What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-05 compared with 2020-05-07 · 102 added, 101 removed, 160 unchanged (56% of the section changed)

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Forward-Looking Statements and Factors That May Affect Results

This Quarterly Report on Form 10-Q for the quarter ended March 28, 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”).

This Quarterly Report on Form 10-Q for the quarter ended September 26, 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.

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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 29, 2019, and other risks as identified from time to time in our SEC reports.

Such factors include, but are not limited to following:

our dependence on our solutions for the mobile product applications market and the PC product applications market for a substantial portion of our revenue;

risks related to the volatility of our net revenue from our solutions for mobile product applications;

our dependence on one or more large customers;

the risk that our business, results of operations and financial condition (including liquidity) and prospects may be materially and adversely affected by heath epidemics, including the recent COVID-19 pandemic;

our exposure to industry downturns and cyclicality in our target markets;

the risk that our product solutions for new markets will not be successful;

our ability to maintain and build relationships with our customers;

our dependence on third parties to maintain satisfactory manufacturing yields and deliverable schedule;

and 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 27, 2020, 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.

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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.

On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic, which continues to spread broadly 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.

In response to the outbreak, governmental authorities 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.

In certain countries in which we operate governments took rapid and effective measures to stem the spread, while in other countries in which we operate governments were slow to react or have missed opportunities to effectively contain the spread.

Although some of these restrictions and other containment measured have since been lifted or scaled back, ongoing surges of COVID-19 have resulted in the re-imposition of certain restrictions and containment measures and may lead to other restrictions being re-implemented in the future in response to efforts to reduce the spread of COVID-19.

The health and wellbeing of our workforce is our highest priority.

Many of our employees are able to work from home to minimize the potential risk of spread of COVID-19 in our office environment.

For those employees that are comfortable returning to an office work environment, we have introduced various return to work protocols, based on guidance from local and global health organizations, to monitor and assess the health of our employees, including temperature checks and risk assessments, and further require all employees that do work in the office to wear face coverings and social distance while in communal locations in the office.

While the severity and duration of business disruption to our customers and suppliers due to the COVID-19 pandemic remains uncertain, we expect that it will continue to weigh on our business and consolidated results of operations in the near term and may further impact our financial condition (including liquidity) in the future.

The full extent of the impact of the COVID-19 pandemic to our business, operations and financial results will depend on numerous evolving factors that we may not be able to anticipate.

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, the severity and duration of future surges 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 .

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.

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, wireless connectivity 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-, wireless- or video- semiconductor solutions, which include our chip, and, as applicable, 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.

With our expanding global presence, including offices in China, Hong Kong, India, Japan, Korea, Poland, Switzerland, Taiwan, the United Kingdom, 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.

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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.

In addition, we expense in-process research and development projects acquired as part of a business acquisition, 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.

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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.

Interest and other expense, net, primarily reflects interest expense on our convertible notes and revolving line of credit as well as the amortization of debt issuance costs and discount on our convertible notes, partially offset by interest income earned on our cash , cash equivalents and short-term 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.

On July 17, 2020, we entered into a definitive agreement to acquire all of the equity interests in DisplayLink Corporation, or DisplayLink, a leader in high-performance video compression technology.

The acquisition closed on July 31, 2020.

As of September 26, 2020, our preliminary purchase consideration was $443.2 million, subject to certain additional post-closing adjustments.

The results of DisplayLink are included in our condensed consolidated financial statements for the period from August 1, 2020 through September 26, 2020.

For further discussion of the DisplayLink acquisition, see Note 6 included in the condensed consolidated financial statements contained elsewhere in this Report.

On July 2, 2020, we entered into definitive agreements with Broadcom to acquire certain assets and assume certain liabilities of, and obtain non-exclusive licenses relating to, Broadcom’s existing Wi-Fi, Bluetooth and GPS/GNSS products and business in the IoT market, or Broadcom Business Acquisition, for an aggregate consideration of $250 million in cash which closed on July 23, 2020.

We also entered into certain transition agreements with Broadcom for a period of three years.

The results of the Broadcom Business Acquisition are included in our condensed consolidated financial statements for the period from July 24, 2020 through September 26, 2020.

For further discussion of the Broadcom Business Acquisition, see Note 6 included in the condensed consolidated financial statements contained elsewhere in this Report.

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.

We retained our automotive TDDI product line and our discrete touch and discrete display driver product lines supporting LCD and OLED for the mobile market.

The assets sold under the asset purchase agreement for cash consideration of $138.7 million and had a carrying value of approximately $33.6 million as of the closing date of the transaction in April 2020.

The gain on sale of this business component was $105.1 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, 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 29, 2019.

Business Combinations

We have applied significant estimates and judgments in order to determine the fair value of the identified assets acquired, liabilities assumed and goodwill recognized in connection with our business combinations to ensure the value of the assets and liabilities acquired are recognized at fair value as of the acquisition date.

In measuring the fair value, we utilize valuation techniques consistent with the market approach, income approach, or cost approach.

The valuation of the identifiable assets and liabilities includes assumptions made in performing the valuation, such as projected revenue, weighted average cost of capital, discount rates, estimated useful lives, and other relevant assessments.

These assessments can be significantly affected by our estimates, judgments, and assumptions.

If actual results are not consistent with our estimates, judgments, or assumptions, or if additional or new information arises in the future that affects our fair value estimates, then adjustments to our initial fair value estimates may have a material impact to our purchase accounting or our results of operations.

Other than the above item, there have been no significant changes in our critical accounting policies and estimates during the three months ended September 26, 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 27, 2020.

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 March 31,

Nine Months Ended March 31,

Three Months Ended September

Mobile product applications

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Equity investment loss

Net income/(loss)

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:

Three Months Ended

Nine Months Ended

Percentage Point

Mobile product applications

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Equity investment loss

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, a decrease of $5.9 million, or 1.8%.

Net income/(loss)

Net revenue was $328.4 million for the three months ended September 26, 2020, compared with $339.9 million for the three months ended September 28, 2019, a decrease of $11.5 million, or 3.4%.

Of this net revenue, $133.5 million, or 40.7%, was from Mobile product applications, $114.4 million, or 34.8%, was from IoT product applications, and $80.5 million, or 24.5%, was from PC product applications.

The decrease in net revenue for the three months ended March 31, 2020 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.

The decrease in net revenue for the three months ended September 26, 2020 was primarily attributable to a decrease in net revenue from Mobile product applications, partially offset by an increase in net revenue from IoT product applications and PC product applications.

Net revenue from Mobile product applications decreased as a result of a decline in units sold (which decreased 23%) as well as slightly lower average selling prices for Mobile product applications.

The decline in unit sales in Mobile product applications was primarily due to the divestiture of our TDDI business in the fourth quarter of fiscal 2020.

Net revenue from IoT product applications, which includes products from both acquisitions that closed in July 2020, increased as a result of higher average selling prices for IoT product applications due to our product sales mix (which increased 24%) and an increase in units sold (which increased 5%).

Net revenue from PC product applications increased due to a growth in units sold (which increased 8%) for PC product applications as well as higher average selling prices (which increased 10%).

Net revenue from IoT product applications increased as a result of an increase in units sold (which increased 29.7%), partially offset by lower average selling prices for IoT product applications (which decreased 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, a decrease of $120.8 million, or 10.3%.

Of this net revenue, $578.6 million, or 54.8%, was from Mobile product applications, $249.4 million, or 23.6%, was from IoT product applications, and $228.3 million, or 21.6%, was from PC product applications.

The decrease in net revenue for the nine months ended March 31, 2020 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 21.7%) 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 10.6%) as well as a small increase in units sold.

Net revenue from IoT product applications increased as a result of an increase in units sold (which increased 12.9%), partially offset by lower average selling prices for IoT product applications.

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.

The 660 basis point increase in gross margin for the three months ended March 31, 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.

The 530 basis point increase in gross margin for

the nine months ended March 31, 2020 , was primarily due to a favorable product mix , and product cost reductions , and a $ 15.7 million decrease in amortization for amortizable intangibles which are now fully amortized.

We continually introduce new product solutions and we sell our technology solutions in designs that are generally unique or specific to an OEM customer’s application, causing gross margin to vary on a product-by-product basis, making our cumulative gross margin a blend of our product-specific designs.

As a fabless semiconductor company, our gross margin percentage is generally not materially impacted by our shipment volume.

Gross margin as a percentage of net revenue was 41.0%, or $134.5 million, for the three months ended September 26, 2020, compared with 37.1%, or $126.2 million, for the three months ended September 28, 2019.

The 390 basis point increase in gross margin for the three months ended September 26, 2020, was primarily due to a favorable product mix and product cost reductions, partially offset by a $10.5 million increase in amortization for amortizable intangibles related to the acquisition of DisplayLink and the Broadcom Business Acquisition and $9.8 million of inventory fair value adjustments associated with the DisplayLink acquisition.

We continuously introduce new product solutions, that may 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 fabless 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.

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Research and Development Expenses .

Research and development expenses decreased $6.8 million to $75.8 million for the three months ended March 31, 2020, compared with the three months ended March 31, 2019.

The decrease in research and development expenses primarily reflected a net $1.1 million decrease in personnel-related costs, which was due to a decrease in average headcount for the three months ended March 31, 2020 as compared to the three months ended March 31, 2019, as a result of restructuring activities to reduce operating costs;

a $2.9 million decrease in non-employee services;

and a $1.2 million decrease in project 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 $18.1 million to $238.8 million for the nine months ended March 31, 2020, compared with the nine months ended March 31, 2019.

The decrease in research and development expenses primarily reflected a net $5.0 million decrease in personnel-related costs which was due to a decrease in average headcount for the nine months ended March 31, 2020 as compared to the nine months ended March 31, 2019, as a result of restructuring activities to reduce operating costs;

a $5.9 million decrease in non-employee services;

a $4.6 million decrease in infrastructure costs related to facilities;

a $3.3 million decrease in project related costs.

The decrease in personnel-related costs was partially offset by $6.6 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 $5.1 million to $80.9 million for the three months ended September 26, 2020, compared with the three months ended September 28, 2019.

The decrease in research and development expenses primarily reflected a $3.7 million decrease due to acquired in-process research and development recorded in the first quarter of fiscal 2020, a net $2.9 million decrease in personnel-related costs, which was due to a reduction in average headcount for the three months ended September 26, 2020 as compared to the three months ended September 28, 2019, as a result of restructuring activities to reduce operating costs, partially offset by increased headcount as a result of recent acquisitions;

a $1.3 million decrease in travel related costs, partially offset by an increase of $2.1 million in project related costs.

Selling, General, and Administrative Expenses .

Selling, general, and administrative expenses decreased $2.6 million to $31.6 million for the three months ended March 31, 2020, compared with the three months ended March 31, 2019.

The decrease in selling, general, and administrative expenses primarily reflected a $1.8 million decrease in non-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 net $6.9 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 $4.1 million decrease in non-employee services.

The decrease in personnel-related costs was partially offset by $3.9 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 increased $7.8 million to $35.3 million for the three months ended September 26, 2020, compared with the three months ended September 28, 2019.

The increase in selling, general, and administrative expenses primarily reflected a $6.7 million increase in stock based compensation costs which was incurred in connection with grants of awards primarily to new employees in fiscal 2020 and the first quarter of fiscal 2021, as well as a $1.4 million increase in legal and accounting fees related to recent acquisitions.

Acquired Intangibles Amortization.

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Restructuring Costs.

Restructuring costs of $26.2 million in the nine months ended March 31, 2020 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 and third quarters of fiscal 2020.

The restructuring activities are expected to be complete in the fourth quarter of fiscal 2020.

Restructuring costs of $5.6 million in the three months ended September 26, 2020 reflect severance costs for restructuring of our operations to reduce ongoing operating costs.

Restructuring activities commenced in each of fiscal 2020 and 2021 and are all expected to be complete by the end of fiscal 2021.

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 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.

The decrease in interest and other expense, net is primarily due to an increase in interest income as a result of higher cash balances and interest rates, partially offset by higher non-cash interest expense on our convertible debt.

Interest and other expense, net increased $1.0 million to $4.6 million for the three months ended September 26, 2020, as compared to $3.6 million for the three months ended September 28, 2019.

The increase in interest and other expense, net is primarily due to a decrease in interest income as a result of lower cash balances and interest rates, higher interest expense on our debt due to borrowings under our revolving line of credit, partially offset by $1.2 million income from the sale of non-operating assets.

Provision for Income Taxes .

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security , or CARES , Act was enacted and signed into law.

We do not believe the CARES Act will have a material impact on the income tax provision for the fiscal year ended June 30, 2020.

T he CARES Act did not have a material impact o n the income tax provision for the three months ended September 26, 2020.

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.

In these cases, we will determine the actual effective tax rate for the year-to-date period.

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 $10.2 million and a benefit of $15.3 million for the three months ended March 31, 2020 and 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 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 provision for income taxes of $3.6 million and a benefit of $4.9 million for the three months ended September 26, 2020 and September 28, 2019, respectively, represented estimated federal, foreign, and state income taxes.

The effective tax rate for the three months ended September 26, 2020 diverged from the combined U.S.

federal and state statutory tax rate primarily because of foreign withholding taxes, non-deductible officer compensation, the impact of accounting for qualified stock options and global intangible low-taxed income, or GILTI, partially offset by the benefit of income taxed at lower rates, research credits and foreign tax credits.

The effective tax rate for the three months ended September 28, 2019, diverged from the combined U.S.

federal and state statutory tax rate, primarily because of foreign deemed-paid taxes, foreign income taxed at higher tax rates, and GILTI, partially offset by the benefit of research credits and foreign tax credits.

Liquidity and Capital Resources

Our cash and cash equivalents were $472.1 million as of March 31, 2020, compared with $327.8 million as of June 30, 2019, an increase of $144.3 million.

The increase primarily reflected $168.3 million of net cash provided by operating activities, $30.0 million of net proceeds from issuance of shares, partially offset by $30.1 million used to repurchase 813,082 shares of our common stock, $11.7 million used for the purchase of property and equipment, $9.3 million used for payroll taxes on DSUs, and $2.5 million used for an asset acquisition completed in August 2019.

Our cash and cash equivalents were $180.2 million as of September 26, 2020, compared with $763.4 million as of June 27, 2020, a decrease of $583.2 million.

The decrease primarily reflected $621.8 million used for the acquisition of businesses, net of cash and cash equivalents acquired, partially offset by $31.1 million of proceeds from maturities of investments, $10.4 of proceeds from issuance of shares and $6.5 million of net cash provided by operating activities.

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 March 31, 2020, $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 would be required to accrue and pay U.S.

and foreign taxes to repatriate these funds.

As of September 26, 2020, $158.9 million of cash, cash equivalents and short-term investments 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 foreign withholding taxes to repatriate certain of these funds.

Cash Flows from Operating Activities.

Operating activities during the nine months ended March 31, 2020 generated $168.3 million compared with $110.8 million net cash generated during the nine months ended March 31, 2019.

For the nine months ended March 31, 2020, the primary operating activities were adjustments for non-cash charges of $119.0 million and a net change in operating assets and liabilities of $20.5 million.

The net change in operating assets and liabilities was primarily attributable to a $50.7 million decrease in inventory and a $17.4 million increase in accrued compensation, partially offset by a $27.4 million decrease in other accrued liabilities, a $8.4 million increase in 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, 2019 to March 31, 2020, our days sales outstanding decreased from 70 days to 65 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 March 31, 2020 quarter.

Our annual inventory turns increased from five to eight, which was driven by the 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 quarter.

Operating activities during the three months ended September 26, 2020 generated $6.5 million compared with $47.3 million net cash generated during the three months ended September 28, 2019.

For the three months ended September 26, 2020, the primary operating activities were adjustments for non-cash charges of $47.7 million and a net change in operating assets and liabilities of $38.4 million.

The net change in operating assets and liabilities was primarily attributable to a $25.4 million increase in accounts receivable, net, a $16.2 million decrease in income taxes payable, a $11.4 million increase in other assets, and a $10.0 million increase in prepaid expenses and other current assets, partially offset by a $20.5 million decrease in inventories and a $11.7 increase in accounts payable.

From June 27, 2020 to September 26, 2020, our days sales outstanding remained flat at 63 days compared to 62 days.

Our annual inventory turns remained flat at six.

Cash Flows from Investing Activities.

Cash used in investing activities during the nine months ended March 31, 2020 consisted of $11.7 million for purchases of property and equipment and $2.5 million used for an asset acquisition completed in August 2019.

Cash used in investing activities during the three months ended September 26, 2020 primarily consisted of $621.8 million used for the acquisition of businesses and $3.9 million for purchases of property and equipment, partially offset by $31.1 million in proceeds from maturities of investments.

Cash Flows from Financing Activities.

Net cash used in financing activities for the nine months ended March 31, 2020 was $9.6 million compared with $73.1 million used in financing activities for the nine months ended March 31, 2019.

Net cash used in financing activities for the nine months ended March 31, 2020 was related to $30.1 million used to repurchase 813,082 shares of our common stock and $9.3 million used for payroll taxes on DSUs, partially offset by $30.0 of proceeds from issuance of shares.

Net cash provided by financing activities for the three months ended September 26, 2020 was $4.8 million compared with $16.8 million used in financing activities for the three months ended September 28, 2019.

Net cash provided by financing activities for the three months ended September 26, 2020 consisted of $10.4 of proceeds from issuance of shares, partially offset by $5.6 million used for payroll taxes on RSUs and MSUs.

Common Stock Repurchase Program.

As of March 31, 2020, our board has cumulatively authorized $1.4 billion for our common stock repurchase program, which will expire in July 2021.

As of September 26, 2020, 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.

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, 2020 , we purchased 31, 747,295 shares of our common stock in the open market for an aggregate cost of $1.2 billion.

During the nine months ended March 31, 2020 , we repurchased 813,082 shares of our common stock for a total cost of $30.1 million .

As of March 31, 2020 , the remaining available authorization under our common stock repurchase program wa s $ 177.5 million.

From April 2005 through September 26, 2020, we purchased 31,749,195 shares of our common stock in the open market for an aggregate cost of $1.2 billion.

During the three months ended September 26, 2020, we did not repurchase any shares of our common stock.

As of September 26, 2020, the remaining available authorization under our common stock repurchase program was $177.4 million.

Convertible Debt

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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.

Commencing June 20, 2020, we may redeem for cash all or any portion of the Notes, at our option, 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.

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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.

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, 2020, there was no balance outstanding under the revolving credit facility.

In April 2020, we borrowed $100.0 million under the revolving credit facility.

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 September 26, 2020 , there was $100.0 million balance outstanding under the revolving credit facility.

The weighted average annualized interest rate on these borrowings for the three months ended September 26, 2020 was 2.75 %.

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, subject to certain exceptions based on specific covenant calculations.

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Liquidity and Capital Resources.

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.

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 the DisplayLink acquisition, the Broadcom Business Acquisition, and our debt service obligations, for at least the next 12 months.

On April 2, 2020, the Company borrowed $100 million under the Credit Agreement in order to increase its cash position and 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.

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.

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.

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Contractual Obligations and Commercial Commitments

Our material contractual obligations and commercial commitments as of March 31, 2020 were as follows (in millions):

Our material contractual obligations and commercial commitments as of September 26, 2020 were as follows (in millions):

Long-term debt (1)

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The amounts in the table above exclude unrecognized tax benefits of $22.0 million.

As of March 31, 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.

As of September 26, 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.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of March 31, 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 29, 2019.

As of September 26, 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 27, 2020.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis