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1. Description of Business
Description of Business
Cirrus Logic, Inc. (“Cirrus Logic,” “We,” “Us,” “Our,” or the “Company”) is a leader in high performance, low-power integrated circuits (“ICs”) for audio and voice signal processing applications. Cirrus Logic’s products span the entire audio signal chain, from capture to playback, providing innovative products for the world’s top smartphones, tablets, digital headsets, wearables and emerging smart home applications.
We were incorporated in California in 1984, became a public company in 1989, and were reincorporated in the State of Delaware in February 1999. Our primary facility housing engineering, sales and marketing, and administration functions is located in Austin, Texas. We also have offices in various other locations in the United States, United Kingdom, Sweden, Spain, Australia and Asia, including the People’s Republic of China, Hong Kong, South Korea, Japan, Singapore, and Taiwan. Our common stock, which has been publicly traded since 1989, is listed on the NASDAQ Global Select Market under the symbol CRUS.
Basis of Presentation
We prepare financial statements on a 52- or 53-week year that ends on the last Saturday in March. Fiscal years 2016, 2015, and 2014 were 52-week years.
Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with U. S. generally accepted accounting principles (U.S. GAAP) and include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated.
Reclassifications
Certain reclassifications have been made to prior year balances in order to conform to the current year’s presentation of financial information.
Use of Estimates
The preparation of financial statements in accordance with U.S. GAAP requires the use of management estimates. These estimates are subjective in nature and involve judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at fiscal year-end and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.
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2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of money market funds, commercial paper, and U.S. Government Treasury and Agency instruments with original maturities of three months or less at the date of purchase.
Inventories
We use the lower of cost or market method to value our inventories, with cost being determined on a first-in, first-out basis. One of the factors we consistently evaluate in the application of this method is the extent to which products are accepted into the marketplace. By policy, we evaluate market acceptance based on known business factors and conditions by comparing forecasted customer unit demand for our products over a specific future period, or demand horizon, to quantities on hand at the end of each accounting period.
On a quarterly and annual basis, we analyze inventories on a part-by-part basis. Product life cycles and the competitive nature of the industry are factors considered in the evaluation of customer unit demand at the end of each quarterly accounting period. Inventory quantities on-hand in excess of forecasted demand is considered to have reduced market value and, therefore, the cost basis is adjusted to the lower of cost or market. Typically, market values for excess or obsolete inventories are considered to be zero. Inventory charges recorded for excess and obsolete inventory, including scrapped inventory, represented $4.8 million and $7.2 million, in fiscal year 2016 and 2015, respectively. Inventory charges in fiscal year 2016 related to a combination of quality issues and inventory exceeding demand. In fiscal year 2015, charges were primarily associated with a customer build forecast that exceeded actual market demand, resulting in excess inventory levels for certain high volume products.
Inventories were comprised of the following (in thousands):
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March 26, |
March 28, |
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2016 |
2015 |
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Work in process |
$ |
67,827 |
$ |
64,663 | |
Finished goods |
74,188 | 19,533 | |||
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$ |
142,015 |
$ |
84,196 |
Property, Plant and Equipment, net
Property, plant and equipment is recorded at cost, net of depreciation and amortization. Depreciation and amortization is calculated on a straight-line basis over estimated economic lives, ranging from three to 39 years. Leasehold improvements are depreciated over the shorter of the term of the lease or the estimated useful life. Furniture, fixtures, machinery, and equipment are all depreciated over a useful life of three to 10 years, while buildings are depreciated over a period of up to 39 years. In general, our capitalized software is amortized over a useful life of three years, with capitalized enterprise resource planning software being amortized over a useful life of 10 years. Gains or losses related to retirements or dispositions of fixed assets are recognized in the period incurred.
Property, plant and equipment was comprised of the following (in thousands):
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March 26, |
March 28, |
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2016 |
2015 |
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Land |
$ |
26,379 |
$ |
26,332 | |
Buildings |
73,513 | 49,963 | |||
Furniture and fixtures |
13,226 | 10,281 | |||
Leasehold improvements |
2,637 | 2,525 | |||
Machinery and equipment |
105,880 | 79,682 | |||
Capitalized software |
25,127 | 25,000 | |||
Construction in progress |
5,411 | 22,922 | |||
Total property, plant and equipment |
252,173 | 216,705 | |||
Less: Accumulated depreciation and amortization |
(89,517) | (72,359) | |||
Property, plant and equipment, net |
$ |
162,656 |
$ |
144,346 |
Depreciation and amortization expense on property, plant, and equipment for fiscal years 2016, 2015, and 2014, was $22.3 million, $15.4 million, and $12.1 million, respectively.
Goodwill and Intangibles, net
Intangible assets include purchased technology licenses and patents that are reported at cost and are amortized on a straight-line basis over their useful lives, generally ranging from one to ten years. Acquired intangibles include existing technology, core technology or patents, license agreements, in-process research & development, trademarks, tradenames, customer relationships, non-compete agreements, and backlog. These assets are amortized on a straight-line basis over lives ranging from one to fifteen years.
Goodwill is recorded at the time of an acquisition and is calculated as the difference between the aggregate consideration paid for an acquisition and the fair value of the net tangible and intangible assets acquired. Goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests. If the assumptions and estimates used to allocate the purchase price are not correct, or if business conditions change, purchase price adjustments or future asset impairment charges could be required. The value of our intangible assets, including goodwill, could be impacted by future adverse changes such as: (i) any future declines in our operating results, (ii) a decline in the valuation of technology company stocks, including the valuation of our common stock, (iii) a significant slowdown in the worldwide economy and the semiconductor industry, or (iv) any failure to meet the performance projections included in our forecasts of future operating results. The Company tests goodwill and indefinite lived intangibles for impairment on an annual basis or more frequently if the Company believes indicators of impairment exist. Impairment evaluations involve management’s assessment of qualitative factors to determine whether it is more likely than not that goodwill and other intangible assets are impaired. If management concludes from its assessment of qualitative factors that it is more likely than not that impairment exists, then a quantitative impairment test will be performed involving management estimates of asset useful lives and future cash flows. Significant management judgment is required in the forecasts of future operating results that are used in these evaluations. If our actual results, or the plans and estimates used in future impairment analyses, are lower than the original estimates used to assess the recoverability of these assets, we could incur additional impairment charges in a future period. The Company has recorded no goodwill impairments in fiscal years 2016, 2015, and 2014. There were no material intangible asset impairments in fiscal years 2016, 2015, or 2014.
Long-Lived Assets
We test for impairment losses on long-lived assets and definite-lived intangibles used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. We measure any impairment loss by comparing the fair value of the asset to its carrying amount. We estimate fair value based on discounted future cash flows, quoted market prices, or independent appraisals.
Foreign Currency Translation
Prior to the fiscal year 2015 acquisition of Wolfson Microelectronics (“Wolfson,” the “Acquisition”), each Cirrus Logic legal entity was US dollar functional. Additionally, each of the acquired Wolfson legal entities were also designated as US dollar functional. These designations were determined individually by Cirrus Logic and Wolfson prior to the Acquisition. Subsequent to the integration of Wolfson, the Company reassessed the functional currencies of each legal entity based on the relevant facts and circumstances, as well as in accordance with the applicable accounting guidance contained in Accounting Standards Codification (“ASC”) 830-10, “Foreign Currency Matters.” Based on its analysis and on the change in operating structure brought about by the Acquisition, the Company determined that the functional currency of some of its subsidiaries had changed from the US dollar to the local currency. The Company’s main entities, including the entities that generate the majority of sales and employ the majority of employees, remain US dollar functional. The change was effective beginning in fiscal year 2016 and had an immaterial effect on the financial statements. Beginning in fiscal year 2016 foreign currency translation gains and losses are reported as a component of Accumulated Other Comprehensive Gain / (Loss).
Pension
Defined benefit pension plans are accounted for based upon the provisions of ASC Topic 715, “Compensation – Retirement Benefits.”
The funded status of the plan is recognized in the consolidated balance sheets. Subsequent re-measurement of plan assets and benefit obligations, if deemed necessary, would be reflected in the consolidated balance sheets in the subsequent interim period to reflect the overfunded or underfunded status of the plan.
The Company will engage external actuaries on at least an annual basis to provide a valuation of the plan’s assets and projected benefit obligation and to record the net periodic pension cost. On a quarterly basis, the Company will evaluate current information available to us to determine whether the plan’s assets and projected benefit obligation should be re-measured.
Concentration of Credit Risk
Financial instruments that potentially subject us to material concentrations of credit risk consist primarily of cash equivalents, marketable securities, long-term marketable securities, and trade accounts receivable. We are exposed to credit risk to the extent of the amounts recorded on the balance sheet. By policy, our cash equivalents, marketable securities, and long-term marketable securities are subject to certain nationally recognized credit standards, issuer concentrations, sovereign risk, and marketability or liquidity considerations.
In evaluating our trade receivables, we perform credit evaluations of our major customers’ financial condition and monitor closely all of our receivables to limit our financial exposure by limiting the length of time and amount of credit extended. In certain situations, we may require payment in advance or utilize letters of credit to reduce credit risk. By policy, we establish a reserve for trade accounts receivable based on the type of business in which a customer is engaged, the length of time a trade account receivable is outstanding, and other knowledge that we may possess relating to the probability that a trade receivable is at risk for non-payment.
We had two contract manufacturers, Hongfujin Precision and Protek, who represented 23 percent and 11 percent, respectively, and one direct customer, Samsung Electronics who represented 23 percent of our consolidated gross trade accounts receivable as of the end of fiscal year 2016. The same two contract manufacturers represented 26 percent and 15 percent, respectively, and Samsung Electronics represented 22 percent of our consolidated gross trade accounts receivable as of the end of fiscal year 2015. No other distributor or customer had receivable balances that represented more than 10 percent of consolidated gross trade accounts receivable as of the end of fiscal year 2016 or 2015.
Since the components we produce are largely proprietary and generally not available from second sources, we consider our end customer to be the entity specifying the use of our component in their design. These end customers may then purchase our products directly from us, from a distributor, or through a third party manufacturer contracted to produce their end product. For fiscal years 2016, 2015, and 2014, our ten largest end customers represented approximately 89 percent, 87 percent, and 88 percent, of our sales, respectively. For fiscal years 2016, 2015, and 2014, we had one end customer, Apple Inc., who purchased through multiple contract manufacturers and represented approximately 66 percent, 72 percent, and 80 percent, of the Company’s total sales, respectively. Samsung Electronics represented 15 percent of the Company’s total sales in fiscal year 2016. No other customer or distributor represented more than 10 percent of net sales in fiscal years 2016, 2015, or 2014.
Revenue Recognition
We recognize revenue when all of the following criteria are met: persuasive evidence that an arrangement exists, delivery of goods has occurred, the sales price is fixed or determinable and collectability is reasonably assured. For our distributors we provide minimal stock rotation rights. Prior to the fourth quarter of fiscal year 2016, revenue was deferred at the time of shipment to our domestic distributors and certain international distributors due to the determination that the ultimate sales price to the distributor was not fixed or determinable. Upon distributor resale, the final sales price was fixed or determinable, and the Company recognized revenue for the final sales price and recorded the related cost of sales. Beginning in the fourth quarter of fiscal year 2016, revenue is recognized upon delivery to the distributor, as the final sales price is now fixed and determinable at the time of shipment, less an allowance for estimated returns.
Warranty Expense
We warrant our products and maintain a provision for warranty repair or replacement of shipped products. The accrual represents management’s estimate of probable returns. Our estimate is based on an analysis of our overall sales volume and historical claims experience. The estimate is re-evaluated periodically for accuracy.
Shipping Costs
Our shipping and handling costs are included in cost of sales for all periods presented in the Consolidated Statements of Income.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs were $1.6 million, $1.1 million, and $1.4 million, in fiscal years 2016, 2015, and 2014, respectively.
Stock-Based Compensation
Stock-based compensation is measured at the grant date based on the grant-date fair value of the awards and is recognized as an expense, on a ratable basis, over the vesting period, which is generally between zero and four years. Determining the amount of stock-based compensation to be recorded requires the Company to develop estimates used in calculating the grant-date fair value of stock options and performance awards (also called market stock units). The Company calculates the grant-date fair value for stock options and market stock units using the Black-Scholes valuation model and the Monte Carlo simulation, respectively. The use of valuation models requires the Company to make estimates of assumptions such as expected volatility, expected term, risk-free interest rate, expected dividend yield, correlation of the Company’s stock price with the Philadelphia Semiconductor Index (“the Index”) and forfeiture rates. The grant-date fair value of restricted stock units is the market value at grant date multiplied by the number of units.
Income Taxes
We are required to calculate income taxes in each of the jurisdictions in which we operate. This process involves calculating the actual current tax liability as well as assessing temporary differences in the recognition of income or loss for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in our Consolidated Balance Sheets. We record a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company evaluates the ability to realize its deferred tax assets based on all the facts and circumstances, including projections of future taxable income and expiration dates of carryover tax attributes.
The calculation of our tax liabilities involves assessing uncertainties with respect to the application of complex tax rules and the potential for future adjustment of our uncertain tax positions by the Internal Revenue Service or other taxing jurisdiction. We recognize liabilities for uncertain tax positions based on the required two-step process. The first step requires us to determine if the weight of available evidence indicates that the tax position has met the threshold for recognition; therefore, we must evaluate whether it is more likely than not that the position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step requires us to measure the tax benefit of the tax position taken, or expected to be taken, in an income tax return as the largest amount that is more than 50 percent likely of being realized upon ultimate settlement. We reevaluate the uncertain tax positions each quarter based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, expirations of statutes of limitation, effectively settled issues under audit, and new audit activity. A change in the recognition step or measurement step would result in the recognition of a tax benefit or an additional charge to the tax provision in the period.
Although we believe the measurement of our liabilities for uncertain tax positions is reasonable, we cannot assure that the final outcome of these matters will not be different than what is reflected in the historical income tax provisions and accruals. If additional taxes are assessed as a result of an audit or litigation, it could have a material effect on our income tax provision and net income in the period or periods for which that determination is made. We operate within multiple taxing jurisdictions and are subject to audit in these jurisdictions. These audits can involve complex issues which may require an extended period of time to resolve and could result in additional assessments of income tax. We believe adequate provisions for income taxes have been made for all periods.
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 outstanding stock options and restricted stock grants.
The following table details the calculation of basic and diluted earnings per share for fiscal years 2016, 2015, and 2014, (in thousands, except per share amounts):
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2016 |
2015 |
2014 |
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Numerator: |
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Net income |
$ |
123,630 |
$ |
55,178 |
$ |
108,111 | ||
Denominator: |
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Weighted average shares outstanding |
63,197 | 62,503 | 62,926 | |||||
Effect of dilutive securities |
2,796 | 2,732 | 2,609 | |||||
Weighted average diluted shares |
65,993 | 65,235 | 65,535 | |||||
Basic earnings per share |
$ |
1.96 |
$ |
0.88 |
$ |
1.72 | ||
Diluted earnings per share |
$ |
1.87 |
$ |
0.85 |
$ |
1.65 |
The weighted outstanding options excluded from our diluted calculation for the years ended March 26, 2016, March 28, 2015, and March 29, 2014 were 468 thousand, 718 thousand, and 833 thousand, respectively, as the exercise price exceeded the average market price during the period.
Accumulated Other Comprehensive Income (Loss)
Our accumulated other comprehensive income (loss) is comprised of foreign currency translation adjustments, unrealized gains and losses on investments classified as available-for-sale and actuarial gains and losses on our pension plan assets. See Note 15 – Accumulated Other Comprehensive Income (Loss) for additional discussion.
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.
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 is currently evaluating and plans to adopt these ASUs in the first quarter of fiscal year 2017.
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 is currently evaluating the likelihood of adoption and expects no material modifications to its financial statements.
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 September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. This ASU requires an acquirer in a business combination to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The effect on earnings of changes in depreciation, amortization or other income effects, as a result of the change in provisional amounts, are to be included in the same period’s financial statements, calculated as if the accounting had been completed at the acquisition date. The amendments in this update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years and shall be applied prospectively to adjustments to provisional amounts that occur after the effective date of this ASU. Earlier application is permitted for financial statements that have not been issued. The Company adopted this ASU in the fourth quarter of fiscal year 2016, with no material impact to its financial statements as a result.
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. The FASB determined that the current practice of separating deferred tax liabilities and assets into current and noncurrent amounts in the balance sheet resulted in little to no benefit to financial statement users. Effective for financial statements issued for annual periods beginning after December 15, 2016 and interim periods therein, this ASU will require that deferred tax liabilities and assets be classified as noncurrent. Earlier application is permitted as of the beginning of an interim or annual reporting period and can be applied either prospectively to all deferred tax assets and liabilities or retrospectively to all periods presented. The Company early adopted this ASU on a prospective basis in the fourth quarter of fiscal year 2016. Prior periods were not retrospectively adjusted.
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 lease payment 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 the following:
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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 (current guidance) or when forfeitures actually occur; and |
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cash paid by an employer for directly withheld shares for tax purposes is to be classified as a financing activity within the statement of cash flows. |
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.
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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 Balance Sheet as “Marketable securities” within the short-term or long-term classification, as appropriate.
The following table is a summary of available-for-sale securities (in thousands):
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Estimated |
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Gross |
Gross |
Fair Value |
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Amortized |
Unrealized |
Unrealized |
(Net Carrying |
|||||||
As of March 26, 2016 |
Cost |
Gains |
Losses |
Amount) |
|||||||
Corporate debt securities |
$ |
81,310 |
$ |
3 |
$ |
(100) |
$ |
81,213 |
The Company’s specifically identified gross unrealized losses of $100 thousand relates to 21 different securities with a total amortized cost of approximately $64.7 million at March 26, 2016. Two securities had been in a continuous unrealized loss position for more than 12 months as of March 26, 2016. The gross unrealized loss on both of these securities was less than one half of one percent of the position value, and both securities mature during the first half of fiscal year 2017. 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 March 26, 2016.
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Estimated |
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Gross |
Gross |
Fair Value |
||||||||
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Amortized |
Unrealized |
Unrealized |
(Net Carrying |
|||||||
As of March 28, 2015 |
Cost |
Gains |
Losses |
Amount) |
|||||||
Corporate debt securities |
$ |
153,896 |
$ |
8 |
$ |
(68) |
$ |
153,836 | |||
U.S. Treasury securities |
28,010 |
- |
(15) | 27,995 | |||||||
Commercial paper |
2,485 | 2 |
- |
2,487 | |||||||
Total securities |
$ |
184,391 |
$ |
10 |
$ |
(83) |
$ |
184,318 |
The Company’s specifically identified gross unrealized losses of $83 thousand relates to 34 different securities with a total amortized cost of approximately $154.3 million at March 28, 2015. 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 not 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 28, 2015. Further, the securities with gross unrealized losses had been in a continuous unrealized loss position for less than 12 months as of March 28, 2015.
The cost and estimated fair value of available-for-sale investments by contractual maturity were as follows:
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March 26, 2016 |
March 28, 2015 |
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Amortized |
Estimated |
Amortized |
Estimated |
||||||||
|
Cost |
Fair Value |
Cost |
Fair Value |
||||||||
Within 1 year |
$ |
60,603 |
$ |
60,582 |
$ |
124,275 |
$ |
124,246 | ||||
After 1 year |
20,707 | 20,631 | 60,116 | 60,072 | ||||||||
Total |
$ |
81,310 |
$ |
81,213 |
$ |
184,391 |
$ |
184,318 |
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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 or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
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• |
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Level 1 — Quoted prices in active markets for identical assets or liabilities. |
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• |
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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. |
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• |
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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 Balance Sheet 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 is 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 and in Note 7 - Acquisitions.
The Company’s long-term revolving facility, described in Note 8, bears interest at a base rate plus applicable margin or LIBOR plus applicable margin. As of March 26, 2016, the fair value of the Company’s long-term revolving facility approximates carrying value based on estimated margin.
As of March 26, 2016 and March 28, 2015, the Company classified all investment portfolio assets and pension plan assets and liabilities (discussed in Note 10) 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 years ending March 26, 2016 and March 28, 2015.
The following summarizes the fair value of our financial instruments, exclusive of pension plan assets and liabilities detailed in Note 10, at March 26, 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 |
$ |
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 |
The following summarizes the fair value of our financial instruments at March 28, 2015 (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 |
$ |
996 |
$ |
- |
$ |
- |
$ |
996 | |||
|
|||||||||||
Available-for-sale securities |
|||||||||||
Corporate debt securities |
$ |
- |
$ |
153,836 |
$ |
- |
$ |
153,836 | |||
U.S. Treasury securities |
27,995 |
- |
- |
27,995 | |||||||
Commercial paper |
- |
2,487 |
- |
2,487 | |||||||
|
$ |
27,995 |
$ |
156,323 |
$ |
- |
$ |
184,318 |
Contingent consideration
The following summarizes the fair value of the contingent consideration at March 26, 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 |
$ |
4,709 | |||
Tranche B - 30 month earn out period |
5,000 | 7.7 | 4,359 | |||||
|
$ |
10,000 |
$ |
9,068 |
|
Fiscal year ended |
|
|
March 26, |
|
|
2016 |
|
Beginning balance |
$ |
- |
Acquisition addition |
8,600 | |
Loss recognized in earnings (research and development expense) |
468 | |
Ending balance |
$ |
9,068 |
The valuation of contingent consideration is 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 Statements of Income. No such changes to the observable inputs were noted in the current fiscal quarter.
|
5. Accounts Receivable, net
The following are the components of accounts receivable, net (in thousands):
|
|||||
|
March 26, |
March 28, |
|||
|
2016 |
2015 |
|||
Gross accounts receivable |
$ |
89,007 |
$ |
112,964 | |
Allowance for doubtful accounts |
(475) | (356) | |||
Accounts receivable, net |
$ |
88,532 |
$ |
112,608 |
The following table summarizes the changes in the allowance for doubtful accounts (in thousands):
|
||
Balance, March 30, 2013 |
$ |
(301) |
Bad debt expense, net of recoveries |
72 | |
Balance, March 29, 2014 |
(229) | |
Bad debt expense, net of recoveries |
(127) | |
Balance, March 28, 2015 |
(356) | |
Bad debt expense, net of recoveries |
(119) | |
Balance, March 26, 2016 |
$ |
(475) |
|
6. Intangibles, net and Goodwill
The intangibles, net balance included on the Consolidated Balance Sheets was $162.8 million and $175.7 million at March 26, 2016 and March 28, 2015, respectively.
The following information details the gross carrying amount and accumulated amortization of our intangible assets (in thousands):
|
|||||||||||
|
March 26, 2016 |
March 28, 2015 |
|||||||||
Intangible Category / Weighted-Average Amortization period (in years) |
Gross Amount |
Accumulated Amortization |
Gross Amount |
Accumulated Amortization |
|||||||
Core technology (a) |
$ |
1,390 |
$ |
(1,390) |
$ |
1,390 |
$ |
(1,390) | |||
License agreement (a) |
440 | (440) | 440 | (440) | |||||||
Existing technology (6.1) |
117,975 | (32,873) | 98,645 | (13,596) | |||||||
In-process research & development ("IPR&D") (7.3) |
72,750 | (14,082) | 72,750 | (3,918) | |||||||
Trademarks and tradename (10.0) |
3,037 | (2,076) | 3,037 | (1,141) | |||||||
Customer relationships (10.0) |
15,381 | (2,655) | 15,381 | (1,117) | |||||||
Backlog (1.0) |
220 | (147) |
- |
- |
|||||||
Non-compete agreements (1.5) |
470 | (209) |
- |
- |
|||||||
Technology licenses (3.2) |
16,661 | (11,620) | 23,018 | (17,316) | |||||||
Total |
$ |
228,324 |
$ |
(65,492) |
$ |
214,661 |
$ |
(38,918) |
(a) |
Intangible assets are fully amortized. |
Amortization expense for intangibles in fiscal years 2016, 2015, and 2014 was $35.7 million, $18.2 million, and $2.8 million, respectively. The following table details the estimated aggregate amortization expense for all intangibles owned as of March 26, 2016, for each of the five succeeding fiscal years and in the aggregate thereafter (in thousands):
|
||
For the year ended March 25, 2017 |
$ |
35,345 |
For the year ended March 31, 2018 |
$ |
34,693 |
For the year ended March 30, 2019 |
$ |
31,936 |
For the year ended March 28, 2020 |
$ |
24,543 |
For the year ended March 27, 2021 |
$ |
15,270 |
Thereafter |
$ |
21,045 |
The goodwill balance included on the Consolidated Balance Sheets is $287.5 million and $263.1 million at March 26, 2016 and March 28, 2015, respectively. The increase in the goodwill balances primarily resulted from the acquisitions discussed below in Note 7 — Acquisitions.
|
7. Acquisitions
In the second quarter of fiscal year 2016, the Company acquired 100 percent of the outstanding equity of a small technology company as well as the assets of another small technology company for approximately $36.8 million, net of cash obtained, with the goal of broadening its software capabilities. The acquisitions were recorded using the acquisition method of accounting.
The consolidated statements of income presented include the results of operations of each acquired company since the date of the acquisition. Pro forma information related to these acquisitions has not been presented because it would not be materially different from amounts reported. See Note 4 – Fair Value of Financial Instruments above, for additional information related to contingent consideration reported in relation to one of the acquisitions.
Goodwill was recorded in relation to the acquisitions, as the purchase price was in excess of the fair value of the net assets acquired. None of the goodwill is expected to be deductible for income tax purposes. The combined final purchase price as of March 26, 2016 was allocated as follows (in thousands):
|
Amount |
|
|
||
Cash and cash equivalents |
$ |
241 |
Accounts receivable |
80 | |
Other current assets |
178 | |
Property, plant and equipment |
27 | |
Intangible assets |
20,020 | |
Other assets |
35 | |
Deferred tax asset |
1,972 | |
Total identifiable assets acquired |
$ |
22,553 |
|
||
Contingent consideration |
(9,068) | |
Other accrued liabilities |
(85) | |
Deferred tax liability |
(576) | |
Total identifiable liabilities assumed |
$ |
(9,729) |
Net identifiable assets acquired |
$ |
12,824 |
Goodwill |
23,935 | |
Total purchase price |
$ |
36,759 |
The acquired intangible assets and related weighted average amortization periods are detailed below (in thousands):
|
||||
Intangible assets |
Amount |
Weighted-average Amortization Period (years) |
||
Developed technology |
$ |
19,330 |
3.6 |
|
Backlog |
220 |
1.0 |
||
Non-compete agreements |
470 |
1.5 |
||
Total |
$ |
20,020 |
|
8. Revolving Line of Credit
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 .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, which includes marketable securities, 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 March 26, 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 March 26, 2016, which is included in long-term liabilities on the consolidated balance sheets under the caption “Debt.” The borrowings were primarily used for refinancing an interim credit facility.
|
9. Restructuring Costs
The prior year restructuring costs incurred relate to the Wolfson acquisition and consisted primarily of bank and legal fees, as well as certain expenses for stock compensation.
In the third quarter of fiscal year 2013, the Company committed to a plan to close its Tucson, Arizona design center and move those operations to the Company’s headquarters in Austin, Texas. As a result, the Company incurred a one-time charge for relocation, severance-related items and facility-related costs to operating expenses totaling $3.5 million in the third quarter of fiscal year 2013. The charge included $1.5 million in severance and relocation-related costs and $2.0 million in facility and other related charges. In fiscal year 2014, the Company recorded a credit of approximately $0.6 million related to changes in estimates for the facility, due to new subleases on the vacated property. This information is presented in a separate line item on the Consolidated Statements of Income in operating expenses under the caption “Restructuring and other, net.” Of the net $2.9 million expense incurred, all has been completed, and consisted of severance and relocation-related costs of approximately $1.2 million, an asset impairment charge of approximately $1.0 million, and facility-related costs of approximately $0.7 million.
As of March 26, 2016, we have no remaining restructuring accrual on the Consolidated Balance Sheet.
|
10. Postretirement Benefit Plans
Pension Plan
As a result of the Acquisition in fiscal year 2015, the Company now fully funds a defined benefit pension scheme (“the Scheme”) maintained by Wolfson, for some of the employees in the United Kingdom, which was closed to new participants as of July 2, 2002. As of April 30, 2011, the participants in the Scheme no longer accrue benefits and therefore the Company will not be required to pay contributions in respect to future accrual.
The Scheme is a trustee-administered fund that is legally separate from Wolfson, which holds the pension plan assets to meet long-term pension liabilities. The pension fund trustees comprise one employee and one employer representative and an independent chairman. The trustees are required by law to act in the best interests of the Scheme’s beneficiaries and the trustees are responsible, in consultation with Wolfson and the Company, for setting certain policies (including the investment policies and strategies) of the fund.
As of March 26, 2016, the Company was obligated, and subsequently paid, approximately $0.5 million to the Scheme on April 25, 2016, which is recorded on the consolidated balance sheets in “Accrued salaries and benefits”. The Company expects to completely close the Scheme over the next ten years.
The following tables set forth the benefit obligation, the fair value of plan assets, and the funded status of the Scheme (in thousands):
|
|||||
|
March 26, |
March 28, |
|||
|
2016 |
2015 |
|||
Change in benefit obligation: |
|||||
Beginning balance |
$ |
27,091 |
$ |
22,959 | |
Expenses |
15 | 16 | |||
Interest cost |
821 | 544 | |||
Benefits paid and expenses |
(1,095) | (255) | |||
Change in foreign currency exchange rate |
(1,221) |
- |
|||
Actuarial (gain) / loss |
(1,643) | 3,827 | |||
Total benefit obligation ending balance |
23,968 | 27,091 | |||
|
|||||
Change in plan assets: |
|||||
Beginning balance |
26,735 | 25,021 | |||
Actual return on plan assets |
(155) | 1,969 | |||
Employer contributions |
1,409 |
- |
|||
Change in foreign currency exchange rate |
(1,206) |
- |
|||
Benefits paid and expenses |
(1,095) | (255) | |||
Fair value of plan assets ending balance |
25,688 | 26,735 | |||
|
|||||
Funded status of Scheme at end of year |
$ |
1,720 |
$ |
(356) |
The assets and obligations of the Scheme are denominated in British Pound Sterling. Based on an actuarial study performed as of March 26, 2016, the Scheme is overfunded and a long-term asset is reflected in the Company’s consolidated balance sheet under the caption “Other assets”. The weighted-average discount rate assumption used to determine benefit obligations as of March 26, 2016 and March 28, 2015 was 3.6% and 3.2%, respectively.
The components of the Company’s net periodic pension expense (income) are as follows (in thousands):
|
|||||
|
Fiscal Years Ended |
||||
|
March 26, |
March 28, |
|||
|
2016 |
2015 |
|||
Expenses |
$ |
15 |
$ |
16 | |
Interest cost |
821 | 544 | |||
Expected return on plan assets |
(1,212) | (792) | |||
Amortization of actuarial loss |
49 |
- |
|||
|
$ |
(327) |
$ |
(232) |
The following weighted-average assumptions were used to determine net periodic benefit costs for the year ended March 26, 2016 and March 28, 2015:
|
||||||
|
2016 |
2015 |
||||
Discount rate |
3.20 |
% |
4.00 |
% |
||
Expected long-term return on plan assets |
4.65 |
% |
5.36 |
% |
We report and measure the plan assets of our defined benefit pension at fair value. The Company’s pension plan assets consist of cash, equity securities, corporate debt securities, and diversified growth funds. The fair value of the pension plan assets is determined through an external actuarial valuation, following a similar process of obtaining inputs as described above. The expected long-term return on plan assets is comparable to the discount rate used to value plan liabilities.
The table below sets forth the fair value of our plan assets as of March 26, 2016, using the same three-level hierarchy of fair-value inputs described in Note 4 (in thousands):
|
|||||||||||
|
Quoted Prices |
||||||||||
|
in Active |
Significant |
|||||||||
|
Markets for |
Other |
Significant |
||||||||
|
Identical |
Observable |
Unobservable |
||||||||
|
Assets |
Inputs |
Inputs |
||||||||
|
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||
Plan Assets: |
|||||||||||
Cash |
$ |
42 |
$ |
- |
$ |
- |
$ |
42 | |||
Pension funds |
- |
25,646 |
- |
25,646 | |||||||
|
$ |
42 |
$ |
25,646 |
$ |
- |
$ |
25,688 |
The table below sets forth the fair value of our plan assets as of March 28, 2015, (in thousands):
|
|||||||||||
|
Quoted Prices |
||||||||||
|
in Active |
Significant |
|||||||||
|
Markets for |
Other |
Significant |
||||||||
|
Identical |
Observable |
Unobservable |
||||||||
|
Assets |
Inputs |
Inputs |
||||||||
|
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||
Plan Assets: |
|||||||||||
Cash |
$ |
1,160 |
$ |
- |
$ |
- |
$ |
1,160 | |||
Pension funds |
- |
25,575 |
- |
25,575 | |||||||
|
$ |
1,160 |
$ |
25,575 |
$ |
- |
$ |
26,735 |
Amounts recognized in accumulated other comprehensive income (loss) for the period that have not yet been recognized as components of net periodic benefit cost consist of (in thousands):
|
||
|
Fiscal Year |
|
|
2016 |
|
Net actuarial gain |
$ |
2,660 |
|
||
Accumulated other comprehensive income, before tax |
$ |
2,660 |
The Company will amortize the actuarial gain over a period of twenty-five years based on actuarial assumptions, including life expectancy. The following table provides the estimated amount that will be amortized from accumulated other comprehensive loss into net periodic benefit cost in fiscal year 2017 (in thousands):
|
||
|
Fiscal Year |
|
|
2017 |
|
Transition (asset) obligation |
$ |
- |
Prior service cost |
- |
|
Actuarial loss (gain) |
(106) |
The Company has contributed $0.5 million to the pension plan in fiscal year 2017 for deficit contributions discussed above, which is recorded on the consolidated balance sheets in “Accrued salaries and benefits”.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid for the following fiscal years (in thousands):
|
Benefit |
|
|
Payments |
|
2017 |
$ |
292 |
2018 |
300 | |
2019 |
465 | |
2020 |
544 | |
2021 |
534 | |
Thereafter |
2,754 |
The expected long-term return on plan assets is based on historical actual return experience and estimates of future long-term performance with consideration to the expected investment mix of the plan assets. It is the policy of the Trustees and the Company to review the investment strategy periodically. The Trustees’ investment objectives and the processes undertaken to measure and manage the risks inherent in the Scheme investment strategy are illustrated by the current asset allocation. The current mix is 32% equity securities, 47% corporate debt securities, and 21% diversified growth funds. See the related fair value of the assets above.
The Scheme exposes the Company to actuarial risks such as investment (market) risk, interest rate risk, mortality risk, longevity risk and currency risk. A decrease in corporate bond yields, a rise in inflation or an increase in life expectancy would result in an increase to the Scheme liabilities and may give rise to increased benefit expenses in future periods. Caps on inflationary increases are currently in place to protect the Scheme against extreme inflation, however.
The indicative impact on net periodic benefit cost based on defined sensitivities is as follows:
|
||
Change |
Approximate impact on liabilities |
|
Decrease discount rate by 0.1%, per year |
2% increase |
|
Increase inflation linked assumptions by 0.1%, per year |
2% increase (of inflation-linked liabilities) |
|
Increase life expectancy by 1 year |
2% increase |
401(k) Plan
We have a 401(k) Profit Sharing Plan (the “401(k) Plan”) covering all of our qualifying domestic employees. Under the 401(k) Plan, employees may elect to contribute any percentage of their annual compensation up to the annual IRS limitations. The Company matches 50 percent of the first 8 percent of the employees’ annual contribution. We made matching employee contributions of $4.3 million, $2.5 million, and $1.8 million during fiscal years 2016, 2015, and 2014, respectively.
|
11. Equity Compensation
The Company is currently granting equity awards from the 2006 Stock Incentive Plan (the “Plan”), which was approved by stockholders in July 2006. The Plan provides for granting of stock options, restricted stock awards, performance awards, phantom stock awards, and bonus stock awards, or any combination of the foregoing. To date, the Company has granted stock options, restricted stock awards, phantom stock awards (also called restricted stock units), and performance awards (also called market stock units) under the Plan. Each stock option granted reduces the total shares available for grant under the Plan by one share. Each full value award granted (including restricted stock awards, restricted stock units and market stock units) reduces the total shares available for grant under the Plan by 1.5 shares. Stock options generally vest between zero and four years, and are exercisable for a period of ten years from the date of grant. Restricted stock units are generally subject to vesting from one to three years, depending upon the terms of the grant. Market stock units are subject to a vesting schedule of three years.
The following table summarizes the activity in total shares available for grant (in thousands):
|
||
|
Shares |
|
|
Available for |
|
|
Grant |
|
Balance, March 30, 2013 |
5,125 | |
Granted |
(1,785) | |
Forfeited |
207 | |
Balance, March 29, 2014 |
3,547 | |
Shares added |
3,300 | |
Granted |
(3,181) | |
Forfeited |
230 | |
Balance, March 28, 2015 |
3,896 | |
Shares added |
4,900 | |
Granted |
(2,676) | |
Forfeited |
167 | |
Balance, March 26, 2016 |
6,287 |
As of March 26, 2016, approximately 15.7 million shares of common stock were reserved for issuance under the Plan.
Stock Compensation Expense
The following table summarizes the effects of stock-based compensation on cost of goods sold, research and development, sales, general and administrative, pre-tax income, and net income after taxes for shares granted under the Plan (in thousands, except per share amounts):
|
||||||||
|
Fiscal Year |
|||||||
|
2016 |
2015 |
2014 |
|||||
Cost of sales |
$ |
1,145 |
$ |
747 |
$ |
864 | ||
Research and development |
17,173 | 11,222 | 10,392 | |||||
Sales, general and administrative |
15,188 | 25,580 | 11,818 | |||||
Effect on pre-tax income |
33,506 | 37,549 | 23,074 | |||||
Income Tax Benefit |
(10,306) | (11,467) | (8,289) | |||||
Total share-based compensation expense (net of taxes) |
23,200 | 26,082 | 14,785 | |||||
Share-based compensation effects on basic earnings per share |
$ |
0.37 |
$ |
0.42 |
$ |
0.23 | ||
Share-based compensation effects on diluted earnings per share |
0.35 | 0.40 | 0.23 | |||||
|
||||||||
|
The total share based compensation expense included in the table above and which is attributable to restricted stock awards, restricted stock units and market stock units was $30.3 million, $34.0 million, $18.6 million, for fiscal years 2016, 2015, and 2014, respectively. Share based compensation expense recognized is presented within operating activities in the Consolidated Statement of Cash Flows.
As of March 26, 2016, there was $58.3 million of compensation costs related to non-vested stock options, restricted stock units, and market stock units granted under the Company’s equity incentive plans not yet recognized in the Company’s financial statements. The unrecognized compensation cost is expected to be recognized over a weighted average period of 1.39 years for stock options, 1.58 years for restricted stock units, and 2.30 years for market stock units.
Stock Options
We estimated the fair value of each stock option granted on the date of grant using the Black-Scholes option-pricing model using a dividend yield of zero and the following additional assumptions:
|
|||||||||||||||
|
Year Ended |
||||||||||||||
|
March 26, 2016 |
March 28, 2015 |
March 29, 2014 |
||||||||||||
Expected stock price volatility |
40.13 |
- |
45.07 |
% |
38.79 |
- |
42.12 |
% |
51.93 |
- |
54.34 |
% |
|||
Risk-free interest rate |
0.94 |
- |
1.05 |
% |
0.49 |
- |
0.91 |
% |
0.47 |
- |
0.52 |
% |
|||
Expected term (in years) |
2.72 |
- |
2.97 |
2.15 |
- |
2.87 |
2.46 |
- |
2.61 |
The Black-Scholes valuation calculation requires us to estimate key assumptions such as stock price volatility, expected term, risk-free interest rate and dividend yield. The expected stock price volatility is based upon implied volatility from traded options on our stock in the marketplace. The expected term of options granted is derived from an analysis of historical exercises and remaining contractual life of stock options, and represents the period of time that options granted are expected to be outstanding after becoming vested. The risk-free interest rate reflects the yield on zero-coupon U.S. Treasury securities for a period that is commensurate with the expected term assumption. Finally, we have never paid cash dividends, do not currently intend to pay cash dividends, and thus have assumed a zero percent dividend yield.
Using the Black-Scholes option valuation model, the weighted average estimated fair values of employee stock options granted in fiscal years 2016, 2015, and 2014, were $12.58, $7.26, and $10.45, respectively.
During fiscal years 2016, 2015, and 2014, we received a net $6.5 million, $5.2 million, $5.1 million, respectively, from the exercise of 0.8 million, 0.7 million, and 0.8 million, respectively, stock options granted under the Company’s Stock Plan.
The total intrinsic value of stock options exercised during fiscal year 2016, 2015, and 2014, was $19.7 million, $12.8 million, and $12.4 million, respectively. Intrinsic value represents the difference between the market value of the Company’s common stock at the time of exercise and the strike price of the stock option.
Additional information with respect to stock option activity is as follows (in thousands, except per share amounts):
|
|||||
|
Outstanding Options |
||||
|
Weighted |
||||
|
Average |
||||
|
Number |
Exercise Price |
|||
Balance, March 30, 2013 |
4,278 |
$ |
10.42 | ||
Options granted |
318 | 23.45 | |||
Options exercised |
(834) | 6.12 | |||
Options forfeited |
(10) | 15.33 | |||
Options expired |
(27) | 19.52 | |||
Balance, March 29, 2014 |
3,725 |
$ |
12.42 | ||
Options granted |
310 | 21.69 | |||
Options exercised |
(696) | 7.47 | |||
Options forfeited |
(5) | 19.94 | |||
Options expired |
(1) | 4.65 | |||
Balance, March 28, 2015 |
3,333 |
$ |
14.31 | ||
Options granted |
387 | 31.39 | |||
Options exercised |
(773) | 8.46 | |||
Options forfeited |
- |
- |
|||
Options expired |
(22) | 35.41 | |||
Balance, March 26, 2016 |
2,925 |
$ |
17.96 |
Additional information with regards to outstanding options that are vesting, expected to vest, or exercisable as of March 26, 2016 is as follows (in thousands, except years and per share amounts):
|
||||||||||
|
Weighted |
Weighted Average |
||||||||
|
Number of |
Average |
Remaining Contractual |
Aggregate |
||||||
|
Options |
Exercise price |
Term (years) |
Intrinsic Value |
||||||
Vested and expected to vest |
2,915 |
$ |
17.93 |
5.49 |
$ |
49,266 |
||||
Exercisable |
2,192 |
$ |
14.63 |
4.39 |
$ |
44,390 |
In accordance with U.S. GAAP, stock options outstanding that are expected to vest are presented net of estimated future option forfeitures, which are estimated as compensation costs are recognized. Options with a fair value of $3.4 million, $4.4 million, and $4.8 million, became vested during fiscal years 2016, 2015, and 2014, respectively.
The following table summarizes information regarding outstanding and exercisable options as of March 26, 2016 (in thousands, except per share amounts):
|
||||||||||||
|
Options Outstanding |
Options Exercisable |
||||||||||
|
Weighted Average |
|||||||||||
|
Remaining |
Weighted |
Weighted |
|||||||||
|
Contractual Life |
Average Exercise |
Number |
Average |
||||||||
Range of Exercise Prices |
Number |
(years) |
Price |
Exercisable |
Exercise Price |
|||||||
$2.90 - $5.55 |
592 | 3.23 |
$ |
5.42 | 592 |
$ |
5.42 | |||||
$5.66 - $15.41 |
739 | 3.36 | 11.18 | 739 | 11.18 | |||||||
$16.21 - $20.37 |
579 | 6.01 | 18.10 | 439 | 17.37 | |||||||
$20.40 - $31.25 |
736 | 8.51 | 27.17 | 219 | 23.18 | |||||||
$32.29 - $33.38 |
47 | 9.18 | 32.88 | 5 | 32.29 | |||||||
$38.99 - $38.99 |
232 | 6.52 | 38.99 | 198 | 38.99 | |||||||
|
2,925 | 5.50 |
$ |
17.96 | 2,192 |
$ |
14.63 |
As of March 26, 2016 and March 28, 2015, the number of options exercisable was 2.2 million and 2.7 million, respectively.
Restricted Stock Awards
The Company periodically grants restricted stock awards (“RSA’s”) to select employees. The grant date for these awards is equal to the measurement date and the awards are valued as of the measurement date and amortized over the requisite vesting period, which is no more than four years.
|
|
There were no RSA’s outstanding as of March 26, 2016. RSA’s with a fair value of $86 thousand became vested during fiscal years 2015. No RSA’s became vested during fiscal year 2014 and 2016.
Restricted Stock Units
Commencing in fiscal year 2011, the Company began granting restricted stock units (“RSU’s”) to select employees. These awards are valued as of the grant date and amortized over the requisite vesting period. Generally, RSU’s vest 100 percent on the first to third anniversary of the grant date depending on the vesting specifications. A summary of the activity for RSU’s in fiscal year 2016, 2015, and 2014 is presented below (in thousands, except year and per share amounts):
|
||||
|
Weighted |
|||
|
Average |
|||
|
Shares |
Fair Value |
||
March 30, 2013 |
2,071 |
$ |
23.66 | |
Granted |
977 | 22.55 | ||
Vested |
(626) | 17.71 | ||
Forfeited |
(113) | 25.81 | ||
March 29, 2014 |
2,309 | 25.26 | ||
Granted |
1,887 | 22.04 | ||
Vested |
(1,224) | 19.52 | ||
Forfeited |
(151) | 26.17 | ||
March 28, 2015 |
2,821 | 25.57 | ||
Granted |
1,437 | 31.51 | ||
Vested |
(992) | 32.48 | ||
Forfeited |
(103) | 24.75 | ||
March 26, 2016 |
3,163 |
$ |
26.14 |
The aggregate intrinsic value of RSU’s outstanding as of March 26, 2016 was $109.0 million. Additional information with regards to outstanding restricted stock units that are expected to vest as of March 26, 2016, is as follows (in thousands, except year and per share amounts):
|
|||||||
|
Weighted |
Weighted Average |
|||||
|
Average |
Remaining Contractual |
|||||
|
Shares |
Fair Value |
Term (years) |
||||
Expected to vest |
2,969 |
$ |
26.04 | 1.53 |
RSU’s outstanding that are expected to vest are presented net of estimated future forfeitures, which are estimated as compensation costs are recognized. RSU’s with a fair value of $32.2 million and $23.9 million became vested during fiscal years 2016 and 2015, respectively. The majority of RSUs that vested in 2016 and 2015 were net settled such that the Company withheld a portion of the shares at fair value to satisfy tax withholding requirements. In fiscal years 2016 and 2015, the vesting of RSU’s reduced the authorized and unissued share balance by approximately 1.0 million and 1.2 million, respectively. Total shares withheld and subsequently retired out of the Plan were approximately 0.2 million and 0.2 million, and total payments for the employees’ tax obligations to taxing authorities were $6.9 million and $4.6 million for fiscal years 2016 and 2015, respectively. A portion of RSUs that vested in fiscal year 2016 and 2015 were cash settled such that the Company received cash from employees in lieu of withholding shares to satisfy tax withholding requirements. The total amount received from cash settled shares during fiscal year 2016 and 2015 was $0.1 million and $0.1 million, respectively.
Market Stock Units
In fiscal year 2015, the Company began granting market stock units (“MSU’s”) to select employees. MSU’s vest based upon the relative total shareholder return (“TSR”) of the Company as compared to that of the Index. The requisite service period for these MSU’s is also the vesting period, which is three years. The fair value of each MSU granted was determined on the date of grant using the Monte Carlo simulation, which calculates the present value of the potential outcomes of future stock prices of the Company and the Index over the requisite service period. The projection of the stock prices are based on the risk-free rate of return, the volatilities of the stock price of the Company and the Index, the correlation of the stock price of the Company with the Index, and the dividend yield.
The fair values estimated from the Monte Carlo simulation were calculated using a dividend yield of zero and the following additional assumptions:
|
Year Ended |
|||||
|
March 26, |
March 28, |
||||
|
2016 |
2015 |
||||
Expected stock price volatility |
45.07 |
% |
39.65 |
% |
||
Risk-free interest rate |
1.16 |
% |
1.00 |
% |
||
Expected term (in years) |
3.00 | 3.00 |
Using the Monte Carlo simulation, the weighted average estimated fair value of the MSU’s granted in fiscal year 2016 was $39.86. A summary of the activity for MSU’s in fiscal year 2016 and 2015 is presented below (in thousands, except year and per share amounts):
|
Weighted |
|||
|
Average |
|||
|
Shares |
Fair Value |
||
March 29, 2014 |
- |
$ |
- |
|
Granted |
35 | 22.00 | ||
Vested |
- |
- |
||
Forfeited |
- |
- |
||
March 28, 2015 |
35 |
$ |
22.00 | |
Granted |
90 | 39.86 | ||
Vested |
- |
- |
||
Forfeited |
- |
- |
||
March 26, 2016 |
125 |
$ |
34.85 |
The aggregate intrinsic value of MSU’s outstanding as of March 26, 2016 was $4.3 million. Additional information with regard to outstanding MSU’s that are expected to vest as of March 26, 2016 is as follows (in thousands, except year and per share amounts):
|
Weighted |
Weighted Average |
|||||
|
Average |
Remaining Contractual |
|||||
|
Shares |
Fair Value |
Term (years) |
||||
Expected to vest |
113 |
$ |
34.68 | 2.29 |
No MSU’s became vested in 2016 and 2015.
|
12. Commitments and Contingencies
Facilities and Equipment Under Operating and Capital Lease Agreements
We currently own our corporate headquarters and select surrounding properties, and our UK headquarters office. We lease certain of our other facilities and certain equipment under operating lease agreements, some of which have renewal options. Certain of these arrangements provide for lease payment increases based upon future fair market rates. As of May 1, 2016, our principal facilities are located in Austin, Texas and Edinburgh, Scotland, United Kingdom.
Total rent expense under operating leases was approximately $5.2 million, $4.0 million, and $2.8 million, for fiscal years 2016, 2015, and 2014, respectively. Sublease rental income was $0.3 million, $0.1 million, and $0.1 million, for fiscal years 2016, 2015, and 2014, respectively.
As of March 26, 2016, there was equipment held under a capital lease with a cost basis of $1.0 million. The Company has recorded accumulated depreciation related to this equipment of $0.3 million as of March 26, 2016. The future minimum rental commitments under the capital lease are approximately, $234 thousand for fiscal year 2017, $234 thousand for fiscal year 2018 and $234 thousand for fiscal year 2019.
The aggregate minimum future rental commitments under all operating leases, net of sublease income for the following fiscal years are (in thousands):
|
||||||||||||||
|
Facilities |
Subleases |
Net Facilities Commitments |
Equipment Commitments |
Total Commitments |
|||||||||
2017 |
$ |
4,913 |
$ |
383 |
$ |
4,530 |
$ |
58 |
$ |
4,588 | ||||
2018 |
5,407 | 387 | 5,020 | 70 | 5,090 | |||||||||
2019 |
8,095 | 391 | 7,704 | 64 | 7,768 | |||||||||
2020 |
7,266 | 266 | 7,000 | 60 | 7,060 | |||||||||
2021 |
6,997 | 245 | 6,752 | 59 | 6,811 | |||||||||
Thereafter |
38,653 | 1,110 | 37,543 | 59 | 37,602 | |||||||||
Total minimum lease payment |
$ |
71,331 |
$ |
2,782 |
$ |
68,549 |
$ |
370 |
$ |
68,919 |
Wafer, Assembly, Test and Other Purchase Commitments
We rely primarily on third-party foundries for our wafer manufacturing needs. Generally, our foundry agreements do not have volume purchase commitments and primarily provide for purchase commitments based on purchase orders, with the exception of a few "take or pay" clauses included in vendor contracts that are immaterial at March 26, 2016. Cancellation fees or other charges may apply and are generally dependent upon whether wafers have been started or the stage of the manufacturing process at which the notice of cancellation is given. As of March 26, 2016, we had foundry commitments of $98.2 million.
In addition to our wafer supply arrangements, we contract with third-party assembly vendors to package the wafer die into finished products. Assembly vendors provide fixed-cost-per-unit pricing, as is common in the semiconductor industry. We had non-cancelable assembly purchase orders with numerous vendors totaling $4.8 million at March 26, 2016.
Test vendors provide fixed-cost-per-unit pricing, as is common in the semiconductor industry. Our total non-cancelable commitment for outside test services as of March 26, 2016 was $9.7 million.
Other purchase commitments primarily relate to multi-year tool commitments, and were $29.8 million at March 26, 2016.
|
13. 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 to assess whether a loss is probable or there is a reasonable possibility that a loss or additional loss may have been incurred and to 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.
On June 4, 2012, U.S. Ethernet Innovations, LLC (the “Ethernet Plaintiff”) filed suit against Cirrus Logic and two other defendants in the U.S. District Court, Eastern District of Texas. The Ethernet Plaintiff alleged that Cirrus Logic infringed four U.S. patents relating to Ethernet technology. In its complaint, the Ethernet Plaintiff indicated that it sought unspecified monetary damages, including up to treble damages for willful infringement. We answered the complaint on June 29, 2012, denying the allegations of infringement and sought a declaratory judgment that the patents in suit were invalid and not infringed. The parties entered into a settlement agreement on May 30, 2013. In exchange for a full release of claims as it relates to the asserted patent, we paid the Ethernet Plaintiff $0.7 million. This amount is recorded as a separate line item on the Consolidated Statements of Income under the caption “Patent agreement and other.”
On June 17, 2014, Enterprise Systems Technologies S.a.r.l. (the “Enterprise Plaintiff”) filed suit against Cirrus Logic, Inc. in the U.S. District Court, District of Delaware. The Enterprise Plaintiff alleged that Cirrus Logic indirectly infringed two U.S. patents through the manufacture and sale of digital signal processors, audio codecs, audio processors, and other components included in communications and consumer electronic devices such as smartphones and computers. The Enterprise Plaintiff sought unspecified monetary damages. On July 23, 2014, the Enterprise Plaintiff filed an amended complaint removing allegations associated with one of the two patents. On August 25, 2014, the lawsuit was stayed pending resolution of the proceedings in the International Trade Commission (“ITC”) described below. The suit was concluded on March 6, 2015, when the Enterprise Plaintiff dismissed with prejudice any claims against Cirrus Logic.
On July 16, 2014, the Enterprise Plaintiff requested the ITC to investigate the impact of certain products that allegedly infringe the same patent asserted in the District Court of Delaware. The Enterprise Plaintiff was seeking a limited exclusion order against certain Apple, Inc. products that incorporate the Company’s components. The matter was concluded when the ITC terminated its investigation with respect to Cirrus Logic on March 9, 2015, and on March 30, 2015, the ITC made such termination decision final.
|
14. Stockholders’ Equity
Share Repurchase Program
On November 20, 2012, we announced that our Board of Directors authorized a share repurchase program of up to $200 million of the Company’s common stock. As of March 26, 2016, the Company had repurchased 7.9 million shares at a cost of approximately $200.0 million, or an average cost of $25.19 per share. Of this total, 1.7 million shares were purchased in the current fiscal year at a cost of $51.7 million, or an average cost of $29.92 per share. There are no outstanding remaining available repurchase obligations under this plan. All repurchased common stock shares were retired.
On October 28, 2015, the Company announced that the Board of Directors authorized a share repurchase program of up to $200 million of the Company’s common stock. As of March 26, 2016, the Company had repurchased 0.3 million shares under this plan at a cost of approximately $8.8 million, or an average cost of $31.58 per share. Approximately $191.2 million remains available for repurchase under this plan. 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 March 26, 2016.
Preferred Stock
We have 5.0 million shares of Preferred Stock authorized. As of March 26, 2016, we have not issued any of the authorized shares.
|
15. Accumulated Other Comprehensive Income (Loss)
Our accumulated other comprehensive income (loss) is comprised of foreign currency translation adjustments, unrealized gains and losses on investments classified as available-for-sale, and actuarial gains and losses on our pension plan assets.
The following table summarizes the changes in the components of accumulated other comprehensive income (loss), net of tax (in thousands):
|
||||||||||
|
Unrealized Gains |
Actuarial Gains |
||||||||
|
Foreign |
(Losses) on |
(Losses) on |
|||||||
|
Currency |
Securities |
Pension Plan |
Total |
||||||
Balance, March 30, 2013 |
$ |
(770) |
$ |
(149) |
$ |
- |
$ |
(919) | ||
Current period marketable securities activity |
- |
(31) |
- |
(31) | ||||||
Tax effect |
- |
64 |
- |
64 | ||||||
Balance, March 29, 2014 |
$ |
(770) |
$ |
(116) |
$ |
- |
$ |
(886) | ||
Current period marketable securities activity |
- |
107 |
- |
107 | ||||||
Current period actuarial gain/loss activity |
- |
- |
(1,625) | (1,625) | ||||||
Tax effect |
- |
(38) | 332 | 294 | ||||||
Balance, March 28, 2015 |
$ |
(770) |
$ |
(47) |
$ |
(1,293) |
$ |
(2,110) | ||
Current period foreign exchange translation |
294 |
- |
- |
294 | ||||||
Current period marketable securities activity |
- |
(24) |
- |
(24) | ||||||
Current period actuarial gain/loss activity |
- |
- |
2,660 | 2,660 | ||||||
Current period amortization of actuarial loss |
- |
- |
49 | 49 | ||||||
Tax effect |
- |
9 | (546) | (537) | ||||||
Balance, March 26, 2016 |
$ |
(476) |
$ |
(62) |
$ |
870 |
$ |
332 |
|
16. Income Taxes
Income before income taxes consisted of (in thousands):
|
||||||||
|
Fiscal Years Ended |
|||||||
|
March 26, |
March 28, |
March 29, |
|||||
|
2016 |
2015 |
2014 |
|||||
United States |
$ |
108,133 |
$ |
133,295 |
$ |
155,431 | ||
Non-U.S. |
67,856 | (41,746) | 306 | |||||
|
$ |
175,989 |
$ |
91,549 |
$ |
155,737 |
The provision (benefit) for income taxes consists of (in thousands):
|
||||||||
|
Fiscal Years Ended |
|||||||
|
March 26, |
March 28, |
March 29, |
|||||
|
2016 |
2015 |
2014 |
|||||
Current: |
||||||||
Federal |
$ |
28,154 |
$ |
42,102 |
$ |
10,550 | ||
State |
159 | 63 | 258 | |||||
Non-U.S. |
703 | 445 | 335 | |||||
Total current tax provision |
$ |
29,016 |
$ |
42,610 |
$ |
11,143 | ||
|
||||||||
Deferred: |
||||||||
U.S. |
18,242 | 2,136 | 36,543 | |||||
Non-U.S. |
5,101 | (8,375) | (60) | |||||
Total deferred tax provision (benefit) |
23,343 | (6,239) | 36,483 | |||||
Total tax provision |
$ |
52,359 |
$ |
36,371 |
$ |
47,626 |
The effective income tax rates differ from the rates computed by applying the statutory federal rate to pretax income as follows (in percentages):
|
||||||||
|
Fiscal Years Ended |
|||||||
|
March 26, |
March 28, |
March 29, |
|||||
|
2016 |
2015 |
2014 |
|||||
Expected income tax provision at the U.S. federal statutory rate |
35.0 | 35.0 | 35.0 | |||||
Foreign taxes at different rates |
(0.6) | 7.3 | 0.1 | |||||
Research and development tax credits |
(5.6) | (3.6) | (0.9) | |||||
Recognition of prior year benefit |
- |
- |
(4.1) | |||||
Nondeductible expenses |
0.1 | 2.3 | 0.5 | |||||
Other |
0.9 | (1.3) |
- |
|||||
Provision for income taxes |
29.8 | 39.7 | 30.6 |
Significant components of our deferred tax assets and liabilities as of March 26, 2016 and March 28, 2015 are (in thousands):
|
|||||
|
March 26, |
March 28, |
|||
|
2016 |
2015 |
|||
Deferred tax assets: |
|||||
Inventory valuation |
$ |
- |
$ |
6,377 | |
Accrued expenses and allowances |
3,761 | 4,705 | |||
Net operating loss carryforwards |
24,592 | 57,878 | |||
Research and development tax credit carryforwards |
9,649 | 14,567 | |||
State tax credit carryforwards |
142 | 225 | |||
Capitalized research and development |
1,160 | 1,793 | |||
Other |
24,745 | 30,695 | |||
Total deferred tax assets |
$ |
64,049 |
$ |
116,240 | |
Valuation allowance for deferred tax assets |
(10,773) | (33,190) | |||
Net deferred tax assets |
$ |
53,276 |
$ |
83,050 | |
|
|||||
Deferred tax liabilities: |
|||||
Depreciation and amortization |
$ |
10,924 |
$ |
6,827 | |
Acquisition intangibles |
24,527 | 35,242 | |||
Total deferred tax liabilities |
$ |
35,451 |
$ |
42,069 | |
Total net deferred tax assets |
$ |
17,825 |
$ |
40,981 |
The deferred tax assets are disclosed as “Deferred tax assets – Long Term” on the Consolidated Balance Sheet as of March 26, 2016, following the adoption of ASU 2015-17 in the current fiscal year, discussed in Note 2 above. As of March 28, 2015, current and long-term deferred tax assets are disclosed separately under their respective captions on the Consolidated Balance Sheet. The deferred tax liabilities are included in “Other long-term liabilities” on the Consolidated Balance Sheet for both periods presented.
Deferred tax assets and liabilities are recorded for the estimated tax impact of temporary differences between the tax basis and book basis of assets and liabilities. A valuation allowance is established against a deferred tax asset when it is more likely than not that the deferred tax asset will not be realized. The valuation allowance decreased by $22.4 million in fiscal year 2016, primarily due to the write off of certain fully valued deferred tax assets with no impact to income tax expense. The Company continued to record a valuation allowance on various state net operating losses and tax credits due to the likelihood that they will expire or go unutilized because the Company does not expect to recognize sufficient income in the jurisdictions in which the tax attributes were created. Management believes that the Company’s results from future operations will generate sufficient taxable income in the appropriate jurisdictions such that it is more likely than not that the remaining deferred tax assets will be realized.
At March 26, 2016, the Company had gross federal net operating loss carryforwards of $17.3 million, all of which related to acquired companies and are, therefore, subject to certain limitations under Section 382 of the Internal Revenue Code. The federal net operating loss carryforwards expire in fiscal years 2019 through 2034. The Company also had $9.9 million of federal research and development credit carryforwards, of which $4.8 million are reflected as deferred tax assets at the end of the fiscal year because, under the “with and without method”, a greater portion is deemed to have been utilized for U.S. GAAP purposes as of the end of fiscal year 2016 than was utilized for tax return purposes. This carryforward will expire in 2034 through 2036.
At March 26, 2016, the Company had gross state net operating loss carryforwards of $57.9 million. The state net operating loss carryforwards expire in fiscal years 2017 through 2033. In addition, the Company had $14.6 million of state research and development tax credit carryforwards. Certain of these state tax credits will expire in fiscal years 2022 through 2027. The remaining state tax credit carryforwards do not expire.
At March 26, 2016, the Company had gross foreign net operating losses of $94.3 million as a result of the Wolfson acquisition. These loss carryforwards are not subject to an annual limit and do not expire.
At March 26, 2016, the undistributed earnings of our foreign subsidiaries of approximately $25.5 million are intended to be indefinitely reinvested outside the U.S. Accordingly, no provision for U.S. federal income and foreign withholding taxes associated with a distribution of these earnings has been made. The amount of unrecognized deferred tax liability related to these undistributed earnings is estimated to be $8.4 million.
The following table summarizes the changes in the unrecognized tax benefits (in thousands):
|
|||||
|
March 26, |
March 28, |
|||
|
2016 |
2015 |
|||
Beginning balance |
$ |
- |
$ |
- |
|
Additions based on tax positions related to the current year |
12,592 |
- |
|||
Additions based on tax positions related to prior years |
6,204 |
- |
|||
Ending balance |
$ |
18,796 |
$ |
- |
The Company records unrecognized tax benefits for the estimated risk associated with tax positions taken on tax returns. At March 26, 2016, the Company had gross unrecognized tax benefits of $18.8 million, all of which would impact the effective tax rate if recognized. During fiscal year 2016, the Company had gross increases of $12.6 million related to current year unrecognized tax benefits, as well as gross increases of $6.2 million related to prior year unrecognized tax benefits. The Company’s unrecognized tax benefits are classified either as “Other long-term liabilities” in the Consolidated Balance Sheet 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 taxes. As of March 26, 2016, the balance of accrued interest and penalties was zero. No interest or penalties were recognized during fiscal year 2016 or 2015.
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.
|
17. Segment Information
We determine our operating segments in accordance with Financial Accounting Standards Board (“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, there is no complete, discrete financial information maintained for these product lines. Revenue from our product lines are as follows (in thousands):
|
||||||||
|
Fiscal Years Ended |
|||||||
|
March 26, |
March 28, |
March 29, |
|||||
|
2016 |
2015 |
2014 |
|||||
Portable Audio Products |
$ |
989,101 |
$ |
740,301 |
$ |
562,718 | ||
Non-Portable Audio and Other Products |
180,150 | 176,267 | 151,620 | |||||
|
$ |
1,169,251 |
$ |
916,568 |
$ |
714,338 |
Geographic Area
The following illustrates sales by geographic locations based on the sales office location (in thousands):
|
||||||||
|
Fiscal Years Ended |
|||||||
|
March 26, |
March 28, |
March 29, |
|||||
|
2016 |
2015 |
2014 |
|||||
United States |
$ |
73,889 |
$ |
31,977 |
$ |
35,582 | ||
European Union (excluding United Kingdom) |
12,745 | 13,629 | 13,125 | |||||
United Kingdom |
5,687 | 2,805 | 1,513 | |||||
China |
823,843 | 728,413 | 617,850 | |||||
Hong Kong |
10,647 | 15,087 | 6,057 | |||||
Japan |
27,898 | 14,353 | 5,150 | |||||
South Korea |
193,388 | 69,327 | 9,338 | |||||
Taiwan |
9,249 | 15,272 | 13,739 | |||||
Other Asia |
8,657 | 10,991 | 11,112 | |||||
Other non-U.S. countries |
3,248 | 14,714 | 872 | |||||
Total consolidated sales |
$ |
1,169,251 |
$ |
916,568 |
$ |
714,338 |
The following illustrates property, plant and equipment, net, by geographic locations, based on physical location (in thousands):
|
|||||
|
Fiscal Years Ended |
||||
|
March 26, |
March 28, |
|||
|
2016 |
2015 |
|||
United States |
$ |
125,674 |
$ |
114,935 | |
European Union (excluding United Kingdom) |
253 |
- |
|||
United Kingdom |
34,632 | 28,925 | |||
China |
483 | 245 | |||
Hong Kong |
1 | 1 | |||
Japan |
260 | 3 | |||
South Korea |
110 | 3 | |||
Taiwan |
180 | 216 | |||
Other Asia |
29 | 18 | |||
Other non-U.S. countries |
1,034 |
- |
|||
Total consolidated property, plant and equipment, net |
$ |
162,656 |
$ |
144,346 |
|
18. Quarterly Results (Unaudited)
The following quarterly results have been derived from our audited annual consolidated financial statements. In the opinion of management, this unaudited quarterly information has been prepared on the same basis as the annual consolidated financial statements and includes all adjustments, including normal recurring adjustments, necessary for a fair presentation of this quarterly information. This information should be read along with the financial statements and related notes. The operating results for any quarter are not necessarily indicative of results to be expected for any future period.
The unaudited quarterly statement of operations data for each quarter of fiscal years 2016 and 2015 were as follows (in thousands, except per share data):
|
|||||||||||
|
Fiscal Year 2016 |
||||||||||
|
1st |
2nd |
3rd |
4th |
|||||||
|
Quarter |
Quarter |
Quarter |
Quarter |
|||||||
|
|||||||||||
Net sales |
$ |
282,633 |
$ |
306,756 |
$ |
347,863 |
$ |
231,999 | |||
Gross profit |
132,454 | 142,221 | 164,911 | 115,254 | |||||||
Net income |
33,354 | 34,880 | 41,384 | 14,012 | |||||||
Basic income per share |
$ |
0.53 |
$ |
0.55 |
$ |
0.65 |
$ |
0.22 | |||
Diluted income per share |
0.50 | 0.53 | 0.63 | 0.21 |
|
|||||||||||
|
Fiscal Year 2015 |
||||||||||
|
1st |
2nd |
3rd |
4th |
|||||||
|
Quarter |
Quarter |
Quarter |
Quarter |
|||||||
|
|||||||||||
Net sales |
$ |
152,565 |
$ |
210,214 |
$ |
298,606 |
$ |
255,183 | |||
Gross profit |
75,375 | 100,567 | 130,831 | 118,975 | |||||||
Net income |
10,248 | 852 | 22,729 | 21,349 | |||||||
Basic income per share |
$ |
0.17 |
$ |
0.01 |
$ |
0.36 |
$ |
0.34 | |||
Diluted income per share |
0.16 | 0.01 | 0.35 | 0.32 |
|
Basis of Presentation
We prepare financial statements on a 52- or 53-week year that ends on the last Saturday in March. Fiscal years 2016, 2015, and 2014 were 52-week years.
Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with U. S. generally accepted accounting principles (U.S. GAAP) and include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated.
Reclassifications
Certain reclassifications have been made to prior year balances in order to conform to the current year’s presentation of financial information.
Use of Estimates
The preparation of financial statements in accordance with U.S. GAAP requires the use of management estimates. These estimates are subjective in nature and involve judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at fiscal year-end and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.
|
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of money market funds, commercial paper, and U.S. Government Treasury and Agency instruments with original maturities of three months or less at the date of purchase.
Inventories
We use the lower of cost or market method to value our inventories, with cost being determined on a first-in, first-out basis. One of the factors we consistently evaluate in the application of this method is the extent to which products are accepted into the marketplace. By policy, we evaluate market acceptance based on known business factors and conditions by comparing forecasted customer unit demand for our products over a specific future period, or demand horizon, to quantities on hand at the end of each accounting period.
On a quarterly and annual basis, we analyze inventories on a part-by-part basis. Product life cycles and the competitive nature of the industry are factors considered in the evaluation of customer unit demand at the end of each quarterly accounting period. Inventory quantities on-hand in excess of forecasted demand is considered to have reduced market value and, therefore, the cost basis is adjusted to the lower of cost or market. Typically, market values for excess or obsolete inventories are considered to be zero. Inventory charges recorded for excess and obsolete inventory, including scrapped inventory, represented $4.8 million and $7.2 million, in fiscal year 2016 and 2015, respectively. Inventory charges in fiscal year 2016 related to a combination of quality issues and inventory exceeding demand. In fiscal year 2015, charges were primarily associated with a customer build forecast that exceeded actual market demand, resulting in excess inventory levels for certain high volume products.
Inventories were comprised of the following (in thousands):
|
|||||
|
March 26, |
March 28, |
|||
|
2016 |
2015 |
|||
Work in process |
$ |
67,827 |
$ |
64,663 | |
Finished goods |
74,188 | 19,533 | |||
|
$ |
142,015 |
$ |
84,196 |
Property, Plant and Equipment, net
Property, plant and equipment is recorded at cost, net of depreciation and amortization. Depreciation and amortization is calculated on a straight-line basis over estimated economic lives, ranging from three to 39 years. Leasehold improvements are depreciated over the shorter of the term of the lease or the estimated useful life. Furniture, fixtures, machinery, and equipment are all depreciated over a useful life of three to 10 years, while buildings are depreciated over a period of up to 39 years. In general, our capitalized software is amortized over a useful life of three years, with capitalized enterprise resource planning software being amortized over a useful life of 10 years. Gains or losses related to retirements or dispositions of fixed assets are recognized in the period incurred.
Property, plant and equipment was comprised of the following (in thousands):
|
|||||
|
March 26, |
March 28, |
|||
|
2016 |
2015 |
|||
Land |
$ |
26,379 |
$ |
26,332 | |
Buildings |
73,513 | 49,963 | |||
Furniture and fixtures |
13,226 | 10,281 | |||
Leasehold improvements |
2,637 | 2,525 | |||
Machinery and equipment |
105,880 | 79,682 | |||
Capitalized software |
25,127 | 25,000 | |||
Construction in progress |
5,411 | 22,922 | |||
Total property, plant and equipment |
252,173 | 216,705 | |||
Less: Accumulated depreciation and amortization |
(89,517) | (72,359) | |||
Property, plant and equipment, net |
$ |
162,656 |
$ |
144,346 |
Depreciation and amortization expense on property, plant, and equipment for fiscal years 2016, 2015, and 2014, was $22.3 million, $15.4 million, and $12.1 million, respectively.
Goodwill and Intangibles, net
Intangible assets include purchased technology licenses and patents that are reported at cost and are amortized on a straight-line basis over their useful lives, generally ranging from one to ten years. Acquired intangibles include existing technology, core technology or patents, license agreements, in-process research & development, trademarks, tradenames, customer relationships, non-compete agreements, and backlog. These assets are amortized on a straight-line basis over lives ranging from one to fifteen years.
Goodwill is recorded at the time of an acquisition and is calculated as the difference between the aggregate consideration paid for an acquisition and the fair value of the net tangible and intangible assets acquired. Goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests. If the assumptions and estimates used to allocate the purchase price are not correct, or if business conditions change, purchase price adjustments or future asset impairment charges could be required. The value of our intangible assets, including goodwill, could be impacted by future adverse changes such as: (i) any future declines in our operating results, (ii) a decline in the valuation of technology company stocks, including the valuation of our common stock, (iii) a significant slowdown in the worldwide economy and the semiconductor industry, or (iv) any failure to meet the performance projections included in our forecasts of future operating results. The Company tests goodwill and indefinite lived intangibles for impairment on an annual basis or more frequently if the Company believes indicators of impairment exist. Impairment evaluations involve management’s assessment of qualitative factors to determine whether it is more likely than not that goodwill and other intangible assets are impaired. If management concludes from its assessment of qualitative factors that it is more likely than not that impairment exists, then a quantitative impairment test will be performed involving management estimates of asset useful lives and future cash flows. Significant management judgment is required in the forecasts of future operating results that are used in these evaluations. If our actual results, or the plans and estimates used in future impairment analyses, are lower than the original estimates used to assess the recoverability of these assets, we could incur additional impairment charges in a future period. The Company has recorded no goodwill impairments in fiscal years 2016, 2015, and 2014. There were no material intangible asset impairments in fiscal years 2016, 2015, or 2014.
Long-Lived Assets
We test for impairment losses on long-lived assets and definite-lived intangibles used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. We measure any impairment loss by comparing the fair value of the asset to its carrying amount. We estimate fair value based on discounted future cash flows, quoted market prices, or independent appraisals.
Foreign Currency Translation
Prior to the fiscal year 2015 acquisition of Wolfson Microelectronics (“Wolfson,” the “Acquisition”), each Cirrus Logic legal entity was US dollar functional. Additionally, each of the acquired Wolfson legal entities were also designated as US dollar functional. These designations were determined individually by Cirrus Logic and Wolfson prior to the Acquisition. Subsequent to the integration of Wolfson, the Company reassessed the functional currencies of each legal entity based on the relevant facts and circumstances, as well as in accordance with the applicable accounting guidance contained in Accounting Standards Codification (“ASC”) 830-10, “Foreign Currency Matters.” Based on its analysis and on the change in operating structure brought about by the Acquisition, the Company determined that the functional currency of some of its subsidiaries had changed from the US dollar to the local currency. The Company’s main entities, including the entities that generate the majority of sales and employ the majority of employees, remain US dollar functional. The change was effective beginning in fiscal year 2016 and had an immaterial effect on the financial statements. Beginning in fiscal year 2016 foreign currency translation gains and losses are reported as a component of Accumulated Other Comprehensive Gain / (Loss).
Pension
Defined benefit pension plans are accounted for based upon the provisions of ASC Topic 715, “Compensation – Retirement Benefits.”
The funded status of the plan is recognized in the consolidated balance sheets. Subsequent re-measurement of plan assets and benefit obligations, if deemed necessary, would be reflected in the consolidated balance sheets in the subsequent interim period to reflect the overfunded or underfunded status of the plan.
The Company will engage external actuaries on at least an annual basis to provide a valuation of the plan’s assets and projected benefit obligation and to record the net periodic pension cost. On a quarterly basis, the Company will evaluate current information available to us to determine whether the plan’s assets and projected benefit obligation should be re-measured.
Concentration of Credit Risk
Financial instruments that potentially subject us to material concentrations of credit risk consist primarily of cash equivalents, marketable securities, long-term marketable securities, and trade accounts receivable. We are exposed to credit risk to the extent of the amounts recorded on the balance sheet. By policy, our cash equivalents, marketable securities, and long-term marketable securities are subject to certain nationally recognized credit standards, issuer concentrations, sovereign risk, and marketability or liquidity considerations.
In evaluating our trade receivables, we perform credit evaluations of our major customers’ financial condition and monitor closely all of our receivables to limit our financial exposure by limiting the length of time and amount of credit extended. In certain situations, we may require payment in advance or utilize letters of credit to reduce credit risk. By policy, we establish a reserve for trade accounts receivable based on the type of business in which a customer is engaged, the length of time a trade account receivable is outstanding, and other knowledge that we may possess relating to the probability that a trade receivable is at risk for non-payment.
We had two contract manufacturers, Hongfujin Precision and Protek, who represented 23 percent and 11 percent, respectively, and one direct customer, Samsung Electronics who represented 23 percent of our consolidated gross trade accounts receivable as of the end of fiscal year 2016. The same two contract manufacturers represented 26 percent and 15 percent, respectively, and Samsung Electronics represented 22 percent of our consolidated gross trade accounts receivable as of the end of fiscal year 2015. No other distributor or customer had receivable balances that represented more than 10 percent of consolidated gross trade accounts receivable as of the end of fiscal year 2016 or 2015.
Since the components we produce are largely proprietary and generally not available from second sources, we consider our end customer to be the entity specifying the use of our component in their design. These end customers may then purchase our products directly from us, from a distributor, or through a third party manufacturer contracted to produce their end product. For fiscal years 2016, 2015, and 2014, our ten largest end customers represented approximately 89 percent, 87 percent, and 88 percent, of our sales, respectively. For fiscal years 2016, 2015, and 2014, we had one end customer, Apple Inc., who purchased through multiple contract manufacturers and represented approximately 66 percent, 72 percent, and 80 percent, of the Company’s total sales, respectively. Samsung Electronics represented 15 percent of the Company’s total sales in fiscal year 2016. No other customer or distributor represented more than 10 percent of net sales in fiscal years 2016, 2015, or 2014.
Revenue Recognition
We recognize revenue when all of the following criteria are met: persuasive evidence that an arrangement exists, delivery of goods has occurred, the sales price is fixed or determinable and collectability is reasonably assured. For our distributors we provide minimal stock rotation rights. Prior to the fourth quarter of fiscal year 2016, revenue was deferred at the time of shipment to our domestic distributors and certain international distributors due to the determination that the ultimate sales price to the distributor was not fixed or determinable. Upon distributor resale, the final sales price was fixed or determinable, and the Company recognized revenue for the final sales price and recorded the related cost of sales. Beginning in the fourth quarter of fiscal year 2016, revenue is recognized upon delivery to the distributor, as the final sales price is now fixed and determinable at the time of shipment, less an allowance for estimated returns.
Warranty Expense
We warrant our products and maintain a provision for warranty repair or replacement of shipped products. The accrual represents management’s estimate of probable returns. Our estimate is based on an analysis of our overall sales volume and historical claims experience. The estimate is re-evaluated periodically for accuracy.
Shipping Costs
Our shipping and handling costs are included in cost of sales for all periods presented in the Consolidated Statements of Income.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs were $1.6 million, $1.1 million, and $1.4 million, in fiscal years 2016, 2015, and 2014, respectively.
Stock-Based Compensation
Stock-based compensation is measured at the grant date based on the grant-date fair value of the awards and is recognized as an expense, on a ratable basis, over the vesting period, which is generally between zero and four years. Determining the amount of stock-based compensation to be recorded requires the Company to develop estimates used in calculating the grant-date fair value of stock options and performance awards (also called market stock units). The Company calculates the grant-date fair value for stock options and market stock units using the Black-Scholes valuation model and the Monte Carlo simulation, respectively. The use of valuation models requires the Company to make estimates of assumptions such as expected volatility, expected term, risk-free interest rate, expected dividend yield, correlation of the Company’s stock price with the Philadelphia Semiconductor Index (“the Index”) and forfeiture rates. The grant-date fair value of restricted stock units is the market value at grant date multiplied by the number of units.
Income Taxes
We are required to calculate income taxes in each of the jurisdictions in which we operate. This process involves calculating the actual current tax liability as well as assessing temporary differences in the recognition of income or loss for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in our Consolidated Balance Sheets. We record a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company evaluates the ability to realize its deferred tax assets based on all the facts and circumstances, including projections of future taxable income and expiration dates of carryover tax attributes.
The calculation of our tax liabilities involves assessing uncertainties with respect to the application of complex tax rules and the potential for future adjustment of our uncertain tax positions by the Internal Revenue Service or other taxing jurisdiction. We recognize liabilities for uncertain tax positions based on the required two-step process. The first step requires us to determine if the weight of available evidence indicates that the tax position has met the threshold for recognition; therefore, we must evaluate whether it is more likely than not that the position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step requires us to measure the tax benefit of the tax position taken, or expected to be taken, in an income tax return as the largest amount that is more than 50 percent likely of being realized upon ultimate settlement. We reevaluate the uncertain tax positions each quarter based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, expirations of statutes of limitation, effectively settled issues under audit, and new audit activity. A change in the recognition step or measurement step would result in the recognition of a tax benefit or an additional charge to the tax provision in the period.
Although we believe the measurement of our liabilities for uncertain tax positions is reasonable, we cannot assure that the final outcome of these matters will not be different than what is reflected in the historical income tax provisions and accruals. If additional taxes are assessed as a result of an audit or litigation, it could have a material effect on our income tax provision and net income in the period or periods for which that determination is made. We operate within multiple taxing jurisdictions and are subject to audit in these jurisdictions. These audits can involve complex issues which may require an extended period of time to resolve and could result in additional assessments of income tax. We believe adequate provisions for income taxes have been made for all periods.
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 outstanding stock options and restricted stock grants.
The following table details the calculation of basic and diluted earnings per share for fiscal years 2016, 2015, and 2014, (in thousands, except per share amounts):
|
||||||||
|
2016 |
2015 |
2014 |
|||||
Numerator: |
||||||||
Net income |
$ |
123,630 |
$ |
55,178 |
$ |
108,111 | ||
Denominator: |
||||||||
Weighted average shares outstanding |
63,197 | 62,503 | 62,926 | |||||
Effect of dilutive securities |
2,796 | 2,732 | 2,609 | |||||
Weighted average diluted shares |
65,993 | 65,235 | 65,535 | |||||
Basic earnings per share |
$ |
1.96 |
$ |
0.88 |
$ |
1.72 | ||
Diluted earnings per share |
$ |
1.87 |
$ |
0.85 |
$ |
1.65 |
The weighted outstanding options excluded from our diluted calculation for the years ended March 26, 2016, March 28, 2015, and March 29, 2014 were 468 thousand, 718 thousand, and 833 thousand, respectively, as the exercise price exceeded the average market price during the period.
Accumulated Other Comprehensive Income (Loss)
Our accumulated other comprehensive income (loss) is comprised of foreign currency translation adjustments, unrealized gains and losses on investments classified as available-for-sale and actuarial gains and losses on our pension plan assets. See Note 15 – Accumulated Other Comprehensive Income (Loss) for additional discussion.
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.
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 is currently evaluating and plans to adopt these ASUs in the first quarter of fiscal year 2017.
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 is currently evaluating the likelihood of adoption and expects no material modifications to its financial statements.
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 September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. This ASU requires an acquirer in a business combination to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The effect on earnings of changes in depreciation, amortization or other income effects, as a result of the change in provisional amounts, are to be included in the same period’s financial statements, calculated as if the accounting had been completed at the acquisition date. The amendments in this update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years and shall be applied prospectively to adjustments to provisional amounts that occur after the effective date of this ASU. Earlier application is permitted for financial statements that have not been issued. The Company adopted this ASU in the fourth quarter of fiscal year 2016, with no material impact to its financial statements as a result.
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. The FASB determined that the current practice of separating deferred tax liabilities and assets into current and noncurrent amounts in the balance sheet resulted in little to no benefit to financial statement users. Effective for financial statements issued for annual periods beginning after December 15, 2016 and interim periods therein, this ASU will require that deferred tax liabilities and assets be classified as noncurrent. Earlier application is permitted as of the beginning of an interim or annual reporting period and can be applied either prospectively to all deferred tax assets and liabilities or retrospectively to all periods presented. The Company early adopted this ASU on a prospective basis in the fourth quarter of fiscal year 2016. Prior periods were not retrospectively adjusted.
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 lease payment 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 the following:
· |
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 (current guidance) or when forfeitures actually occur; and |
· |
cash paid by an employer for directly withheld shares for tax purposes is to be classified as a financing activity within the statement of cash flows. |
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.
|
|
|||||
|
March 26, |
March 28, |
|||
|
2016 |
2015 |
|||
Work in process |
$ |
67,827 |
$ |
64,663 | |
Finished goods |
74,188 | 19,533 | |||
|
$ |
142,015 |
$ |
84,196 |
|
|||||
|
March 26, |
March 28, |
|||
|
2016 |
2015 |
|||
Land |
$ |
26,379 |
$ |
26,332 | |
Buildings |
73,513 | 49,963 | |||
Furniture and fixtures |
13,226 | 10,281 | |||
Leasehold improvements |
2,637 | 2,525 | |||
Machinery and equipment |
105,880 | 79,682 | |||
Capitalized software |
25,127 | 25,000 | |||
Construction in progress |
5,411 | 22,922 | |||
Total property, plant and equipment |
252,173 | 216,705 | |||
Less: Accumulated depreciation and amortization |
(89,517) | (72,359) | |||
Property, plant and equipment, net |
$ |
162,656 |
$ |
144,346 |
|
||||||||
|
2016 |
2015 |
2014 |
|||||
Numerator: |
||||||||
Net income |
$ |
123,630 |
$ |
55,178 |
$ |
108,111 | ||
Denominator: |
||||||||
Weighted average shares outstanding |
63,197 | 62,503 | 62,926 | |||||
Effect of dilutive securities |
2,796 | 2,732 | 2,609 | |||||
Weighted average diluted shares |
65,993 | 65,235 | 65,535 | |||||
Basic earnings per share |
$ |
1.96 |
$ |
0.88 |
$ |
1.72 | ||
Diluted earnings per share |
$ |
1.87 |
$ |
0.85 |
$ |
1.65 |
|
|
Estimated |
||||||||||
|
Gross |
Gross |
Fair Value |
||||||||
|
Amortized |
Unrealized |
Unrealized |
(Net Carrying |
|||||||
As of March 26, 2016 |
Cost |
Gains |
Losses |
Amount) |
|||||||
Corporate debt securities |
$ |
81,310 |
$ |
3 |
$ |
(100) |
$ |
81,213 |
The Company’s specifically identified gross unrealized losses of $100 thousand relates to 21 different securities with a total amortized cost of approximately $64.7 million at March 26, 2016. Two securities had been in a continuous unrealized loss position for more than 12 months as of March 26, 2016. The gross unrealized loss on both of these securities was less than one half of one percent of the position value, and both securities mature during the first half of fiscal year 2017. 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 March 26, 2016.
|
|||||||||||
|
Estimated |
||||||||||
|
Gross |
Gross |
Fair Value |
||||||||
|
Amortized |
Unrealized |
Unrealized |
(Net Carrying |
|||||||
As of March 28, 2015 |
Cost |
Gains |
Losses |
Amount) |
|||||||
Corporate debt securities |
$ |
153,896 |
$ |
8 |
$ |
(68) |
$ |
153,836 | |||
U.S. Treasury securities |
28,010 |
- |
(15) | 27,995 | |||||||
Commercial paper |
2,485 | 2 |
- |
2,487 | |||||||
Total securities |
$ |
184,391 |
$ |
10 |
$ |
(83) |
$ |
184,318 |
|
||||||||||||
|
March 26, 2016 |
March 28, 2015 |
||||||||||
|
Amortized |
Estimated |
Amortized |
Estimated |
||||||||
|
Cost |
Fair Value |
Cost |
Fair Value |
||||||||
Within 1 year |
$ |
60,603 |
$ |
60,582 |
$ |
124,275 |
$ |
124,246 | ||||
After 1 year |
20,707 | 20,631 | 60,116 | 60,072 | ||||||||
Total |
$ |
81,310 |
$ |
81,213 |
$ |
184,391 |
$ |
184,318 |
|
|
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 |
$ |
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 |
The following summarizes the fair value of our financial instruments at March 28, 2015 (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 |
$ |
996 |
$ |
- |
$ |
- |
$ |
996 | |||
|
|||||||||||
Available-for-sale securities |
|||||||||||
Corporate debt securities |
$ |
- |
$ |
153,836 |
$ |
- |
$ |
153,836 | |||
U.S. Treasury securities |
27,995 |
- |
- |
27,995 | |||||||
Commercial paper |
- |
2,487 |
- |
2,487 | |||||||
|
$ |
27,995 |
$ |
156,323 |
$ |
- |
$ |
184,318 |
|
||||||||
|
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 |
$ |
4,709 | |||
Tranche B - 30 month earn out period |
5,000 | 7.7 | 4,359 | |||||
|
$ |
10,000 |
$ |
9,068 |
|
Fiscal year ended |
|
|
March 26, |
|
|
2016 |
|
Beginning balance |
$ |
- |
Acquisition addition |
8,600 | |
Loss recognized in earnings (research and development expense) |
468 | |
Ending balance |
$ |
9,068 |
|
|
|||||
|
March 26, |
March 28, |
|||
|
2016 |
2015 |
|||
Gross accounts receivable |
$ |
89,007 |
$ |
112,964 | |
Allowance for doubtful accounts |
(475) | (356) | |||
Accounts receivable, net |
$ |
88,532 |
$ |
112,608 |
|
||
Balance, March 30, 2013 |
$ |
(301) |
Bad debt expense, net of recoveries |
72 | |
Balance, March 29, 2014 |
(229) | |
Bad debt expense, net of recoveries |
(127) | |
Balance, March 28, 2015 |
(356) | |
Bad debt expense, net of recoveries |
(119) | |
Balance, March 26, 2016 |
$ |
(475) |
|
|
|||||||||||
|
March 26, 2016 |
March 28, 2015 |
|||||||||
Intangible Category / Weighted-Average Amortization period (in years) |
Gross Amount |
Accumulated Amortization |
Gross Amount |
Accumulated Amortization |
|||||||
Core technology (a) |
$ |
1,390 |
$ |
(1,390) |
$ |
1,390 |
$ |
(1,390) | |||
License agreement (a) |
440 | (440) | 440 | (440) | |||||||
Existing technology (6.1) |
117,975 | (32,873) | 98,645 | (13,596) | |||||||
In-process research & development ("IPR&D") (7.3) |
72,750 | (14,082) | 72,750 | (3,918) | |||||||
Trademarks and tradename (10.0) |
3,037 | (2,076) | 3,037 | (1,141) | |||||||
Customer relationships (10.0) |
15,381 | (2,655) | 15,381 | (1,117) | |||||||
Backlog (1.0) |
220 | (147) |
- |
- |
|||||||
Non-compete agreements (1.5) |
470 | (209) |
- |
- |
|||||||
Technology licenses (3.2) |
16,661 | (11,620) | 23,018 | (17,316) | |||||||
Total |
$ |
228,324 |
$ |
(65,492) |
$ |
214,661 |
$ |
(38,918) |
|
||
For the year ended March 25, 2017 |
$ |
35,345 |
For the year ended March 31, 2018 |
$ |
34,693 |
For the year ended March 30, 2019 |
$ |
31,936 |
For the year ended March 28, 2020 |
$ |
24,543 |
For the year ended March 27, 2021 |
$ |
15,270 |
Thereafter |
$ |
21,045 |
|
|
Amount |
|
|
||
Cash and cash equivalents |
$ |
241 |
Accounts receivable |
80 | |
Other current assets |
178 | |
Property, plant and equipment |
27 | |
Intangible assets |
20,020 | |
Other assets |
35 | |
Deferred tax asset |
1,972 | |
Total identifiable assets acquired |
$ |
22,553 |
|
||
Contingent consideration |
(9,068) | |
Other accrued liabilities |
(85) | |
Deferred tax liability |
(576) | |
Total identifiable liabilities assumed |
$ |
(9,729) |
Net identifiable assets acquired |
$ |
12,824 |
Goodwill |
23,935 | |
Total purchase price |
$ |
36,759 |
|
||||
Intangible assets |
Amount |
Weighted-average Amortization Period (years) |
||
Developed technology |
$ |
19,330 |
3.6 |
|
Backlog |
220 |
1.0 |
||
Non-compete agreements |
470 |
1.5 |
||
Total |
$ |
20,020 |
|
|
|||||
|
March 26, |
March 28, |
|||
|
2016 |
2015 |
|||
Change in benefit obligation: |
|||||
Beginning balance |
$ |
27,091 |
$ |
22,959 | |
Expenses |
15 | 16 | |||
Interest cost |
821 | 544 | |||
Benefits paid and expenses |
(1,095) | (255) | |||
Change in foreign currency exchange rate |
(1,221) |
- |
|||
Actuarial (gain) / loss |
(1,643) | 3,827 | |||
Total benefit obligation ending balance |
23,968 | 27,091 | |||
|
|||||
Change in plan assets: |
|||||
Beginning balance |
26,735 | 25,021 | |||
Actual return on plan assets |
(155) | 1,969 | |||
Employer contributions |
1,409 |
- |
|||
Change in foreign currency exchange rate |
(1,206) |
- |
|||
Benefits paid and expenses |
(1,095) | (255) | |||
Fair value of plan assets ending balance |
25,688 | 26,735 | |||
|
|||||
Funded status of Scheme at end of year |
$ |
1,720 |
$ |
(356) |
|
|||||
|
Fiscal Years Ended |
||||
|
March 26, |
March 28, |
|||
|
2016 |
2015 |
|||
Expenses |
$ |
15 |
$ |
16 | |
Interest cost |
821 | 544 | |||
Expected return on plan assets |
(1,212) | (792) | |||
Amortization of actuarial loss |
49 |
- |
|||
|
$ |
(327) |
$ |
(232) |
|
||||||
|
2016 |
2015 |
||||
Discount rate |
3.20 |
% |
4.00 |
% |
||
Expected long-term return on plan assets |
4.65 |
% |
5.36 |
% |
|
Quoted Prices |
||||||||||
|
in Active |
Significant |
|||||||||
|
Markets for |
Other |
Significant |
||||||||
|
Identical |
Observable |
Unobservable |
||||||||
|
Assets |
Inputs |
Inputs |
||||||||
|
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||
Plan Assets: |
|||||||||||
Cash |
$ |
42 |
$ |
- |
$ |
- |
$ |
42 | |||
Pension funds |
- |
25,646 |
- |
25,646 | |||||||
|
$ |
42 |
$ |
25,646 |
$ |
- |
$ |
25,688 |
The table below sets forth the fair value of our plan assets as of March 28, 2015, (in thousands):
|
|||||||||||
|
Quoted Prices |
||||||||||
|
in Active |
Significant |
|||||||||
|
Markets for |
Other |
Significant |
||||||||
|
Identical |
Observable |
Unobservable |
||||||||
|
Assets |
Inputs |
Inputs |
||||||||
|
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||
Plan Assets: |
|||||||||||
Cash |
$ |
1,160 |
$ |
- |
$ |
- |
$ |
1,160 | |||
Pension funds |
- |
25,575 |
- |
25,575 | |||||||
|
$ |
1,160 |
$ |
25,575 |
$ |
- |
$ |
26,735 |
|
||
|
Fiscal Year |
|
|
2016 |
|
Net actuarial gain |
$ |
2,660 |
|
||
Accumulated other comprehensive income, before tax |
$ |
2,660 |
|
||
|
Fiscal Year |
|
|
2017 |
|
Transition (asset) obligation |
$ |
- |
Prior service cost |
- |
|
Actuarial loss (gain) |
(106) |
|
Benefit |
|
|
Payments |
|
2017 |
$ |
292 |
2018 |
300 | |
2019 |
465 | |
2020 |
544 | |
2021 |
534 | |
Thereafter |
2,754 |
|
||
Change |
Approximate impact on liabilities |
|
Decrease discount rate by 0.1%, per year |
2% increase |
|
Increase inflation linked assumptions by 0.1%, per year |
2% increase (of inflation-linked liabilities) |
|
Increase life expectancy by 1 year |
2% increase |
|
|
||
|
Shares |
|
|
Available for |
|
|
Grant |
|
Balance, March 30, 2013 |
5,125 | |
Granted |
(1,785) | |
Forfeited |
207 | |
Balance, March 29, 2014 |
3,547 | |
Shares added |
3,300 | |
Granted |
(3,181) | |
Forfeited |
230 | |
Balance, March 28, 2015 |
3,896 | |
Shares added |
4,900 | |
Granted |
(2,676) | |
Forfeited |
167 | |
Balance, March 26, 2016 |
6,287 |
|
||||||||
|
Fiscal Year |
|||||||
|
2016 |
2015 |
2014 |
|||||
Cost of sales |
$ |
1,145 |
$ |
747 |
$ |
864 | ||
Research and development |
17,173 | 11,222 | 10,392 | |||||
Sales, general and administrative |
15,188 | 25,580 | 11,818 | |||||
Effect on pre-tax income |
33,506 | 37,549 | 23,074 | |||||
Income Tax Benefit |
(10,306) | (11,467) | (8,289) | |||||
Total share-based compensation expense (net of taxes) |
23,200 | 26,082 | 14,785 | |||||
Share-based compensation effects on basic earnings per share |
$ |
0.37 |
$ |
0.42 |
$ |
0.23 | ||
Share-based compensation effects on diluted earnings per share |
0.35 | 0.40 | 0.23 | |||||
|
||||||||
|
|
|||||||||||||||
|
Year Ended |
||||||||||||||
|
March 26, 2016 |
March 28, 2015 |
March 29, 2014 |
||||||||||||
Expected stock price volatility |
40.13 |
- |
45.07 |
% |
38.79 |
- |
42.12 |
% |
51.93 |
- |
54.34 |
% |
|||
Risk-free interest rate |
0.94 |
- |
1.05 |
% |
0.49 |
- |
0.91 |
% |
0.47 |
- |
0.52 |
% |
|||
Expected term (in years) |
2.72 |
- |
2.97 |
2.15 |
- |
2.87 |
2.46 |
- |
2.61 |
|
|||||
|
Outstanding Options |
||||
|
Weighted |
||||
|
Average |
||||
|
Number |
Exercise Price |
|||
Balance, March 30, 2013 |
4,278 |
$ |
10.42 | ||
Options granted |
318 | 23.45 | |||
Options exercised |
(834) | 6.12 | |||
Options forfeited |
(10) | 15.33 | |||
Options expired |
(27) | 19.52 | |||
Balance, March 29, 2014 |
3,725 |
$ |
12.42 | ||
Options granted |
310 | 21.69 | |||
Options exercised |
(696) | 7.47 | |||
Options forfeited |
(5) | 19.94 | |||
Options expired |
(1) | 4.65 | |||
Balance, March 28, 2015 |
3,333 |
$ |
14.31 | ||
Options granted |
387 | 31.39 | |||
Options exercised |
(773) | 8.46 | |||
Options forfeited |
- |
- |
|||
Options expired |
(22) | 35.41 | |||
Balance, March 26, 2016 |
2,925 |
$ |
17.96 |
|
||||||||||
|
Weighted |
Weighted Average |
||||||||
|
Number of |
Average |
Remaining Contractual |
Aggregate |
||||||
|
Options |
Exercise price |
Term (years) |
Intrinsic Value |
||||||
Vested and expected to vest |
2,915 |
$ |
17.93 |
5.49 |
$ |
49,266 |
||||
Exercisable |
2,192 |
$ |
14.63 |
4.39 |
$ |
44,390 |
|
||||||||||||
|
Options Outstanding |
Options Exercisable |
||||||||||
|
Weighted Average |
|||||||||||
|
Remaining |
Weighted |
Weighted |
|||||||||
|
Contractual Life |
Average Exercise |
Number |
Average |
||||||||
Range of Exercise Prices |
Number |
(years) |
Price |
Exercisable |
Exercise Price |
|||||||
$2.90 - $5.55 |
592 | 3.23 |
$ |
5.42 | 592 |
$ |
5.42 | |||||
$5.66 - $15.41 |
739 | 3.36 | 11.18 | 739 | 11.18 | |||||||
$16.21 - $20.37 |
579 | 6.01 | 18.10 | 439 | 17.37 | |||||||
$20.40 - $31.25 |
736 | 8.51 | 27.17 | 219 | 23.18 | |||||||
$32.29 - $33.38 |
47 | 9.18 | 32.88 | 5 | 32.29 | |||||||
$38.99 - $38.99 |
232 | 6.52 | 38.99 | 198 | 38.99 | |||||||
|
2,925 | 5.50 |
$ |
17.96 | 2,192 |
$ |
14.63 |
|
|||||||
|
Weighted |
Weighted Average |
|||||
|
Average |
Remaining Contractual |
|||||
|
Shares |
Fair Value |
Term (years) |
||||
Expected to vest |
2,969 |
$ |
26.04 | 1.53 |
|
Year Ended |
|||||
|
March 26, |
March 28, |
||||
|
2016 |
2015 |
||||
Expected stock price volatility |
45.07 |
% |
39.65 |
% |
||
Risk-free interest rate |
1.16 |
% |
1.00 |
% |
||
Expected term (in years) |
3.00 | 3.00 |
|
Weighted |
|||
|
Average |
|||
|
Shares |
Fair Value |
||
March 29, 2014 |
- |
$ |
- |
|
Granted |
35 | 22.00 | ||
Vested |
- |
- |
||
Forfeited |
- |
- |
||
March 28, 2015 |
35 |
$ |
22.00 | |
Granted |
90 | 39.86 | ||
Vested |
- |
- |
||
Forfeited |
- |
- |
||
March 26, 2016 |
125 |
$ |
34.85 |
|
Weighted |
Weighted Average |
|||||
|
Average |
Remaining Contractual |
|||||
|
Shares |
Fair Value |
Term (years) |
||||
Expected to vest |
113 |
$ |
34.68 | 2.29 |
|
||||
|
Weighted |
|||
|
Average |
|||
|
Shares |
Fair Value |
||
March 30, 2013 |
2,071 |
$ |
23.66 | |
Granted |
977 | 22.55 | ||
Vested |
(626) | 17.71 | ||
Forfeited |
(113) | 25.81 | ||
March 29, 2014 |
2,309 | 25.26 | ||
Granted |
1,887 | 22.04 | ||
Vested |
(1,224) | 19.52 | ||
Forfeited |
(151) | 26.17 | ||
March 28, 2015 |
2,821 | 25.57 | ||
Granted |
1,437 | 31.51 | ||
Vested |
(992) | 32.48 | ||
Forfeited |
(103) | 24.75 | ||
March 26, 2016 |
3,163 |
$ |
26.14 |
|
|
||||||||||||||
|
Facilities |
Subleases |
Net Facilities Commitments |
Equipment Commitments |
Total Commitments |
|||||||||
2017 |
$ |
4,913 |
$ |
383 |
$ |
4,530 |
$ |
58 |
$ |
4,588 | ||||
2018 |
5,407 | 387 | 5,020 | 70 | 5,090 | |||||||||
2019 |
8,095 | 391 | 7,704 | 64 | 7,768 | |||||||||
2020 |
7,266 | 266 | 7,000 | 60 | 7,060 | |||||||||
2021 |
6,997 | 245 | 6,752 | 59 | 6,811 | |||||||||
Thereafter |
38,653 | 1,110 | 37,543 | 59 | 37,602 | |||||||||
Total minimum lease payment |
$ |
71,331 |
$ |
2,782 |
$ |
68,549 |
$ |
370 |
$ |
68,919 |
|
|
||||||||||
|
Unrealized Gains |
Actuarial Gains |
||||||||
|
Foreign |
(Losses) on |
(Losses) on |
|||||||
|
Currency |
Securities |
Pension Plan |
Total |
||||||
Balance, March 30, 2013 |
$ |
(770) |
$ |
(149) |
$ |
- |
$ |
(919) | ||
Current period marketable securities activity |
- |
(31) |
- |
(31) | ||||||
Tax effect |
- |
64 |
- |
64 | ||||||
Balance, March 29, 2014 |
$ |
(770) |
$ |
(116) |
$ |
- |
$ |
(886) | ||
Current period marketable securities activity |
- |
107 |
- |
107 | ||||||
Current period actuarial gain/loss activity |
- |
- |
(1,625) | (1,625) | ||||||
Tax effect |
- |
(38) | 332 | 294 | ||||||
Balance, March 28, 2015 |
$ |
(770) |
$ |
(47) |
$ |
(1,293) |
$ |
(2,110) | ||
Current period foreign exchange translation |
294 |
- |
- |
294 | ||||||
Current period marketable securities activity |
- |
(24) |
- |
(24) | ||||||
Current period actuarial gain/loss activity |
- |
- |
2,660 | 2,660 | ||||||
Current period amortization of actuarial loss |
- |
- |
49 | 49 | ||||||
Tax effect |
- |
9 | (546) | (537) | ||||||
Balance, March 26, 2016 |
$ |
(476) |
$ |
(62) |
$ |
870 |
$ |
332 |
|
|
||||||||
|
Fiscal Years Ended |
|||||||
|
March 26, |
March 28, |
March 29, |
|||||
|
2016 |
2015 |
2014 |
|||||
United States |
$ |
108,133 |
$ |
133,295 |
$ |
155,431 | ||
Non-U.S. |
67,856 | (41,746) | 306 | |||||
|
$ |
175,989 |
$ |
91,549 |
$ |
155,737 |
|
||||||||
|
Fiscal Years Ended |
|||||||
|
March 26, |
March 28, |
March 29, |
|||||
|
2016 |
2015 |
2014 |
|||||
Current: |
||||||||
Federal |
$ |
28,154 |
$ |
42,102 |
$ |
10,550 | ||
State |
159 | 63 | 258 | |||||
Non-U.S. |
703 | 445 | 335 | |||||
Total current tax provision |
$ |
29,016 |
$ |
42,610 |
$ |
11,143 | ||
|
||||||||
Deferred: |
||||||||
U.S. |
18,242 | 2,136 | 36,543 | |||||
Non-U.S. |
5,101 | (8,375) | (60) | |||||
Total deferred tax provision (benefit) |
23,343 | (6,239) | 36,483 | |||||
Total tax provision |
$ |
52,359 |
$ |
36,371 |
$ |
47,626 |
|
||||||||
|
Fiscal Years Ended |
|||||||
|
March 26, |
March 28, |
March 29, |
|||||
|
2016 |
2015 |
2014 |
|||||
Expected income tax provision at the U.S. federal statutory rate |
35.0 | 35.0 | 35.0 | |||||
Foreign taxes at different rates |
(0.6) | 7.3 | 0.1 | |||||
Research and development tax credits |
(5.6) | (3.6) | (0.9) | |||||
Recognition of prior year benefit |
- |
- |
(4.1) | |||||
Nondeductible expenses |
0.1 | 2.3 | 0.5 | |||||
Other |
0.9 | (1.3) |
- |
|||||
Provision for income taxes |
29.8 | 39.7 | 30.6 |
|
|||||
|
March 26, |
March 28, |
|||
|
2016 |
2015 |
|||
Deferred tax assets: |
|||||
Inventory valuation |
$ |
- |
$ |
6,377 | |
Accrued expenses and allowances |
3,761 | 4,705 | |||
Net operating loss carryforwards |
24,592 | 57,878 | |||
Research and development tax credit carryforwards |
9,649 | 14,567 | |||
State tax credit carryforwards |
142 | 225 | |||
Capitalized research and development |
1,160 | 1,793 | |||
Other |
24,745 | 30,695 | |||
Total deferred tax assets |
$ |
64,049 |
$ |
116,240 | |
Valuation allowance for deferred tax assets |
(10,773) | (33,190) | |||
Net deferred tax assets |
$ |
53,276 |
$ |
83,050 | |
|
|||||
Deferred tax liabilities: |
|||||
Depreciation and amortization |
$ |
10,924 |
$ |
6,827 | |
Acquisition intangibles |
24,527 | 35,242 | |||
Total deferred tax liabilities |
$ |
35,451 |
$ |
42,069 | |
Total net deferred tax assets |
$ |
17,825 |
$ |
40,981 |
|
|||||
|
March 26, |
March 28, |
|||
|
2016 |
2015 |
|||
Beginning balance |
$ |
- |
$ |
- |
|
Additions based on tax positions related to the current year |
12,592 |
- |
|||
Additions based on tax positions related to prior years |
6,204 |
- |
|||
Ending balance |
$ |
18,796 |
$ |
- |
|
|
||||||||
|
Fiscal Years Ended |
|||||||
|
March 26, |
March 28, |
March 29, |
|||||
|
2016 |
2015 |
2014 |
|||||
Portable Audio Products |
$ |
989,101 |
$ |
740,301 |
$ |
562,718 | ||
Non-Portable Audio and Other Products |
180,150 | 176,267 | 151,620 | |||||
|
$ |
1,169,251 |
$ |
916,568 |
$ |
714,338 |
|
||||||||
|
Fiscal Years Ended |
|||||||
|
March 26, |
March 28, |
March 29, |
|||||
|
2016 |
2015 |
2014 |
|||||
United States |
$ |
73,889 |
$ |
31,977 |
$ |
35,582 | ||
European Union (excluding United Kingdom) |
12,745 | 13,629 | 13,125 | |||||
United Kingdom |
5,687 | 2,805 | 1,513 | |||||
China |
823,843 | 728,413 | 617,850 | |||||
Hong Kong |
10,647 | 15,087 | 6,057 | |||||
Japan |
27,898 | 14,353 | 5,150 | |||||
South Korea |
193,388 | 69,327 | 9,338 | |||||
Taiwan |
9,249 | 15,272 | 13,739 | |||||
Other Asia |
8,657 | 10,991 | 11,112 | |||||
Other non-U.S. countries |
3,248 | 14,714 | 872 | |||||
Total consolidated sales |
$ |
1,169,251 |
$ |
916,568 |
$ |
714,338 |
|
|||||
|
Fiscal Years Ended |
||||
|
March 26, |
March 28, |
|||
|
2016 |
2015 |
|||
United States |
$ |
125,674 |
$ |
114,935 | |
European Union (excluding United Kingdom) |
253 |
- |
|||
United Kingdom |
34,632 | 28,925 | |||
China |
483 | 245 | |||
Hong Kong |
1 | 1 | |||
Japan |
260 | 3 | |||
South Korea |
110 | 3 | |||
Taiwan |
180 | 216 | |||
Other Asia |
29 | 18 | |||
Other non-U.S. countries |
1,034 |
- |
|||
Total consolidated property, plant and equipment, net |
$ |
162,656 |
$ |
144,346 |
|
|
|||||||||||
|
Fiscal Year 2016 |
||||||||||
|
1st |
2nd |
3rd |
4th |
|||||||
|
Quarter |
Quarter |
Quarter |
Quarter |
|||||||
|
|||||||||||
Net sales |
$ |
282,633 |
$ |
306,756 |
$ |
347,863 |
$ |
231,999 | |||
Gross profit |
132,454 | 142,221 | 164,911 | 115,254 | |||||||
Net income |
33,354 | 34,880 | 41,384 | 14,012 | |||||||
Basic income per share |
$ |
0.53 |
$ |
0.55 |
$ |
0.65 |
$ |
0.22 | |||
Diluted income per share |
0.50 | 0.53 | 0.63 | 0.21 |
|
|||||||||||
|
Fiscal Year 2015 |
||||||||||
|
1st |
2nd |
3rd |
4th |
|||||||
|
Quarter |
Quarter |
Quarter |
Quarter |
|||||||
|
|||||||||||
Net sales |
$ |
152,565 |
$ |
210,214 |
$ |
298,606 |
$ |
255,183 | |||
Gross profit |
75,375 | 100,567 | 130,831 | 118,975 | |||||||
Net income |
10,248 | 852 | 22,729 | 21,349 | |||||||
Basic income per share |
$ |
0.17 |
$ |
0.01 |
$ |
0.36 |
$ |
0.34 | |||
Diluted income per share |
0.16 | 0.01 | 0.35 | 0.32 |
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