LATTICE SEMICONDUCTOR CORPORATION Overview
This discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and accompanying notes included in Item 8. "Financial Statements and Supplementary Data" of this report. Discussions of results for prior periods (fiscal 2018 compared to fiscal 2017) are incorporated by reference from our Annual Report on Form 10-K for the year endedDecember 29, 2018 .
Critical Accounting Policies and Use of Estimates
Critical accounting policies are those that are both most important to the portrayal of a company's financial condition and results, and that require management's most difficult, subjective, and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
The preparation of financial statements in conformity withU.S. GAAP requires management to make estimates and judgments affecting the amounts reported in our consolidated condensed financial statements and the accompanying notes. We base our estimates and judgments on historical experience, knowledge of current conditions, and our beliefs of what could occur in the future considering available information. While we believe that our estimates, assumptions, and judgments are reasonable, they are based on information available when made, and because of the uncertainty inherent in these matters, actual results may differ from these estimates under different assumptions or conditions. We evaluate our estimates and judgments on an ongoing basis. We believe the following accounting policies and the related estimates are critical in the portrayal of our financial condition and results of operations, and require management's most difficult, subjective, or complex judgments. See " Note 1 - Nature of Operations and Significant Accounting Policies " under Part II, Item 8 of this report for further information on the significant accounting policies and methods used in the preparation of the consolidated financial statements.
Revenue from Contracts with Customers
We adopted ASC 606, Revenue from Contracts with Customers, effective onDecember 31, 2017 , the first day of our 2018 fiscal year, using the modified retrospective method. We recognize revenue upon satisfaction of performance obligations when control of promised goods or services has been transferred to our customers. We measure revenue based on the amount of consideration we expect to be entitled to in exchange for products or services. For revenue recognized on both sales to distributors and related to HDMI royalties, the amount of consideration we expect to be entitled to receive is based on estimates that require assumptions and judgments relating to trends in recent and historical activity. See " Note 1 - Basis of Presentation and Significant Accounting Policies " under Part II, Item 8 of this report for further information on our recognition of revenue. Sales to most distributors are made under terms allowing certain price adjustments upon sale to their end customers and limited rights of return of our products held in their inventory. The revenue recognized based on estimated price adjustments and stock rotation reserves may be materially different from the actual consideration received if the actual distributor price adjustments and stock rotation returns differ significantly from the historical trends used in the estimates.
Inventories and Cost of Revenue
Inventories are recorded at the lower of average cost determined on a first-in-first-out basis or market. We establish provisions for inventory if it is obsolete or we hold quantities which are in excess of projected customer demand. The creation of such provisions results in a write-down of inventory to net realizable value and a charge to Cost of revenue.
Accounting for Income Taxes
Our provision for income tax is comprised of our current tax liability and changes in deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements using enacted tax rates and laws that will be in effect when the difference is expected to reverse. Valuation allowances are provided to reduce deferred tax assets to an amount that in management's judgment is more-likely-than-not to be recoverable against future taxable income. The determination of a valuation allowance and when it should be released requires complex judgment. In assessing the ability to realize deferred tax assets, we evaluate both positive and negative evidence that may exist and consider whether it is more-likely-than-not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. As part of our financial review process, we also assess the likelihood that our tax reporting positions will ultimately be sustained. To the extent it is determined it is more likely than not (a likelihood of more than 50 percent) that some portion or all of a tax reporting position will ultimately not be recognized and sustained, a provision for unrecognized tax benefit is provided by either reducing the applicable deferred tax asset or accruing an income tax liability. Our judgment regarding the sustainability of our tax reporting positions may change in the future due to changes inU.S. or international tax laws and other factors. These changes, if any, may require material adjustments to the related deferred tax assets or accrued income tax liabilities and an accompanying reduction or increase in income tax expense which may result in a corresponding increase or decrease in net income in the period when such determinations are made. 19
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Results of Operations
Key elements of our Consolidated Statements of Operations, including as a percentage of revenue, are presented in the following table:
Year Ended *
(In thousands) December 28, 2019 December 29, 2018 December 30, 2017
Revenue $ 404,093 100.0 % $ 398,799 100.0 % $ 385,961 100.0 %
Gross margin 238,422 59.0 219,439 55.0 216,579 56.1
Research and development 78,617 19.5 82,449 20.7 103,357 26.8
Selling, general, and
administrative 82,542 20.4 91,054 22.8 90,718 23.5
Amortization of acquired
intangible assets 13,558 3.4 17,690 4.4 31,340 8.1
Restructuring charges 4,664 1.2 17,349 4.4 7,196 1.9
Impairment of acquired
intangible assets - - 12,486 3.1 32,431 8.4
Acquisition related charges - - 1,531 0.4 3,781 1.0
Gain on sale of building - - -
- (4,624 ) (1.2 )
Income (loss) from operations
* Results for 2017 are presented in accordance with ASC 605, which was in effect
during that fiscal year.
Revenue
Year Ended * % Change in
(In thousands) December 28, 2019 December 29, 2018 December 30, 2017 2019 2018
Revenue $ 404,093 $ 398,799 $ 385,961 1.3 % 3.3 %
* Results for 2017 are presented in accordance with ASC 605, which was in effect during that fiscal year.
Revenue increased$5.3 million , or 1%, in fiscal 2019 compared to fiscal 2018, primarily driven by increased demand for products used in computing solutions and in 5G wireless infrastructure, along with increases in IP revenue, offset by broad market weakness. Revenue by End Market
We sell our products globally in three primary groups of end markets: Communications and Computing, Industrial and Automotive, and Consumer. We also provide Intellectual Property licensing and services to these end markets.
We anticipate future revenue growth due to multiple market segment drivers, including: • Communications and computing: 5G infrastructure deployments, cloud and
enterprise servers, and client computing platforms,
• Industrial and automotive: industrial Internet of Things ("IoT"), factory
automation, and automotive electronics,
• Consumer: smart home and prosumer.
We also generate revenue from the licensing of our Intellectual Property ("IP"),
the collection of certain royalties, patent sales, the revenue related to our
participation in consortia and standard-setting activities, and services. While
these activities may be associated with multiple markets, Licensing and services
revenue is reported as a separate end market as it has characteristics that
differ from other categories, most notably a higher gross margin.
The end market data below is derived from data provided to us by our
distributors and end customers. With a diverse base of customers who may
manufacture end products spanning multiple end markets, the assignment of
revenue to a specific end market requires the use of judgment. We also recognize
certain revenue for which end customers and end markets are not yet known. We
assign this revenue first to a specific end market using historical and
anticipated usage of the specific products, if possible, and allocate to the end
markets by product family based upon historical usage for each family if we
cannot identify a specific end market.
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The following are examples of end market applications for the fiscal years presented:
Communications and
Computing Industrial and Automotive Consumer Licensing and Services
Wireless Security and Surveillance Cameras IP Royalties
Wireline Machine Vision Displays Adopter Fees
Data Backhaul Industrial Automation Wearables IP Licenses
Server Computing Robotics Televisions Patent Sales
Client Computing Automotive Home Theater
Data Storage Drones
The composition of our revenue by end market is presented in the following
table:
Year Ended * % Change in
(In thousands) December 28, 2019 December 29, 2018 December 30, 2017 2019 2018
Communications and
Computing $ 155,821 38.6 % $ 123,195 30.9 % $ 113,019 29.3 % 26.4 % 9.0 %
Industrial and
Automotive 151,607 37.5 157,979 39.6 134,639 34.9 (4.0 ) 17.3
Consumer 75,120 18.6 99,294 24.9 108,844 28.2 (24.3 ) (8.8 )
Licensing and Services 21,545 5.3 18,331 4.6 29,459 7.6 17.5 (37.8 )
Total revenue $ 404,093 100.0 % $ 398,799 100.0 % $ 385,961 100.0 % 1.3 % 3.3 %
* Results for 2017 are presented in accordance with ASC 605, which was in effect during that fiscal year.
Our revenue in the Communications and Computing end market increased 26% in fiscal 2019 compared to fiscal 2018 primarily due to demand increases for server and client computing products, as well as for products used in 5G wireless infrastructure.
For fiscal 2019 compared to fiscal 2018, Industrial and Automotive end market revenue decreased 4% primarily due to broad market weakness, primarily inAsia andEurope . Consumer end market revenue decreased 24% in fiscal 2019 compared to fiscal 2018 primarily due to a greater focus on the Industrial and Automotive and the Communications and Computing end markets, and due toAsia market softness and broad market weakness. Revenue from the Licensing and Services end market is subject to variability between periods. Revenue from the Licensing and Services end market increased by 18% in fiscal 2019 compared to fiscal 2018 predominantly due to increases in HDMI royalty revenue and certain patent and asset sales recognized in 2019. We share HDMI royalties with the other HDMI Founders based on an allocation formula, which is reviewed periodically, generally every three years. In the fourth quarter of fiscal 2019, the Founders adopted a new agreement covering the five-year period beginningJanuary 1, 2018 . Revenues recorded during fiscal 2019 and 2018 based on our estimated share of the royalties were consistent with the amounts recognized under the new agreement.
Revenue by Geography
We assign revenue to geographies based on ship-to location of the end customer,
where available, and based upon the location of the distributor to which the
product was shipped otherwise.
The composition of our revenue by geography is presented in the following table:
Year Ended * % Change in
(In thousands) December 28, 2019 December 29, 2018 December 30, 2017 2019 2018
Asia $ 298,765 73.9 % $ 298,119 74.8 % $ 277,638 71.9 % 0.2 % 7.4 %
Europe 47,392 11.7 45,546 11.4 44,547 11.5 4.1 2.2
Americas 57,936 14.4 55,134 13.8 63,776 16.6 5.1 (13.6 )
Total revenue $ 404,093 100.0 % $ 398,799 100.0 % $ 385,961 100.0 % 1.3 % 3.3 %
* Results for 2017 are presented in accordance with ASC 605, which was in effect during that fiscal year.
Revenue from End Customers
In the periods covered by this report, no end customer accounted for more than
10% of total revenue, and we expect to continue to sell our products to a broad
base of end customers.
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Revenue from Distributors
Distributors have historically accounted for a significant portion of our total
revenue. Revenue attributable to our primary distributors is presented in the
following table:
Year Ended *
December 28, 2019 December 29, 2018 December 30, 2017
Weikeng Group 29.8 % 25.4 % 26.7 %
Arrow Electronics Inc. 25.4 28.7 23.9
All others 26.9 28.8 26.4
All distributors ** 82.1 % 82.9 % 77.1 %
* Results for 2017 are presented in accordance with ASC 605, which was in
effect during that fiscal year. ** During the first quarter of 2018, we updated our channel categories to group
all forms of distribution into a single channel. Prior periods have been reclassified to match current period presentation. Gross margin
The composition of our gross margin, including as a percentage of revenue, is presented in the following table:
Year Ended *
(In thousands) December 28, 2019 December 29, 2018 December 30, 2017
Gross margin $ 238,422 $ 219,439 $ 216,579
Percentage of revenue 59.0 % 55.0 % 56.1 %
Product gross margin % 56.7 % 52.9 % 53.8 %
Licensing and services gross margin % 100.0 % 98.6 % 84.0 %
* Results for 2017 are presented in accordance with ASC 605, which was in effect during that fiscal year.
Gross margin, as a percentage of revenue, increased 400 basis points from fiscal 2018 to fiscal 2019 due to product cost reductions, benefits from pricing optimization, as well as overall mix. The increase in gross margin was also attributable to the non-recurrence in 2019 of the$8.0 million in specific inventory charges taken in the second quarter of fiscal 2018 as a result of the discontinuation of our millimeter wave business. Additionally, Gross margin was favorably impacted by the relative mix between product revenue and licensing and services revenue. Licensing and services accounted for 5.3% of total revenue in fiscal 2019 compared to 4.6% of total revenue in fiscal 2018. Because of its higher margin, the licensing and services portion of our overall revenue can have a disproportionate impact on Gross Margin.
Operating Expenses
Research and development expense
The composition of our Research and development expense, including as a percentage of revenue, is presented in the following table:
Year Ended % Change in
(In thousands) December 28, 2019 December 29, 2018 December 30, 2017 2019 2018
Research and development $ 78,617 $ 82,449 $ 103,357 (4.6 )% (20.2 )%
Percentage of revenue 19.5 % 20.7 % 26.8 %
Research and development expense includes costs for compensation and benefits,
stock compensation, engineering wafers, depreciation, licenses, and outside
engineering services. These expenditures are for the design of new products, IP
cores, processes, packaging, and software solutions.
The decrease in Research and development expense for fiscal 2019 compared to
fiscal 2018 was due mainly to the cost reductions realized from the
discontinuation of our millimeter wave business and other restructuring actions
including the consolidation of leased facilities. These savings were
predominantly from headcount related expenses and from reductions in both
depreciation and rent expense, partially offset by increased stock compensation
expense.
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We believe that a continued commitment to Research and development is essential to maintaining product leadership and providing innovative new product offerings and, therefore, we expect to continue to make significant future investments in Research and development, particularly with expanded investment in software and solutions.
Selling, general, and administrative expense
The composition of our Selling, general, and administrative expense, including as a percentage of revenue, is presented in the following table:
Year Ended % Change in
(In thousands) December 28, 2019 December 29,
2018
20.4 % 22.8 % 23.5 %
Selling, general, and administrative expense includes costs for compensation and
benefits related to selling, general, and administrative employees, commissions,
depreciation, professional and outside services, trade show, and travel
expenses.
The decrease in Selling, general, and administrative expense for fiscal 2019
compared to fiscal 2018 was due mainly to the cost reductions realized from
restructuring actions including the consolidation of leased facilities. These
savings were predominantly from headcount related expenses and from reductions
in both depreciation and rent expense, partially offset by increased stock
compensation expense. Additional savings in the current year period resulted
from the non-recurrence of certain one-time costs related to our CEO transition
in the prior year, including accelerated stock compensation, severance expense,
and CEO search fees
Amortization of acquired intangible assets
The composition of our Amortization of acquired intangible assets, including as a percentage of revenue, is presented in the following table:
Year Ended % Change in
(In thousands) December 28, 2019 December 29, 2018 December 30, 2017 2019 2018
Amortization of acquired
intangible assets $ 13,558 $ 17,690 $ 31,340 (23.4 )% (43.6 )%
Percentage of revenue 3.4 % 4.4 % 8.1 %
The decrease in Amortization of acquired intangible assets for fiscal 2019
compared to fiscal 2018 was due to the end of the amortization period for
certain intangibles and to the reduction of certain intangibles as a result of
impairment charges in previous periods. The amortization period for most of our
acquired intangible assets will end in the first quarter of fiscal 2020.
Restructuring charges
The composition of our Restructuring charges, including as a percentage of revenue, is presented in the following table:
Year Ended % Change in
(In thousands) December 28, 2019 December 29, 2018 December 30, 2017 2019 2018
Restructuring charges $ 4,664 $ 17,349 $ 7,196 (73.1 )% 100+%
Percentage of revenue 1.2 % 4.4 % 1.9 %
Restructuring charges are comprised of expenses resulting from reductions in our
worldwide workforce, consolidation of our facilities, removal of fixed assets
from service, and cancellation of software contracts and engineering tools.
Details of our restructuring plans and expenses incurred under them are more
fully discussed in " Note 7 - Restructuring " to our Consolidated Financial
Statements in Part II, Item 8 of this report.
The $12.7 million decrease in Restructuring charges in fiscal 2019 compared to
fiscal 2018 was driven primarily by the higher headcount-related restructuring
charges in the prior year periods, as compared to lower charges in the current
period from ceasing use of certain leased facilities and from termination fees
on the cancellation of certain contracts.
Impairment of acquired intangible assets
The composition of our Impairment of acquired intangible assets, including as a percentage of revenue, is presented in the following table:
Year Ended % Change in
(In thousands) December 28, 2019 December 29, 2018 December 30, 2017 2019 2018
Impairment of acquired
intangible assets $ - $ 12,486 $ 32,431 (100.0 )% (61.5 )%
Percentage of revenue - % 3.1 % 8.4 %
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During the third quarter of fiscal 2018, we concluded that a certain product line had limited future revenue potential due to a decline in customer demand for that product. We determined that this conclusion constituted an impairment indicator to the related specific developed technology intangible asset acquired in our acquisition of Silicon Image. Our assessment of the fair value of this intangible asset concluded that it had been fully impaired as ofSeptember 29, 2018 , and we recorded an impairment charge of$0.6 million in the Consolidated Statements of Operations. In the second quarter of 2018, we made the strategic decision to discontinue our millimeter wave business, which included certain wireless technology intangible assets. We determined that this action constituted an impairment indicator related to certain of the developed technology intangible assets acquired in our acquisition of Silicon Image. Our assessment of the fair value of these intangible assets concluded that they had been fully impaired as ofJune 30, 2018 , and we recorded an impairment charge of$11.9 million in the Consolidated Statements of Operations. Acquisition related charges
The composition of our Acquisition related charges, including as a percentage of revenue, is presented in the following table:
Year Ended % Change in
(In thousands) December 28, 2019 December 29, 2018 December 30, 2017 2019 2018
Acquisition related charges $ - $ 1,531
$ 3,781 (100.0 )% (59.5 )%
Percentage of revenue - % 0.4 % 1.0 %
Acquisition related charges include legal and professional fees directly related
to acquisitions. We incurred no Acquisition related charges in fiscal 2019. For
fiscal years 2018, and 2017, Acquisition related charges were entirely
attributable to legal fees and outside services in connection with our proposed
acquisition by Canyon Bridge Acquisition Company, Inc. Although the acquisition
was terminated, we continued to incur certain residual legal fees directly
related to this transaction.
Interest Expense
The composition of our Interest expense, including as a percentage of revenue, is presented in the following table:
Year Ended % Change in
(In thousands) December 28, 2019 December 29, 2018 December 30, 2017 2019 2018
Interest expense $ (11,731 ) $ (20,600 ) $ (18,807 ) (43.1 )% 9.5 %
Percentage of revenue (2.9 )% (5.2 )% (4.9 )%
Interest expense is primarily related to our long-term debt, which is further
discussed under the Credit Arrangements heading in the Liquidity and Capital
Resources section, below. This interest expense is comprised of contractual
interest and amortization of original issue discount and debt issuance costs
based on the effective interest method.
The decrease in Interest expense for fiscal 2019 compared to fiscal 2018 was
largely driven by the significant reduction in the effective interest rate on
our long-term debt under the terms of the new Credit Agreement, coupled with the
reduction in the principal balance of our long-term debt as a result of the
additional principal payments made in the current and previous periods.
Other expense, net
The composition of our Other expense, net, including as a percentage of revenue, is presented in the following table:
Year Ended % Change in
(In thousands) December 28, 2019 December 29, 2018 December 30, 2017 2019 2018
Other expense, net $ (2,245 ) $ (249 ) $ (3,286 ) 100+% (92 )%
Percentage of revenue (0.6 )% (0.1 )% (0.9 )%
For fiscal 2019 compared to fiscal 2018, Other expense, net increased primarily
due to the $2.2 million loss on re-financing charge taken in the second quarter
of fiscal 2019 to write off the remaining unamortized balance of debt costs and
original issue discount related to our refinanced long-term debt, partially
offset by reduced miscellaneous expenses during the period.
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Income taxes
The composition of our Income tax expense is presented in the following table:
Year Ended % Change in
(In thousands) December 28, 2019 December 29, 2018 December 30, 2017 2019 2018
Income tax expense $ 1,572 $ 2,353 $ 849 (33.2)% 177.1%
Our Income tax expense is composed primarily of foreign income and withholding
taxes, partially offset by benefits resulting from the release of uncertain tax
positions due to statute of limitation expirations that occurred in the
respective periods. The decrease in expense in fiscal 2019 as compared to fiscal
2018 primarily results from the release of uncertain tax positions due to
statute of limitations expiration.
We are not currently paying U.S. federal income taxes and do not expect to pay
such taxes until we fully utilize our tax net operating loss and credit
carryforwards. We expect to pay a nominal amount of state income tax. We are
paying foreign income taxes, which are primarily related to withholding taxes on
income from foreign royalties, foreign sales, and the cost of operating offshore
research and development, marketing, and sales subsidiaries. It is reasonably
possible that during the next twelve months, we will establish a sustained level
of profitability in the U.S. As a result, we may reverse a significant portion
of the valuation allowance recorded against our U.S. deferred tax assets. The
reversal would result in an income tax benefit for the quarterly and annual
fiscal period in which we release the valuation allowance. We accrue interest
and penalties related to uncertain tax positions in income tax expense on our
Consolidated Statements of Operations. The inherent uncertainties related to the
geographical distribution and relative level of profitability among various high
and low tax jurisdictions make it difficult to estimate the impact of the global
tax structure on our future effective tax rate.
Liquidity and Capital Resources
The following sections discuss material changes in our financial condition from the end of fiscal 2018, including the effects of changes in our Consolidated Balance Sheets, and the effects of our credit arrangements and contractual obligations on our liquidity and capital resources. We have historically financed our operating and capital resource requirements through cash flows from operations, and from the issuance of long-term debt to fund acquisitions. Cash provided by or used in operating activities will fluctuate from period to period due to fluctuations in operating results, the timing and collection of accounts receivable, and required inventory levels, among other things. We believe that our financial resources will be sufficient to meet our working capital needs through at least the next 12 months. As ofDecember 28, 2019 , we did not have significant long-term commitments for capital expenditures. In the future, we may continue to consider acquisition opportunities to further extend our product or technology portfolios and further expand our product offerings. In connection with funding capital expenditures, acquisitions, securing additional wafer supply, increasing our working capital, or other operations, we may seek to obtain equity or additional debt financing, or advance purchase payments or similar arrangements with wafer manufacturers. We may also seek to obtain equity or additional debt financing if we experience downturns or cyclical fluctuations in our business that are more severe or longer than we anticipated when determining our current working capital needs. OnMay 17, 2019 , we entered into our Current Credit Agreement that is more fully discussed under the "Credit Arrangements" heading, below.
Liquidity
Cash and cash equivalents and Short-term marketable securities (In thousands)
December 28, 2019 December 29, 2018 $ Change %Change
Cash and cash equivalents $ 118,081 $ 119,051 $ (970 ) (0.8 )%
Short-term marketable securities - 9,624 (9,624 ) (100.0 )%
Total Cash and cash equivalents
and Short-term marketable
securities $ 118,081 $ 128,675 $ (10,594 ) (8.2 )%
As of December 28, 2019 , we had total Cash, cash equivalents, and short-term
marketable securities of $118.1 million , of which approximately $57.4 million in
Cash and cash equivalents was held by our foreign subsidiaries. During the first
quarter of fiscal 2019, we liquidated our Short-term marketable securities. We
manage our global cash requirements considering, among other things, (i)
available funds among our subsidiaries through which we conduct business, (ii)
the geographic location of our liquidity needs, and (iii) the cost to access
international cash balances. The repatriation of non-US earnings may require us
to withhold and pay foreign income tax on dividends. This should not result in
our recording significant additional tax expense as we have accrued expense
based on current withholding rates. As of December 28, 2019 , we could access all
cash held by our foreign subsidiaries without incurring significant additional
expense.
The net decrease in Cash, cash equivalents, and short-term marketable securities
of $10.6 million between December 29, 2018 and December 28, 2019 was primarily
driven by cash flows from the following activities:
Operating activities - Cash provided by operating activities results from net
income adjusted for certain non-cash items and changes in assets and
liabilities. Cash provided by operating activities in fiscal 2019 was $124.1
million , an increase of $72.6 million from the $51.5 million of cash provided by
operating activities in fiscal 2018. This increase was driven by both improved
operating performance, which contributed $64.5 million to the increase, and by
changes in working capital, which contributed $8.1 million to the increase,
primarily due to the receipt of royalties distributed by the HDMI agent with the
adoption of the new sharing agreement, partially offset by changes in Operating
lease liabilities. We are using this increased cash provided by operating
activities to invest in our operations.
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Investing activities - Investing cash flows consist primarily of transactions related to short-term marketable securities, capital expenditures, and payments for software licenses. The$15.5 million of cash used by investing activities in fiscal 2019 was$5.6 million less than the$21.1 million used by investing activities in fiscal 2018 primarily due to a$14.3 million change in the net cash flows for short-term marketable securities offset by$8.7 million more cash used for capital expenditures and software licenses. In fiscal 2018, we made$4.6 million in net purchases of short-term marketable securities, whereas we liquidated all short-term investments in 2019 for$9.7 million . The total$25.2 million of cash used in fiscal 2019 for capital expenditures and payments for software licenses was$8.7 million greater than the$16.5 million used in fiscal 2018 due primarily to increased investments in test equipment and software enhancements. Financing activities - Financing cash flows consist primarily of payments on and refinancing of our long-term debt, proceeds from the exercise of options to acquire common stock, and tax payments related to the net share settlement of restricted stock units. InMay 2019 , we entered into our Current Credit Agreement and received$206.5 million , which we used to pay off the$204.4 million outstanding balance on our previous loan. In connection with the Current Credit Agreement, we paid$2.1 million in debt issuance costs. During fiscal 2019, we made a total of$117.0 million in voluntary and required principal payments on our long-term debt. Employee exercises of stock options partially offset by tax withholdings on vesting of RSUs provided net cash flows of$7.1 million in fiscal 2019, which is a decrease of approximately$19.8 million from the$26.9 million provided in fiscal 2018. Accounts receivable, net (In thousands) December 28, 2019 December 29, 2018 $Change %Change Accounts receivable, net $ 64,917 $ 60,890$ 4,027 6.6 % Days sales outstanding - Overall 59 58 1 Accounts receivable, net as ofDecember 28, 2019 increased by approximately$4.0 million , or 7%, compared toDecember 29, 2018 . This resulted primarily from the timing of shipments inDecember 2019 compared toDecember 2018 .
Inventories
(In thousands) December 28, 2019 December 29, 2018 $Change %Change Inventories $ 54,980 $ 67,096$ (12,116 ) (18.1 )% Days of inventory on hand 123 147 (24 ) Inventories as ofDecember 28, 2019 decreased$12.1 million , or approximately 18%, compared toDecember 29, 2018 primarily due to our improved management of inventory levels, as well as the ramp down of mature and aging products. The Days of inventory on hand ratio compares the inventory balance at the end of a quarter to the cost of sales in that quarter. Our Days of inventory on hand decreased to 123 days atDecember 28, 2019 from 147 days atDecember 29, 2018 . This decrease resulted from improved inventory management.
Credit Arrangements
OnMay 17, 2019 , we entered into our new Credit Agreement withWells Fargo Bank, National Association , as administrative agent, and other lenders. The details of this new arrangement are more fully described in " Note 6 - Long-Term Debt
"
in the accompanying Notes to Consolidated Financial Statements.
As ofDecember 28, 2019 , we had no significant long-term purchase commitments for capital expenditures or existing used or unused credit arrangements beyond the secured revolving loan facility described above.
Contractual Cash Obligations
The following table summarizes our contractual cash obligations atDecember 28, 2019 : Fiscal year (In thousands) Operating leases (1) Long-term Debt (2) 2020 $ 6,445 $ 26,335 2021 5,485 21,337 2022 4,468 20,799 2023 4,596 20,261 2024 4,716 74,658 Thereafter 6,705 - $ 32,415 $ 163,390
(1) Certain of our facilities and equipment are leased under operating leases, which expire at various times through 2027.
(2) Cash payments due for long-term debt include estimated interest payments, which are based on outstanding principal amounts, currently effective interest rates as ofDecember 28, 2019 , timing of scheduled payments and the debt term. Our 53-week fiscal 2020 will result in five quarterly installments being paid during that fiscal year. See Liquidity section of Item 7 for further discussion pertaining to our Credit Arrangements.
The table above does not include amounts related to uncertain tax positions because we cannot reliably estimate the timing of the settlement of such liabilities.
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Our significant operating leases are for our facilities in
In the first quarter of 2019, we relocated our corporate headquarters to our
facility in
The lease for our former office space inPortland, Oregon expires inMarch 2025 . Annual rental costs are estimated at$0.7 million with average annual increases of approximately 5%. Under a previously approved restructuring plan, we fully vacated the space inPortland, Oregon in early 2019 and subleased the vacated space. Our lease inSan Jose, California expiresSeptember 2026 with total annual rental costs estimated to be$2.4 million and annual increases of approximately 3%. Under a previously approved restructuring plan, we vacated approximately 50% or our facility inSan Jose, California in the fourth quarter of fiscal 2018 and intend to sublease the vacated space. Two of our leases in Muntinlupa City,Philippines expire inMay 2025 andJune 2025 , with total annual rental costs estimated to be$0.7 million and annual increases of approximately 5%. Our lease inShanghai expires inMay 2021 , with total annual rental costs estimated to be$1.8 million .
New Accounting Pronouncements
The information contained under the heading "New Accounting Pronouncements" in
Note 1 - Nature of Operations and Significant Accounting Policies to our Consolidated Financial Statements in Part II, Item 8 is incorporated by reference into this Part II, Item 7.
Off-Balance Sheet Arrangements
As of
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