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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Synaptics Incorporated    SYNA

SYNAPTICS INCORPORATED

(SYNA)
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Synaptics Incorporated : INC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

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02/06/2020 | 05:04pm EDT

Forward-Looking Statements and Factors That May Affect Results


This Quarterly Report on Form 10-Q for the quarter ended December 28, 2019 (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, 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 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 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.

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 include
smart devices with voice, speech and video solutions, and other select
electronic devices, including devices in automobiles, with our custom human
interface solutions. The solutions we deliver either contain or consist of our
touch-, display driver-, fingerprint authentication-based-, voice and speech-,
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 China, 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.

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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
our 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 transaction is expected to close in the fourth quarter
of fiscal 2020, subject to satisfaction of certain closing conditions.

Critical Accounting Policies and Estimates


There have been no significant changes in our critical accounting policies and
estimates during the three months ended December 31, 2019, 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 29, 2019.

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Results of Operations


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



                                       Three Months Ended December 31,                         Six Months Ended December 31,
                                2019        2018        $ Change       %

Change 2019 2018 $ Change % Change Mobile product applications $ 217.7$ 274.4$ (56.7 ) (20.7 %) $ 402.0$ 537.1$ (135.1 ) (25.2 %) PC product applications

           81.6        63.9           17.7           27.7 %      149.4       132.5          16.9           12.8 %
IoT product applications          89.0        87.2            1.8            2.1 %      176.8       173.5           3.3            1.9 %
Net revenue                      388.3       425.5          (37.2 )         (8.7 %)     728.2       843.1        (114.9 )        (13.6 %)
Gross margin                     159.3       149.8            9.5          

6.3 % 285.5 290.7 (5.2 ) (1.8 %) Operating expenses: Research and development 77.0 84.2

           (7.2 )         (8.6 %)     163.0       174.3         (11.3 )         (6.5 %)
Selling, general, and
administrative                    31.5        35.6           (4.1 )        (11.5 %)      59.0        69.4         (10.4 )        (15.0 %)
Acquired intangibles
amortization                       3.0         2.9            0.1            3.4 %        5.9         5.8           0.1            1.7 %
Restructuring costs               13.3         2.1           11.2          533.3 %       19.9        10.4           9.5           91.3 %
Operating income                  34.5        25.0            9.5           38.0 %       37.7        30.8           6.9           22.4 %
Interest and other expense,
net                               (2.3 )      (4.3 )          2.0           46.5 %       (5.9 )      (6.2 )         0.3            4.8 %
Income/(loss) before
provision/
  (benefit) for income
taxes                             32.2        20.7           11.5           55.6 %       31.8        24.6           7.2           29.3 %
Provision/(benefit) for
income taxes                      12.0         7.5            4.5           

60.0 % 7.1 7.2 (0.1 ) (1.4 %) Equity investment loss

            (0.4 )      (0.4 )            -            0.0 %       (0.9 )      (0.8 )        (0.1 )        (12.5 %)
Net income                    $   19.8$  12.8$      7.0           54.7 %    $  23.8$  16.6$     7.2           43.4 %




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



                                                                    Percentage
                                         Three Months Ended            Point           Six Months Ended          Percentage Point
                                            December 31,             Increase/           December 31,               Increase/
                                         2019           2018        (Decrease)         2019         2018            (Decrease)
Mobile product applications                 56.1 %        64.5 %           (8.4 %)       55.2 %       63.7 %                  (8.5 %)
PC product applications                     21.0 %        15.0 %            6.0 %        20.5 %       15.7 %                   4.8 %
IoT product applications                    22.9 %        20.5 %            2.4 %        24.3 %       20.6 %                   3.7 %
Net revenue                                100.0 %       100.0 %            0.0 %       100.0 %      100.0 %                   0.0 %
Gross margin                                41.0 %        35.2 %            5.8 %        39.2 %       34.5 %                   4.7 %
Operating expenses:
Research and development                    19.8 %        19.8 %            0.0 %        22.4 %       20.7 %                   1.7 %

Selling, general, and administrative 8.1 % 8.4 % (0.3 %) 8.1 % 8.2 %

                  (0.1 %)
Acquired intangibles amortization            0.8 %         0.7 %            0.1 %         0.8 %        0.7 %                   0.1 %
Restructuring costs                          3.4 %         0.5 %            2.9 %         2.7 %        1.2 %                   1.5 %
Operating income                             8.9 %         5.9 %            3.0 %         5.2 %        3.7 %                   1.5 %
Interest and other expense, net             (0.6 %)       (1.0 %)           0.4 %        (0.8 %)      (0.7 %)                 (0.1 %)

Income/(loss) before provision/

  (benefit) for income taxes                 8.3 %         4.9 %            3.4 %         4.4 %        2.9 %                   1.5 %
Provision/(benefit) for income taxes         3.1 %         1.8 %            1.3 %         1.0 %        0.9 %                   0.1 %
Equity investment loss                      (0.1 %)       (0.1 %)           0.0 %        (0.1 %)      (0.1 %)                  0.0 %
Net income                                   5.1 %         3.0 %            2.1 %         3.3 %        2.0 %                   1.3 %




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Net Revenue


Net revenue was $388.3 million for the three months ended December 31, 2019,
compared with $425.5 million for the three months ended December 31, 2018, a
decrease of $37.2 million, or 8.7%. Of this net revenue, $217.7 million, or
56.1%, was from Mobile product applications, $89.0 million, or 22.9%, was from
IoT product applications, and $81.6 million, or 21.0%, was from PC product
applications. The decrease in net revenue for the three months ended December
31, 2019 was primarily attributable to a decrease in net revenue from Mobile
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 18.4%) 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 13.9%) for PC product applications as
well as higher average selling prices (which increased 12.1%). Net revenue from
IoT product applications increased as a result of an increase in units sold,
partially offset by lower average selling prices for IoT product applications.

Net revenue was $728.2 million for the six months ended December 31, 2019,
compared with $843.1 million for the six months ended December 31, 2018, a
decrease of $114.9 million, or 13.6%. Of this net revenue, $402.0 million, or
55.2%, was from Mobile product applications, $176.8 million, or 24.3%, was from
IoT product applications, and $149.4 million, or 20.5%, was from PC product
applications. The decrease in net revenue for the six months ended December 31,
2019 was primarily attributable to a decrease in net revenue from Mobile 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
24.9%) 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 12.8%). Net revenue from IoT product
applications increased as a result of an increase in units sold, partially
offset by lower average selling prices for IoT product applications.

Gross Margin

Gross margin as a percentage of net revenue was 41.0%, or $159.3 million, for the three months ended December 31, 2019, compared with 35.2%, or $149.8 million, for the three months ended December 31, 2018. The 580 basis point increase in gross margin for the three months ended December 31, 2019, was primarily due to a favorable product mix and a $6.9 million decrease in amortization for amortizable intangibles which are now fully amortized.


Gross margin as a percentage of net revenue was 39.2%, or $285.5 million, for
the six months ended December 31, 2019, compared with 34.5%, or $290.7 million,
for the six months ended December 31, 2018. The 470 basis point increase in
gross margin for the six months ended December 31, 2019, was primarily due to a
favorable product mix and a $8.6 million decrease in amortization for
amortizable intangibles which are now fully amortized.

We continually introduce new product solutions, many of which have life cycles
of less than one year. Further, because we sell our technology solutions in
designs that are generally unique or specific to an OEM customer's application,
gross margin varies on a product-by-product basis, making our cumulative gross
margin a blend of our product-specific designs. As a virtual manufacturer, 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
$7.2 million to $77.0 million for the three months ended December 31, 2019,
compared with the three months ended December 31, 2018. The decrease in research
and development expenses primarily reflected a net $1.9 million decrease in
personnel-related costs, which was due to a decrease in average headcount for
the three months ended December 31, 2019 as compared to the three months ended
December 31, 2018, as a result of restructuring activities to reduce operating
costs; a $1.9 million decrease in infrastructure costs related to facilities; a
$1.8 million decrease in non-employee services; and a $1.0 million decrease in
travel related costs. The decrease in personnel-related costs was partially
offset by $2.0 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 $11.3 million to $163.0 million for
the six months ended December 31, 2019, compared with the six months ended
December 31, 2018. The decrease in research and development expenses primarily
reflected a net $3.7 million decrease in personnel-related costs which was due
to a decrease in average headcount for the six months ended December 31, 2019 as
compared to the six months ended December 31, 2018, as a result of restructuring
activities to reduce operating costs; a $3.0 million decrease in non-employee
services; a $2.6 million decrease in infrastructure costs related to facilities;
a $2.1 million decrease in project related costs; a $1.7 million decrease in
travel related costs; and a $1.2 million decrease in software licensing and
maintenance costs. The decrease in personnel-related costs was partially offset
by $4.4 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.

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Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses decreased $4.1 million to $31.5 million for the three
months ended December 31, 2019, compared with the three months ended December
31, 2018. The decrease in selling, general, and administrative expenses
primarily reflected a net $1.6 million decrease in personnel-related costs which
was primarily due to a reduction in headcount as a result of restructuring
activities to reduce operating costs; a $1.2 million decrease in non-employee
services; a $1.2 million decrease in bad debt expense; a $0.9 million decrease
in travel related expenses; partially offset by a $1.1 million increase in legal
fees. The decrease in personnel-related costs was partially offset by $1.5
million of retention program costs with key 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 decreased $10.4 million to $59.0
million for the six months ended December 31, 2019, compared with the six months
ended December 31, 2018. The decrease in selling, general, and administrative
expenses primarily reflected a net $7.3 million decrease in personnel-related
costs which was primarily due to a reduction in headcount as a result of
restructuring activities to reduce operating costs; a $2.3 million decrease in
non-employee services; a $1.5 million decrease in bad debt expense; a $1.4
million decrease in travel related expenses; partially offset by a $1.7 million
increase in legal fees. The decrease in personnel-related costs was partially
offset by $2.8 million of retention program costs with key management employees
designed to ensure operational continuity and support as we transition the
company through senior level management and 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 7 Acquired Intangibles
and Goodwill included in the condensed consolidated financial statements
contained elsewhere in this Report.

Restructuring Costs. Restructuring costs of $19.9 million in the six months
ended December 31, 2019 reflect severance costs for restructuring of our
operations to reduce ongoing operating costs, which commenced in the fourth
quarter of fiscal 2019 and the second quarter of fiscal 2020. The restructuring
activities are expected to be complete in the fourth quarter of fiscal 2020. See
Note 16 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, partially offset by interest income earned on our cash and
cash equivalents as well as impairment recovery on investments. Interest and
other expense, net was relatively flat at $5.9 million for the six months ended
December 31, 2019, as compared to $6.2 million for the six months ended December
31, 2018.

Provision for Income Taxes. 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 provision for income taxes of $12.0 million and $7.5 million for the three
months ended December 31, 2019 and 2018, respectively, represented estimated
federal, foreign, and state income taxes. The effective tax rate for the three
months ended December 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, and global intangible low-taxed income,
or GILTI, partially offset by the benefit of research credits, foreign tax
credits and income taxed at lower tax rates. The effective tax rate for the
three months ended December 31, 2018, diverged from the combined U.S. federal
and state statutory tax rate, primarily because of foreign withholding taxes,
nondeductible amortization, the impact of net shortfalls in share-based
compensation deductions and GILTI, partially offset by the benefit of research
credits, foreign tax credits, foreign-derived intangible income deduction,
release of reserves related to uncertain tax positions and foreign income taxed
at lower tax rates.

The provision for income taxes of $7.1 million and $7.2 million for the six
months ended December 31, 2019 and 2018, respectively, represented estimated
federal, foreign, and state income taxes. The effective tax rate for the six
months ended December 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 and global intangible low-taxed income,
or GILTI, partially offset by the benefit of research credits, foreign tax
credits and foreign income taxed at lower tax rates. The effective tax rate for
the six months ended December 31, 2018, diverged from the combined U.S. federal
and state statutory tax rate, primarily due to foreign withholding taxes,
nondeductible amortization, the impact of net shortfalls in share-based
compensation deductions and GILTI, partially offset by the benefit of research
credits, foreign tax credits, foreign-derived intangible income deduction,
excess share-based compensation deductions, release of reserves related to
uncertain tax positions and foreign income taxed at lower tax rates.

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In June 2019, 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. As our tax filing
position is consistent with the Treasury regulations, no adjustment to our
financial statements is required. However, due to 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 $424.8 million as of December 31, 2019,
compared with $327.8 million as of June 30, 2019, an increase of $97.0 million.
The increase primarily reflected $120.0 million of net cash provided by
operating activities, $4.8 million of net proceeds from issuance of shares,
partially offset by $17.0 million used to repurchase 555,663 shares of our
common stock, $8.2 million used for the purchase of property and equipment, 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 incurred as part of the Tax Cuts and Jobs Act, that
may result from a future repatriation of those earnings. As of December 31,
2019, $172.7 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 would be required to accrue and pay U.S. taxes to repatriate these funds.

Cash Flows from Operating Activities. Operating activities during the six months
ended December 31, 2019 generated $120.0 million compared with $63.5 million net
cash generated during the six months ended December 31, 2018. For the six months
ended December 31, 2019, the primary operating activities were adjustments for
non-cash charges of $81.5 million and a net change in operating assets and
liabilities of $14.7 million. The net change in operating assets and liabilities
was primarily attributable to a $55.6 million decrease in inventory and a $15.1
million increase in accrued compensation, partially offset by a $30.0 million
decrease in other accrued liabilities, a $16.4 million increase in accounts
receivable, net, and a decrease of $7.4 million in accounts payable. From June
30, 2019 to December 31, 2019, our days sales outstanding decreased from 70 days
to 57 days due to a larger percentage of the quarter's net revenue occurring
late in the June 30, 2019 quarter compared with a smaller percentage of the
quarter's net revenue occurring late in the December 31, 2019 quarter. Our
annual inventory turns increased from five to eleven, which was driven by the
classification of $20.9 million of inventory as current assets held for sale
(which had an impact of 2 turns) as well as stronger product demand throughout
the quarter.

Cash Flows from Investing Activities. Cash used in investing activities during
the six months ended December 31, 2019 consisted of $8.2 million for purchases
of property and equipment and $2.5 million used for an asset acquisition
completed in August 2019.

Cash Flows from Financing Activities. Net cash used in financing activities for
the six months ended December 31, 2019 was $12.2 million compared with $73.1
million used in financing activities for the six months ended December 31, 2018.
Net cash used in financing activities for the six months ended December 31, 2019
was related to $17.0 million used to repurchase 555,663 shares of our common
stock.

Common Stock Repurchase Program. As of December 31, 2019, our board has
cumulatively authorized $1.4 billion for our common stock repurchase program,
which will expire in July 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 December 31,
2019, we purchased 31,489,876 shares of our common stock in the open market for
an aggregate cost of $1.2 billion. During the six months ended December 31,
2019, we repurchased 555,663 shares of our common stock for a total cost of
$17.0 million. As of December 31, 2019, the remaining available authorization
under our common stock repurchase program was $190.6 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
Systems, LLC and the assets of Marvell Technology Group, Ltd.'s multimedia
solutions business.

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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, 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 the
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 December 31, 2019, there was no balance outstanding
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. Debt
issuance costs of $2.3 million are amortizing over 60 months.

Our obligations under the 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 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 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. Under our credit facility,
when the LIBOR index is discontinued, we will switch to a comparable or
successor rate as approved by the Administrative Agent, which is currently
anticipated to be the SOFR.

                                       30

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Under the 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 3.50 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 3.75 to 1.00, and
thereafter, shall not be more than 3.50 to 1.00. 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 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 3.00 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 the Securities Act unless held by an affiliate of the 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 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. Our future capital requirements
will depend on many factors, including our revenue, 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 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 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 December 31, 2019 were as follows (in millions):




                      Remaining
                      in Fiscal        Fiscal          Fiscal          Fiscal          Fiscal
                      Year 2020       Year 2021       Year 2022       Year 2023       Year 2024       Thereafter       Total
Long-term debt (1)   $       1.3$       2.6$     527.6     $         -     $         -     $          -     $ 531.5
Leases                       4.7             8.6             5.8             3.8             2.5              1.8        27.2
Purchase
obligations and
  other
commitments (2)             38.5            13.0               -               -               -                -        51.5
Transition tax
payable (3)                  0.9             0.9             0.9             1.8             2.4              3.0         9.9
Total                $      45.4$      25.1$     534.3$       5.6$       4.9$        4.8$ 620.1

(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 remaining 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 $20.8
million. As of December 31, 2019, 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.

                                       31

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© Edgar Online, source Glimpses

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