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Item 2. Management’s Discussion and Analysis

2021-02-04 compared with 2020-11-05 · 116 added, 77 removed, 185 unchanged (51% 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 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.

This Quarterly Report on Form 10-Q for the quarter ended December 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”).

Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business, including our expectations regarding the potential impacts on our business of the COVID-19 pandemic, and can be identified by the fact that they do not relate strictly to historical or current facts.

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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;

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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 broadly in the U.S.

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

and globally.

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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.

Although some of these restrictions and other containment measures 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 rapid 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.

For those employees that are comfortable returning to an office work environment, we implemented 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 .

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 effectiveness of recently approved vaccines against the virus and its mutations, timing and effectiveness of the broad deployment of vaccines to mitigate or stem the spread of the virus, severity of the disease, the duration of the current 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 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 optimistic that the recent changes in the United States to a more science-based, disciplined, and deliberate approach to addressing the virus and the ancillary effects of steps taken to slow the spread may temper the potential mid- to longer-term negative economic impact.

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.

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These headcount and facilities related costs were in cost of revenue, research and development, and selling, general and administrative expenses.

Gain on sale of audio technology assets includes the sale of certain intangible assets related to our audio business.

See below under “Divestiture s ”.

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.

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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.

As of December 26, 2020, our preliminary purchase consideration was $442.8 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 December 26, 2020.

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

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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.

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

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The gain on sale of this business component was $105.1 million.

In December 2020, we completed the sale of limited audio technology intangible assets, received a fully-paid up perpetual license back from the buyer and, as an element of the transaction licensed other audio technology intangible assets to the buyer under a fully-paid up perpetual license arrangement.

Under the asset purchase agreement and the intellectual property license agreement, we received $35.0 million in cash.

The gain on the sale of the audio technology assets was $34.2 million.

In December 2020, we invested $5.0 million in Eta Compute in exchange for preferred stock.

This investment provides us with a partnership which enables us to better address expanded industry opportunities for artificial intelligence applications.

The investment is accounted for under the cost method.

Critical Accounting Policies and Estimates

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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.

Other than the above item, there have been no significant changes in our critical accounting policies and estimates during the six months ended December 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 September

Mobile product applications

PC product applications

Three Months Ended December

Six Months Ended December

IoT product applications

PC product applications

Mobile product applications

Operating expenses:

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Restructuring costs

Gain on sale of audio technology assets

Operating income

Interest and other expense, net

Income/(loss) before provision/

(benefit) for income taxes

Provision/(benefit) for income taxes

Income before provision for income taxes

Provision for income taxes

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

Mobile product applications

PC product applications

Six Months Ended

Percentage Point

IoT product applications

PC product applications

Mobile product applications

Operating expenses:

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Restructuring costs

Gain on sale of audio technology assets

Operating income

Interest and other expense, net

Income/(loss) before provision/

(benefit) for income taxes

Provision/(benefit) for income taxes

Income before provision for income taxes

Provision for income taxes

Equity investment loss

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 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.

Net revenue was $357.6 million for the three months ended December 26, 2020, compared with $388.3 million for the three months ended December 28, 2019, a decrease of $30.7 million, or 7.9%.

Of this net revenue, $155.1 million, or 43.4%, was from IoT product applications, and $91.5 million, or 25.6%, was from PC product applications, and $111.0 million, or 31.0%, was from Mobile product applications.

The decrease in net revenue for the three months ended December 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 36%) as well as lower average selling prices due to product sales mix (which declined 20%) 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 48%) and an increase in units sold (which increased 18%).

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%).

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.

Net revenue from PC product applications increased due to a growth in units sold (which increased 12%) for PC product applications.

Net revenue was $686.0 million for the six months ended December 26, 2020, compared with $728.2 million for the six months ended December 28, 2019, a decrease of $42.2 million, or 5.8%.

Of this net revenue, $269.5 million, or 39.3%, was from IoT product applications, and $172.0 million, or 25.1%, was from PC product applications, and $244.5 million, or 35.6%, was from Mobile product applications.

The decrease in net revenue for the three months ended December 26, 2020 was 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 30%) as well as lower average selling prices (a decline of 13%) 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 36%) and an increase in units sold (which increased 12%).

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

Gross margin as a percentage of net revenue was 42.1%, or $150.4 million, for the three months ended December 26, 2020, compared with 41.0%, or $159.3 million, for the three months ended December 28, 2019.

The 110 basis point increase in gross margin for the three months ended December 26, 2020, was primarily due to a favorable product mix and product cost reductions, partially

offset by a $ 20.5 million in crease in amortization for amortizable intangibles primarily related to the acquisition of DisplayLink and the Broadcom Business Acquisition and $ 11.9 million of inventory fair value adjustments associated with the DisplayLink a cquisition .

Gross margin as a percentage of net revenue was 41.5%, or $284.9 million, for the six months ended December 26, 2020, compared with 39.2%, or $285.5 million, for the six months ended December 28, 2019.

The 230 basis point increase in gross margin for the six months ended December 28, 2019, was primarily due to a favorable product mix and product cost reductions, partially offset by a $27.7 million increase in amortization for amortizable intangibles primarily related to the acquisition of DisplayLink and the Broadcom Business Acquisition and $21.7 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.

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Research and Development Expenses .

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.

Research and development expenses remained flat at $77.3 million for the three months ended December 26, 2020, compared with $77.0 million for the three months ended December 28, 2019.

A majority of expenses have declined from the three months ended December 28, 2019 to the three months ended December 26, 2020, as a result of a reduction in average headcount.

However, the declines in other expenses have been offset by acquisition related product development services.

Research and development expenses decreased $4.8 million to $158.2 million for the six months ended December 26, 2020, compared with the six months ended December 28, 2019.

The decrease in research and development expenses reflected a net $3.6 million decrease in personnel-related costs, which was due to a reduction in average headcount for the six months ended December 26, 2020 as compared to the six months ended December 28, 2019, as a result of restructuring activities to reduce operating costs, partially offset by increased headcount as a result of recent acquisitions;

a $3.7 million decrease due to acquired in-process research and development recorded in the first quarter of fiscal 2020;

a $2.0 million decrease in travel related costs;

a $1.6 million decrease in software license and maintenance costs;

and a $1.3 million decrease in facilities and infrastructure costs;

partially offset by an increase of $3.5 million in project related costs and a $3.0 million increase in intellectual property amortization.

Selling, General, and Administrative Expenses .

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.

Selling, general, and administrative expenses increased $8.0 million to $39.5 million for the three months ended December 26, 2020, compared with the three months ended December 28, 2019.

The increase in selling, general, and administrative expenses primarily reflected a $6.5 million increase in stock based compensation costs which were incurred in connection with grants of awards primarily to new employees in fiscal 2020 and the first half of fiscal 2021, as well as a $1.4 million increase in legal and accounting fees related to recent acquisitions.

Selling, general, and administrative expenses increased $15.8 million to $74.8 million for the six months ended December 26, 2020, compared with the six months ended December 28, 2019.

The increase in selling, general, and administrative expenses primarily reflected a $13.2 million increase in stock based compensation costs which were incurred in connection with grants of awards primarily to new employees in fiscal 2020 and the first half of fiscal 2021, as well as a $1.1 million increase in foreign exchange losses.

Acquired Intangibles Amortization.

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Restructuring Costs.

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.

Restructuring costs of $6.2 million in the six months ended December 26, 2020 reflect severance costs for restructuring of our operations to reduce ongoing operating costs.

Restructuring activities commenced in each of fiscal 2020 and the first half of fiscal 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.

Gain on sale of audio technology assets .

Gain on sale of audio technology assets includes the sale of certain intangible assets related to our audio business.

See Note 6 Acquisitions, Divestiture and Investment 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, cash equivalents and short-term investments.

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.

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

Interest and other expense, net increased $3.7 million to $6.0 million for the three months ended December 26, 2020, as compared to $2.3 million for the three months ended December 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 and higher interest expense on our debt due to borrowings under our revolving line of credit.

I nterest and other expense, net in c reased $ 4.8 million to $ 10.7 million for the six months ended December 26, 2020 , as compared to $ 5.9 million for the six months ended December 28, 2019 .

The in c rease in interest and other expense, net is primarily due to a de crease in interest income as a result of lower cash balances and interest rates and higher interest expense on our debt due to borrowings under our revolving line of credit .

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

The CARES Act did not have a material impact on the income tax provision for the three and six months ended December 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, and jurisdictions where annual effective tax rate cannot be reasonably estimated.

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 $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.

The provision for income taxes recorded in interim periods is based on our estimate of the annual effective tax rate applied to year-to-date income before provision for income taxes, adjusted for discrete items required to be recognized in the period in which they are incurred.

In each quarter, we update our estimate of the annual effective tax rate, and if the estimated annual tax rate changes, we make a cumulative adjustment in that quarter.

Our quarterly tax provision and our quarterly estimate of the annual effective tax rate can be subject to volatility due to several factors, including our ability to accurately forecast annual income before provision for income taxes in each of the tax jurisdictions in which we operate.

The provision for income taxes of $2.4 million and $12.0 million for the three months ended December 26, 2020 and December 28, 2019, respectively, represented estimated federal, foreign, and state income taxes.

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

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

The provision for income taxes of $6.0 million and $7.1 million for the six months ended December 26, 2020 and December 28, 2019, respectively, represented estimated federal, foreign, and state income taxes.

The effective tax rate for the three months ended December 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 GILTI, partially offset by the benefit of income taxed at lower rates, research credits and foreign tax credits.

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

Liquidity and Capital Resources

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.

Our cash and cash equivalents were $309.9 million as of December 26, 2020, compared with $763.4 million as of June 27, 2020, representing a decrease of $453.5 million.

The decrease primarily reflected $623.0 million used for the acquisition of businesses, net of cash and cash equivalents acquired, $25.8 million used for payroll taxes for restricted stock units, market stock units and performance stock units, and $12.2 million used for purchases of property and equipment, partially offset by $88.0 million of proceeds from maturities of investments, $77.9 million of net cash provided by operating activities, $34.2 million of proceeds from sale of audio technology assets and $11.2 of proceeds from issuance of shares.

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 September 26, 2020, $158.9 million of cash, cash equivalents and short-term investments was held by our foreign subsidiaries.

As of December 26, 2020, $198.4 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 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.

Operating activities during the six months ended December 26, 2020 generated $77.9 million compared with $120.0 million net cash generated during the six months ended December 28, 2019.

For the six months ended December 26, 2020, the primary operating activities were adjustments for non-cash charges of $75.2 million and a net change in operating assets and liabilities of $44.1 million.

The net change in operating assets and liabilities was primarily attributable to a $46.9 million increase in accounts receivable, net, a $24.6 million decrease in accrued compensation, $15.3 million decrease in income taxes payable and a $11.9 million decrease in other accrued liabilities, partially offset by a $62.0 million decrease in inventories.

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

Our annual inventory turns increased from six to nine over the same time period.

Cash Flows from Investing Activities.

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 used in investing activities during the six months ended December 26, 2020 primarily consisted of $623.0 million used for the acquisition of businesses and $12.2 million for purchases of property and equipment, partially offset by $88.0 million in proceeds from maturities of investments and $34.2 million of proceeds from sale of audio technology assets.

Cash Flows from Financing Activities.

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.

Net cash used in financing activities for the six months ended December 26, 2020 was $14.6 million compared with $12.2 million for the six months ended December 28, 2019 .

Net cash used in financing activities for the six months ended December 26, 2020 consisted of $25.8 million used for payroll taxes on RSUs , MSUs and PSUs , partially offset by $1 1.2 of proceeds from issuance of shares .

Common Stock Repurchase Program.

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.

As of December 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.

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Common stock purchased under this program is held as treasury stock.

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.

From April 2005 through December 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 December 26, 2020, we did not repurchase any shares of our common stock.

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

Convertible Debt

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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, including (1) if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter or (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day.

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.

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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.

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.

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.

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 %.

As of December 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 December 26, 2020 was 2.73%.

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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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.

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.

Our future capital requirements will depend on many factors, including our revenue, the effectiveness of recently approved vaccines including the deployment of those vaccines to help reduce 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 September 26, 2020 were as follows (in millions):

Our material contractual obligations and commercial commitments as of December 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 $22.1 million.

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.

As of December 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 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.

As of December 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