CIRRUS LOGIC INC, 10-K filed on 5/25/2016
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Mar. 26, 2016
May 20, 2016
Sep. 26, 2015
Document and Entity Information [Abstract]
 
 
 
Document Type
10-K 
 
 
Amendment Flag
false 
 
 
Entity Registrant Name
CIRRUS LOGIC INC 
 
 
Entity Central Index Key
0000772406 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Document Period End Date
Mar. 26, 2016 
 
 
Document Fiscal Year Focus
2016 
 
 
Document Fiscal Period Focus
FY 
 
 
Current Fiscal Year End Date
--03-26 
 
 
Entity Common Stock, Shares Outstanding
 
62,229,406 
 
Entity Public Float
 
 
$ 1,538,106,366 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Mar. 26, 2016
Mar. 28, 2015
Assets
 
 
Cash and cash equivalents
$ 168,793 
$ 76,401 
Marketable securities
60,582 
124,246 
Accounts receivable, net
88,532 
112,608 
Inventories
142,015 
84,196 
Deferred tax assets
 
18,559 
Prepaid assets
29,924 
27,093 
Other current assets
16,283 
8,810 
Total current assets
506,129 
451,913 
Long-term marketable securities
20,631 
60,072 
Property and equipment, net
162,656 
144,346 
Intangibles, net
162,832 
175,743 
Goodwill
287,518 
263,115 
Deferred tax assets
25,772 
25,593 
Other assets
16,345 
27,996 
Total assets
1,181,883 
1,148,778 
Liabilities and Stockholders' Equity
 
 
Accounts payable
71,619 
112,213 
Accrued salaries and benefits
21,239 
24,132 
Deferred income
 
6,105 
Software license agreement
20,308 
18,711 
Other accrued liabilities
14,958 
15,417 
Total current liabilities
128,124 
176,578 
Debt
160,439 
180,439 
Software license agreements
8,136 
26,204 
Other long-term liabilities
25,701 
8,786 
Total long-term liabilities
194,276 
215,429 
Stockholders' equity:
 
 
Preferred stock, 5.0 million shares authorized but unissued
   
   
Common stock, $0.001 par value, 280,000 shares authorized, 62,630 shares and 63,085 shares issued and outstanding at March 26, 2016 and March 28, 2015, respectively
63 
63 
Additional paid-in capital
1,203,433 
1,159,431 
Accumulated deficit
(344,345)
(400,613)
Accumulated other comprehensive loss
332 
(2,110)
Total stockholders' equity
859,483 
756,771 
Total liabilities and stockholders' equity
$ 1,181,883 
$ 1,148,778 
Consolidated Balance Sheets (Parenthetical) (USD $)
Mar. 26, 2016
Mar. 28, 2015
Consolidated Balance Sheets [Abstract]
 
 
Preferred Stock, shares authorized but unissued
5,000,000 
5,000,000 
Common stock, par value
$ 0.001 
$ 0.001 
Common stock, shares authorized
280,000,000 
280,000,000 
Common stock, shares issued
62,630,000 
63,085,000 
Common stock, shares outstanding
62,630,000 
63,085,000 
Consolidated Statements of Income (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Mar. 26, 2016
Mar. 28, 2015
Mar. 29, 2014
Consolidated Statements of Income [Abstract]
 
 
 
Net sales
$ 1,169,251 
$ 916,568 
$ 714,338 
Cost of sales
614,411 
490,820 
358,175 
Gross profit
554,840 
425,748 
356,163 
Operating expenses:
 
 
 
Research and development
269,217 
197,878 
126,189 
Selling, general and administrative
117,082 
99,509 
74,861 
Acquisition related costs
 
18,137 
 
Restructuring and other, net
 
1,455 
(598)
Patent agreement and other
(11,670)
 
695 
Total operating expenses
374,629 
316,979 
201,147 
Income from operations
180,211 
108,769 
155,016 
Interest income
877 
579 
848 
Interest expense
(3,308)
(5,627)
 
Other expense
(1,791)
(12,172)
(127)
Income before income taxes
175,989 
91,549 
155,737 
Provision for income taxes
52,359 
36,371 
47,626 
Net income
$ 123,630 
$ 55,178 
$ 108,111 
Basic earnings per share
$ 1.96 
$ 0.88 
$ 1.72 
Diluted earnings per share
$ 1.87 
$ 0.85 
$ 1.65 
Basic weighted average common shares outstanding
63,197 
62,503 
62,926 
Diluted weighted average common shares outstanding
65,993 
65,235 
65,535 
Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Mar. 26, 2016
Mar. 28, 2015
Mar. 29, 2014
Statement of Comprehensive Income [Abstract]
 
 
 
Net income
$ 123,630 
$ 55,178 
$ 108,111 
Foreign currency translation
294 
 
 
Unrealized gain (loss) on marketable securities
(24)
107 
(31)
Actuarial gain (loss) on pension plan
2,660 
(1,625)
 
Reclassification of actuarial loss to net income
49 
 
 
Benefit (provision) for income taxes
(537)
294 
64 
Comprehensive income
$ 126,072 
$ 53,954 
$ 108,144 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Mar. 26, 2016
Mar. 28, 2015
Mar. 29, 2014
Cash flows from operating activities:
 
 
 
Net income
$ 123,630 
$ 55,178 
$ 108,111 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
58,060 
34,855 
14,883 
Stock compensation expense
33,506 
37,549 
23,074 
Deferred income taxes
23,202 
32,238 
35,959 
Loss on retirement or write-off of long-lived assets
2,753 
1,618 
568 
Actuarial gain on defined benefit pension plan
729 
292 
 
Excess tax benefit from employee stock awards
(3,850)
(37,692)
(8,445)
Other non-cash charges
19,702 
22,167 
5,760 
Net change in operating assets and liabilities:
 
 
 
Accounts receivable, net
24,156 
(37,344)
6,815 
Inventories
(57,819)
16,077 
49,557 
Other current assets
4,714 
321 
 
Other assets
 
 
1,239 
Accounts payable
(41,456)
36,504 
(9,443)
Accrued salaries and benefits
(2,993)
7,047 
(3,169)
Deferred income
(6,105)
(77)
660 
Income taxes payable
(11,807)
(639)
9,496 
Other accrued liabilities
(11,140)
(4,581)
(7,027)
Net cash provided by operating activities
155,282 
163,513 
228,038 
Cash flows from investing activities:
 
 
 
Maturities and sales of available for sale marketable securities
125,660 
301,847 
139,037 
Purchases of available for sale marketable securities
(22,570)
(133,436)
(321,519)
Purchases of property, equipment and software
(41,569)
(32,311)
(15,058)
Investments in technology
(4,519)
(4,387)
(2,296)
Loss on foreign exchange hedging activities
 
11,976 
 
Acquisition of businesses, net of cash obtained
(36,759)
 
(20,402)
Increase in deposits and other assets
(6,236)
(36)
(111)
Net cash provided by (used in) investing activities
14,007 
(324,437)
(220,349)
Cash flows from financing activities:
 
 
 
Proceeds from long-term revolver
 
226,439 
 
Principal payments on long-term revolver
(20,000)
(46,000)
 
Debt issuance costs
 
(2,825)
 
Issuance of common stock, net of shares withheld for taxes
6,617 
5,327 
5,320 
Repurchase of stock to satisfy employee tax withholding obligations
(6,861)
(4,624)
(3,868)
Repurchase and retirement of common stock
(60,503)
(10,534)
(52,138)
Excess tax benefit from employee stock awards
3,850 
37,692 
8,445 
Net cash (used in) provided by financing activities
(76,897)
205,475 
(42,241)
Net increase (decrease) in cash and cash equivalents
92,392 
44,551 
(34,552)
Cash and cash equivalents at beginning of period
76,401 
31,850 
66,402 
Cash and cash equivalents at end of period
168,793 
76,401 
31,850 
Cash payments during the year for:
 
 
 
Income taxes
23,785 
4,973 
2,118 
Interest expense
3,318 
2,391 
 
Wolfson [Member]
 
 
 
Cash flows from investing activities:
 
 
 
Acquisition of businesses, net of cash obtained
 
$ (444,138)
 
Consolidated Statements of Stockholders' Equity (USD $)
In Thousands
Common Stock [Member]
Additional Paid-in Capital [Member]
Accumulated Deficit [Member]
Accumulated Other Comprehensive Income / (Loss) [Member]
Total
Balance at Mar. 30, 2013
$ 63 
$ 1,041,771 
$ (492,741)
$ (919)
$ 548,174 
Balance, shares at Mar. 30, 2013
63,291 
 
 
 
 
Net income
 
 
108,111 
 
108,111 
Change in unrealized gain (loss) on marketable securities, net of tax
 
 
 
33 
33 
Issuance of stock under stock option plans and other, net of shares withheld for employee taxes, value
5,319 
(3,868)
 
1,452 
Issuance of stock under stock option plans and other, net of shares withheld for employee taxes, shares
1,301 
 
 
 
 
Repurchase and retirement of common stock, value
(2)
 
(52,136)
 
(52,138)
Repurchase and retirement of common stock, shares
(2,636)
 
 
 
 
Amortization of deferred stock compensation
 
23,281 
 
 
23,281 
Excess tax benefit from employee stock awards
 
8,445 
 
 
8,445 
Balance at Mar. 29, 2014
62 
1,078,816 
(440,634)
(886)
637,358 
Balance, shares at Mar. 29, 2014
61,956 
 
 
 
 
Net income
 
 
55,178 
 
55,178 
Change in unrealized gain (loss) on marketable securities, net of tax
 
 
 
69 
69 
Change in pension liability, net of tax
 
 
 
(1,293)
(1,293)
Change in foreign currency translation adjustments
 
(29)
 
 
(29)
Issuance of stock under stock option plans and other, net of shares withheld for employee taxes, value
5,326 
(4,624)
 
704 
Issuance of stock under stock option plans and other, net of shares withheld for employee taxes, shares
1,709 
 
 
 
 
Repurchase and retirement of common stock, value
(1)
 
(10,533)
 
(10,534)
Repurchase and retirement of common stock, shares
(580)
 
 
 
 
Amortization of deferred stock compensation
 
37,626 
 
 
37,626 
Excess tax benefit from employee stock awards
 
37,692 
 
 
37,692 
Balance at Mar. 28, 2015
63 
1,159,431 
(400,613)
(2,110)
756,771 
Balance, shares at Mar. 28, 2015
63,085 
 
 
 
 
Net income
 
 
123,630 
 
123,630 
Change in unrealized gain (loss) on marketable securities, net of tax
 
 
 
(15)
(15)
Change in pension liability, net of tax
 
 
 
2,163 
2,163 
Change in foreign currency translation adjustments
 
 
 
294 
294 
Issuance of stock under stock option plans and other, net of shares withheld for employee taxes, value
6,617 
(6,861)
 
(242)
Issuance of stock under stock option plans and other, net of shares withheld for employee taxes, shares
1,552 
 
 
 
 
Repurchase and retirement of common stock, value
(2)
 
(60,501)
 
(60,503)
Repurchase and retirement of common stock, shares
(2,007)
 
 
 
 
Amortization of deferred stock compensation
 
33,535 
 
 
33,535 
Excess tax benefit from employee stock awards
 
3,850 
 
 
3,850 
Balance at Mar. 26, 2016
 
 
 
 
$ 859,483 
Balance, shares at Mar. 26, 2016
62,630 
 
 
 
 
Description of Business
Description of Business

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.

Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

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):





 

 

 

 

 



 

 

 

 

 



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.

Marketable Securities
Marketable Securities

3.      Marketable Securities



The Company’s investments that have original maturities greater than 90 days have been classified as available-for-sale securities in accordance with U.S. GAAP.  Marketable securities are categorized on the Consolidated 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):



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

Estimated



 

 

 

Gross

 

Gross

 

Fair Value



Amortized

 

Unrealized

 

Unrealized

 

(Net Carrying

As of March 26, 2016

Cost

 

Gains

 

Losses

 

Amount)

Corporate debt securities

$

81,310 

 

$

 

$

(100)

 

$

81,213 



The Company’s specifically identified gross unrealized losses of $100 thousand 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 

 

$

 

$

(68)

 

$

153,836 

U.S. Treasury securities

 

28,010 

 

 

 -

 

 

(15)

 

 

27,995 

Commercial paper

 

2,485 

 

 

 

 

 -

 

 

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:





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

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 



Fair Value of Financial Instruments
Fair Value of Financial Instruments

4.      Fair Value of Financial Instruments



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





 

 

 



 

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



 

 

 



 

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



 

 

 



 

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



The Company’s cash equivalents and investment portfolio assets consist of corporate debt securities, money market funds, U.S. Treasury securities, and commercial paper and are reflected on our Consolidated 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. 

Accounts Receivable, Net
Accounts Receivable, Net



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)



Intangibles, Net and Goodwill
Intangibles, net and Goodwill

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.

Acquisitions
Business Combination Disclosure [Text Block]

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 

 

 



Revolving Line of Credit
Revolving Line of Credit

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.



Restructuring Costs
Restructuring Costs

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.



Postretirement Benefit Plans
Employee Benefit Plans

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: