CIRRUS LOGIC INC, 10-Q filed on 7/27/2016
Quarterly Report
Document and Entity Information
3 Months Ended
Jun. 25, 2016
Jul. 22, 2016
Document and Entity Information [Abstract]
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Entity Registrant Name
CIRRUS LOGIC INC 
 
Entity Central Index Key
0000772406 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Well-known Seasoned Issuer
Yes 
 
Entity Current Reporting Status
Yes 
 
Entity Voluntary Filers
No 
 
Document Period End Date
Jun. 25, 2016 
 
Document Fiscal Year Focus
2017 
 
Document Fiscal Period Focus
Q1 
 
Current Fiscal Year End Date
--03-25 
 
Entity Common Stock, Shares Outstanding
 
62,480,659 
Consolidated Condensed Balance Sheets (USD $)
In Thousands, unless otherwise specified
Jun. 25, 2016
Mar. 26, 2016
Assets
 
 
Cash and cash equivalents
$ 143,591 
$ 168,793 
Marketable securities
91,090 
60,582 
Accounts receivable, net
140,893 
88,532 
Inventories
154,043 
142,015 
Prepaid assets
27,815 
29,924 
Other current assets
16,291 
16,283 
Total current assets
573,723 
506,129 
Long-term marketable securities
3,923 
20,631 
Property and equipment, net
160,875 
162,656 
Intangibles, net
156,949 
162,832 
Goodwill
287,518 
287,518 
Deferred tax assets
27,334 
25,772 
Other assets
14,776 
16,345 
Total assets
1,225,098 
1,181,883 
Liabilities and Stockholders' Equity
 
 
Accounts payable
105,138 
71,619 
Accrued salaries and benefits
21,854 
21,239 
Software license agreement
14,621 
20,308 
Other accrued liabilities
16,447 
14,958 
Total current liabilities
158,060 
128,124 
Debt
160,439 
160,439 
Software license agreement long-term
5,436 
8,136 
Other long-term liabilities
29,419 
25,701 
Total long-term liabilities
195,294 
194,276 
Stockholders' Equity:
 
 
Capital stock
1,215,749 
1,203,496 
Accumulated deficit
(344,564)
(344,345)
Accumulated other comprehensive income
559 
332 
Total stockholders' equity
871,744 
859,483 
Total liabilities and stockholders' equity
$ 1,225,098 
$ 1,181,883 
Consolidated Condensed Statements of Income (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Jun. 25, 2016
Jun. 27, 2015
Consolidated Condensed Statements of Income [Abstract]
 
 
Net sales
$ 259,428 
$ 282,633 
Cost of sales
132,743 
150,179 
Gross profit
126,685 
132,454 
Operating expenses:
 
 
Research and development
73,934 
65,835 
Selling, general and administrative
30,540 
29,119 
Patent agreement and other
 
(12,500)
Total operating expenses
104,474 
82,454 
Income from operations
22,211 
50,000 
Interest income
267 
254 
Interest expense
(956)
(999)
Other income
147 
243 
Income before income taxes
21,669 
49,498 
Provision for income taxes
5,805 
16,144 
Net income
$ 15,864 
$ 33,354 
Basic earnings per share
$ 0.25 
$ 0.53 
Diluted earnings per share
$ 0.24 
$ 0.50 
Basic weighted average common shares outstanding
62,450 
63,274 
Diluted weighted average common shares outstanding
65,232 
66,410 
Consolidated Condensed Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Jun. 25, 2016
Jun. 27, 2015
Consolidated Condensed Statements of Comprehensive Income [Abstract]
 
 
Net income
$ 15,864 
$ 33,354 
Other comprehensive income (loss), before tax
 
 
Foreign currency translation
188 
(783)
Unrealized gain (loss) on marketable securities
67 
(148)
Reclassification of actuarial (gain) loss to net income
(27)
16 
Benefit (provision) for income taxes
(1)
52 
Comprehensive income
$ 16,091 
$ 32,491 
Consolidated Condensed Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Jun. 25, 2016
Jun. 27, 2015
Cash flows from operating activities:
 
 
Net income
$ 15,864 
$ 33,354 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
17,912 
13,388 
Stock compensation expense
9,310 
8,272 
Deferred income taxes
797 
12,769 
Loss on retirement or write-off of long-lived assets
95 
156 
Actuarial (gain) loss amortization on defined benefit pension plan
(3)
16 
Excess tax benefit from employee stock awards
(530)
 
Other non-cash charges
107 
3,884 
Net change in operating assets and liabilities:
 
 
Accounts receivable, net
(52,361)
(8,230)
Inventories
(12,028)
(41,999)
Other current assets
1,380 
2,792 
Accounts payable and other accrued liabilities
29,283 
20,149 
Deferred income
 
(1,369)
Income taxes payable
2,400 
 
Net cash provided by operating activities
12,226 
43,182 
Cash flows from investing activities:
 
 
Maturities and sales of available for sale marketable securities
30,987 
36,017 
Purchases of available for sale marketable securities
(44,743)
(22,649)
Purchases of property, equipment and software
(7,145)
(10,601)
Investments in technology
(3,387)
(1,816)
Increase in deposits and other assets
 
(232)
Net cash (used in) provided by investing activities
(24,288)
719 
Cash flows from financing activities:
 
 
Principal payments on long-term revolver
 
(20,000)
Issuance of common stock, net of shares withheld for taxes
2,414 
2,661 
Repurchase of stock to satisfy employee tax withholding obligations
(644)
(432)
Repurchase and retirement of common stock
(15,440)
 
Excess tax benefit from employee stock awards
530 
 
Net cash used in financing activities
(13,140)
(17,771)
Net increase (decrease) in cash and cash equivalents
(25,202)
26,130 
Cash and cash equivalents at beginning of period
168,793 
168,793 
Cash and cash equivalents at end of period
$ 143,591 
$ 102,531 
Basis of Presentation
Basis of Presentation

1.     Basis of Presentation



The consolidated condensed financial statements have been prepared by Cirrus Logic, Inc. (“Cirrus Logic,” “we,” “us,” “our,” or the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (the “Commission”).  The accompanying unaudited consolidated condensed financial statements do not include complete footnotes and financial presentations.  As a result, these financial statements should be read along with the audited consolidated financial statements and notes thereto for the year ended March 26, 2016, included in our Annual Report on Form 10-K filed with the Commission on May 25, 2016.  In our opinion, the financial statements reflect all material adjustments, including normal recurring adjustments, necessary for a fair presentation of the financial position, operating results and cash flows for those periods presented.  The preparation of financial statements in conformity with United States (“U.S.”) generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect reported assets, liabilities, revenues and expenses, as well as disclosure of contingent assets and liabilities.  Actual results could differ from those estimates and assumptions.  Moreover, the results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the entire year.  Additionally, prior period amounts have been adjusted to conform to current year presentation.   

Recently Issued Accounting Pronouncements
Recently Issued Accounting Pronouncements

2.     Recently Issued Accounting Pronouncements



In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (ASC Topic 606).  The purpose of this ASU is to converge revenue recognition requirements per GAAP and International Financial Reporting Standards (IFRS).  The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date after public comment respondents supported a proposal to delay the effective date of this ASU to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period.  The Company is currently evaluating the impact of this ASU on its financial statements and expects no material modifications.  



In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.  The amendments in this ASU provide guidance in GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures.  The amendments are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter.  Early application is permitted.  The Company is currently evaluating this ASU and expects no material modifications to its financial statements.



In April 2015, the FASB issued ASU No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.  The amendments in this update require that debt issuance costs related to a recognized debt liability are presented in the balance sheet as a direct deduction from the carrying amount of that debt liability and that the amortization of debt issuance costs is reported as interest expense.  ASU 2015-03 is to be applied retrospectively and represents a change in accounting principle.  In August 2015, the FASB issued FASB ASU No. 2015-15, Interest—Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements.  ASU 2015-15 clarified the presentation and subsequent measurement of debt issuance costs related to line-of-credit arrangements.  Debt issuance costs related to a line-of-credit arrangement may be presented in the balance sheet as an asset and subsequently amortized ratably over the term of the arrangement regardless of whether there are any outstanding borrowings.  Both ASU 2015-03 and ASU 2015-15 are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years.  Earlier adoption is permitted for financial statements that have not been previously issued.  The Company adopted these ASUs in the current fiscal quarter.    



In April 2015, the FASB issued ASU No. 2015-04, Compensation – Retirement Benefits (Topic 715): Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets.  The ASU is part of the FASB’s “Simplification Initiative” to reduce complexity in accounting standards.  The FASB decided to permit entities to measure defined benefit plan assets and obligations as of the month-end that is closest to their fiscal year-end.  An entity is required to disclose the accounting policy election and the date used to measure defined benefit plan assets and obligations in accordance with the amendments in this update.  The amendments in this update are effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, with earlier application permitted.  The Company adopted this ASU in the current fiscal quarter, with no modifications to its financial statements.  The Company’s plan assets and obligations are measured as of the fiscal year-end. 



In July 2015, ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory was issued.  This ASU requires companies to subsequently measure inventory at the lower of cost and net realizable value versus the previous lower of cost or market.  The amendments in this update are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, to be applied prospectively.  Early application is permitted. The Company is currently evaluating this ASU and expects no material modifications to its financial statements as a result.



In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The FASB issued this update to increase transparency and comparability by recognizing lease assets and lease liabilities on the balance sheet and disclosing key leasing arrangement details.  Lessees would recognize operating leases on the balance sheet under this ASU — with the future lease payments recognized as a liability, measured at present value, and the right-of-use asset recognized for the lease term. A single lease cost would be recognized over the lease term.  For terms less than twelve months, a lessee would be permitted to make an accounting policy election to recognize lease expense for such leases generally on a straight-line basis over the lease term.  This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  Early adoption is permitted.  The Company is currently evaluating the impact of this ASU.



In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.  This ASU requires all excess tax benefits and deficiencies to be recognized as income tax expense / benefit in the income statement and presented as an operating activity in the statement of cash flows.  Forfeitures can be calculated based on either the estimated number of awards that are expected to vest, as required by current guidance, or when forfeitures actually occur.  This ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods.  Early adoption is permitted, but all of the described amendments must be adopted in the same period and any adjustments should be reflected as of the beginning of the fiscal year if adopted in an interim period.  The Company is currently evaluating the impact of this ASU. 



Marketable Securities
Marketable Securities

3.     Marketable Securities



The Company’s investments that have original maturities greater than 90 days have been classified as available-for-sale securities in accordance with U.S. GAAP.  Marketable securities are categorized on the consolidated condensed balance sheet as short- and long-term marketable securities, as appropriate.



The following table is a summary of available-for-sale securities at June 25, 2016 (in thousands):

 









 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

Estimated



 

 

 

Gross

 

Gross

 

Fair Value



Amortized

 

Unrealized

 

Unrealized

 

(Net Carrying

As of June 25, 2016

Cost

 

Gains

 

Losses

 

Amount)

Corporate debt securities

$

58,235 

 

$

10 

 

$

(20)

 

$

58,225 

Commercial paper

 

36,808 

 

 

-

 

 

(20)

 

 

36,788 

Total securities

$

95,043 

 

$

10 

 

$

(40)

 

$

95,013 



The Company’s specifically identified gross unrealized losses of $40 thousand relate to 13 different securities with total amortized cost of approximately $63.0 million at June 25, 2016.  Six securities had been in a continuous unrealized loss position for more than 12 months as of June 25, 2016.  The gross unrealized loss on these securities was less than one-tenth of one percent of the position value.  Because the Company does not intend to sell the investments at a loss and it is not more likely than not that the Company will be required to sell the investments before recovery of its amortized cost basis, it did not consider the investment in these securities to be other-than-temporarily impaired at June 25, 2016.   



The following table is a summary of available-for-sale securities at March 26, 2016 (in thousands):







 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

Estimated



 

 

Gross

 

Gross

 

Fair Value



Amortized

 

Unrealized

 

Unrealized

 

(Net Carrying

As of March 26, 2016

Cost

 

Gains

 

Losses

 

Amount)

Corporate debt securities

$

81,310 

 

$

 

$

(100)

 

$

81,213 



The Company’s specifically identified gross unrealized losses of $100 thousand relate to 21 different securities with total amortized cost of approximately $64.7 million at March 26, 2016Two securities had been in a continuous loss position for more than 12 months as of March 26, 2016.  One of these securities matured in the current fiscal quarter, with the other maturing in the second quarter of fiscal year 2017.  Because the Company did not intend to sell the investments at a loss and it was not more likely than not that the Company would be required to sell the investments before recovery of its amortized cost basis, it did not consider the investment in these securities to be other-than-temporarily impaired at March 26, 2016.  



The cost and estimated fair value of available-for-sale securities by contractual maturities were as follows (in thousands):





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

June 25, 2016

 

March 26, 2016



 

Amortized

 

Estimated

 

Amortized

 

Estimated



 

Cost

 

Fair Value

 

Cost

 

Fair Value

Within 1 year

 

$

91,109 

 

$

91,090 

 

$

60,603 

 

$

60,582 

After 1 year

 

 

3,934 

 

 

3,923 

 

 

20,707 

 

 

20,631 

Total

 

$

95,043 

 

$

95,013 

 

$

81,310 

 

$

81,213 



Fair Value of Financial Instruments
Fair Value of Financial Instruments

4.     Fair Value of Financial Instruments



The Company has determined that the only assets and liabilities in the Company’s financial statements that are required to be measured at fair value on a recurring basis are the Company’s cash equivalents, investment portfolio, pension plan assets / liabilities and contingent consideration.  The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement.    The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).





 

 



 

 

   

Level 1 - Quoted prices in active markets for identical assets or liabilities.

   

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

   

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.



 

 



The Company’s cash equivalents and investment portfolio assets consist of corporate debt securities, money market funds, U.S. Treasury securities, and commercial paper and are reflected on our consolidated condensed balance sheets under the headings cash and cash equivalents, marketable securities, and long-term marketable securities.  The Company determines the fair value of its investment portfolio assets by obtaining non-binding market prices from its third-party portfolio managers on the last day of the quarter, whose sources may use quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs) in determining fair value.



In connection with one of the Company’s second quarter fiscal year 2016 acquisitions, the Company reported contingent consideration based upon achievement of certain milestones.  This liability is classified as Level 3 and valued using a discounted cash flow model.  The assumptions used in preparing the discounted cash flow include discount rate estimates and cash flow amounts.  See additional details below. 



The Company’s long-term revolving facility, described in Note 7, bears interest at a base rate plus applicable margin or LIBOR plus applicable margin.  As of June 25, 2016, the fair value of the Company’s long-term revolving facility approximates carrying value.



As of June 25, 2016 and March 26, 2016, the Company classified all of its investment portfolio and pension plan assets and liabilities as Level 1 or Level 2 assets and liabilities.  The only Level 3 liability is the contingent consideration described above and below.  The Company has no Level 3 assets.  There were no transfers between Level 1, Level 2, or Level 3 measurements for the three months ending June 25, 2016.



The following summarizes the fair value of our financial instruments, exclusive of pension plan assets and liabilities, at June 25, 2016, (in thousands):





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Quoted Prices

 

 

 

 

 

 



in Active

 

Significant

 

 

 

 



Markets for

 

Other

 

Significant

 

 



Identical

 

Observable

 

Unobservable

 

 



Assets

 

Inputs

 

Inputs

 

 



Level 1

 

Level 2

 

Level 3

 

Total

Assets:

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

76,881 

 

$

-

 

$

-

 

$

76,881 

Corporate debt securities

 

-

 

 

5,010 

 

 

-

 

 

5,010 



$

76,881 

 

$

5,010 

 

$

-

 

$

81,891 



 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

$

-

 

$

58,225 

 

$

-

 

$

58,225 

Commercial paper

 

-

 

 

36,788 

 

 

-

 

 

36,788 



$

-

 

$

95,013 

 

$

-

 

$

95,013 



 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Other accrued liabilities

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

$

-

 

$

-

 

$

4,793 

 

$

4,793 

Other long-term liabilities

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

$

-

 

$

-

 

$

4,441 

 

$

4,441 





The following summarized the fair value of our financial instruments at March 26, 2016, exclusive of pension plan assets and liabilities (in thousands):



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Quoted Prices

 

 

 

 

 

 



in Active

 

Significant

 

 

 

 



Markets for

 

Other

 

Significant

 

 



Identical

 

Observable

 

Unobservable

 

 



Assets

 

Inputs

 

Inputs

 

 



Level 1

 

Level 2

 

Level 3

 

Total

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

79,256 

 

$

 -

 

$

 -

 

$

79,256 



 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

$

 -

 

$

81,213 

 

$

 -

 

$

81,213 



 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Other accrued liabilities

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

$

 -

 

$

 -

 

$

4,709 

 

$

4,709 

Other long-term liabilities

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

$

 -

 

$

 -

 

$

4,359 

 

$

4,359 



Contingent consideration

The following summarizes the fair value of the contingent consideration at June 25, 2016:





 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

 

Maximum Value if Milestones Achieved (in thousands)

 

Estimated Discount Rate (%)

 

 

Fair Value (in thousands)

Tranche A - 18 month earn out period

 

$

5,000 

 

7.3 

 

$

4,793 

Tranche B - 30 month earn out period

 

 

5,000 

 

7.7 

 

 

4,441 



 

$

10,000 

 

 

 

$

9,234 





 

 



Three Months Ended



June 25,



2016

Beginning balance

$

9,068 

Loss recognized in earnings (research and development expense)

 

166 

Ending balance

$

9,234 





The valuation of contingent consideration was initially based on a weighted-average discounted cash flows model.  The fair value is reviewed and estimated on a quarterly basis based on the probability of achieving defined milestones and current interest rates.  Significant changes in any of the unobservable inputs used in the fair value measurement of contingent consideration could result in a significantly lower or higher fair value.  A change in projected outcomes if milestones are achieved would be accompanied by a directionally similar change in fair value.  A change in discount rate would be accompanied by a directionally opposite change in fair value.  Changes to the fair value due to changes in assumptions would be reported in research and development expense in the consolidated condensed statements of income.  No such changes to the observable inputs were noted in the current fiscal quarter. 

Accounts Receivable, net
Accounts Receivable, net

5.     Accounts Receivable, net



The following are the components of accounts receivable, net (in thousands):



 

 

 

 

 



 

 

 

 

 



June 25,

 

March 26,



2016

 

2016

Gross accounts receivable

$

141,457 

 

$

89,007 

Allowance for doubtful accounts

 

(564)

 

 

(475)

Accounts receivable, net

$

140,893 

 

$

88,532 



Inventories
Inventories



6.     Inventories



Inventories are comprised of the following (in thousands):





 

 

 

 

 



 

 

 

 

 



June 25,

 

March 26,



2016

 

2016

Work in process

$

84,064 

 

$

67,827 

Finished goods

 

69,979 

 

 

74,188 



$

154,043 

 

$

142,015 









Revolving Credit Facilities
Revolving Credit Facilities

7.     Revolving Credit Facilities

On August 29, 2014, Cirrus Logic entered into a credit agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association, as Administrative Agent, and the Lenders party thereto. 

The Credit Agreement provides for a $250 million senior secured revolving credit facility (the “Credit Facility”).  The Credit Facility replaced Cirrus Logic’s interim credit facility, and may be used for general corporate purposes.  The Credit Facility matures on August 29, 2017.



The Credit Facility is required to be guaranteed by all of Cirrus Logic’s material domestic subsidiaries (the “Subsidiary Guarantors”). The Credit Facility is secured by substantially all of the assets of Cirrus Logic and any Subsidiary Guarantors, except for certain excluded assets.  Borrowings under the Credit Facility may, at Cirrus Logic’s election, bear interest at either (a) a Base Rate plus the Applicable Margin (“Base Rate Loans”) or (b) a LIBOR Rate plus the Applicable Margin (“LIBOR Rate Loans”).  The Applicable Margin ranges from 0% to 0.25% per annum for Base Rate Loans and 1.50% to 2.00% per annum for LIBOR Rate Loans based on Cirrus Logic’s Leverage Ratio (discussed below).  A Commitment Fee accrues at a rate per annum ranging from 0.25% to 0.35% (based on the Leverage Ratio) on the average daily unused portion of the Commitment of the Lenders. 



The Credit Agreement contains customary affirmative covenants, including, among others, covenants regarding the payment of taxes and other obligations, maintenance of insurance, reporting requirements and compliance with applicable laws and regulations.  Further, the Credit Agreement contains customary negative covenants limiting the ability of Cirrus Logic or any subsidiary to, among other things, incur debt, grant liens, make investments, effect certain fundamental changes, make certain asset dispositions, and make certain restricted payments.  The Credit Facility also contains certain financial covenants providing that (a) the ratio of consolidated funded indebtedness to consolidated EBITDA for the prior four consecutive quarters must not be greater than 2.00 to 1.00 (the “Leverage Ratio”) and (b) the sum of cash and Cash Equivalents of Cirrus Logic and its subsidiaries on a consolidated basis must not be less than $100 million.   



On June 23, 2015, Cirrus Logic and Wells Fargo Bank, National Association, as Administrative Agent, entered into a first amendment of the Credit Agreement (the “First Amendment”).  The First Amendment primarily provides additional flexibility to the Company for certain intercompany transactions.  In particular, the First Amendment  (i) amended the definition of “Permitted Acquisition” to increase the threshold whereby the Company must provide certain financial statements and certifications to the Administrative Agent; (ii) expanded the Company’s ability to make intercompany investments, including unsecured intercompany indebtedness to fund a Permitted Acquisition; and (iii) provided the Company with the ability, under certain circumstances, to transfer capital stock in a non-guarantor subsidiary to another wholly-owned subsidiary that is not a credit party.



At June 25, 2016, the Company was in compliance with all covenants under the Credit Agreement.    The Company had borrowed $160.4 million under this facility as of June 25, 2016, which is included in long-term liabilities on the consolidated condensed balance sheets under the caption “Debt.  The borrowings were primarily used for refinancing an interim credit facility.



On July 12, 2016, the Company entered into an amendment to the Credit Agreement for the purpose of increasing the Credit Facility to $300 million and providing ongoing working capital.  See Subsequent Event Note 15 for further details.



Patent Agreement and Other
Patent Agreement Net Text Block



8.   Patent Agreement and Other

On May 8, 2015, we entered into a patent purchase agreement for the sale of certain Company-owned patents relating to our LED lighting products.  As a result of this agreement, on June 22, 2015, the Company received cash consideration of $12.5 million from the purchaser.  Under the agreement, the Company undertook to no longer be engaged in LED lighting and received a license under the sold patents for all other fields of use.  The proceeds were recorded during the first quarter of fiscal year 2016 as a recovery of costs previously incurred and are reflected as a separate line item on the consolidated condensed statements of income in operating expenses under the caption Patent agreement and other.”    



Income Taxes
Income Taxes

9.   Income Taxes



Our provision for income taxes is based on estimated effective tax rates derived from an estimate of annual consolidated earnings before taxes, adjusted for nondeductible expenses, other permanent items and any applicable credits.



The following table presents the provision for income taxes (in thousands) and the effective tax rates:





 

 

 

 

 



 

 

 

 

 



Three Months Ended



June 25,

 

June 27,



2016

 

2015

Income before income taxes

$

21,669 

 

$

49,498 

Provision for income taxes

$

5,805 

 

$

16,144 

Effective tax rate

 

26.8% 

 

 

32.6% 



Our income tax expense for the first quarter of fiscal year 2017 was lower than the federal statutory rate primarily due to income in certain foreign jurisdictions taxed below the federal statutory rate and the U.S. R&D tax credit, partially offset by an increase in unrecognized tax benefits.  Our income tax expense for the first quarter of fiscal year 2016 was below the federal statutory rate primarily due to income in certain foreign jurisdictions taxed below the federal statutory rate.   



The Company records unrecognized tax benefits for the estimated risk associated with tax positions taken on tax returns.  At June 25, 2016, the Company had unrecognized tax benefits of $20.1 million, all of which would impact the effective tax rate if recognized.  The Company’s total unrecognized tax benefits are classified as either Other long-term liabilities” in the consolidated condensed balance sheets or as a reduction to deferred tax assets to the extent that the unrecognized tax benefit relates to deferred tax assets.



 The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxesThe Company recognized an immaterial amount of interest in the provision for income taxes during the first three months of fiscal year 2017.  As of June 25, 2016, the balance of accrued interest and penalties, net of tax was immaterialNo interest or penalties were recognized during the first three months of fiscal year 2016.



The Company believes it is reasonably possible that the gross unrecognized tax benefits could decrease by approximately $2.3 million in the next 12 months due to the lapse of the statute of limitations applicable to a tax deduction claimed on a prior year tax return.



The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions.  Fiscal years 2013 through 2016 remain open to examination by the major taxing jurisdictions to which the Company is subject, although carry forward attributes that were generated in tax years prior to fiscal year 2013 may be adjusted upon examination by the tax authorities if they have been, or will be, used in a future period.  The Company is not currently under an income tax audit in any major taxing jurisdiction. 

Pension Plan
Pension Plan

10.   Pension Plan



The components of the Company’s net periodic pension expense for the three months ended June 25, 2016 and June 27, 2015 are as follows (in thousands):



 

 

 

 

 



 

 

 

 

 



Fiscal Years Ended



June 25,

 

June 27,



2016

 

2015

Expenses

$

-  

 

$

-  

Interest cost

 

-  

 

 

-  

Expected return on plan assets

 

-  

 

 

-  

Amortization of actuarial loss (gain)

 

(27)

 

 

16 



$

(27)

 

$

16 

Based on an actuarial study performed as of March 26, 2016, the defined benefit pension plan is currently appropriately funded and a long-term asset is reflected in the Company’s consolidated condensed balance sheet under the caption “Other assets.    

Net Income Per Share
Net Income Per Share

11.   Net Income Per Share



Basic net income per share is based on the weighted effect of common shares issued and outstanding and is calculated by dividing net income by the basic weighted average shares outstanding during the period.  Diluted net income per share is calculated by dividing net income by the weighted average number of common shares used in the basic net income per share calculation, plus the equivalent number of common shares that would be issued assuming exercise or conversion of all potentially dilutive common shares outstanding.  These potentially dilutive items consist primarily of the tax affected outstanding stock options and awards (including restricted stock units and market stock units).



The following table details the calculation of basic and diluted earnings per share for the three months ended June 25, 2016 and June 27, 2015 (in thousands, except per share amounts):







 

 

 

 

 



 

 

 

 

 



Three Months Ended



June 25,

 

June 27,



2016

 

2015

Numerator:

 

 

 

 

 

Net income

$

15,864 

 

$

33,354 

Denominator:

 

 

 

 

 

Weighted average shares outstanding

 

62,450 

 

 

63,274 

Effect of dilutive securities

 

2,782 

 

 

3,136 

Weighted average diluted shares

 

65,232 

 

 

66,410 

Basic earnings per share

$

0.25 

 

$

0.53 

Diluted earnings per share

$

0.24 

 

$

0.50 



The weighted outstanding shares excluded from our diluted calculation for the three months ended June 25, 2016 and June 27, 2015 were 618 thousand and 275 thousand, respectively, as the shares were anti-dilutive.     

Legal Matters
Legal Matters

12.   Legal Matters

From time to time, we are involved in legal proceedings concerning matters arising in connection with the conduct of our business activities.  We regularly evaluate the status of legal proceedings in which we are involved in order to assess whether a loss is probable or there is a reasonable possibility that a loss or additional loss may have been incurred and determine if accruals are appropriate.  We further evaluate each legal proceeding to assess whether an estimate of possible loss or range of loss can be made. 



Based on current knowledge, management does not believe that there are any pending matters that could potentially have a material adverse effect on our business, financial condition, results of operations or cash flows.  However, we are engaged in various legal actions in the normal course of business.  While there can be no assurances in light of the inherent uncertainties involved in any potential legal proceedings, some of which are beyond our control, an adverse outcome in any legal proceeding could be material to our results of operations or cash flows for any particular reporting period.



Stockholders' Equtiy
Stockholders Equity Note Disclosure Text Block

13.   Stockholders’ Equity



Common Stock 

   

The Company issued a net 0.3 million and 0.4 million shares of common stock during the three month periods ending June 25, 2016 and June 27, 2015, respectively,  in connection with stock issuances primarily pursuant to the Company’s 2006 Stock Incentive Plan.    



Share Repurchase Program   

    

Since inception, $24.2 million of the Company’s common stock has been repurchased under the Company’s 2015 $200 million share repurchase program, leaving $175.8 million available for repurchase under this plan as of June  25, 2016.  During the three months ended June  25, 2016, the Company repurchased 0.5 million shares of its common stock for $15.4 million, at an average cost of $32.13.  All of these shares were repurchased in the open market and were funded from existing cash.  All shares of our common stock that were repurchased were retired as of June 25, 2016. 



Segment Information
Segment Information

14.   Segment Information



We determine our operating segments in accordance with FASB guidelines.  Our Chief Executive Officer (“CEO”) has been identified as the chief operating decision maker under these guidelines. 



The Company operates and tracks its results in one reportable segment, but reports revenue performance in two product lines, which, currently are Portable Audio and Non-Portable Audio and other.  Our CEO receives and uses enterprise-wide financial information to assess financial performance and allocate resources, rather than detailed information at a product line level.  Additionally, our product lines have similar characteristics and customers.  They share operations support functions such as sales, public relations, supply chain management, various research and development and engineering support, in addition to the general and administrative functions of human resources, legal, finance and information technology.  Therefore, no complete, discrete financial information is maintained for these product lines.



Revenues from our product lines are as follows (in thousands):



 

 

 

 

 



 

 

 

 

 



Three Months Ended



June 25,

 

June 27,



2016

 

2015

Portable Audio Products

$

216,068 

 

$

235,866 

Non-Portable Audio and Other Products

 

43,360 

 

 

46,767 



$

259,428 

 

$

282,633 



Subsequent Event
Subsequent Events [Text Block]

   15.   Subsequent Event



On July 12, 2016, Cirrus Logic entered into an amended and restated credit agreement (the “Amended Credit Agreement”) with Wells Fargo Bank, National Association, as a Lender and Administrative Agent, for the purpose of refinancing the previous Credit Facility and providing ongoing working capital.  The Amended Credit Agreement provides for a $300 million revolving credit facility (the “Amended Facility”) with a $25 million letter of credit sublimit.  The Amended Facility matures in five years.  Cirrus Logic must repay the outstanding principal amount of all borrowings, together with all accrued but unpaid interest thereon, on the maturity date.  The Amended Facility is required to be guaranteed by all of Cirrus Logic’s material domestic subsidiaries (the “Subsidiary Guarantors”).  The Credit Facility is secured by substantially all of the assets of Cirrus Logic and any Subsidiary Guarantors, except for certain excluded assets.

Borrowings under the Amended Facility may, at our election, bear interest at either (a) a base rate plus the applicable margin (“Base Rate Loans”) or (b) a LIBOR rate plus the applicable margin (“LIBOR Rate Loans”). The applicable margin ranges from 0% to 0.50% per annum for Base Rate Loans and 1.25% to 2.00% per annum for LIBOR Rate Loans based on the Leverage Ratio (as defined below).  A Commitment Fee accrues at a rate per annum ranging from 0.20% to 0.30% (based on the Leverage Ratio) on the average daily unused portion of the Commitment of the lenders.  The Amended Credit Agreement also contains certain financial covenants providing that (a) the ratio of consolidated funded indebtedness to consolidated EBITDA for the prior four fiscal quarters must not be greater than 3.00 to 1.00 (the “Leverage Ratio”) and (b) the ratio of consolidated EBITDA for the prior four consecutive fiscal quarters to consolidated fixed charges (including amounts paid in cash for consolidated interest expenses, capital expenditures, scheduled principal payments of indebtedness, and income taxes) for the prior four consecutive fiscal quarters must not be less than 1.25 to 1.00 as of the end of each fiscal quarter.

 

Marketable Securities (Tables)



 

 

 

 

 

 

 

 

 

Estimated



 

 

 

Gross

 

Gross

 

Fair Value



Amortized

 

Unrealized

 

Unrealized

 

(Net Carrying

As of June 25, 2016

Cost

 

Gains

 

Losses

 

Amount)

Corporate debt securities

$

58,235 

 

$

10 

 

$

(20)

 

$

58,225 

Commercial paper

 

36,808 

 

 

-

 

 

(20)

 

 

36,788 

Total securities

$

95,043 

 

$

10 

 

$

(40)

 

$

95,013 



The Company’s specifically identified gross unrealized losses of $40 thousand relate to 13 different securities with total amortized cost of approximately $63.0 million at June 25, 2016.  Six securities had been in a continuous unrealized loss position for more than 12 months as of June 25, 2016.  The gross unrealized loss on these securities was less than one-tenth of one percent of the position value.  Because the Company does not intend to sell the investments at a loss and it is not more likely than not that the Company will be required to sell the investments before recovery of its amortized cost basis, it did not consider the investment in these securities to be other-than-temporarily impaired at June 25, 2016.   



The following table is a summary of available-for-sale securities at March 26, 2016 (in thousands):







 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

Estimated



 

 

Gross

 

Gross

 

Fair Value



Amortized

 

Unrealized

 

Unrealized

 

(Net Carrying

As of March 26, 2016

Cost

 

Gains

 

Losses

 

Amount)

Corporate debt securities

$

81,310 

 

$

 

$

(100)

 

$

81,213 





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

June 25, 2016

 

March 26, 2016



 

Amortized

 

Estimated

 

Amortized

 

Estimated



 

Cost

 

Fair Value

 

Cost

 

Fair Value

Within 1 year

 

$

91,109 

 

$

91,090 

 

$

60,603 

 

$

60,582 

After 1 year

 

 

3,934 

 

 

3,923 

 

 

20,707 

 

 

20,631 

Total

 

$

95,043 

 

$

95,013 

 

$

81,310 

 

$

81,213 



Fair Value of Financial Instruments (Tables)
Schedule of Fair Value of Financial Assets and Liabilities







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Quoted Prices

 

 

 

 

 

 



in Active

 

Significant

 

 

 

 



Markets for

 

Other

 

Significant

 

 



Identical

 

Observable

 

Unobservable

 

 



Assets

 

Inputs

 

Inputs

 

 



Level 1

 

Level 2

 

Level 3

 

Total

Assets:

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

76,881 

 

$

-

 

$

-

 

$

76,881 

Corporate debt securities

 

-

 

 

5,010 

 

 

-

 

 

5,010 



$

76,881 

 

$

5,010 

 

$

-

 

$

81,891 



 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

$

-

 

$

58,225 

 

$

-

 

$

58,225 

Commercial paper

 

-

 

 

36,788 

 

 

-

 

 

36,788 



$

-

 

$

95,013 

 

$

-

 

$

95,013 



 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Other accrued liabilities

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

$

-

 

$

-

 

$

4,793 

 

$

4,793 

Other long-term liabilities

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

$

-

 

$

-

 

$

4,441 

 

$

4,441 





The following summarized the fair value of our financial instruments at March 26, 2016, exclusive of pension plan assets and liabilities (in thousands):



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Quoted Prices

 

 

 

 

 

 



in Active

 

Significant

 

 

 

 



Markets for

 

Other

 

Significant

 

 



Identical

 

Observable

 

Unobservable

 

 



Assets

 

Inputs

 

Inputs

 

 



Level 1

 

Level 2

 

Level 3

 

Total

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

79,256 

 

$

 -

 

$

 -

 

$

79,256 



 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

$

 -

 

$

81,213 

 

$

 -

 

$

81,213 



 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Other accrued liabilities

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

$

 -

 

$

 -

 

$

4,709 

 

$

4,709 

Other long-term liabilities

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

$

 -

 

$

 -

 

$

4,359 

 

$

4,359 



Fair Value of Financial Instruments Contingent Consideration (Tables)
Schedule of Fair Value of Financial Instruments - Contingent Consideration



 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

 

Maximum Value if Milestones Achieved (in thousands)

 

Estimated Discount Rate (%)

 

 

Fair Value (in thousands)

Tranche A - 18 month earn out period

 

$

5,000 

 

7.3 

 

$

4,793 

Tranche B - 30 month earn out period

 

 

5,000 

 

7.7 

 

 

4,441 



 

$

10,000 

 

 

 

$

9,234 



Schedule of Fair Value of Contingent Consideration Rollforward (Table)
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Table Text Block]



 

 



Three Months Ended



June 25,



2016

Beginning balance

$

9,068 

Loss recognized in earnings (research and development expense)

 

166 

Ending balance

$

9,234 



Accounts Receivable, net (Tables)
Components of Accounts Receivable, net



 

 

 

 

 



 

 

 

 

 



June 25,

 

March 26,



2016

 

2016

Gross accounts receivable

$

141,457 

 

$

89,007 

Allowance for doubtful accounts

 

(564)

 

 

(475)

Accounts receivable, net

$

140,893 

 

$

88,532 



Inventories (Tables)
Schedule of Inventories



 

 

 

 

 



 

 

 

 

 



June 25,

 

March 26,



2016

 

2016

Work in process

$

84,064 

 

$

67,827 

Finished goods

 

69,979 

 

 

74,188 



$

154,043 

 

$

142,015 



Income Taxes (Tables)
Schedule of Provision for Income Taxes and Effective Tax Rates



 

 

 

 

 



 

 

 

 

 



Three Months Ended



June 25,

 

June 27,



2016

 

2015

Income before income taxes

$

21,669 

 

$

49,498 

Provision for income taxes

$

5,805 

 

$

16,144 

Effective tax rate

 

26.8% 

 

 

32.6% 



Pension Plan (Periodic Pension Costs) (Tables)
Schedule of Net Benefit Costs [Table Text Block]



 

 

 

 

 



 

 

 

 

 



Fiscal Years Ended



June 25,

 

June 27,



2016

 

2015

Expenses

$

-  

 

$

-  

Interest cost

 

-  

 

 

-  

Expected return on plan assets

 

-  

 

 

-  

Amortization of actuarial loss (gain)

 

(27)

 

 

16 



$

(27)

 

$

16 



Net Income Per Share (Tables)
Schedule of Earnings Per Share, Basic and Diluted



 

 

 

 

 



 

 

 

 

 



Three Months Ended



June 25,

 

June 27,



2016

 

2015

Numerator:

 

 

 

 

 

Net income

$

15,864 

 

$

33,354 

Denominator:

 

 

 

 

 

Weighted average shares outstanding

 

62,450 

 

 

63,274 

Effect of dilutive securities

 

2,782 

 

 

3,136 

Weighted average diluted shares

 

65,232 

 

 

66,410 

Basic earnings per share

$

0.25 

 

$

0.53 

Diluted earnings per share

$

0.24 

 

$

0.50 



Segment Information (Tables)
Schedule of Segment Revenue from Product Lines



 

 

 

 

 



 

 

 

 

 



Three Months Ended



June 25,

 

June 27,



2016