.9

)

Share-based compensation

 

 

 

 

 

 

 

 

16.2

 

 

 

 

 

 

 

 

 

 

 

 

16.2

 

Balance at December 31, 2018

 

 

63,803,544

 

 

$

0.1

 

 

$

1,232.3

 

 

$

(1,151.2

)

 

$

 

 

$

623.0

 

 

$

704.2

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6.7

 

 

 

6.7

 

Issuance of common stock for share-

based award compensation plans

 

 

557,907

 

 

 

 

 

 

8.1

 

 

 

 

 

 

 

 

 

 

 

 

8.1

 

 

 

138,622

 

 

 

 

 

 

1.7

 

 

 

 

 

 

 

 

 

 

 

 

1.7

 

Payroll taxes for deferred stock units

 

 

 

 

 

 

 

 

(4.1

)

 

 

 

 

 

 

 

 

 

 

 

(4.1

)

 

 

 

 

 

 

 

 

(1.8

)

 

 

 

 

 

 

 

 

 

 

 

(1.8

)

Share-based compensation

 

 

 

 

 

 

 

 

17.8

 

 

 

 

 

 

 

 

 

 

 

 

17.8

 

 

 

 

 

 

 

 

 

15.9

 

 

 

 

 

 

 

 

 

 

 

 

15.9

 

Balance at December 31, 2017

 

 

61,933,342

 

 

 

0.1

 

 

 

1,135.9

 

 

 

(1,073.9

)

 

 

1.5

 

 

 

621.6

 

 

 

685.2

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13.7

)

 

 

(13.7

)

Issuance of common stock for share-

based award compensation plans

 

 

300,769

 

 

 

 

 

 

5.8

 

 

 

 

 

 

 

 

 

 

 

 

5.8

 

Payroll taxes for deferred stock units

 

 

 

 

 

 

 

 

(0.2

)

 

 

 

 

 

 

 

 

 

 

 

(0.2

)

Share-based compensation

 

 

 

 

 

 

 

 

18.8

 

 

 

 

 

 

 

 

 

 

 

 

18.8

 

Balance at March 31, 2018

 

 

62,234,111

 

 

$

0.1

 

 

$

1,160.3

 

 

$

(1,073.9

)

 

$

1.5

 

 

$

607.9

 

 

$

695.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2019

 

 

63,942,166

 

 

$

0.1

 

 

$

1,248.1

 

 

$

(1,151.2

)

 

$

 

 

$

629.7

 

 

$

726.7

 

 

See accompanying notes to condensed consolidated financial statements (unaudited).


SYNAPTICS INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)

 

 

Nine Months Ended

 

 

Nine Months Ended

 

 

March 31,

 

 

March 31,

 

 

2019

 

 

2018

 

 

2020

 

 

2019

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income/(loss)

 

$

23.3

 

 

$

(122.6

)

Adjustments to reconcile net income/(loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

28.8

 

 

$

23.3

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Share-based compensation costs

 

 

48.7

 

 

 

53.1

 

 

 

37.1

 

 

 

48.7

 

Depreciation and amortization

 

 

27.5

 

 

 

28.6

 

 

 

21.9

 

 

 

27.5

 

Acquired intangibles amortization

 

 

56.1

 

 

 

62.0

 

 

 

40.4

 

 

 

56.1

 

Deferred taxes

 

 

(12.4

)

 

 

16.8

 

 

 

0.9

 

 

 

(12.4

)

Amortization of convertible debt discount and issuance costs

 

 

13.1

 

 

 

12.7

 

 

 

13.7

 

 

 

13.1

 

Amortization of debt issuance costs

 

 

0.4

 

 

 

1.5

 

 

 

0.4

 

 

 

0.4

 

Impairment recovery on investments

 

 

(2.8

)

 

 

 

 

 

 

 

 

(2.8

)

Acquired in-process research and development

 

 

3.7

 

 

 

 

Arbitration settlement

 

 

(1.9

)

 

 

 

 

 

 

 

 

(1.9

)

Equity investment loss

 

 

1.3

 

 

 

1.4

 

 

 

1.5

 

 

 

1.3

 

Foreign currency remeasurement loss

 

 

0.2

 

 

 

0.1

 

 

 

(0.6

)

 

 

0.2

 

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

27.5

 

 

 

8.2

 

 

 

(8.4

)

 

 

27.5

 

Inventories

 

 

(21.9

)

 

 

102.2

 

 

 

50.7

 

 

 

(21.9

)

Prepaid expenses and other current assets

 

 

(5.1

)

 

 

20.9

 

 

 

(0.4

)

 

 

(5.1

)

Other assets

 

 

(1.3

)

 

 

(7.2

)

 

 

2.5

 

 

 

(1.3

)

Accounts payable

 

 

(35.8

)

 

 

(15.9

)

 

 

(8.6

)

 

 

(35.8

)

Accrued compensation

 

 

(3.3

)

 

 

(15.4

)

 

 

17.4

 

 

 

(3.3

)

Acquisition-related liabilities

 

 

(6.8

)

 

 

 

 

 

 

 

 

(6.8

)

Income taxes payable

 

 

(9.6

)

 

 

1.8

 

 

 

(5.3

)

 

 

(9.6

)

Other accrued liabilities

 

 

13.6

 

 

 

(11.1

)

 

 

(27.4

)

 

 

13.6

 

Net cash provided by operating activities

 

 

110.8

 

 

 

137.1

 

 

 

168.3

 

 

 

110.8

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition of businesses, net of cash and cash equivalents acquired

 

 

 

 

 

(396.4

)

Purchase of in-process research and development

 

 

(2.5

)

 

 

 

Proceeds from sales of investments

 

 

2.8

 

 

 

 

 

 

 

 

 

2.8

 

Purchases of property and equipment

 

 

(17.7

)

 

 

(27.5

)

 

 

(11.7

)

 

 

(17.7

)

Purchase of intangible assets

 

 

 

 

 

(7.7

)

Net cash used in investing activities

 

 

(14.9

)

 

 

(431.6

)

 

 

(14.2

)

 

 

(14.9

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from issuance of convertible debt, net of issuance costs

 

 

 

 

 

514.5

 

Payment of debt

 

 

 

 

 

(220.0

)

Purchases of treasury stock

 

 

(77.3

)

 

 

(93.6

)

 

 

(30.1

)

 

 

(77.3

)

Proceeds from issuance of shares

 

 

13.1

 

 

 

15.0

 

 

 

30.0

 

 

 

13.1

 

Payroll taxes for deferred stock and market stock units

 

 

(9.3

)

 

 

(8.9

)

Payment of debt issuance costs

 

 

 

 

 

(1.1

)

 

 

(0.2

)

 

 

 

Payroll taxes for deferred stock and market stock units

 

 

(8.9

)

 

 

(4.8

)

Net cash provided by/(used in) financing activities

 

 

(73.1

)

 

 

210.0

 

Net cash used in financing activities

 

 

(9.6

)

 

 

(73.1

)

Effect of exchange rate changes on cash and cash equivalents

 

 

 

 

 

0.1

 

 

 

(0.2

)

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

 

22.8

 

 

 

(84.4

)

 

 

144.3

 

 

 

22.8

 

Cash and cash equivalents at beginning of period

 

 

301.0

 

 

 

367.8

 

 

 

327.8

 

 

 

301.0

 

Cash and cash equivalents at end of period

 

$

323.8

 

 

$

283.4

 

 

$

472.1

 

 

$

323.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for taxes

 

$

16.1

 

 

$

26.0

 

 

$

24.0

 

 

$

16.1

 

Cash refund on taxes

 

$

5.2

 

 

$

1.0

 

 

$

1.3

 

 

$

5.2

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of property and equipment in current liabilities

 

$

3.4

 

 

$

3.8

 

 

$

1.2

 

 

$

3.4

 

Common stock issued pursuant to acquisition

 

$

-

 

 

$

39.1

 

 

See accompanying notes to condensed consolidated financial statements (unaudited)

 


SYNAPTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC, and U.S. generally accepted accounting principles, or U.S. GAAP. Certain information or footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to SEC rules and regulations. In our opinion, the financial statements include all adjustments, which are of a normal and recurring nature and necessary for the fair presentation of the results of the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the operating results for the full fiscal year or any future period. These financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2018.29, 2019.

The consolidated financial statements include our financial statements and those of our wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated upon consolidation.

Our fiscal year is the 52- or 53-week period ending on the last Saturday in June. Our fiscal 20192020 is a 52-week period ending June 29, 2019,27, 2020, and our fiscal 20182019 was a 53-week52-week period ending on June 30, 2018.29, 2019. The fiscal periods presented in this report are 13-week13- and 39-week periods39-weeks for the three and nine months ended March 28, 2020, and March 30, 2019, respectively, and 13-week and 40-week periods for the three and nine months ended March 31, 2018, respectively.2019. For simplicity, the accompanying condensed consolidated financial statements have been shown as ending on calendar quarter end dates as of and for all periods presented, unless otherwise indicated.

Effective at the beginning of our first quarter of fiscal 2020, the quarter ended September 30, 2019, we adopted the requirements of Accounting Standards Update, or ASU, 2016-02, Leases, or Topic 842, issued by the Financial Accounting Standards Board, or FASB.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, allowance for doubtful accounts, cost of revenue, inventories, loss on purchase commitments, product warranty, accrued liabilities, share-based compensation costs, provision for income taxes, deferred income tax asset valuation allowances, uncertain tax positions, goodwill, intangible assets, investments and loss contingencies. We base our estimates on historical experience, applicable laws and regulations, and various other assumptions that we believe to be reasonable under the circumstances, including our expectations regarding the potential impacts on our business of the COVID-19 pandemic, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Foreign Currency Transactions and Foreign Exchange Contracts

The U.S. dollar is our functional and reporting currency.  We remeasure our monetary assets and liabilities not denominated in the functional currency into U.S. dollar equivalents at the rate of exchange in effect on the balance sheet date. We measure and record non-monetary balance sheet accounts at the historical rate in effect at the date of transaction. We remeasure foreign currency expenses at the weighted average exchange rate in the month that the transaction occurred. Our foreign currency transactions and remeasurement gains and losses are included in selling, general, and administrative expenses in the condensed consolidated statements of operationsincome and resulted in net losses of $0.1 million and $0.7less than $0.1 million in the three and nine months ended March 31, 20192020, respectively, and net losses of $0.3$0.1 million and $0.8$0.7 million infor the three and nine months ended March 31, 2018,2019, respectively.

Leases

We determine if a contract is a lease or contains a lease at the inception of the contract and reassess that conclusion if the contract is modified. All leases are assessed for classification as an operating lease or a finance lease. Operating lease right-of-use, or ROU, assets are included in non-current other assets on our condensed consolidated balance sheet. Operating lease liabilities are separated into a current portion, included within accrued liabilities on our condensed consolidated balance sheet, and a non-current portion, included within operating lease liabilities on our condensed consolidated balance sheet. We do not have any finance lease ROU assets or liabilities. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our


obligation to make lease payments arising from the lease. We do not obtain and control the right to use the identified asset until the lease commencement date.

Our lease liabilities are recognized at the applicable lease commencement date based on the present value of the lease payments required to be paid over the lease term. Because the interest rate implicit in the lease is not readily determinable, we generally use our incremental borrowing rate to discount the lease payments to present value. The estimated incremental borrowing rate is derived from information available at the lease commencement date. We factor in publicly available data for instruments with similar characteristics when calculating our incremental borrowing rates. Our ROU assets are also recognized at the applicable lease commencement date. The ROU asset equals the carrying amount of the related lease liability, adjusted for any lease payments made prior to lease commencement and lease incentives provided by the lessor. Variable lease payments are expensed as incurred and do not factor into the measurement of the applicable ROU asset or lease liability.

The term of our leases equals the non-cancellable period of the lease, including any rent-free periods provided by the lessor, and also include options to renew or extend the lease (including by not terminating the lease) that we are reasonably certain to exercise. We establish the term of each lease at lease commencement and reassess that term in subsequent periods when one of the triggering events outlined in Topic 842 occurs. Operating lease cost for lease payments is recognized on a straight-line basis over the lease term.

Our lease contracts often include lease and non-lease components. For our leases, we have elected the practical expedient offered by the standard to not separate lease from non-lease components and account for them as a single lease component.

We have elected, for all classes of underlying assets, not to recognize ROU assets and lease liabilities for leases with a term of twelve months or less. Lease cost for short-term leases is recognized on a straight-line basis over the lease term.

Asset Acquisition

We acquired an emerging technology startup company focused on the design of high-speed connectivity products in August 2019. The purchase price primarily included $2.5 million in cash paid at the closing, and up to $6.5 million in contingent consideration which is payable in set amounts upon meeting various milestones on dates from December 2021 through December 2023. As of March 31, 2020, we have accrued $1.3 million of the contingent consideration as that is the portion which is currently estimable and probable. The acquisition was accounted for as an asset purchase and accordingly we expensed $3.7 million of in-process research and development, recorded liabilities of approximately $1.5 million and recorded a long-term deferred tax asset of $0.3 million in the nine months ended March 31, 2020.

Divestiture

In December 2019, we entered into an asset purchase agreement with a third party to sell the assets of our LCD Touch Controller and Display Driver Integration product line, or TDDI, for LCD mobile displays. We will retain our automotive TDDI product line and our discrete touch and discrete display driver product lines supporting LCD and OLED for the mobile market. Subject to certain post-closing adjustments and indemnification obligations, the aggregate consideration payable by the buyer will be $120.0 million in cash, the dollar value of specified inventory at a purchase price of standard cost plus 5% in cash, and the assumption of certain liabilities as set forth in the asset purchase agreement. The assets sold under the asset purchase agreement, have a preliminary carrying value of approximately $30.1 million as of March 31, 2020, and have been included as $12.5 million of current assets held for sale and $17.6 million of non-current assets held for sale in our condensed consolidated balance sheets. The transaction closed in accordance with the terms of the asset purchase agreement in April 2020 for cash consideration of $120.0 million plus a preliminary inventory amount of $19.4 million.

 

 


2. Impact of Recently Adopted Accounting Pronouncements

On June 30, 2019, we adopted Accounting Standards Codification Topic 842, or ASC 842, Leases, which requires recognition of ROU assets and lease liabilities for most leases on our consolidated balance sheet. We adopted ASC 842 using a modified retrospective transition approach as of the effective date as permitted by ASC 842. As a result, we were not required to adjust our comparative period financial information for effects of the standard or make the new required lease disclosures for the periods before the date of adoption. We elected the package of practical expedients which allows us not to reassess (1) whether existing or expired contracts, as of the adoption date, contain leases, (2) the lease classification for existing leases, and (3) whether existing initial direct costs meet the new definition. We also elected the practical expedient to not separate lease and non-lease components for our leases, and to not recognize ROU assets and liabilities for short-term leases.

The standard had a material impact on our condensed consolidated balance sheet but did not have a significant impact on our condensed consolidated statements of income or cash flows. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases.

The adoption of this new standard at June 30, 2019, resulted in the following changes:

assets increased by $27.8 million, primarily representing the recognition of ROU assets for operating leases; and

liabilities increased by $28.4 million, primarily representing the recognition of lease liabilities for operating leases.

3. Revenue Recognition

Change in Accounting Policy

In May 2014, the FinancialWe adopted Accounting Standards Board,Codification Topic 606, or FASB, issued an Accounting Standards Update, or ASU, on revenue from contracts with customers, ASU No. 2014-09,ASC 606, Revenue from Contracts with Customers, or the new revenue standard. The new revenue standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers.


We adopted the new revenue standard at the beginning of our fiscal 2019, using the modified retrospective method applied to all contracts not completed as of the adoption date. Results for reporting periods ending after our fiscal 2018 are presented under the new revenue standard, while prior reporting periods are not adjusted and continue to be reported in accordance with the previous revenue standard.  Recognition of revenue has remained substantially unchanged under the new revenue standard as compared to the previous revenue standard. Accordingly, there was no adjustment to the fiscal 2019 opening retained earnings. However, due to the adoption of the new revenue standard, we reclassified certain amounts of incentive items to other accrued liabilities in our condensed consolidated balance sheet as of March 31, 2019, and presented them as part of customer obligations, from the contra accounts receivable. Such information is as follows (in millions):

Condensed Consolidated Balance Sheets

 

 

As of March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

Pro forma as if

 

 

 

As reported under

 

 

 

 

 

 

previous standard

 

 

 

new standard

 

 

Adjustments

 

 

was in effect

 

Accounts receivable, net

 

$

266.8

 

 

$

(4.8

)

 

$

262.0

 

Total assets

 

 

1,468.6

 

 

 

(4.8

)

 

 

1,463.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other accrued liabilities

 

 

99.1

 

 

 

(4.8

)

 

 

94.3

 

Total liabilities and stockholders' equity

 

 

1,468.6

 

 

 

(4.8

)

 

 

1,463.8

 

Condensed Consolidated Statement of Cash Flows

 

 

Nine Months Ended March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

Pro forma as if

 

 

 

As reported under

 

 

 

 

 

 

previous standard

 

 

 

new standard

 

 

Adjustments

 

 

was in effect

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

$

27.5

 

 

$

(0.4

)

 

$

27.1

 

Other accrued liabilities

 

 

13.6

 

 

 

0.4

 

 

 

14.0

 

Revenue Recognition

2019. Our revenue is primarily generated from the sale of application specific integrated circuit chips, or ASIC chips, either directly to a customer or to a distributor. Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to receive in exchange for those goods or services. All of our revenue, except an inconsequential amount, is recognized at a point in time, either on shipment or delivery of the product, depending on customer terms and conditions. We generally warrant our products for a period of 12 months from the date of sale and estimate probable product warranty costs at the time we recognize revenue as the warranty is considered an assurance warranty and not a performance obligation. Non-product revenue is recognized over the same period of time such performance obligations are satisfied. We then select an appropriate method for measuring satisfaction of the performance obligations.

Revenue from sales to distributors is recognized upon shipment of the product to the distributors (sell-in basis). Master sales agreements are in place with certain customers, and these agreements typically contain terms and conditions with respect to payment, delivery, warranty and supply. In the absence of a master sales agreement, we consider a customer's purchase order or our standard terms and conditions to be the contract with the customer.


Our pricing terms are negotiated independently, on a stand-alone basis. In determining the transaction price, we evaluate whether the price is subject to refund or adjustment to determine the net consideration which we expect to receive for the sale of such products. In limited situations, we make sales to certain customers under arrangements where we grant stock rotation rights, price protection and price allowances; variable consideration associated with these rights is expected to be inconsequential. These adjustments and incentives are accounted for as variable consideration, classified as other current liabilities under the new revenue standard, and are shown as customer obligations in Note 79 Other Accrued Liabilities and Other Long-Term Liabilities. We estimate the amount of variable consideration for such arrangements based on the expected value to be provided to customers, and we do not believe that there will be significant changes to our estimates of variable consideration. When incentives, stock rotation rights, price protection, volume discounts, or price allowances are applicable, they are estimated and recorded in the period the related revenue is recognized. Stock rotation reserves are based on historical return rates and recorded as a reduction to revenue with a corresponding reduction to cost of goods sold for the estimated cost of inventory that is expected to be returned and recorded as prepaid expenses and other current assets. In limited circumstances, we enter into volume basedvolume-based tiered pricing arrangements and we estimate total unit volumes under such arrangementarrangements to determine the expected transaction price for the units expected to be transferred. Such arrangements are accounted for as contract liabilities within other accrued liabilities. Sales returns liabilities are recorded as refund liabilities within other accrued liabilities.

Our accounts receivable balance is from contracts with customers and represents our unconditional right to receive consideration from customers. Payments are generally due within three months upon of completion of the performance obligation and subsequent invoicing and therefore, do not include significant financing components. To date, there have been no material impairment losses on accounts receivable. There were no$0.6 million in contract assets (i.e., unbilled accounts receivable, deferred commissions) recorded on the condensed consolidated balance sheets in the periods presented.as of March 31, 2020 and $0.9 million as of June 30, 2019. Contract assets are presented as part of prepaid expenses and other current assets. Contract liabilities and refund liabilities were $5.5$6.7 million and $42.3$24.2 million, respectively, as of March 31, 20192020, and $1.1$4.5 million and $31.6$47.5 million, respectively, as of the beginning of fiscalJune 30, 2019. Both contract liabilities and refund liabilities are presented as part of customer obligations in Note 79 Other Accrued Liabilities and Other Long-Term Liabilities. During the nine months ended March 31, 2020, and the nine months


ended March 31, 2019, we recognized $0.3$1.4 million and $0.3 million, respectively, in revenue related to contract liabilities, which was outstanding as of the beginning of each such fiscal 2019.year.

We invoice customers for each delivery upon shipment and recognize revenue in accordance with delivery terms. As of March 31, 2019,2020, we did not0t have any remaining unsatisfied performance obligations with an original duration greater than one year. Accordingly, under the optional exception provided by ASC 606-10-50-14,606, we do not disclose revenues allocated to future performance obligations of partially completed contracts. We have elected to account for shipping and handling costs as fulfillment costs before the customer obtains control of the goods. We continue to classify shipping and handling costs as a cost of revenue. We have elected to continue to account for collection of all taxes on a net basis.  

We incur commission expense that is incremental to obtaining contracts with customers. Sales commissions (which are recorded in theas a selling, general and administrative expense line item in the condensed consolidated statements of operations)income) are expensed when the product is shipped because such commissions are owed after shipment.

Revenue from contracts with customers disaggregated by geographic area based on customer location and groups of similar products is presented in Note 1214 Segment, Customers, and Geographical Information.

 

 

3.4. Net Income Per Share

The computation of basic and diluted net income per share was as follows (in millions, except per share data):

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

March 31,

 

 

March 31,

 

 

March 31,

 

 

March 31,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income/(loss)

 

$

6.7

 

 

$

(13.7

)

 

$

23.3

 

 

$

(122.6

)

Net income

 

$

5.0

 

 

$

6.7

 

 

$

28.8

 

 

$

23.3

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares, basic

 

 

34.4

 

 

 

34.5

 

 

 

34.7

 

 

 

34.0

 

 

 

34.0

 

 

 

34.4

 

 

 

33.5

 

 

 

34.7

 

Effect of dilutive share-based awards

 

 

0.6

 

 

 

 

 

 

0.8

 

 

 

 

 

 

1.0

 

 

 

0.6

 

 

 

1.0

 

 

 

0.8

 

Shares, diluted

 

 

35.0

 

 

 

34.5

 

 

 

35.5

 

 

 

34.0

 

 

 

35.0

 

 

 

35.0

 

 

 

34.5

 

 

 

35.5

 

Net income/(loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.19

 

 

$

(0.40

)

 

$

0.67

 

 

$

(3.61

)

 

$

0.15

 

 

$

0.19

 

 

$

0.86

 

 

$

0.67

 

Diluted

 

$

0.19

 

 

$

(0.40

)

 

$

0.66

 

 

$

(3.61

)

 

$

0.14

 

 

$

0.19

 

 

$

0.83

 

 

$

0.66

 

Our basic net income per share amounts for each period presented have been computed using the weighted average number of shares of common stock outstanding over the period measured. Our diluted net income per share amounts for each period presented include the weighted average effect of potentially dilutive shares. We use the treasury stock method to determine the dilutive effect of our stock options, deferred stock units, or DSUs, market stock units, or MSUs, performance stock units, or PSUs, and our convertible notes.

Dilutive net income per share amounts do not include the potential weighted average effect of 1,558,936345,783 and 2,818,3581,558,936 shares of common stock related to certain share-based awards that were outstanding during the three months ended March 31, 20192020 and 2018,2019, respectively, and 1,434,049800,857 and 2,427,5661,434,049 shares of common stock related to certain share-based awards that were outstanding during the nine months ended March 31, 2019,2020 and 2018,2019, respectively. These share-based awards were not included in the computation of diluted net income per share because their effect would have been antidilutive.

 

 

4.5. Fair Value

FinancialOur financial assets, measured at fair value on a recurring basis by level withinunder the fair value hierarchy, consisted of the following (in millions):

 

 

March 31,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

309.5

 

 

$

-

 

 

$

-

 

 

$

275.2

 

 

$

-

 

 

$

-

 

Auction rate securities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1.5

 

Total available-for-sale securities

 

$

309.5

 

 

$

-

 

 

$

-

 

 

$

275.2

 

 

$

-

 

 

$

1.5

 

In our condensed consolidated balance sheets,money market funds within level 1 financial assets and totaled $262.2 million and $313.7 million as of March 31, 20192020 and June 30, 2018,2019, respectively. These money market balancesfunds were included in cash and cash equivalents and as of June 30, 2018, auction rate securities, or ARS investments, were included in non-current other assets.

During the nine months ended March 31, 2019, we converted our ARS investments to senior surplus notes, under an offering memorandum, which also included a receipt of a small amount of cash and warrants. We sold the senior surplus notes during the nine months ended March 31, 2019, resulting in a gain of $2.8 million. There were no transfers in or out of our Level 1, 2, or 3 assets during the nine months ended March 31, 2019 and 2018.condensed consolidated balance sheets.

The fair values of our accounts receivable and accounts payable approximate their carrying values because of the short-term nature of those instruments. Intangible assets, property and equipment, and goodwill are measured at fair value on a non-recurring basis if impairment is indicated.

 

 


5.6. Inventories

Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value and consisted of the following (in millions):

 

 

March 31,

 

 

June 30,

 

 

March 31,

 

 

June 30,

 

 

2019

 

 

2018

 

 

2020

 

 

2019

 

Raw materials and work-in-progress

 

$

121.8

 

 

$

105.0

 

 

$

48.6

 

 

$

110.7

 

Finished goods

 

 

31.3

 

 

 

26.2

 

 

 

46.9

 

 

 

48.0

 

 

$

153.1

 

 

$

131.2

 

 

$

95.5

 

 

$

158.7

 

 

We record a write-down, if necessary, to reduce the carrying value of inventory to its net realizable value. The effect of these write-downs is to establish a new cost basis in the related inventory, which we do not subsequently write up. We also record a liability and charge to cost of revenue for estimated losses on inventory we are obligated to purchase from our contract manufacturers when such losses become probable from customer delays, order cancellations, or other factors. As of March 31, 2020, we transferred $12.5 million of inventory to current assets held for sale. See Note 1 Basis of Presentation under the heading Divestiture included in the condensed consolidated financial statements contained elsewhere in this Report.

 

 


6.7. Acquired Intangibles and Goodwill

Acquired Intangibles

The following table summarizes the life, the gross carrying value and the related accumulated amortization of our acquired intangible assets as of March 31, 20192020 and June 30, 20182019 (in millions):

 

 

 

 

 

 

March 31, 2019

 

 

June 30, 2018

 

 

 

 

 

 

March 31, 2020

 

 

June 30, 2019

 

 

Weighted Average

Life in Years

 

 

Gross Carrying

Value

 

Accumulated

Amortization

 

Net Carrying

Value

 

 

Gross Carrying

Value

 

Accumulated

Amortization

 

Net Carrying

Value

 

 

Weighted Average

Life in Years

 

 

Gross Carrying

Value

 

 

Accumulated

Amortization

 

 

Net Carrying

Value

 

 

Gross Carrying

Value

 

 

Accumulated

Amortization

 

 

Net Carrying

Value

 

Display driver technology

 

 

5.3

 

 

$

164.0

 

$

(140.2

)

$

23.8

 

 

$

164.0

 

$

(116.5

)

$

47.5

 

 

 

5.3

 

 

$

164.0

 

 

$

(157.5

)

 

$

6.5

 

 

$

164.0

 

 

$

(148.1

)

 

$

15.9

 

Audio and video

technology

 

 

5.3

 

 

 

138.6

 

(42.5

)

 

96.1

 

 

 

133.9

 

(22.8

)

 

111.1

 

 

 

5.3

 

 

 

138.6

 

 

 

(69.7

)

 

 

68.9

 

 

 

138.6

 

 

 

(49.4

)

 

 

89.2

 

Customer relationships

 

 

4.1

 

 

 

81.8

 

(47.1

)

 

34.7

 

 

 

81.8

 

(38.5

)

 

43.3

 

 

 

4.1

 

 

 

81.8

 

 

 

(58.5

)

 

 

23.3

 

 

 

81.8

 

 

 

(49.9

)

 

 

31.9

 

Fingerprint authentication

technology

 

 

4.7

 

 

 

47.2

 

(47.2

)

 

-

 

 

 

55.7

 

(53.7

)

 

2.0

 

 

Not

applicable

 

 

 

 

 

 

 

 

 

 

 

 

47.2

 

 

 

(47.2

)

 

 

 

Licensed technology

and other

 

 

4.2

 

 

 

7.7

 

(3.1

)

 

4.6

 

 

 

9.0

 

(3.0

)

 

6.0

 

 

 

4.2

 

 

 

7.7

 

 

 

(5.0

)

 

 

2.7

 

 

 

7.7

 

 

 

(3.6

)

 

 

4.1

 

Patents

 

 

8.1

 

 

 

4.4

 

(1.9

)

 

2.5

 

 

 

4.6

 

(1.7

)

 

2.9

 

 

 

8.1

 

 

 

4.4

 

 

 

(2.5

)

 

 

1.9

 

 

 

4.4

 

 

 

(2.0

)

 

 

2.4

 

Tradename

 

 

7.0

 

 

 

1.8

 

(0.4

)

 

1.4

 

 

 

1.9

 

(0.2

)

 

1.7

 

 

 

7.0

 

 

 

1.8

 

 

 

(0.7

)

 

 

1.1

 

 

 

1.8

 

 

 

(0.5

)

 

 

1.3

 

Backlog

 

-

 

 

 

-

 

-

 

-

 

 

 

0.5

 

(0.5

)

 

-

 

In-process research and

development

 

Not applicable

 

 

 

-

 

 

-

 

 

-

 

 

 

4.7

 

 

-

 

 

4.7

 

Acquired intangibles,

gross

 

 

4.4

 

 

$

445.5

 

$

(282.4

)

$

163.1

 

 

$

456.1

 

$

(236.9

)

$

219.2

 

 

 

3.1

 

 

$

398.3

 

 

$

(293.9

)

 

$

104.4

 

 

$

445.5

 

 

$

(300.7

)

 

$

144.8

 

 

The total amortization expense for the acquired intangible assets was $18.1$11.1 million and $18.7$18.1 million for the three months ended March 31, 20192020 and 2018,2019, respectively, and $56.1$40.4 million and $62.0$56.1 million for the nine months ended March 31, 20192020 and 2018,2019, respectively. During the three months ended March 31, 2020 and 2019, and 2018, $15.2$8.1 million and $17.2$15.2 million, respectively, and $47.3$31.6 million and $53.4$47.3 million for the nine months ended March 31, 20192020 and 2018,2019, respectively, of amortization expense was included in our condensed consolidated statements of operationsincome in cost of revenue; the remainder was included in acquired intangibles amortization.

The following table presents expected annual fiscal year aggregate amortization expense as of March 31, 20192020 (in millions):

 

Remainder of 2019

 

$

18.3

 

2020

 

 

51.4

 

Remainder of 2020

 

$

11.1

 

2021

 

 

37.5

 

 

 

37.4

 

2022

 

 

32.9

 

 

 

32.9

 

2023

 

 

20.4

 

 

 

20.4

 

2024

 

 

2.5

 

 

 

2.5

 

Thereafter

 

 

0.1

 

2025

 

 

0.1

 

Future amortization

 

$

163.1

 

 

$

104.4

 


Goodwill

Goodwill represents the excess of the purchase price over the fair value of net tangible and identifiable intangible assets acquired.  There were no changes in ourwas a reclassification of $11.0 million of goodwill balanceto non-current assets held for sale during the nine months ended March 31, 2019.2020.  

 

 

8. Leases

Our leases mainly include our worldwide office and research and development facilities which are all classified as operating leases. Certain leases include renewal options that are under our discretion. The leases expire at various dates through fiscal year 2026, some of which include options to extend the lease for up to 5 years. For the nine months ended March 31, 2020, we recorded approximately $6.9 million of operating leases expense. Our short-term leases are immaterial and we do not have finance leases.

As of March 31, 2020, the components of leases and lease costs are as follows (in millions):

 

 

March 31,

 

 

 

2020

 

Operating lease right-of-use assets

 

$

23.8

 

Operating lease liabilities

 

$

7.6

 

Operating lease liabilities, long-term

 

 

16.2

 

Total operating lease liabilities

 

$

23.8

 

Supplemental cash flow information related to leases is as follows (in millions):

 

 

Nine Months Ended

 

 

 

March 31,

 

 

 

2020

 

Cash paid for operating leases included in operating

   cash flows

 

$

7.1

 

Supplemental non-cash information related to lease

   liabilities arising from obtaining right-of-use assets

 

 

2.8

 

As of March 31, 2020, the weighted average remaining lease term is 3.7 years, and the weighted average discount rate is 4.21%.  

Future minimum lease payments for the operating lease liabilities are as follows (in millions):

 

 

Operating

 

 

 

Lease

 

Fiscal Year

 

Payments

 

Remainder of 2020

 

$

2.3

 

2021

 

 

7.9

 

2022

 

 

7.2

 

2023

 

 

4.0

 

2024

 

 

2.4

 

Thereafter

 

 

1.9

 

Total future minimum operating lease payments

 

 

25.7

 

Less: interest

 

 

(1.9

)

Total lease liabilities

 

$

23.8

 


7.As of the beginning of our fiscal quarter ended September 30, 2019, our aggregate minimum rental commitments for future fiscal years for non-cancelable operating leases with initial or remaining terms in excess of one year were as follows (in millions):

 

 

Operating

 

 

 

Lease

 

Fiscal Year

 

Payments

 

2020

 

$

7.4

 

2021

 

 

3.2

 

2022

 

 

0.9

 

2023

 

 

0.3

 

2024

 

 

0.1

 

Total future minimum operating lease payments

 

$

11.9

 

9. Other Accrued Liabilities and Other Long-Term Liabilities

Other accrued liabilities consisted of the following (in millions):

 

 

March 31,

 

 

June 30,

 

 

March 31,

 

 

June 30,

 

 

2019

 

 

2018

 

 

2020

 

 

2019

 

Customer Obligations

 

$

47.8

 

 

$

26.4

 

 

$

30.9

 

 

$

52.0

 

Inventory obligations

 

 

30.1

 

 

 

28.8

 

 

 

30.0

 

 

 

26.7

 

Operating lease liabilities

 

 

7.6

 

 

 

 

Warranty

 

 

4.0

 

 

 

5.5

 

 

 

4.0

 

 

 

4.0

 

Other

 

 

17.2

 

 

 

19.0

 

 

 

20.3

 

 

 

23.4

 

 

$

99.1

 

 

$

79.7

 

 

$

92.8

 

 

$

106.1

 

 

Our customer obligations included $5.5 millionOther long-term liabilities consisted of contract liabilities and $42.3 million of refund liabilities as of March 31, 2019, each as defined under revenue recognition guidance in the new revenue standard (see Note 2 Revenue Recognition). We reclassified certain amounts of incentive items to other current liabilities in our condensed consolidated balance sheet as of March 31, 2019, and presented them as part of customer obligations, from the contra accounts receivable due to the adoption of the new revenue standard.following (in millions):

 

 

March 31,

 

 

June 30,

 

 

 

2020

 

 

2019

 

Income taxes payable, long-term

 

$

17.4

 

 

$

16.2

 

Operating lease liabilities, long-term

 

 

16.2

 

 

 

 

Other

 

 

13.4

 

 

 

14.1

 

 

 

$

47.0

 

 

$

30.3

 

 

 

 

 

 

 

 

 

 

 

 

8.10. Indemnifications Contingenciesand Legal ProceedingsContingencies

Indemnifications

In connection with certain agreements, we are obligated to indemnify the counterparty against third party claims alleging infringement of certain intellectual property rights by us. We have also entered into indemnification agreements with our officers and directors. Maximum potential future payments under these agreements cannot be estimated because these agreements generally do not have a maximum stated liability. However, historical costs related to these indemnification provisions have not been significant. We have not recorded any liability in our condensed consolidated financial statements for such indemnification obligations.

Contingencies

We have in the past, and may in the future, receive notices from third parties that claim our products infringe their intellectual property rights. We cannot be certain that our technologies and products do not and will not infringe issued patents or other proprietary rights of third parties.

Any infringement claims, with or without merit, could result in significant litigation costs and diversion of management and financial resources, including the payment of damages, which could have a material adverse effect on our business, financial condition, and results of operations.

 

 


9.11. Debt

Convertible Debt

Our convertible debt consists of an original $525 million aggregate principal amount of 0.50% convertible senior notes due 2022, or the Notes, which were issued in a private placement transaction. The net proceeds from the Notes, after deducting discounts, were $514.5 million.

The Notes bear interest at a rate of 0.50% per year, which is payable semi-annually in arrears, on June 15 and December 15 of each year. The Notes are senior unsecured obligations and rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment to any our liabilities that are not so subordinated; effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of our subsidiaries.

The Notes mature on June 15, 2022, or the Maturity Date, unless earlier repurchased, redeemed or converted.

Holders may convert all or any portion of their Notes, in multiples of $1,000 principal amounts, at their option at any time prior to the close of business on the business day immediately preceding March 15, 2022 under certain defined circumstances.

On or after March 15, 2022 until the close of business on the business day immediately preceding the Maturity Date, holders may convert all or any portion of their Notes, in multiples of $1,000 principal amounts, at the option of the holder. Upon conversion, we will pay or deliver, at our election, shares of common stock, cash, or a combination of cash and shares of common stock.


The conversion rate for the Notes is initially 13.6947 shares of common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $73.02 per share of common stock). The conversion rate is subject to adjustment in certain circumstances.

Upon the occurrence of a fundamental change (as defined in the Notes indenture), holders of the Notes may require us to repurchase for cash all or a portion of their Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest up to, but excluding, the fundamental change repurchase date.

We may not redeem the Notes prior to June 20, 2020. We may redeem for cash all or any portion of the Notes, at our option, on or after June 20, 2020, if the last reported sale price of our common stock, as determined by us, has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest up to, but excluding, the redemption date. Our policy is to settle the principal amount of our Notes with cash upon conversion or redemption.

As of the issuance date of the Notes, we recorded $82.1 million of the principal amount to equity, representing the debt discount for the difference between our estimated nonconvertible debt borrowing rate of 4.39% and the coupon rate of the Notes of 0.50% using a five-year life, which coincides with the term of the Notes. In addition, we allocated the total of $11.1 million of debt issuance costs, consisting of the initial purchaser’s discount of $10.5 million and legal, accounting, and printing costs of $579,000, pro rata, to the equity and debt components of the Notes, or $1.9 million and $9.2 million, respectively. The debt discount and the debt issuance costs allocated to the debt component of the Notes are amortized as interest expense using the effective interest method over five years.

The contractual interest expense and amortization of discount on the Notes for the nine months ended March 31, 2019,2020, were as follows (in millions):

 

 

Nine Months Ended

 

 

Nine Months Ended

 

 

March 31,

 

 

March 31,

 

 

2019

 

 

2020

 

Interest expense

 

$

2.0

 

 

$

2.0

 

Amortization of discount and debt issuance costs

 

 

13.1

 

 

 

13.7

 

Total interest

 

$

15.1

 

 

$

15.7

 

 

 

 

 

 


The unamortized amounts of the debt issuance costs and discount associated with the Notes as of March 31, 20192020 were $6.1$4.3 million and $55.0$38.7 million, respectively.

 

Revolving Credit Facility

In September 2017,February 2020, we entered into anthe First Amendment to Amended and RestatementRestated Credit Agreement, or the Agreement,Amendment, with the lenders that are party thereto, or the Lenders, and Wells Fargo Bank, National Association, as administrative agent for the Lenders.  Lenders, related to that certain Amended and Restated Credit Agreement, dated September 27, 2017, or the Credit Agreement. Pursuant to the Amendment, the Credit Agreement was amended to, among other things, (i) modify the definition of Consolidated EBITDA (as defined in the Credit Agreement) to increase the maximum limit on the add back of certain restructuring and integration cost and expenses to 30% from 15% of Consolidated EBITDA, (ii) modify the negative covenant for Consolidated Total Leverage Ratio (as defined in the Credit Agreement) at the end of any fiscal quarter to 4.75:1.00 from 3.50:1.00, and for any four quarter period following a Material Acquisition (as defined in the Credit Agreement) to 5:00:1.00 from 3.75:1.00, (iii) modify the circumstances under which the maturity date of the Credit Agreement would be accelerated in advance of the maturity date of the Notes to eliminate the acceleration of the maturity date of the Credit Agreement if we meet certain specified leverage and liquidity covenants, (iv) add a minimum liquidity covenant for each two-week period beginning on the date that is 120 days prior to the maturity date of the Company’s existing convertible senior notes, (v) add certain technical amendments to address LIBOR transition matters, and  (vi) include or revise certain definitions and certain customary representation, warranties and acknowledgments.

The Credit Agreement terminated our prior term loan arrangement and provides for a revolving credit facility in a principal amount of up to $200 million, which includes a $20 million sublimit for letters of credit and a $20 million sublimit for swingline loans. Under the terms of the Credit Agreement, we may, subject to the satisfaction of certain conditions, request increases in the revolving credit facility commitments in an aggregate principal amount of up to $100 million to the extent existing or new lenders agree to provide such increased or additional commitments, as applicable.  Proceeds under the revolving credit facility are available for working capital and general corporate purposes. As of March 31, 2019,2020, there was no0 balance outstanding under the revolving credit facility . In April 2020, we borrowed $100.0 million under the revolving credit facility.

The revolving credit facility is required to be repaid in full on the earlier of (i) September 27, 2022, and (ii) the date 91 days prior to the Maturity Date of the Notes if the Notes have not been refinanced in full by such date.date, subject to certain exceptions based on specific covenant calculations. Debt issuance costs of $2.3 million relating to the revolving credit facility will be amortized over 60 months.

Our obligations under the Credit Agreement are guaranteed by the material domestic subsidiaries of our company,Company, subject to certain exceptions (such material subsidiaries, together with our company,Company, collectively, the Credit Parties). The obligations of the Credit Parties under the Credit Agreement and the other loan documents delivered in connection therewith are secured by a first priority security interest in substantially all of the existing and future personal property of the Credit Parties, including, without limitation, 65% of the voting capital stock of certain of the Credit Parties’ direct foreign subsidiaries, subject to certain exceptions.


The revolving credit facility bears interest at our election of a Base Rate plus an Applicable Margin or LIBOR plus an Applicable Margin. Swingline loans bear interest at a Base Rate plus an Applicable Margin. The Base Rate is a floating rate that is the greater of the Prime Rate, the Federal Funds Rate plus 50 basis points, or LIBOR plus 100 basis points. The Applicable Margin is based on a sliding scale which ranges from 0.25 to 100 basis points for Base Rate loans and 100 basis points to 175 basis points for LIBOR loans. We are required to pay a commitment fee on any unused commitments under the Credit Agreement which is determined on a leverage-based sliding scale ranging from 0.175% to 0.25% per annum. Interest and fees are payable on a quarterly basis. The LIBOR index is expected to be discontinued at the end of 2021. Under our credit facility, when the LIBOR index is discontinued, we will switch to a comparable or successor rate as selected by the Administrative Agent and the Company, which may include the Secured Overnight Financing Rate, or SOFR.

Under the Credit Agreement, there are various restrictive covenants, including three financial covenants which limit the consolidated total leverage ratio, or leverage ratio, the consolidated interest coverage ratio, or interest coverage ratio, a restriction which places a limit on the amount of capital expenditures that may be made in any fiscal year, a restriction that permits up to $50 million per fiscal quarter of accounts receivable financings, and sets the Specified Leverage Ratio. The leverage ratio is the ratio of debt as of the measurement date to earnings before interest, taxes, depreciation and amortization, or EBITDA, for the four consecutive quarters ending with the quarter of measurement. The current leverage ratio shall not exceed 3.504.75 to 1.00 provided that for the four fiscal quarters ending after the date of a material acquisition, such maximum leverage ratio shall be adjusted to 3.755.0 to 1.00, and thereafter shall not be more than 3.504.75 to 1.00.1.0. The interest coverage ratio is EBITDA to interest expense for the four consecutive quarters ending with the quarter of measurement. The interest coverage ratio must not be less than 3.50 to 1.0 during the term of the Credit Agreement. The Specified Leverage Ratio is the ratio used in determining, among other things, whether we are permitted to make dividends and/or


prepay certain indebtedness, at a fixed ratio of 3.002.25 to 1.00. As of the end of the fiscal quarter, we were in compliance with the restrictive covenants.

 

10.12. Share-Based Compensation

Share-based compensation and the related tax benefit recognized in our condensed consolidated statements of operationsincome were as follows (in millions):

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

March 31,

 

 

March 31,

 

 

March 31,

 

 

March 31,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Cost of revenue

 

$

0.7

 

 

$

0.9

 

 

$

2.4

 

 

$

2.3

 

 

$

0.8

 

 

$

0.7

 

 

$

2.1

 

 

$

2.4

 

Research and development

 

 

8.6

 

 

 

10.0

 

 

 

25.4

 

 

 

28.9

 

 

 

9.0

 

 

 

8.6

 

 

 

24.6

 

 

 

25.4

 

Selling, general, and administrative

 

 

6.5

 

 

 

7.9

 

 

 

20.9

 

 

 

21.9

 

 

 

8.1

 

 

 

6.5

 

 

 

17.5

 

 

 

20.9

 

Total

 

$

15.8

 

 

$

18.8

 

 

$

48.7

 

 

$

53.1

 

 

$

17.9

 

 

$

15.8

 

 

$

44.2

 

 

$

48.7

 

Income tax benefit on share-based compensation

 

$

1.8

 

 

$

3.7

 

 

$

4.2

 

 

$

6.4

 

Income tax expense/(benefit) on share-based compensation

 

$

(1.8

)

 

$

(1.8

)

 

$

(4.5

)

 

$

(4.2

)

Included in the preceding table is share-based compensation for our cash-settled phantom stock units, which we granted in October 2019 (see Phantom Stock Units below) (in millions):

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

 

March 31,

 

 

March 31,

 

 

 

 

2020

 

 

2020

 

 

Cost of revenue

 

$

0.1

 

 

$

0.2

 

 

Research and development

 

 

3.3

 

 

 

5.8

 

 

Selling, general, and administrative

 

 

0.7

 

 

 

1.1

 

 

Total

 

$

4.1

 

 

$

7.1

 

 

Historically, we have issued new shares in connection with our equity-settled share-based compensation plans, however, treasury shares are also available for issuance. Any additional shares repurchased under our common stock repurchase program will be available for issuance under our share-based compensation plans.

New Share-Based Compensation Plans

On October 29, 2019, our stockholders approved: (i)our 2019 Equity and Incentive Compensation Plan, or the 2019 Incentive Plan, to replace our Amended and Restated 2010 Incentive Compensation Plan, and (ii)our 2019 Employee Stock Purchase Plan, or the 2019 ESPP, to replace our Amended and Restated 2010 Employee Stock Purchase Plan. Upon approval of the 2019 Incentive Plan, new awards are no longer issued under the replaced share-based compensation plan. Awards outstanding at October 29, 2019 under our prior share-based compensation plans were not impacted by the approval of the 2019 Incentive Plan and continue to remain outstanding by their terms under the applicable share-based compensation plan.

The 2019 Incentive Plan authorizes our Board of Directors to provide equity-based compensation in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, cash incentive awards, performance shares, performance units, and other stock-based awards.  The number of shares approved by stockholders under the 2019 Incentive Plan was 1,230,000. The 2019 ESPP authorizes the Company to provide eligible employees with an opportunity to acquire an equity interest in the Company through the purchase of stock at a discount, with an initial authorization of 1,500,000 shares.


Effective August 19, 2019, we adopted the 2019 Inducement Equity Plan. 650,000 shares of our common stock have been reserved for issuance under the 2019 Inducement Equity Plan, subject to adjustment for stock dividends, stock splits, or other changes in our common stock or capital structure. The 2019 Inducement Equity Plan is intended to comply with Rule 5635(c)(4) of the Nasdaq Stock Market Listing Rules, which provide an exception to the Nasdaq Stock Market Listing Rules’ on the shareholder approval requirement for the issuance of securities with regards to grants to employees of the Company or its subsidiaries as an inducement material to such individuals entering into employment with the Company or its subsidiaries. An individual is eligible to receive an award under the 2019 Inducement Equity Plan only if he or she was not previously an employee or director of our Company (or is returning to work after a bona-fide period of non-employment), and an award under the 2019 Inducement Equity Plan is a material inducement for him or her to accept employment with our Company.

Stock Options

Stock option activity including stock options granted, exercised, and forfeited, weighted average exercise prices for stock options outstanding and exercisable, and the aggregate intrinsic value werewas as follows:

 

 

 

Stock

 

 

Weighted

 

 

Aggregate

 

 

 

Option

 

 

Average

 

 

Intrinsic

 

 

 

Awards

 

 

Exercise

 

 

Value

 

 

 

Outstanding

 

 

Price

 

 

(in millions)

 

Balance as of June 30, 2018

 

 

1,618,209

 

 

$

57.14

 

 

 

 

 

Granted

 

 

-

 

 

-

 

 

 

 

 

Exercised

 

 

(167,663

)

 

 

29.34

 

 

 

 

 

Forfeited

 

 

(137,323

)

 

 

66.93

 

 

 

 

 

Balance as of March 31, 2019

 

 

1,313,223

 

 

 

59.67

 

 

$

2.2

 

Exercisable at March 31, 2019

 

 

1,231,738

 

 

 

60.09

 

 

$

2.2

 

The aggregate intrinsic value was determined using the closing price of our common stock on March 29, 2019 of $39.75 and excludes the impact of stock options that were not in-the-money.


Deferred Stock Units

DSU activity, including DSUs granted, delivered, and forfeited, and the balance and aggregate intrinsic value of DSUs were as follows:

 

 

 

 

 

 

Aggregate

 

 

 

DSU

 

 

Intrinsic

 

 

 

Awards

 

 

Value

 

 

 

Outstanding

 

 

(in millions)

 

Balance as of June 30, 2018

 

 

1,853,558

 

 

 

 

 

Granted

 

 

1,227,652

 

 

 

 

 

Delivered

 

 

(670,770

)

 

 

 

 

Forfeited

 

 

(288,773

)

 

 

 

 

Balance as of March 31, 2019

 

 

2,121,667

 

 

$

84.3

 

 

 

Stock

 

 

Weighted

 

 

Aggregate

 

 

 

Option

 

 

Average

 

 

Intrinsic

 

 

 

Awards

 

 

Exercise

 

 

Value

 

 

 

Outstanding

 

 

Price

 

 

(in millions)

 

Balance as of June 30, 2019

 

 

1,191,929

 

 

$

59.07

 

 

 

 

 

Granted

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

(445,019

)

 

 

43.48

 

 

 

 

 

Forfeited

 

 

(6,828

)

 

 

51.12

 

 

 

 

 

Expired

 

 

(297,612

)

 

 

73.95

 

 

 

 

 

Balance as of March 31, 2020

 

 

442,470

 

 

 

64.86

 

 

$

1.9

 

Exercisable at March 31, 2020

 

 

439,141

 

 

 

64.98

 

 

$

1.9

 

 

The aggregate intrinsic value was determined using the closing price of our common stock on March 29, 201927, 2020 of $39.75.$58.86 and excludes the impact of stock options that were not in-the-money.

Deferred Stock Units

DSU activity was as follows:

 

 

 

 

 

 

Aggregate

 

 

 

DSU

 

 

Intrinsic

 

 

 

Awards

 

 

Value

 

 

 

Outstanding

 

 

(in millions)

 

Balance as of June 30, 2019

 

 

1,878,853

 

 

 

 

 

Granted

 

 

677,745

 

 

 

 

 

Delivered

 

 

(817,223

)

 

 

 

 

Forfeited

 

 

(317,465

)

 

 

 

 

Balance as of March 31, 2020

 

 

1,421,910

 

 

$

83.7

 

The aggregate intrinsic value was determined using the closing price of our common stock on March 27, 2020 of $58.86.

Of the shares delivered, 158,868193,936 shares valued at $6.2$8.0 million were withheld to meet statutory tax withholding requirements.


Market Stock Units

Our 2019 Incentive Plan and our Amended and Restated 2010 Incentive Compensation Plan providesprovide for the grant of MSU awards to our employees, consultants, and directors.directors, and our 2019 Inducement Equity Plan provides for the grant of MSU awards to certain of our employees. An MSU is a promise to deliver shares of our common stock at a future date based on the achievement of market-based performance requirements in accordance with the terms of the MSU grant agreement.

We have granted MSUs to our executive officers and other management members under our Amended and Restated 2010 Incentive Compensation Plan, our 2019 Incentive Plan and our 2019 Inducement Equity Plan, which are designed to vest in three or four tranches with the target quantity for each tranche equal to one-third or one-fourth of the total MSU grant. The first tranche vests based on a one-year performance period; the second tranche vests based on a two-year performance period; and the third tranche vests based on a three-year performance period; and the fourth tranche (in the case of four-year vesting) vests based on a four-year performance period. Performance is measured based on the achievement of a specified level of total stockholder return, or TSR, relative to the TSR of the S&P Semiconductor Select Industry Index, or SPSISC Index, for grants made beginning in fiscal 2018, and relative to the Philadelphia Semiconductor Index, or SOX Index, for grants made prior to fiscal 2018. The potential payout ranges from 0% to 200% of the target grant target quantity and is adjusted on a two-to-onetwo-to-one ratio based on our TSR performance relative to the SPSISC Index TSR or SOX Index TSR using the following formula:

(100% + ([Synaptics TSR — {SPSISC Index TSR or SOX Index TSR}] x 2))

TheFor MSUs vesting over three years, the payout for the first tranche and the second tranche will not exceed 100% and the payout for the third tranche will be calculated based on the total target quantity for the entire grant multiplied by the payout factor, based on performance for the three-year performance period, less shares issued for the first tranche and the second tranche. For MSUs vesting over four years, the payout for the first tranche, the second tranche and the third tranche will not exceed 100% and the payout for the fourth tranche will be calculated based on the total target quantity for the entire grant multiplied by the payout factor, based on performance for the four-year performance period, less shares issued for the first tranche, the second tranche and the third tranche.

Delivery of shares earned, if any, will take place on the dates provided in the applicable MSU grant agreement, assuming the grantee is still an employee, consultant, or director of our companyCompany at the end of the applicable performance period. On the delivery date, we withhold shares to cover statutory tax withholding requirements and deliver a net quantity of shares to the employee, consultant, or director after such withholding. Until delivery of shares, the grantee has no rights as a stockholder with respect to any shares underlying the MSU award.


During the nine months ended March 31, 2019, MSU activity including MSUs granted, delivered, and forfeited, and the balance and aggregate intrinsic value of MSUs as of March 31, 2019 was as follows:

 

 

 

 

 

 

Aggregate

 

 

 

 

 

 

Aggregate

 

 

MSU

 

 

Intrinsic

 

 

MSU

 

 

Intrinsic

 

 

Awards

 

 

Value

 

 

Awards

 

 

Value

 

 

Outstanding

 

 

(in millions)

 

 

Outstanding

 

 

(in millions)

 

Balance as of June 30, 2018

 

 

354,726

 

 

 

 

 

Balance as of June 30, 2019

 

 

210,732

 

 

 

 

 

Granted

 

 

163,059

 

 

 

 

 

 

 

328,599

 

 

 

 

 

Performance adjustment

 

 

(46,663

)

 

 

 

 

 

 

(58,707

)

 

 

 

 

Delivered

 

 

(92,202

)

 

 

 

 

 

 

(23,018

)

 

 

 

 

Forfeited

 

 

(53,115

)

 

 

 

 

 

 

(75,980

)

 

 

 

 

Balance as of March 31, 2019

 

 

325,805

 

 

$

13.0

 

Balance as of March 31, 2020

 

 

381,626

 

 

$

22.5

 

The aggregate intrinsic value was determined using the closing price of our common stock on March 29, 201927, 2020 of $39.75.  Of the shares delivered, 33,981 shares valued at $1.3 million were withheld to meet statutory tax withholding requirements.$58.86.  

We value MSUs using the Monte Carlo simulation model on the date of grant and amortize the compensation expense over the three-yearthree- or four-year performance and service period on a straight-line basis. The unrecognized share-based compensation cost of our outstanding MSUs was approximately $13.0$16.5 million as of March 31, 2019,2020, which will be recognized over a weighted average period of approximately 1.21.6 years.

Performance Stock Units

Our 2019 Incentive Plan and our Amended and Restated 2010 Incentive Compensation Plan providesprovide for the grant of PSU awards to our employees, consultants, and directors. A PSU is a promise to deliver shares of our common stock at a future date based on the achievement of performance-based requirements in accordance with the terms of the PSU grant agreement.


We have granted PSUs to our executive officers and other management members under our Amended and Restated 2010 Incentive Compensation Plan, our 2019 Incentive Plan and our 2019 Inducement Equity Plan, which are designed to vest in three tranches with the target quantity for each tranche equal to one-third of the total PSU grant. The grants have a specific one-year performance period and vesting occurs over three service periods with the final service period ending approximately three years from the grant date. Performance is measured based on the achievement of a specified level of non-GAAP earnings per share. The potential payout ranges from 0% to 200% of the target grant target quantity and is adjusted on a linear basis with a payout triggering if our non-GAAP earnings per share equals greater than 65% of the target with a maximum payout achieved at 135% of target.

Delivery of shares earned, if any, will take place on the dates provided in the applicable PSU grant agreement, assuming the grantee is still an employee, consultant, or director of our companyCompany at the end of the applicable service period. On the delivery date, we withhold shares to cover statutory tax withholding requirements and deliver a net quantity of shares to the employee, consultant, or director after such withholding. Until delivery of shares, the grantee has no rights as a stockholder with respect to any shares underlying the PSU award.

During the nine months ended March 31, 2019, PSU activity including PSUs granted, delivered, and forfeited, and the balance and aggregate intrinsic value of PSUs as of March 31, 2019 was as follows:

 

 

 

 

 

 

 

Aggregate

 

 

 

PSU

 

 

Intrinsic

 

 

 

Awards

 

 

Value

 

 

 

Outstanding

 

 

(in millions)

 

Balance as of June 30, 2018

 

 

294,541

 

 

 

 

 

Granted

 

 

147,005

 

 

 

 

 

Performance adjustment

 

 

1,065

 

 

 

 

 

Delivered

 

 

(92,470

)

 

 

 

 

Forfeited

 

 

(54,383

)

 

 

 

 

Balance as of  March 31, 2019

 

 

295,758

 

 

$

11.8

 

 

 

 

 

 

 

 

 

 


 

 

 

 

 

 

Aggregate

 

 

 

PSU

 

 

Intrinsic

 

 

 

Awards

 

 

Value

 

 

 

Outstanding

 

 

(in millions)

 

Balance as of June 30, 2019

 

 

192,618

 

 

 

 

 

Awarded

 

 

328,023

 

 

 

 

 

Performance adjustment

 

 

(10,242

)

 

 

 

 

Released

 

 

(61,668

)

 

 

 

 

Forfeited

 

 

(93,495

)

 

 

 

 

Balance as of March 31, 2020

 

 

355,236

 

 

$

20.9

 

 

The aggregate intrinsic value was determined using the closing price of our common stock on March 29, 201927, 2020 of $39.75. Of the shares delivered, 36,332 shares valued at $1.4 million were withheld to meet statutory tax withholding requirements.$58.86.

We value PSUs using the aggregate intrinsic value on the date of grant adjusted for estimated performance achievement during the performance period and amortize the compensation expense over the three-year service period on a ratable basis. The unrecognized share-based compensation cost of our outstanding PSUs was approximately $4.6$18.5 million as of March 31, 2019,2020, which will be recognized over a weighted average period of approximately 1.31.4 years.

Phantom Stock Units

The 2019 Incentive Plan authorizes the grant of phantom stock units to non-employee directors, officers and employees. We initially granted phantom stock units in October 2019.  Phantom stock units are cash-settled and entitle the recipient to receive a cash payment equal to the value of a single share for each unit based on the average closing share price of our stock over the thirty calendar days prior to the vesting date. Grants of phantom stock units vest over three years, with an annual vesting date of October 31 each year subsequent to the grant date. We recognize compensation expense for phantom stock units on a straight-line basis for each tranche of each award based on the average closing price of our common stock over the thirty calendar days ended prior to each balance sheet date.  The outstanding phantom stock units had a fair value of $60.17 per unit at March 31, 2020 and our accrued liability for such units was $7.0 million.

Phantom stock activity was as follows:

 

 

 

 

 

 

Aggregate

 

 

 

Phantom

 

 

Intrinsic

 

 

 

Stock Units

 

 

Value

 

 

 

Outstanding

 

 

(in millions)

 

Granted

 

 

953,305

 

 

 

 

 

Forfeited

 

 

(95,859

)

 

 

 

 

Balance as of March 31, 2020

 

 

857,446

 

 

$

50.5

 


The aggregate intrinsic value was determined using the closing price of our common stock on March 27, 2020 of $58.86.

The unrecognized share-based compensation cost of our outstanding phantom stock units was approximately $44.6 million as of March 31, 2020, which will be recognized over a weighted average period of approximately 2.6 years.

Employee Stock Purchase Plan

Shares purchased, weighted average purchase price, cash received, and the aggregate intrinsic value for employee stock purchase plan purchases during the nine-month periodnine months ended March 31, 20192020 were as follows (in millions, except for shares purchased and weighted average purchase price):

.

Shares purchased

 

 

258,563

 

 

 

346,502

 

Weighted average purchase price

 

$

31.60

 

 

$

30.50

 

Cash received

 

$

8.2

 

 

$

10.6

 

Aggregate intrinsic value

 

$

1.4

 

 

$

10.1

 

 

11.13. Income Taxes

On December 22, 2017,March 27, 2020, the U.S. governmentCoronavirus Aid, Relief and Economic Security, or CARES, Act was enacted comprehensive tax legislation, commonly known asand signed into law. As of this filing, we do not believe the Tax Cuts and JobsCARES Act of 2017, or the Act, which significantly reformed the Internal Revenue Code of 1986, as amended.  The Act contains broad and complex changes to corporate taxation, including, in part, reduction of the U.S. federal corporate tax rate from 35% to 21%, requires companies to paywill have a one-time transition tax on earnings of certain foreign subsidiaries that were previously considered permanently reinvested, and creates new taxes on certain foreign-sourced earnings. U.S. federal tax law requires that taxpayers with a fiscal year that spans the effective date of a tax rate change to calculate a blended tax rate based on the pro rata number of days in the fiscal year before and after the effective date.  As our accounting and tax year is the fiscal period ending on the last Saturday in June, our U.S. federal tax rate for fiscal 2018 was a days-weighted blended tax rate of 28.17%. For fiscal 2019 and subsequent tax years, our U.S. federal tax rate is 21%.

In fiscal 2018, we recognized a provisional tax expense of $41.4 million, related to the taxmaterial impact of the Act, of which an expense of $44.1 million relates to the one-time transition tax and a benefit of $2.7 million relates to remeasurement of deferred tax at the new tax rate. The one-time transition tax is based on our post-1986 foreign earnings and profits, or E&P, which we previously excluded from U.S. income taxes as we considered such earnings to be indefinitely reinvested overseas. The one-time transition tax is applied at a 15.5% tax rate on cash assets and an 8% tax rate for other specified assets.  We were able to utilize the research credit carryforward, resulting in a net one-time transition tax impact of $11.9 million on the income tax payable. During the quarter ended December 31, 2018, based on additional analysis of technical guidance, we recognized a non-discrete tax expense of $1.4 million, which is included in the annual effective tax rate, and a discrete benefit of $0.2 million, both of which relate to the limitation on deduction of executive officer compensation.

Staff Accounting Bulletin 118 allows companies to record provisional amounts and recognize the effect of the tax law during a measurement period. The measurement period ended in the second quarter of our fiscal 2019. As of March 31, 2019, we have finalized our accountingprovision for the tax impact of the Act and there were no material adjustments recorded to our provisional amounts. However, further technical guidance related to the Act, including final regulations on a broad range of topics, is expected to be issued and, as such, if our interpretation and final accounting are inconsistent with future regulations and guidance, we will recognize the impact as a discrete item in the period that such guidance is issued.fiscal year ended June 30, 2020.

The Global Intangible Low-Tax Income, or GILTI, which is a provision under the Act, imposes a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. GILTI requires an accounting policy election of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current period expense when incurred, or (2) factoring such amounts into the measurement of deferred taxes. We elected to treat GILTI as a period cost and recognize the impact in the period when it is incurred.


We account for income taxes under the asset and liability method. The provision for income taxes recorded in interim periods is recorded by applying the estimated annual effective tax rate to year-to-date income before provision for income taxes, excluding the effects of significant unusual or infrequently occurring discrete items. The tax effects of discrete items are recorded in the same period that the related discrete items are reported and results in a difference between the actual effective tax rate and the estimated annual effective tax rate.

The benefitprovision for income taxes of $15.3$10.2 million and $3.9a benefit of $15.3 million for the three months ended March 31, 20192020 and 2018,2019, respectively, represented estimated federal, foreign, and state income taxes. The effective tax rate for the three months ended March 31, 2020 diverged from the combined U.S. federal and state statutory tax rate primarily because of foreign withholding taxes, income taxed at higher tax rates, the impact of accounting for qualified stock options and global intangible low-taxed income, or GILTI, partially offset by the benefit of research credits and foreign tax credits. The effective tax rate for the three months ended March 31, 2019, diverged from the combined U.S. federal and state statutory tax rate, primarily because of foreign withholding taxes, the impact of accounting for qualified stock options, foreign deemed-paiddeemed paid taxes, foreign income taxed at higher tax rates, and GILTI, partially offset by the benefit of research credits, foreign tax credits, and foreign-derived intangible income deduction.

The provision for income taxes of $17.3 million and the benefit for income taxes of $8.1 million for the nine months ended March 31, 2020 and 2019, respectively, represented estimated federal, foreign, and state income taxes. The effective tax rate for the threenine months ended March 31, 2018,2020 diverged from the combined U.S. federal and state statutory tax rate primarily because of the impact of the benefit of research credits and excess share-based compensation deductions, partially offset by foreign withholding taxes, nondeductible amortization,income taxed at higher tax rates, the impact of accounting for qualified stock options and GILTI, partially offset by the benefit of research credits and foreign income taxed at higher tax rates.

The benefit for income taxes of $8.1 million and provision for income taxes of $52.6 million for the nine months ended March 31, 2019, and 2018, respectively, represented estimated federal, foreign, and state income taxes.credits. The effective tax rate for the nine months ended March 31, 2019, diverged from the combined U.S. federal and state statutory tax rate, primarily because of foreign withholding taxes, the impact of accounting for qualified stock options, foreign deemed-paid taxes, foreign income taxed at higher tax rates and GILTI, partially offset by the benefit of research credits, release of reserves related to uncertain tax positions, the impact of net shortfalls in share-based compensation deduction, foreign tax credits and foreign-derived intangible income deduction. The effective tax rate for the nine months ended March 31, 2018 diverged from the combined U.S. federal and state statutory tax rate primarily because of the impact of the one-time transition tax on E&P, the impact of the reduction in the U.S. federal tax rate on our net deferred tax assets, foreign withholding taxes, nondeductible amortization, the impact of accounting for qualified stock options, and foreign income taxed at higher tax rates, partially offset by benefits from research credits.

The total liability for gross unrecognized tax benefits related to uncertain tax positions increased $0.5$2.2 million during the nine months ended March 31, 2019,2020, to $25.3$21.1 million from $24.8$18.9 million at June 30, 2018,2019, and was included in other long-term liabilities on our condensed consolidated balance sheets. If recognized, the total gross unrecognized tax benefits would reduce the effective tax rate on income from continuing operations. Accrued interest and penalties related to unrecognized tax benefits as of March 31, 20192020 were $2.7$2.0 million; this balance increased by $0.8$0.1 million compared to June 30, 2018.2019. We classify interest and penalties as components of income tax expense. It is reasonably possible that the amount of the liability for unrecognized tax benefits may change within the next twelve months and an estimate of the range of possible changes includes an increase in our liability of up to $3.9$2.5 million.

In July 2018,February 2020, Altera Corporation filed a petition for a writ of certiorari asking the U.S.Supreme Court to review the Ninth Circuit Court of AppealsAppeals’ decision that reversed the 2015 decision of the U.S. Tax Court in Altera Corp. v. Commissioner, which found that the Treasury regulations addressing the treatment of stock-based compensation in a cost-sharing arrangementcost sharing agreement with a related party


were invalid. In August 2018,As of March 31, 2020, there has been no response from the U.S. Ninth Circuit Court of Appeals withdrew its July 2018 opinion.  The reconstituted panel has not issued an opinion on this appeal.Supreme Court. As our tax filing position is consistent with the Treasury regulations, we determined no adjustment to our financial statements is required, however,required. However, due to the uncertainties with respect to the ultimate resolution of this case, we will continue to monitor developments in this case.

Our major tax jurisdictions are the United States, Hong Kong SAR, and Japan. From fiscal 2013 onward, we remain subject to examination by one or more of these jurisdictions. In August 2018, we received the revenue agent’s report resolving the fiscal 2014 and fiscal 2015 examination by the Internal Revenue Service with no material impact on our condensed consolidated financial statements. Our case is pending reviewwas reviewed by the Joint Committee on Taxation, which we anticipate will concludeconcluded in June 2019. Any prospective adjustmentsSeptember 2019 with no further impact to our unrecognized tax benefits will be recorded as an increase or decrease to income tax expense and cause a corresponding change to our effective tax rate. Accordingly, our effective tax rate could fluctuate materially from period to period.condensed consolidated financial statements.

 


12.14. Segment, Customers, and Geographic Information

We operate in one1 segment: the development, marketing, and sale of semiconductor products used in electronic devices and products. We generate our revenue from three3 broad product categories: the Mobile product market, the personal computing, or PC, product market, and the Internet of Things, or IoT, product market. We sell our products to original equipment manufacturers, or OEMs, and to contract manufacturers that provide manufacturing services to OEMs.

Net revenue within geographic areas based on our customers’ locations for the periods presented was as follows (in millions):

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

March 31,

 

 

March 31,

 

 

March 31,

 

 

March 31,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

China

 

$

190.0

 

 

$

204.9

 

 

$

669.5

 

 

$

624.6

 

 

$

122.1

 

 

$

190.0

 

 

$

437.1

 

 

$

669.5

 

Japan

 

 

58.4

 

 

 

87.6

 

 

 

204.9

 

 

 

275.9

 

 

 

128.1

 

 

 

58.4

 

 

 

340.8

 

 

 

204.9

 

Taiwan

 

 

47.6

 

 

 

53.2

 

 

 

185.0

 

 

 

156.5

 

 

 

42.3

 

 

 

47.6

 

 

 

164.0

 

 

 

185.0

 

Other

 

 

19.6

 

 

 

18.7

 

 

 

48.9

 

 

 

56.5

 

 

 

21.1

 

 

 

19.6

 

 

 

58.1

 

 

 

48.9

 

South Korea

 

 

13.8

 

 

 

15.5

 

 

 

45.6

 

 

 

49.2

 

 

 

13.1

 

 

 

13.8

 

 

 

51.0

 

 

 

45.6

 

United States

 

 

4.6

 

 

 

14.1

 

 

 

23.2

 

 

 

79.1

 

 

 

1.4

 

 

 

4.6

 

 

 

5.3

 

 

 

23.2

 

 

$

334.0

 

 

$

394.0

 

 

$

1,177.1

 

 

$

1,241.8

 

 

$

328.1

 

 

$

334.0

 

 

$

1,056.3

 

 

$

1,177.1

 

 

Net revenue from our customers for each group of similar products was as follows (in millions):

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

March 31,

 

 

March 31,

 

 

March 31,

 

 

March 31,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Mobile product applications

 

$

204.7

 

 

$

244.8

 

 

$

741.8

 

 

$

799.5

 

 

$

176.6

 

 

$

204.7

 

 

$

578.6

 

 

$

741.8

 

PC product applications

 

 

66.2

 

 

 

60.2

 

 

 

198.7

 

 

 

187.2

 

 

 

78.9

 

 

 

66.2

 

 

 

228.3

 

 

 

198.7

 

IoT product applications

 

 

63.1

 

 

 

89.0

 

 

 

236.6

 

 

 

255.1

 

 

 

72.6

 

 

 

63.1

 

 

 

249.4

 

 

 

236.6

 

 

$

334.0

 

 

$

394.0

 

 

$

1,177.1

 

 

$

1,241.8

 

 

$

328.1

 

 

$

334.0

 

 

$

1,056.3

 

 

$

1,177.1

 

Net revenue from major customers as a percentage of total net revenue for the periods presented was as follows:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

March 31,

 

 

March 31,

 

 

March 31,

 

 

March 31,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Customer A

 

17%

 

 

17%

 

 

18%

 

 

16%

 

 

21%

 

 

*

 

 

17%

 

 

*

 

Customer B

 

10%

 

 

11%

 

 

*

 

 

11%

 

 

13%

 

 

10%

 

 

12%

 

 

*

 

Customer C

 

16%

 

 

11%

 

 

14%

 

 

*

 

 

*

 

 

17%

 

 

*

 

 

18%

 

Customer D

 

*

 

 

16%

 

 

*

 

 

14%

 

 

*

Less than 10%

 

 


We extend credit based on evaluation of a customer’s financial condition, and we generally do not require collateral. Major customer accounts receivable as a percentage of total accounts receivable were as follows:

 

 

March 31,

 

 

June 30,

 

 

March 31,

 

 

June 30,

 

 

2019

 

 

2018

 

 

2020

 

 

2019

 

Customer A

 

20%

 

 

13%

 

 

18%

 

 

*

 

Customer B

 

19%

 

 

10%

 

 

17%

 

 

*

 

Customer C

 

*

 

 

11%

 

 

12%

 

 

25%

 

Customer D

 

*

 

 

16%

 

 

*

Less than 10%

 

 

13.15. Comprehensive Income/(Loss)Income

Our comprehensive income/(loss)income generally consists of net income/(loss)income plus the effect of unrealized gains and losses on our investments, primarily due to temporary changes in market value of certain of our auction rate securities, or ARS, investments. In addition, we recognize the noncredit portion of other-than-temporary impairment on debt securities in other comprehensive income/(loss).income. We recognize foreign


currency remeasurement adjustments and foreign currency transaction gains and losses in our condensed consolidated statements of operationsincome as the U.S. dollar is the functional currency of our foreign entities.

 

 

14.16. Restructuring Activities

In November 2017,2019, we committed to and initiated a restructuring action intendedactivities to streamlinerestructure and reducefurther improve efficiencies in our operatingoperational activities to align our cost structure and capitalize on acquisition synergies.  These costs primarily related to severance costs for a reduction in headcount, facility consolidation and related costs. In April 2018, we committed to and initiated a restructuring to close a research and development facility. These costs included employee severance and related benefits and facility closure charges.consistent with our revenue levels. Restructuring costs related to the November 2017 and April 20182019 restructuring activities were recorded to the restructuring costs line item within our condensed consolidated statements of operations andincome. These costs related to severance costs for a reduction in headcount. The activities relating to the November 2019 restructuring action are expected to be complete asby the end of March 31, 2019.

fiscal 2020. The restructuring liability for theseactivities relating to the November 2019 initiated activity during fiscal 2018 initiated activities during the nine months ended March 31, 20192020 were as follows (in millions):

 

 

Employee Severance

 

 

Facility Consolidation

 

 

 

 

 

 

Employee Severance

 

 

and Benefits

 

 

and Related Charges

 

 

Total

 

 

and Benefits

 

Balance as of June 30, 2018

 

$

2.2

 

 

$

0.1

 

 

$

2.3

 

Accruals

 

 

0.2

 

 

 

-

 

 

 

0.2

 

 

$

16.2

 

Cash payments

 

 

(2.4

)

 

 

(0.1

)

 

 

(2.5

)

 

 

(10.0

)

Balance as of March 31, 2019

 

$

-

 

 

$

-

 

 

$

-

 

Balance as of March 31, 2020

 

$

6.2

 

 

In August 2018, we committed to and initiated a restructuring of our mobile fingerprint optical business. TheseThe costs for this restructuring activity primarily related to severance costs for a reduction in headcount and related costs. These activities were complete as of June 30, 2019. In June 2019, we committed to and initiated a restructuring action intended to reduce our operating cost structure further. The costs for this restructuring action primarily related to severance costs for a reduction in headcount. Restructuring costs related to thethese fiscal 2019 restructuring activities were recorded to the restructuring costs line item within our condensed consolidated statements of operations. Theseincome. The activities relating to the June 2019 restructuring action are complete as of March 31, 2019.  2020.

The restructuring liability activities for the fiscal 2019 initiated activity during fiscal 2019 and the nine months ended March 31, 2020 were as follows (in millions):

 

 

Employee Severance

 

 

 

and Benefits

 

Accruals

 

$

17.7

 

Cash payments

 

 

(12.5

)

Balance as of June 30, 2019

 

 

5.2

 

Accruals

 

 

7.7

 

Cash payments

 

 

(12.7

)

Balance as of March 31, 2020

 

$

0.2

 

In March 2020, we recorded severance costs related to employees who would be transitioning with the sale of our TDDI business in April 2020.  For further information, See Note 1 Basis of Presentation under the heading Divestiture included in the


condensed consolidated financial statements contained elsewhere in this Report.  The restructuring liability activity for this restructuring activity during the nine months ended March 31, 20192020 were as follows (in millions):

 

 

Employee Severance

 

 

Employee Severance

 

 

and Benefits

 

 

and Benefits

 

Accruals

 

$

10.4

 

 

$

2.3

 

Cash payments

 

 

(10.4

)

 

 

 

Balance as of March 31, 2019

 

$

 

Balance as of March 31, 2020

 

$

2.3

 

 

 

 

 

 


ITEM 2. MANAGEMENT’SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements and Factors That May Affect Results

This Quarterly Report on Form 10-Q for the quarter ended March 30, 201928, 2020 (this “Report”) contains forward-looking statements that are subject to the safe harbors created under the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”). For ease of presentation, this Report shows reporting periods ending on calendar quarter end dates as of and for all periods presented, unless otherwise indicated. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business, including our expectations regarding the potential impacts on our business of the COVID-19 pandemic, and can be identified by the fact that they do not relate strictly to historical or current facts. Such forward-looking statements may include words such as “expect,” “anticipate,” “intend,” “believe,” “estimate,” “plan,” “target,” “strategy,” “continue,” “may,” “will,” “should,” variations of such words, or other words and terms of similar meaning. All forward-looking statements reflect our best judgment and are based on several factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Such factors include, but are not limited to, the risks as identified in this Report, the “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” sections of our Annual Report on Form 10-K for the fiscal year ended June 30, 2018,29, 2019, and other risks as identified from time to time in our SEC reports. Forward-looking statements are based on information available to us on the date hereof, and we do not have, and expressly disclaim, any obligation to publicly release any updates or any changes in our expectations, or any change in events, conditions, or circumstances on which any forward-looking statement is based. Our actual results and the timing of certain events could differ materially from the forward-looking statements. These forward-looking statements do not reflect the potential impact of any mergers, acquisitions, or other business combinations that had not been completed as of the date of this filing.

Statements made in this Report, unless the context otherwise requires, include the use of the terms “us,” “we,” “our,” the “Company” and “Synaptics” to refer to Synaptics Incorporated and its consolidated subsidiaries.

Impact of COVID-19

On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic, which continues to spread rapidly in the U.S. and globally. Governmental authorities have implemented numerous containment measures, including travel bans and restrictions, quarantines, shelter-in-place orders, and business restrictions and shutdowns, resulting in rapidly changing market and economic conditions.  

While the severity and duration of business disruption to our customers and suppliers due to the COVID-19 pandemic is currently uncertain, we expect that it will adversely impact our business and consolidated results of operations in the near term and may impact our financial condition (including liquidity) in the future. While we have not incurred significant disruptions thus far from the COVID-19 outbreak, we are unable to accurately predict the full impact COVID-19 will have on our future results due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, a potential future recurrence of the outbreak, further containment actions that may be taken by governmental authorities, the impact to the businesses of our customers and suppliers and other factors.

We will continue to evaluate the nature and scope of the impact to our business, consolidated results of operations, and financial condition, and may take further actions altering our business operations and managing our costs and liquidity that we deem necessary or appropriate to respond to this fast moving and uncertain global health crisis and the resulting global economic consequences.

Overview

We are a leading worldwide developer and supplier of custom-designed human interface semiconductor product solutions that enable people to interact more easily and intuitively with a wide variety of mobile computing, communications, entertainment, and other electronic devices. We currently generate revenue from the markets for smartphones, tablets, personal computer, or PC, products, primarily notebook computers, Internet of Things, or IoT, products which includesinclude smart devices with voice, speech and video within smart homes,solutions, and other select electronic devices, including devices in automobiles, with our custom human interface solutions. Every solutionThe solutions we deliver either containscontain or consistsconsist of our touch-, display driver-, fingerprint authentication-based-, voice and speech-, and or video-semiconductor solutions, which include our chip, customer-specific firmware, and software.

Many of our customers have manufacturing operations in China, and many of our OEM customers have established design centers in Asia. With our expanding global presence, including offices in Armenia, China, Denmark, Hong Kong, India, Japan, Korea, Switzerland, Taiwan, and the United States, we are well positioned to provide local sales, operational, and engineering support services to our existing customers, as well as potential new customers, on a global basis.


Our manufacturing operations are based on a variable cost model in which we outsource all of our production requirements and generally drop ship our products directly to our customers from our contract manufacturers’ facilities, eliminating the need for significant capital expenditures and allowing us to minimize our investment in inventories. This approach requires us to work closely with our contract manufacturers and semiconductor fabricators to ensure adequate production capacity to meet our forecasted volume requirements. We provide our contract manufacturers with six-month rolling forecasts and issue purchase orders based on our anticipated requirements for the next 90 days. However, we generally do not have long-term supply contracts with our contract manufacturers. We use third-party wafer manufacturers to supply wafers and third-party packaging manufacturers to package our proprietary ASICs. In certain cases, we rely on a single source or a limited number of suppliers to provide other key components of our products. Our cost of revenue includes all costs associated with the production of our products, including materials; logistics; amortization of intangibles related to acquired developed technology; backlog; supplier arrangements; manufacturing, assembly, and test costs paid to third-party manufacturers; and related overhead costs associated with our indirect manufacturing operations personnel. Additionally, we charge all warranty costs, losses on inventory purchase obligations, and write-downs to reduce the carrying value of obsolete, slow moving, and non-usable inventory to net realizable value, to cost of revenue.

Our gross margin generally reflects the combination of the added value we bring to our OEM customers’ products by meeting their custom design requirements and the impact of our ongoing cost-improvement programs. These cost-improvement programs include reducing materials and component costs and implementing design and process improvements. Our newly introduced products may have lower margins than our more mature products, which have realized greater benefits associated with our ongoing cost-improvement programs. As a result, new product introductions may initially negatively impact our gross margin.


Our research and development expenses include costs for supplies and materials related to product development, as well as the engineering costs incurred to design ASICs and human interface solutions for OEM customers prior to and after theirour OEMs’ commitment to incorporate those solutions into their products. In addition, we expense in-process research and development projects acquired as asset acquisitions, which have not yet reached technological feasibility, and which have no foreseeable alternative future use. We continue to commit to the technological and design innovation required to maintain our position in our existing markets, and to adapt our existing technologies or develop new technologies for new markets.

Selling, general, and administrative expenses include expenses related to sales, marketing, and administrative personnel; internal sales and outside sales representatives’ commissions; market and usability research; outside legal, accounting, and consulting costs; and other marketing and sales activities.

Acquired intangibles amortization, included in operating expenses, consists primarily of amortization of customer relationship and tradenames intangible assets recognized under the purchase method for business combinations.

Restructuring costs primarily reflect severance and facilities consolidation costs related to the restructuring of our operations to reduce operating expenses. These headcount and facilities related costs were in cost of revenue, research and development, and selling, general and administrative expenses.

Interest and other expense, net, primarily reflects interest expense on our convertible notes as well as the amortization of debt issuance costs and discount on our convertible notes, partially offset by interest income earned on our cash and cash equivalents as well as impairment recovery on investments.

Equity investment loss includes amortization of intangible assets as well as our portion of the net loss reflected under the equity method of accounting in connection with our investment in OXi Technology Ltd.


Divestiture

In December 2019, we entered into an asset purchase agreement with a third party to sell the assets of our LCD Touch Controller and Display Driver Integration, or TDDI, product line for LCD mobile displays. We will retain our automotive TDDI product line and our discrete touch and discrete display driver product lines supporting LCD and OLED for the mobile market. Subject to certain post-closing adjustments and indemnification obligations, the aggregate consideration payable by the buyer will be $120.0 million in cash, the dollar value of specified inventory at a purchase price of standard cost plus 5% in cash, and the assumption of certain liabilities, as set forth in the asset purchase agreement. The assets sold under the asset purchase agreement, have a preliminary carrying value of approximately $30.1 million as of March 31, 2020, and have been included as $12.5 million of current assets held for sale and $17.6 million of non-current assets held for sale in our condensed consolidated balance sheets. The transaction closed in accordance with the terms of the asset purchase agreement in April 2020 for cash consideration of $120.0 million plus a preliminary inventory amount of $19.4 million.

Critical Accounting Policies and Estimates

There have been no significant changes in our critical accounting policies and estimates during the three months ended March 31, 2019,2020, compared with our critical accounting policies and estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2018, with the exception to the critical accounting policy on revenue recognition. We adopted the Accounting Standards Update on revenue from contracts with customers at the beginning of our fiscal 2019 (see Note 2 Revenue Recognition to the condensed consolidated financial statements contained elsewhere in this Report).29, 2019.


Results of Operations

Certain of the data used in our condensed consolidated statements of operationsincome for the periods indicated, together with comparative absolute and percentage changes in these amounts, were as follows (in millions, except percentages):

 

 

Three Months Ended March 31,

 

 

Nine Months Ended March 31,

 

 

Three Months Ended March 31,

 

 

Nine Months Ended March 31,

 

 

2019 (1)

 

 

2018(1)

 

 

$ Change

 

 

% Change

 

 

2019 (1)

 

 

2018(1)

 

 

$ Change

 

 

% Change

 

 

2020

 

 

2019

 

 

$ Change

 

 

% Change

 

 

2020

 

 

2019

 

 

$ Change

 

 

% Change

 

Mobile product applications

 

$

204.7

 

 

$

244.8

 

 

$

(40.1

)

 

 

(16.4

%)

 

$

741.8

 

 

$

799.5

 

 

$

(57.7

)

 

 

(7.2

%)

 

$

176.6

 

 

$

204.7

 

 

$

(28.1

)

 

 

(13.7

%)

 

$

578.6

 

 

$

741.8

 

 

$

(163.2

)

 

 

(22.0

%)

PC product applications

 

 

66.2

 

 

 

60.2

 

 

 

6.0

 

 

 

10.0

%

 

 

198.7

 

 

 

187.2

 

 

 

11.5

 

 

 

6.1

%

 

 

78.9

 

 

 

66.2

 

 

 

12.7

 

 

 

19.2

%

 

 

228.3

 

 

 

198.7

 

 

 

29.6

 

 

 

14.9

%

IoT product applications

 

 

63.1

 

 

 

89.0

 

 

 

(25.9

)

 

 

(29.1

%)

 

 

236.6

 

 

 

255.1

 

 

 

(18.5

)

 

 

(7.3

%)

 

 

72.6

 

 

 

63.1

 

 

 

9.5

 

 

 

15.1

%

 

 

249.4

 

 

 

236.6

 

 

 

12.8

 

 

 

5.4

%

Net revenue

 

 

334.0

 

 

 

394.0

 

 

 

(60.0

)

 

 

(15.2

%)

 

 

1,177.1

 

 

 

1,241.8

 

 

 

(64.7

)

 

 

(5.2

%)

 

 

328.1

 

 

 

334.0

 

 

 

(5.9

)

 

 

(1.8

%)

 

 

1,056.3

 

 

 

1,177.1

 

 

 

(120.8

)

 

 

(10.3

%)

Gross margin

 

 

116.0

 

 

 

122.9

 

 

 

(6.9

)

 

 

(5.6

%)

 

 

406.7

 

 

 

352.5

 

 

 

54.2

 

 

 

15.4

%

 

 

135.6

 

 

 

116.0

 

 

 

19.6

 

 

 

16.9

%

 

 

421.1

 

 

 

406.7

 

 

 

14.4

 

 

 

3.5

%

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

82.6

 

 

 

93.7

 

 

 

(11.1

)

 

 

(11.8

%)

 

 

256.9

 

 

 

273.0

 

 

 

(16.1

)

 

 

(5.9

%)

 

 

75.8

 

 

 

82.6

 

 

 

(6.8

)

 

 

(8.2

%)

 

 

238.8

 

 

 

256.9

 

 

 

(18.1

)

 

 

(7.0

%)

Selling, general, and administrative

 

 

34.2

 

 

 

37.9

 

 

 

(3.7

)

 

 

(9.8

%)

 

 

103.6

 

 

 

115.6

 

 

 

(12.0

)

 

 

(10.4

%)

 

 

31.6

 

 

 

34.2

 

 

 

(2.6

)

 

 

(7.6

%)

 

 

90.6

 

 

 

103.6

 

 

 

(13.0

)

 

 

(12.5

%)

Acquired intangibles amortization

 

 

3.0

 

 

 

1.4

 

 

 

1.6

 

 

 

114.3

%

 

 

8.8

 

 

 

8.5

 

 

 

0.3

 

 

 

3.5

%

 

 

2.9

 

 

 

3.0

 

 

 

(0.1

)

 

 

(3.3

%)

 

 

8.8

 

 

 

8.8

 

 

 

-

 

 

 

0.0

%

Restructuring costs

 

 

-

 

 

 

2.2

 

 

 

(2.2

)

 

 

(100.0

%)

 

 

10.4

 

 

 

8.6

 

 

 

1.8

 

 

 

20.9

%

 

 

6.3

 

 

 

-

 

 

 

6.3

 

 

 

100.0

%

 

 

26.2

 

 

 

10.4

 

 

 

15.8

 

 

 

151.9

%

Operating income/(loss)

 

 

(3.8

)

 

 

(12.3

)

 

 

8.5

 

 

 

69.1

%

 

 

27.0

 

 

 

(53.2

)

 

 

80.2

 

 

 

150.8

%

Operating income

 

 

19.0

 

 

 

(3.8

)

 

 

22.8

 

 

 

600.0

%

 

 

56.7

 

 

 

27.0

 

 

 

29.7

 

 

 

110.0

%

Interest and other expense, net

 

 

(4.3

)

 

 

(4.7

)

 

 

0.4

 

 

 

8.5

%

 

 

(10.5

)

 

 

(15.4

)

 

 

4.9

 

 

 

31.8

%

 

 

(3.2

)

 

 

(4.3

)

 

 

1.1

 

 

 

25.6

%

 

 

(9.1

)

 

 

(10.5

)

 

 

1.4

 

 

 

13.3

%

Income/(loss) before provision for income taxes

 

 

(8.1

)

 

 

(17.0

)

 

 

8.9

 

 

 

52.4

%

 

 

16.5

 

 

 

(68.6

)

 

 

85.1

 

 

 

124.1

%

Income/(loss) before provision/

(benefit) for income taxes

 

 

15.8

 

 

 

(8.1

)

 

 

23.9

 

 

 

295.1

%

 

 

47.6

 

 

 

16.5

 

 

 

31.1

 

 

 

188.5

%

Provision/(benefit) for income taxes

 

 

(15.3

)

 

 

(3.9

)

 

 

(11.4

)

 

 

(292.3

%)

 

 

(8.1

)

 

 

52.6

 

 

 

(60.7

)

 

 

(115.4

%)

 

 

10.2

 

 

 

(15.3

)

 

 

25.5

 

 

 

166.7

%

 

 

17.3

 

 

 

(8.1

)

 

 

25.4

 

 

 

313.6

%

Equity investment loss

 

 

(0.5

)

 

 

(0.6

)

 

 

0.1

 

 

 

16.7

%

 

 

(1.3

)

 

 

(1.4

)

 

 

0.1

 

 

 

7.1

%

 

 

(0.6

)

 

 

(0.5

)

 

 

(0.1

)

 

 

(20.0

%)

 

 

(1.5

)

 

 

(1.3

)

 

 

(0.2

)

 

 

(15.4

%)

Net income/(loss)

 

$

6.7

 

 

$

(13.7

)

 

$

20.4

 

 

 

148.9

%

 

$

23.3

 

 

$

(122.6

)

 

$

145.9

 

 

 

119.0

%

Net income

 

$

5.0

 

 

$

6.7

 

 

$

(1.7

)

 

 

(25.4

%)

 

$

28.8

 

 

$

23.3

 

 

$

5.5

 

 

 

23.6

%

 

(1)

Includes the post-acquisition results of operations from our acquisition of Conexant Systems, LLC, completed on July 25, 2017, or the Conexant Acquisition, and from our acquisition of the multimedia solutions business of Marvell Technology Group Ltd., completed on September 8, 2017, or the Marvell Business Acquisition.


Certain of the data used in our condensed consolidated statements of operationsincome presented here as a percentage of net revenue for the periods indicated were as follows:

 

 

Three Months Ended

 

 

Percentage Point

 

 

Nine Months Ended

 

 

Percentage Point

 

 

Three Months Ended

 

 

Percentage

Point

 

 

Nine Months Ended

 

 

Percentage Point

 

 

March 31,

 

 

Increase/

 

 

March 31,

 

 

Increase/

 

 

March 31,

 

 

Increase/

 

 

March 31,

 

 

Increase/

 

 

2019 (1)

 

 

2018(1)

 

 

(Decrease)

 

 

2019 (1)

 

 

2018(1)

 

 

(Decrease)

 

 

2020

 

 

2019

 

 

(Decrease)

 

 

2020

 

 

2019

 

 

(Decrease)

 

Mobile product applications

 

 

61.3

%

 

 

62.1

%

 

 

(0.8

%)

 

 

63.0

%

 

 

64.4

%

 

 

(1.4

%)

 

 

53.9

%

 

 

61.3

%

 

 

(7.4

%)

 

 

54.8

%

 

 

63.0

%

 

 

(8.2

%)

PC product applications

 

 

19.8

%

 

 

15.3

%

 

 

4.5

%

 

 

16.9

%

 

 

15.1

%

 

 

1.8

%

 

 

24.0

%

 

 

19.8

%

 

 

4.2

%

 

 

21.6

%

 

 

16.9

%

 

 

4.7

%

IoT product applications

 

 

18.9

%

 

 

22.6

%

 

 

(3.7

%)

 

 

20.1

%

 

 

20.5

%

 

 

(0.4

%)

 

 

22.1

%

 

 

18.9

%

 

 

3.2

%

 

 

23.6

%

 

 

20.1

%

 

 

3.5

%

Net revenue

 

 

100.0

%

 

 

100.0

%

 

 

0.0

%

 

 

100.0

%

 

 

100.0

%

 

 

0.0

%

 

 

100.0

%

 

 

100.0

%

 

 

0.0

%

 

 

100.0

%

 

 

100.0

%

 

 

0.0

%

Gross margin

 

 

34.7

%

 

 

31.2

%

 

 

3.5

%

 

 

34.6

%

 

 

28.4

%

 

 

6.2

%

 

 

41.3

%

 

 

34.7

%

 

 

6.6

%

 

 

39.9

%

 

 

34.6

%

 

 

5.3

%

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

24.7

%

 

 

23.8

%

 

 

0.9

%

 

 

21.8

%

 

 

22.0

%

 

 

(0.2

%)

 

 

23.1

%

 

 

24.7

%

 

 

(1.6

%)

 

 

22.6

%

 

 

21.8

%

 

 

0.8

%

Selling, general, and administrative

 

 

10.2

%

 

 

9.6

%

 

 

0.6

%

 

 

8.8

%

 

 

9.3

%

 

 

(0.5

%)

 

 

9.6

%

 

 

10.2

%

 

 

(0.6

%)

 

 

8.6

%

 

 

8.8

%

 

 

(0.2

%)

Acquired intangibles amortization

 

 

0.9

%

 

 

0.4

%

 

 

0.5

%

 

 

0.7

%

 

 

0.7

%

 

 

0.0

%

 

 

0.9

%

 

 

0.9

%

 

 

0.0

%

 

 

0.8

%

 

 

0.7

%

 

 

0.1

%

Restructuring costs

 

 

0.0

%

 

 

0.6

%

 

 

(0.6

%)

 

 

0.9

%

 

 

0.7

%

 

 

0.2

%

 

 

1.9

%

 

 

0.0

%

 

 

1.9

%

 

 

2.5

%

 

 

0.9

%

 

 

1.6

%

Operating income/(loss)

 

 

(1.1

%)

 

 

(3.1

%)

 

 

2.0

%

 

 

2.3

%

 

 

(4.3

%)

 

 

6.6

%

Operating income

 

 

5.8

%

 

 

(1.1

%)

 

 

6.9

%

 

 

5.4

%

 

 

2.3

%

 

 

3.1

%

Interest and other expense, net

 

 

(1.3

%)

 

 

(1.2

%)

 

 

(0.1

%)

 

 

(0.9

%)

 

 

(1.2

%)

 

 

0.3

%

 

 

(1.0

%)

 

 

(1.3

%)

 

 

0.3

%

 

 

(0.9

%)

 

 

(0.9

%)

 

 

0.0

%

Income/(loss) before provision for income taxes

 

 

(2.4

%)

 

 

(4.3

%)

 

 

1.9

%

 

 

1.4

%

 

 

(5.5

%)

 

 

6.9

%

Income/(loss) before provision/

(benefit) for income taxes

 

 

4.8

%

 

 

(2.4

%)

 

 

7.2

%

 

 

4.5

%

 

 

1.4

%

 

 

3.1

%

Provision/(benefit) for income taxes

 

 

(4.6

%)

 

 

(1.0

%)

 

 

(3.6

%)

 

 

(0.7

%)

 

 

4.2

%

 

 

(4.9

%)

 

 

3.1

%

 

 

(4.6

%)

 

 

7.7

%

 

 

1.6

%

 

 

(0.7

%)

 

 

2.3

%

Equity investment loss

 

 

(0.1

%)

 

 

(0.2

%)

 

 

0.1

%

 

 

(0.1

%)

 

 

(0.1

%)

 

 

0.0

%

 

 

(0.2

%)

 

 

(0.1

%)

 

 

(0.1

%)

 

 

(0.1

%)

 

 

(0.1

%)

 

 

0.0

%

Net income/(loss)

 

 

2.0

%

 

 

(3.5

%)

 

 

5.5

%

 

 

2.0

%

 

 

(9.9

%)

 

 

11.9

%

Net income

 

 

1.5

%

 

 

2.0

%

 

 

(0.5

%)

 

 

2.7

%

 

 

2.0

%

 

 

0.7

%

 

(1)

Includes the post-acquisition results of operations from the Conexant Acquisition, completed on July 25, 2017, and from the Marvell Business Acquisition, completed on September 8, 2017.


Net Revenue

Net revenue was $328.1 million for the three months ended March 31, 2020, compared with $334.0 million for the three months ended March 31, 2019, compared with $394.0 million for the three months ended March 31, 2018, a decrease of $60.0$5.9 million, or 15.2%1.8%. Of this net revenue, $204.7$176.6 million, or 61.3%53.9%, was from Mobile product applications, $63.1$72.6 million, or 18.9%22.1%, was from IoT product applications, and $66.2$78.9 million, or 19.8%24.0%, was from PC product applications. The decrease in net revenue for the three months ended March 31, 20192020 was primarily attributable to a decrease in net revenue from Mobile product applications, and IoT product applications, partially offset by an increase in net revenue from PC product applications and IoT product applications. Net revenue from Mobile product applications decreased as a result of a decline in units sold (which decreased 31.0%12.9%), partially offset by higher as well as slightly lower average selling prices for Mobile product applications. Net revenue from PC product applications increased due to a growth in units sold (which increased 21.2%13.0%) for PC product applications as well as higher average selling prices (which increased 5.5%). Net revenue from IoT product applications decreasedincreased as a result of a declinean increase in units sold (which decreased 24.2%increased 29.7%) and, partially offset by lower average selling prices for IoT product applications (which decreased 6.4%). Net revenue from PC product applications increased due to higher average selling prices (which increased 27.3%), partially offset by a decline in units sold for PC product applications (which decreased 13.6%11.3%).

Net revenue was $1,056.3 million for the nine months ended March 31, 2020, compared with $1,177.1 million for the nine months ended March 31, 2019, compared with $1,241.8 million for the nine months ended March 31, 2018, a decrease of $64.7$120.8 million, or 5.2%10.3%. Of this net revenue, $741.8$578.6 million, or 63.0%54.8%, was from Mobile product applications, $236.6$249.4 million, or 20.1%23.6%, was from IoT product applications, and $198.7$228.3 million, or 16.9%21.6%, was from PC product applications. The decrease in net revenue for the nine months ended March 31, 2019,2020 was primarily attributable to a decrease in net revenue from Mobile product applications, and IoT product applications, partially offset by an increase in net revenue from PC product applications and IoT product applications. Net revenue from Mobile product applications decreased as a result of a decline in units sold (which decreased 23.8%21.7%), partially offset by higher as well as slightly lower average selling prices for Mobile product applications. Net revenue from PC product applications increased due to higher average selling prices (which increased 21.7%10.6%). as well as a small increase in units sold. Net revenue from IoT product applications decreased primarilyincreased as a result of lower average selling prices (which decreased 8.1%), partially offset by an increase in units sold (which increased 0.9%). Net revenue from PC product applications increased as a result of higher average selling prices (which increased 21.1%12.9%), partially offset by a decline in units sold (which decreased 12.4%).  lower average selling prices for IoT product applications.

Gross Margin

Gross margin as a percentage of net revenue was 41.3%, or $135.6 million, for the three months ended March 31, 2020, compared with 34.7%, or $116.0 million, for the three months ended March 31, 2019, compared with 31.2%, or $122.9 million,2019. The 660 basis point increase in gross margin for the three months ended March 31, 2018. 2020, was primarily due to a favorable product mix, and product cost reductions, and a $7.1 million decrease in amortization for amortizable intangibles which are now fully amortized.

Gross margin as a percentage of net revenue was 39.9%, or $421.1 million, for the nine months ended March 31, 2020, compared with 34.6%, or $406.7 million, for the nine months ended March 31, 2019, compared with 28.4%, or $352.5 million for the nine months ended March 31, 2018.2019. The 350 basis point increase and the 620530 basis point increase in gross margin for


the three and nine months ended March 31, 2019, respectively,2020, was primarily due to a reduction of inventory fair value adjustments recorded in the threefavorable product mix, and nine months ended March 31, 2018 of $4.1 million and $38.0 million, respectively, associated with the Conexant Acquisition and the Marvell Business Acquisition; a reduction in acquired intangibles amortization that was charged toproduct cost of revenue by $2.0 million and $6.1 million during the three and nine months ended March 31, 2019, respectively, as compared to the same periods in fiscal 2018reductions, and a favorable mix, including IoT product applications$15.7 million decrease in amortization for amortizable intangibles which have higher gross margins. There were no inventory fair value adjustments recorded in the three and nine months ended March 31, 2019.  are now fully amortized.

We regularlycontinually introduce new product solutions many of which have life cycles of less than one year. Further, becauseand we sell our technology solutions in designs that are generally unique or specific to an OEM customer’s application, causing gross margin variesto vary on a product-by-product basis, making our cumulative gross margin a blend of our product-specific designs. As a virtual manufacturer,fabless semiconductor company, our gross margin percentage is generally not materially impacted by our shipment volume. We charge losses on inventory purchase obligations and write-downs to reduce the carrying value of obsolete, slow moving, and non-usable inventory to net realizable value (including warranty costs) to cost of revenue.

Operating Expenses

Research and Development Expenses. Research and development expenses decreased $11.1$6.8 million to $82.6$75.8 million for the three months ended March 31, 2019,2020, compared with the three months ended March 31, 2018.2019. The decrease in research and development expenses primarily reflected a $7.9net $1.1 million decrease in personnel-related costs, which was due to a decrease in average headcount for the three months ended March 31, 20192020 as compared to the three months ended March 31, 2018,2019, as a result of our restructuring activities to reduce operating costs; a $1.6$2.9 million decrease in supplies and project specific costs;non-employee services; and a $0.8$1.2 million decrease in travel andproject related costs. The decrease in personnel-related costs was partially offset by $2.1 million of retention program costs with key engineering and management employees designed to ensure operational continuity and support as we transition the Company through senior level management and product focus changes.

Research and development expenses decreased $16.1$18.1 million to $256.9$238.8 million for the nine months ended March 31, 2019,2020, compared with the nine months ended March 31, 2018.2019. The decrease in research and development expenses primarily reflected a $10.4net $5.0 million decrease in personnel-related costs which was due to a decrease in average headcount for the nine months ended March 31, 20192020 as compared to the nine months ended March 31, 2018,2019, as a result of our restructuring activities to reduce operating costs; a $5.8$5.9 million decrease in supplies and project specific costs andnon-employee services; a $2.1$4.6 million decrease in facilities and infrastructure costs related costs;to facilities; a $3.3 million decrease in project related costs. The decrease in personnel-related costs was partially offset by a $6.2$6.6 million increase in software licensingof retention program costs with key engineering and intellectual property costs.  management employees designed to ensure operational continuity and support as we transition the Company through senior level management and product focus changes.


Selling, General, and Administrative Expenses. Selling, general, and administrative expenses decreased $3.7$2.6 million to $34.2$31.6 million for the three months ended March 31, 2019,2020, compared with the three months ended March 31, 2018.2019. The decrease in selling, general, and administrative expenses primarily reflected a $2.3$1.8 million decrease in professional feesnon-employee services.

Selling, general, and administrative expenses decreased $13.0 million to $90.6 million for the nine months ended March 31, 2020, compared with the nine months ended March 31, 2019. The decrease in selling, general, and administrative expenses primarily reflected a $0.5net $6.9 million decrease in personnel-related costs which was primarily due to a reduction in headcount as a result of our recent restructuring activities to reduce operating costs, partially offset by costs associated with the termination of our former Chief Executive Officer, or CEO, in March 2019, which costs included an accrual of $2.2costs; a $4.1 million in severance related costs.

Selling, general, and administrative expenses decreased $12.0 million to $103.6 million for the nine months ended March 31, 2019, compared with the nine months ended March 31, 2018. The decrease in selling, general, and administrative expenses reflected a $12.7 millionnon-employee services. The decrease in personnel-related costs primarily due to a reduction in headcount as a result of our restructuring activities to reduce operating costs which was partially offset by $3.9 million of retention program costs associated with key management employees designed to ensure operational continuity and support as we transition the termination of our former CEO in March 2019, which costs included an accrual of $2.2 million in severance related costs; a $3.6 million reduction in professional feesCompany through senior level management and a $1.6 million, net, reversal of an accrual for payroll deposit penalties, which were previously accrued and have been reversed due to the completion of a payroll tax audit; partially offset by a $1.3 million increase in facilities and infrastructure related costs.product focus changes.

Acquired Intangibles Amortization. Acquired intangibles amortization reflects the amortization of intangibles acquired through acquisitions. For further discussion of acquired intangibles amortization, see Note 67 Acquired Intangibles and Goodwill included in the condensed consolidated financial statements contained elsewhere in this Report.

Restructuring Costs.  Restructuring costs of $10.4$26.2 million in the nine months ended March 31, 20192020 reflect severance costs for restructuring of our operations to reduce ongoing operating costs, which commenced in the firstfourth quarter of fiscal 2019.2019 and the second and third quarters of fiscal 2020. The restructuring activities wereare expected to be complete asin the fourth quarter of March 31, 2019.fiscal 2020. See Note 1416 Restructuring Activities included in the condensed consolidated financial statements contained elsewhere in this Report.  

Interest and Other Expense, Net. Interest and other expense, net primarily includes the amortization of debt discount and issuance costs, as well as interest on our debt. The $4.9 million decrease indebt, partially offset by interest income earned on our cash and cash equivalents as well as impairment recovery on investments. Interest and other expense, net decreased $1.4 million to $9.1 million for the nine months ended March 31, 2020, as compared to $10.5 million for the nine months ended March 31, 2019, as compared to the nine months ended March 31, 2018, was2019. The decrease in interest and other expense, net is primarily due to a $2.8 million impairment recovery on investments as wellan increase in interest income as a $1.0 million reductionresult of amortization of debt issuance costs for a term loan which was paid downhigher cash balances and closed in the prior fiscal year. See Liquidity and Capital Resources included in the next section of this Report.interest rates, partially offset by higher non-cash interest expense on our convertible debt.

Provision for Income Taxes

Taxes.  On December 22, 2017,March 27, 2020, the U.S. governmentCoronavirus Aid, Relief and Economic Security, or CARES, Act was enacted comprehensive tax legislation, commonly known asand signed into law. We do not believe the Tax Cuts and JobsCARES Act of 2017, or the Act, which significantly reformed the Internal Revenue Code of 1986, as amended.  The Act contains broad and complex changes to corporate taxation, including, in part, reduction of the U.S. federal corporate tax rate from 35% to 21%, requires companies to paywill have a one-time transition tax on earnings of certain foreign subsidiaries that were previously considered permanently reinvested, and creates new taxes on certain foreign-sourced earnings. U.S. federal tax law requires that taxpayers with a fiscal year that spans the effective date of a tax rate change to calculate a blended tax rate based on the pro rata number of days in the fiscal year before and after the effective date. As our accounting and tax year is the fiscal period ending on the last Saturday in June, our U.S. federal tax rate for fiscal 2018 was a days-weighted blended tax rate of 28.17%. For fiscal 2019 and subsequent tax years, our U.S. federal tax rate is 21%.

In fiscal 2018, we recognized a provisional tax expense of $41.4 million, related to the taxmaterial impact of the Act, of which an expense of $44.1 million relates to the one-time transition tax and a benefit of $2.7 million relates to remeasurement of deferred tax at the new tax rate. The one-time transition tax was based on our post-1986 foreign earnings and profits, or E&P, which we previously excluded from U.S. income taxes as we considered such earnings to be indefinitely reinvested overseas. The one-time transition tax was applied at a 15.5% tax rate on cash assets and an 8% tax rate for other specified assets.  We were able to utilize the research credit carryforward, resulting in a net one-time transition tax impact of $11.9 million on the income tax payable. During our second fiscal quarter ended December 31, 2018, based on additional analysis of technical guidance, we recognized a non-discrete tax expense of $1.4 million, which was included in the annual effective tax rate, and a discrete benefit of $0.2 million, both of which relate to the limitation on deduction of executive officer compensation.

Staff Accounting Bulletin 118 allows companies to record provisional amounts and recognize the effect of the tax law during a measurement period. The measurement period ended in the second quarter of our fiscal 2019. As of March 31, 2019, we have finalized our accountingprovision for the tax impact of the Act and there were no material adjustments recorded in our provisional amounts. However, further technical guidance related to the Act, including final regulations on a broad range of topics, is expected to be issued and, as such, if our interpretation and final accounting are inconsistent with future regulations and guidance, we will recognize the impact as a discrete item in the period that such guidance is issued.fiscal year ended June 30, 2020.


The Global Intangible Low-Tax Income, or GILTI, which is a provision under the Act, imposes a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. GILTI requires an accounting policy election of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current period expense when incurred or (2) factoring such amounts into the measurement of deferred taxes. We elected to treat GILTI as a current period cost and recognize the impact in the period when it is incurred.

We account for income taxes under the asset and liability method. The provision for income taxes recorded in interim periods is recorded by applying the estimated annual effective tax rate to year-to-date income before provision for income taxes, excluding the effects of significant unusual or infrequently occurring discrete items. The tax effects of discrete items are recorded in the same period that the related discrete items are reported and results in a difference between the actual effective tax rate and the estimated annual effective tax rate.

The benefitprovision for income taxes of $15.3$10.2 million and $3.9a benefit of $15.3 million for the three months ended March 31, 20192020 and 2018,2019, respectively, represented estimated federal, foreign, and state income taxes. The effective tax rate for the three months ended March 31, 20192020 diverged from the combined U.S. federal and state statutory tax rate primarily because of foreign withholding taxes, income taxed at higher tax rates, the impact of accounting for qualified stock options foreign deemed-paid taxes, foreignand global intangible low-taxed income, taxed at higher tax rates, andor GILTI, partially offset by the benefit of research credits and foreign tax credits and foreign-derived intangible income deduction.credits. The effective tax rate for the three months ended March 31, 2018, diverged from the combined U.S. federal and state statutory tax rate, primarily because of the impact of the benefit of research credits and excess share-based compensation deductions, partially offset by foreign withholding taxes, nondeductible amortization, the impact of accounting for qualified stock options, and foreign income taxed at higher tax rates.

The benefit for income taxes of $8.1 million and provision for income taxes of $52.6 million for the nine months ended March 31, 2019, and 2018, respectively, represented estimated federal, foreign, and state income taxes. The effective tax rate for the nine months ended March 31, 2019, diverged from the combined U.S. federal and state statutory tax rate, primarily because of foreign withholding taxes, the impact of accounting for qualified stock options, foreign deemed paid taxes, foreign income taxed at higher tax rates, and GILTI, partially offset by the benefit of research credits, foreign tax credits, and foreign-derived intangible income deduction.

The provision for income taxes of $17.3 million and the benefit for income taxes of $8.1 million for the nine months ended March 31, 2020 and 2019, respectively, represented estimated federal, foreign, and state income taxes. The effective tax rate for the nine months ended March 31, 2020 diverged from the combined U.S. federal and state statutory tax rate primarily because of foreign withholding taxes, income taxed at higher tax rates, the impact of accounting for qualified stock options and GILTI, partially offset by the benefit of research credits and foreign tax credits. The effective tax rate for the nine months ended March 31, 2019, diverged from the combined U.S. federal and state statutory tax rate, because of foreign withholding taxes, the impact of accounting for qualified stock options, foreign deemed-paid taxes, foreign income taxed at higher tax rates and GILTI, partially offset by the benefit of research credits, release of reserves related to uncertain tax positions, the impact of net shortfalls in share-based compensation deduction, foreign tax credits and foreign-derived intangible income deduction. The effective tax rate for the nine months ended March 31, 2018 diverged from the combined U.S. federal and state statutory tax rate primarily because of the impact of the one-time transition tax on E&P, the impact of the reduction in the U.S. federal tax rate on our net deferred tax assets, foreign withholding taxes, nondeductible amortization, the impact of accounting for qualified stock options, and foreign income taxed at higher tax rates, partially offset by benefits from research credits.

In July 2018, the U.S. Ninth Circuit Court of Appeals reversed the 2015 decision of the U.S. Tax Court in Altera Corp. v. Commissioner which found that the Treasury regulations addressing the treatment of stock-based compensation in a cost-sharing arrangement with a related party were invalid. In August 2018, the U.S. Ninth Circuit Court of Appeals withdrew its July 2018 opinion.  The reconstituted panel has not issued an opinion on this appeal. As our tax filing position is consistent with the Treasury regulations, we determined no adjustment to our financial statements is required, however, due to the uncertainties with respect to the ultimate resolution, we will continue to monitor developments in this case

Liquidity and Capital Resources

Our cash and cash equivalents were $323.8$472.1 million as of March 31, 2019,2020, compared with $301.0$327.8 million as of June 30, 2018,2019, an increase of $22.8$144.3 million. The increase primarily reflected $110.8$168.3 million of net cash provided by operating activities, $30.0 million of net proceeds from issuance of shares, partially offset by $77.3$30.1 million used to repurchase 1,850,000813,082 shares of our common stock, and $17.7$11.7 million used for the purchase of property and equipment.equipment, $9.3 million used for payroll taxes on DSUs, and $2.5 million used for an asset acquisition completed in August 2019. At this time, we consider earnings of our foreign subsidiaries indefinitely invested overseas and have made no provision for income or withholding taxes, other than the one-time transition tax described above under “Management’s Discussionincurred as part of the Tax Cuts and Analysis of Financial Condition and Results of Operations—Provision for Income Taxes,”Jobs Act, that may result from a future repatriation of those earnings. As of March 31, 2019, $254.92020, $191.6 million of cash and cash equivalents was held by our foreign subsidiaries. If these funds are needed for our operations in the United States, we maywould be required to accrue and pay certain stateU.S. and foreign taxes to repatriate these funds.

Cash Flows from Operating Activities. Operating activities during the nine months ended March 31, 20192020 generated $110.8$168.3 million compared with $137.1$110.8 million net cash generated during the nine months ended March 31, 2018.2019. For the nine months ended March 31, 2019,2020, the primary operating activities were adjustments for non-cash charges of $130.2$119.0 million partially offset byand a net change in operating assets and liabilities of $42.7$20.5 million. The net change in operating assets and liabilities was primarily attributable to a $35.8$50.7 million decrease in accounts payable,inventory and a $21.9$17.4 million increase in inventory, a $6.8 million reduction in acquisition related obligations; and a $9.6 million reduction in income taxes payable;accrued compensation, partially offset by a $27.5$27.4 million decrease in accounts receivable andother accrued liabilities, a $13.6$8.4 million increase in other accrued liabilities.accounts receivable, net, a decrease of $8.6 million in accounts payable and a decrease of $5.3 million in income taxes payable. From June 30, 20182019 to March 31, 2019,2020, our days sales outstanding increased


decreased from 6770 days to 7265 days due to a larger percentage of the quarter’s net revenue occurring late in the March 31,June 30, 2019 quarter compared with a smaller percentage of the quarter’s net revenue occurring late in the June 30, 2018March 31, 2020 quarter. Our annual inventory turns declinedincreased from sevenfive to five. Foreight, which was driven by the nine months ended March 31, 2018,classification of $12.5 million of inventory as current assets held for sale (which had an impact of 1 turn) as well as stronger product demand throughout the primary operating activities were adjustments for non-cash charges of $176.2 million; a $83.5 million net change in operating assets and liabilities, partially offset by a net loss of $122.6 million. The net change in operating assets and liabilities was primarily attributable to a $102.2 million decrease in inventory; a $20.9 million decrease in prepaid expenses and other current assets; and an $8.2 million decrease in accounts receivable, net; partially offset by a $15.9 million decrease in accounts payable; a $15.4 million decrease in accrued compensation; an $11.1 million decrease in other accrued liabilities and a $7.2 million decrease in other assets. From June 30, 2017 to March 31, 2018, our days sales outstanding increased slightly from 54 days to 59 days. Our annual inventory turns remained flat at nine over this same period.quarter.

Cash Flows from Investing Activities. Cash used in investing activities during the nine months ended March 31, 20192020 consisted of $17.7$11.7 million for purchases of property and equipment partially offset by $2.8 million of proceeds from sales of investments.  Cash used in investing activities during the nine months ended March 31, 2018 consisted of $396.4and $2.5 million used for thean asset acquisition of businesses; $27.5 million for the purchase of property and equipment; and $7.7 million for the purchase of intangible assets.completed in August 2019.  

Cash Flows from Financing Activities. Net cash used in financing activities for the nine months ended March 31, 20192020 was $73.1$9.6 million compared with $210.0$73.1 million provided byused in financing activities for the nine months ended March 31, 2018.2019. Net cash used in financing activities for the nine months ended March 31, 20192020 was primarily related to $77.3$30.1 million used to repurchase 1,850,000813,082 shares of our common stock.  Net cash providedstock and $9.3 million used for payroll taxes on DSUs, partially offset by financing activities for the nine months ended March 31, 2018 primarily related to $514.5 million$30.0 of proceeds from the issuance of convertible debt, partially offset by $220.0 million used for the payment of debt, and $93.6 million used to repurchase 1,698,400 shares of our common stock.  shares.  

Common Stock Repurchase Program. As of March 31, 2019,2020, our board has cumulatively authorized $1.3$1.4 billion for our common stock repurchase program, which will expire in July 2019.2021. The program authorizes us to purchase our common stock in the open market or in privately negotiated transactions, depending upon market conditions and other factors. The number of shares


purchased and the timing of purchases are based on the level of our cash balances, general business and market conditions, and other factors. Common stock purchased under this program is held as treasury stock. From April 2005 through March 31, 2019,2020, we purchased 29,489,87631,747,295 shares of our common stock in the open market for an aggregate cost of $1.2 billion. Treasury shares purchased prior to August 28, 2008 were not subject to the stock split on that date. During the nine months ended March 31, 2019,2020, we repurchased 1,850,000813,082 shares of our common stock for a total cost of $77.3$30.1 million. As of March 31, 2019,2020, the remaining available authorization under our common stock repurchase program was $148.8$177.5 million.

Convertible Debt

On June 20, 2017, we entered into a purchase agreement, or the Purchase Agreement, with Wells Fargo Securities, LLC, as representative of the initial purchasers named therein, collectively, the Initial Purchasers, pursuant to which we agreed to issue and sell, and the Initial Purchasers agreed to purchase, $500 million aggregate principal amount of our 0.50% convertible senior notes due 2022, or the Notes, in a private placement transaction. Pursuant to the Purchase Agreement, we also granted the Initial Purchasers a 30-day option to purchase up to an additional $25 million aggregate principal amount of Notes, which was exercised in full on June 21, 2017. The net proceeds, after deducting the Initial Purchasers’ discounts, were $514.5 million, which included proceeds from the Initial Purchasers’ exercise of their option to purchase additional Notes. We received the net proceeds on June 26, 2017, which we used to repurchase shares of our common stock, retire our outstanding bank debt, and provide additional cash resources to fund the acquisition of Conexant AcquisitionSystems, LLC and the assets of Marvell Business Acquisition.Technology Group, Ltd.’s multimedia solutions business.

The Notes bear interest at a rate of 0.50% per year. Interest has accrued since June 26, 2017 and is payable semi-annually in arrears, on June 15 and December 15 of each year, beginning on December 15, 2017. The Notes are senior unsecured obligations and rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment to any our liabilities that are not so subordinated; effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of our subsidiaries.

The Notes mature on June 15, 2022, or the Maturity Date, unless earlier repurchased, redeemed or converted.

Holders may convert all or any portion of their Notes, in multiples of $1,000 principal amounts, at their option at any time prior to the close of business on the business day immediately preceding March 15, 2022 under certain defined circumstances.

On or after March 15, 2022 until the close of business on the business day immediately preceding the Maturity Date, holders may convert all or any portion of their Notes, in multiples of $1,000 principal amounts, at the option of the holder. Upon conversion, we will pay or deliver, at our election, shares of common stock, cash, or a combination of cash and shares of common stock.


The conversion rate for the Notes is initially 13.6947 shares of common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $73.02 per share of common stock). The conversion rate is subject to adjustment in certain circumstances.

Upon the occurrence of a fundamental change (as defined in the Notes indenture), holders of the Notes may require us to repurchase for cash all or a portion of their Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest up to, but excluding, the fundamental change repurchase date.

We may not redeem the Notes prior to June 20, 2020. We may redeem for cash all or any portion of the Notes, at our option, on or after June 20, 2020, if the last reported sale price of our common stock, as determined by us, has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest up to, but excluding, the redemption date. Our policy is to settle the principal amount of our Notes with cash upon conversion or redemption.

Bank Credit Facility. We have a $200.0 million revolving credit facility, pursuant to that certain Amended and Restated Credit Agreement, dated September 27, 2017, or the Credit Agreement, which includes a $20 million sublimit for letters of credit and a $20 million sublimit for swingline loans. Under the terms of the revolving credit facility, or theCredit Agreement, we may, subject to the satisfaction of certain conditions, request increases in the revolving credit facility commitments in an aggregate principal amount of up to $100 million to the extent existing or new lenders agree to provide such increased or additional commitments, as applicable. Proceeds under the revolving credit facility are available for working capital and general corporate purposes.

In February 2020, we entered into the First Amendment to the Amended and Restated Credit Agreement, or the Amendment, with the lenders that are party thereto, or the Lenders, and Wells Fargo Bank, National Association, as administrative agent for the Lenders. Pursuant to the Amendment, the Credit Agreement was amended to, among other things, (i) modify the definition of Consolidated EBITDA (as defined in the Credit Agreement) to increase the maximum limit on the add back of certain restructuring


and integration cost and expenses to 30% from 15% of Consolidated EBITDA, (ii) modify the negative covenant for Consolidated Total Leverage Ratio (as defined in the Credit Agreement) at the end of any fiscal quarter to 4.75:1.00 from 3.50:1.00, and for any four quarter period following a Material Acquisition (as defined in the Credit Agreement) to 5:00:1.00 from 3.75:1.00, (iii) modify the circumstances under which the maturity date of the Credit Agreement would be accelerated in advance of the maturity date of the Notes to eliminate the acceleration of the maturity date of the Credit Agreement if we meet certain specified leverage and liquidity covenants, (iv) add a minimum liquidity covenant for each two-week period beginning on the date that is 120 days prior to the maturity date of the Company’s existing convertible senior notes, (v) add certain technical amendments to address LIBOR transition matters, and (vi) include or revise certain definitions and certain customary representation, warranties and acknowledgments.

As of March 31, 2019,2020, there was no balance outstanding under the revolving credit facility. In April 2020, we borrowed $100.0 million under the revolving credit facility.

The revolving credit facility is required to be repaid in full on the earlier of (i) September 27, 2022, and (ii) the date 91 days prior to the Maturity Date of the Notes if the Notes have not been refinanced in full by such date.date, subject to certain exceptions based on specific covenant calculations. Debt issuance costs of $2.3 million are amortizingrelating to the revolving credit facility will be amortized over 60 months.months

Our obligations under the Credit Agreement are guaranteed by the material domestic subsidiaries of our Company, subject to certain exceptions (such material subsidiaries, together with our Company, collectively, the Credit Parties). The obligations of the Credit Parties under the Credit Agreement and the other loan documents delivered in connection therewith are secured by a first priority security interest in substantially all of the existing and future personal property of the Credit Parties, including, without limitation, 65% of the voting capital stock of certain of the Credit Parties’ direct foreign subsidiaries, subject to certain exceptions.

The revolving credit facility bears interest at our election of a Base Rate plus an Applicable Margin or LIBOR plus an Applicable Margin. Swingline loans bear interest at a Base Rate plus an Applicable Margin. The Base Rate is a floating rate that is the greater of the Prime Rate, the Federal Funds Rate plus 50 basis points, or LIBOR plus 100 basis points. The Applicable Margin is based on a sliding scale which ranges from 0.25 to 100 basis points for Base Rate loans and 100 basis points to 175 basis points for LIBOR loans. We are required to pay a commitment fee on any unused commitments under the Credit Agreement which is determined on a leverage-based sliding scale ranging from 0.175% to 0.25% per annum. Interest and fees are payable on a quarterly basis. The LIBOR index is expected to be discontinued at the end of 2021. Under our credit facility, when the LIBOR index is discontinued, we will switch to a comparable or successor rate as selected by the Administrative Agent and the Company, which may include the Secured Overnight Financing Rate, or SOFR.

Under the Credit Agreement, there are various restrictive covenants, including three financial covenants which limit the consolidated total leverage ratio, or leverage ratio, the consolidated interest coverage ratio, or interest coverage ratio, a restriction which places a limit on the amount of capital expenditures that may be made in any fiscal year, a restriction that permits up to $50 million per fiscal quarter of accounts receivable financings, and sets the Specified Leverage Ratio. The leverage ratio is the ratio of debt as of the measurement date to earnings before interest, taxes, depreciation and amortization, or EBITDA, for the four consecutive quarters ending with the quarter of measurement. The current leverage ratio shall not exceed 3.504.75 to 1.00 provided that for the four fiscal quarters ending after the date of a material acquisition, such maximum leverage ratio shall be adjusted to 3.755.0 to 1.00, and thereafter shall not be more than 3.504.75 to 1.00.1.0. The interest coverage ratio is EBITDA to interest expense for the four consecutive quarters ending with the quarter of measurement. The interest coverage ratio must not be less than 3.50 to 1.0 during the term of the Credit Agreement. The Specified Leverage Ratio is the ratio used in determining, among other things, whether we are permitted to make dividends and/or prepay certain indebtedness, at a fixed ratio of 3.002.25 to 1.00.

$100 Million Shelf Registration. We have registered an aggregate of $100.0 million of common stock and preferred stock for issuance in connection with acquisitions, which shares will generally be freely tradeable after their issuance under Rule 145 of the Securities Act unless held by an affiliate of the acquired company,Company, in which case such shares will be subject to the volume and manner of sale restrictions of Rule 144 of the Securities Act.

Liquidity and Capital Resources. We Although consequences of the COVID-19 pandemic and resulting economic uncertainty could adversely affect our liquidity and capital resources in the future, we believe our existing cash and cash equivalents, anticipated cash flows from operating activities, and available credit under our revolving credit facility will be sufficient to meet our working capital and other cash


requirements, including our debt service obligations, for at least the next 12 months,months. On April 2, 2020, the Company borrowed $100 million under the Credit Agreement in order to increase its cash position and our debt service obligations.preserve financial flexibility out of an abundance of caution as a result of the ongoing uncertainty and volatility in the global markets driven by the COVID-19 pandemic. Our future capital requirements will depend on many factors, including our revenue, the length, duration and severity of the COVID-19 pandemic, the timing and extent of spending to support product development efforts, costs associated with restructuring activities net of projected savings from those activities, costs related to protecting our intellectual property, the expansion of sales and marketing


activities, timing of introduction of new products and enhancements to existing products, costs to ensure access to adequate manufacturing, costs of maintaining sufficient space for our workforce, the continuing market acceptance of our product solutions, our common stock repurchase program, and the amount and timing of our investments in, or acquisitions of, other technologies or companies. Further equity or debt financing may not be available to us on acceptable terms or at all. If sufficient funds are not available or are not available on acceptable terms, our ability to fund our future long-term working capital needs, take advantage of business opportunities or to respond to competitive pressures could be limited or severely constrained.

Based on our ability to access our cash and cash equivalents, our expected operating cash flows, and our other sources of cash, we do not currently anticipate the need to remit undistributed earnings of our foreign subsidiaries to meet our working capital and other cash requirements, but if we did remit such earnings, we may be required to accrue and pay certain state and foreign taxes to repatriate these funds, which would adversely impact our financial position and results of operations.

Contractual Obligations and Commercial Commitments

Our material contractual obligations and commercial commitments as of March 31, 20192020 were as follows (in millions):

 

 

Remaining

in Fiscal

Year 2019

 

 

Fiscal

Year 2020

 

 

Fiscal

Year 2021

 

 

Fiscal

Year 2022

 

 

Fiscal

Year 2023

 

 

Fiscal

Year 2024

 

 

Thereafter

 

 

Total

 

 

Remaining

in Fiscal

Year 2020

 

 

Fiscal

Year 2021

 

 

Fiscal

Year 2022

 

 

Fiscal

Year 2023

 

 

Fiscal

Year 2024

 

 

Thereafter

 

 

Total

 

Long-term debt (1)

 

$

1.3

 

 

$

2.6

 

 

$

2.6

 

 

$

527.6

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

534.1

 

 

$

1.3

 

 

$

2.6

 

 

$

527.6

 

 

$

 

 

$

 

 

$

 

 

$

531.5

 

Leases

 

 

3.0

 

 

 

7.6

 

 

 

3.0

 

 

 

0.9

 

 

 

0.3

 

 

 

0.1

 

 

 

-

 

 

 

14.9

 

 

 

2.3

 

 

 

7.9

 

 

 

7.2

 

 

 

4.0

 

 

 

2.5

 

 

 

1.9

 

 

 

25.8

 

Purchase obligations and

other commitments (2)

 

 

36.0

 

 

 

16.5

 

 

 

6.2

 

 

-

 

 

-

 

 

-

 

 

-

 

 

 

58.7

 

 

 

36.1

 

 

 

13.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

49.1

 

Transition tax payable (3)

 

 

-

 

 

 

1.0

 

 

 

1.0

 

 

 

1.0

 

 

 

1.0

 

 

 

1.8

 

 

 

5.1

 

 

 

10.9

 

 

 

-

 

 

 

-

 

 

 

0.9

 

 

 

1.8

 

 

 

2.4

 

 

 

3.0

 

 

 

8.1

 

Total

 

$

40.3

 

 

$

27.7

 

 

$

12.8

 

 

$

529.5

 

 

$

1.3

 

 

$

1.9

 

 

$

5.1

 

 

$

618.6

 

 

$

39.7

 

 

$

23.5

 

 

$

535.7

 

 

$

5.8

 

 

$

4.9

 

 

$

4.9

 

 

$

614.5

 

(1)

Represents the principal and interest payable through the maturity date of the underlying contractual obligation.

(2)

Purchase obligations and other commitments include payments due for inventory purchase obligations with contract manufacturers, long-term software tool licenses, and other licenses.

(3)

Represents the tax amount forremaining balance of the one-time transition tax liability associated with our deemed repatriation of accumulated foreign earnings as a result of the enactment of the Tax Cuts and Jobs Act into law on December 22, 2017.

The amounts in the table above exclude unrecognized tax benefits of $25.3$21.1 million. As of March 31, 2019,2020, we were unable to make a reasonably reliable estimate of when cash settlement with a taxing authority may occur in connection with our gross unrecognized tax benefit.


Recently Issued Accounting Pronouncements Not Yet Effective

In February 2016, the Financial Accounting Standards Board established Topic 842, Leases (or Topic 842), by issuing an Accounting Standard Update (or ASU) on Leases. Topic 842 was subsequently amended by several ASUs. The new standard requires organizations that lease assets with lease terms of more than 12 months to recognize assets and liabilities for the rights and obligations created by those leases on their balance sheets. It also requires new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The new standard will be effective for us beginning in the first quarter of our fiscal year 2020, with early adoption permitted. The standard is required to be adopted using a modified retrospective approach and allows for the adoption of the standard to be applied at the beginning of the most recent fiscal year or at the beginning of the earliest year presented. We expect to adopt this ASU at the beginning of our fiscal year 2020, on June 30, 2019. The new standard provides a number of optional practical expedients in transition and we expect to elect the package of practical expedients, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs.  We also expect to elect the use-of-hindsight practical expedient, however, we do not expect to elect the practical expedient pertaining to land easements as it is not applicable to us. We continue to evaluate the potential impact of adoption of this ASU on our consolidated financial statements and currently expect that our operating lease commitments will be subject to the new standard and recognized as right-of-use assets and operating lease liabilities upon adoption of this standard, which will increase the total assets and total liabilities that are reported relative to such amounts prior to adoption.


ITEMITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of March 31, 2019,2020, our market risk related to interest rates on our cash and cash equivalents, and foreign currency exchange risks has not changed materially from the risks disclosed in Item 7A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2018.29, 2019.

Variable Interest Rate Risk

As of March 31, 2019, there was no balance outstanding under our revolving credit facility. The revolving credit facility bears interest at our election of a Base Rate plus an Applicable Margin or LIBOR plus an Applicable Margin. Swingline loans bear interest at a Base Rate plus an Applicable Margin. The Base Rate is a floating rate that is the greater of the Prime Rate, the Federal Funds Rate plus 50 basis points, or LIBOR plus 100 basis points. The Applicable Margin is based on a sliding scale which ranges from 0.25 to 100 basis points for Base Rate loans and 100 basis points to 175 basis points for LIBOR loans.  We are required to pay a commitment fee on any unused commitments under the Agreement, which is determined on a leverage-based sliding scale ranging from 0.175% to 0.25% per annum. Interest and fees are payable on a quarterly basis.

 

 

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and procedures designed to reasonably ensure that information required to be disclosed in our reports filed under the Exchange Act, such as this Report, are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to reasonably ensure that such information is accumulated and communicated to our management, including our PrincipalChief Executive Officer and our Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Due to the COVID-19 pandemic, a significant portion of our employees are now working from home while under shelter-in-place orders or other governmental restrictions. Established business continuity plans were initiated in order to mitigate the impact to our control environment, operating procedures, data and internal controls. The design of our processes and controls allow for remote execution with accessibility to secure data.

Under the supervision and with the participation of our management, including our PrincipalChief Executive Officer and Interim Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Report. Based on this evaluation, our PrincipalChief Executive Officer and Interim Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Report.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended March 31, 201928, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


PARTPART II—OTHER INFORMATION

 

 

We are party to various litigation matters and claims arising from time to time in the ordinary course of business. While the results of such matters cannot be predicted with certainty, we believe that the final outcome of such matters will not have a material adverse effect on our business, financial condition, results of operations or cash flows.  For further information regarding current legal proceedings, see Note 8 Indemnifications, Contingencies and Legal Proceedings to the condensed consolidated financial statements contained elsewhere in this Report.

 

 

ITEM 1A. RISK FACTORS

There are no material changesWe refer you to the Company’s risk factors set forth in Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the fiscal year ended June 30, 2018.29, 2019 as well as the risk factors discussed below for material risks that may affect our business. In addition to the risk factors discussed below, the impact of the COVID-19 pandemic may also exacerbate, or in some cases manifest, other risks discussed in Item 1A, “Risk Factors” in our Annual Report on Form 10-K, any of which could have a material effect on us.

Our business, results of operations and financial condition (including liquidity) and prospects may be materially and adversely affected by health epidemics, including the recent COVID-19 pandemic.

Public health threats, such as COVID-19, influenza and other highly communicable diseases or viruses, outbreaks of which have from time to time occurred in various parts of the world in which we operate could adversely impact our operations, as well as the operations of our suppliers and customers. Any of these public health threats and related consequences could adversely affect our financial results.

COVID-19, a potentially deadly respiratory tract infection caused by the SARS-CoV-2 virus, has spread rapidly and enveloped most of the world, causing a global public health crisis. On March 11, 2020, the World Health Organization characterized the COVID-19 outbreak as a pandemic. Governments in affected countries are imposing travel bans, quarantines and other emergency public health measures. In response to the virus, national and local governments in numerous countries around the world have implemented substantial lockdown measures, and other countries and local governments may enact similar policies. As of March 31, 2020, the United States has temporarily restricted travel by foreign nationals into the country from a number of areas, including China and Europe. In addition, the federal government and all of the states in the U.S., have declared a state of emergency or similar disaster declaration, and many states, including California where we are headquartered, have enacted shelter-in-place or similar restrictive orders. Companies are also taking precautions, such as requiring employees to work remotely, imposing travel restrictions and temporarily closing businesses. These restrictions, and future prevention and mitigation measures, are likely to have an adverse impact on global economic conditions, which could materially adversely affect our future operations. Uncertainties regarding the economic impact of the COVID-19 outbreak is likely to result in sustained market turmoil, which could also negatively impact our business, financial condition and cash flows.

These measures have impacted and may further impact our workforce and operations, the operations of our customers, and those of our respective vendors, suppliers, and partners. The disruptions to our operations caused by the COVID-19 outbreak may result in inefficiencies, delays and additional costs in our product development, sales, marketing, and customer service efforts that we cannot fully mitigate through remote or other alternative work arrangements. Also, some suppliers of materials used in the production of our products may be located in areas more severely impacted by COVID-19, which could limit our ability to obtain sufficient materials for our products. In addition, the severe global economic disruption caused by COVID-19 may cause our customers and end-users of our products to suffer significant economic hardship, which could result in decreased demand for our products in the future and materially adversely affect our business, results of operations, financial condition (including liquidity) and prospects.

The impact of the COVID-19 pandemic continues to evolve and its duration and ultimate disruption on our customers, end-users, overall demand for our products, supply chain, and the related financial impact to us, cannot be estimated at this time. Should such disruption continue for an extended period of time, the impact could have a more severe adverse effect on our business, results of operations and financial condition (including liquidity).  Additionally, weaker economic conditions generally could result in impairment in value of our tangible or intangible assets, or our ability to raise additional capital, if needed.


ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

As announced on July 24, 2017, ourOur Board of Directors has cumulatively authorized $1.3$1.4 billion for our common stock repurchase program, which expires at the end of July 2019.2021. As of March 31, 2019,2020, the remaining amount authorized for the repurchase of our common stock was $148.8$177.5 million. There were noDuring the three-month period ended March 31, 2020, repurchases under our common stock repurchase program during the three-month period ended March 31, 2019.were as follows:

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

Maximum Dollar

 

 

 

 

 

 

 

 

 

 

 

Number of Shares

 

 

Value of Shares

 

 

 

 

 

 

 

Average

 

 

Purchased

 

 

that May Be

 

 

 

Total

 

 

Price

 

 

as Part of

 

 

Purchased

 

 

 

Number

 

 

Paid

 

 

Publicly

 

 

in the Future

 

 

 

of Shares

 

 

per

 

 

Announced

 

 

Under the

 

Period

 

Purchased

 

 

Share

 

 

Program

 

 

Program

 

December 29, 2019 - January 25, 2020

 

 

 

 

 

 

 

 

 

 

 

$

190,605,676

 

January 26, 2020 - February 22, 2020

 

 

 

 

 

 

 

 

 

 

 

 

190,605,676

 

February 23, 2020 - March 28, 2020

 

 

257,419

 

 

$

51.09

 

 

 

257,419

 

 

 

177,454,132

 

Total

 

 

257,419

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


ITEMITEM 6. EXHIBITS

 

10.1*10.1

 

Employment Offer Letter,The First Amendment to Amended and Restated Credit Agreement, dated as of February 7, 2019 between14, 2020, by and among Synaptics Incorporated, as borrower, the registrantLenders that are a party thereto, and Kermit Nolan

  31.1

Certification of Principal Executive OfficerWells Fargo National Association, as administrative agent

 

 

 

  31.210.2

 

CertificationFirst Amendment to Asset Purchase Agreement, entered into as of Chief Financial OfficerMarch 3, 2020, by and among Synaptics Incorporated and Creative Legend Investments Ltd.

 

 

 

10.3*

Separation Agreement and Release, executed on March 3, 2020, by and between Hing Chung (Alex) Wong and Synaptics Incorporated

31.1

Certification of Chief Executive Officer

31.2

Certification of Chief Financial Officer

32.1**

 

Section 1350 Certification of PrincipalChief Executive Officer

 

 

32.2**

 

Section 1350 Certification of Chief Financial Officer

 

 

101.INS Inline

 

XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

 

 

101.SCH Inline

 

XBRL Taxonomy Extension Schema Document

 

 

101.CAL Inline

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

101.DEF Inline

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

101.LAB Inline

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

101.PRE Inline

 

XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File – The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

 

*

Indicates a contract with management or compensatory plan or arrangement.

**

This information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

 

 


35


SIGNATURESSIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

 

SYNAPTICS INCORPORATED

 

 

 

 

Date:  May 9, 20197, 2020

 

 

 

By:

 

/s/ Alex WongMichael E. Hurlston

 

 

 

 

Name:

 

Alex WongMichael E. Hurlston

 

 

 

 

Title:

 

PrincipalPresident and Chief Executive Officer

Date:  May 7, 2020

By:

/s/ Dean Butler

 

 

 

 

Name:

Dean Butler

Title:

Senior Vice President and Chief Financial Officer

 

Date:  May 9, 20197, 2020

 

 

 

By:

 

/s/ Kermit Nolan

 

 

 

 

Name:

 

Kermit Nolan

 

 

 

 

Title:

 

Corporate Vice President and Chief Accounting Officer and Interim Chief Financial Officer

 

3639