CIRRUS LOGIC INC, 10-K filed on 5/27/2015
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Mar. 28, 2015
May 22, 2015
Sep. 26, 2014
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. 28, 2015 
 
 
Document Fiscal Year Focus
2015 
 
 
Document Fiscal Period Focus
FY 
 
 
Current Fiscal Year End Date
--03-28 
 
 
Entity Common Stock, Shares Outstanding
 
63,411,134 
 
Entity Public Float
 
 
$ 964,427,123 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Mar. 28, 2015
Mar. 29, 2014
Assets
 
 
Cash and cash equivalents
$ 76,401 
$ 31,850 
Marketable securities
124,246 
263,417 
Accounts receivable, net
112,608 
63,220 
Inventories
84,196 
69,743 
Deferred tax assets
18,559 
22,024 
Prepaid assets
27,093 
15,062 
Other current assets
8,810 
10,017 
Total current assets
451,913 
475,333 
Long-term marketable securities
60,072 
89,243 
Property and equipment, net
144,346 
103,650 
Intangibles, net
175,743 
11,999 
Goodwill
263,115 
16,367 
Deferred tax assets
25,593 
25,065 
Other assets
27,996 
3,087 
Total assets
1,148,778 
724,744 
Liabilities and Stockholders' Equity
 
 
Accounts payable
112,213 
51,932 
Accrued salaries and benefits
24,132 
13,388 
Deferred income
6,105 
5,631 
Software license agreement
18,711 
7,023 
Other accrued liabilities
15,417 
4,549 
Total current liabilities
176,578 
82,523 
Long-term liabilities
 
 
Debt
180,439 
 
Software license agreements
26,204 
853 
Other long-term liabilities
8,786 
4,010 
Total long-term liabilities
215,429 
4,863 
Stockholders' equity:
 
 
Preferred stock, 5.0 million shares authorized but unissued
   
   
Common stock, $0.001 par value, 280,000 shares authorized, 63,085 shares and 61,956 shares issued and outstanding at March 28, 2015 and March 29, 2014, respectively
63 
62 
Additional paid-in capital
1,159,431 
1,078,816 
Accumulated deficit
(400,613)
(440,634)
Accumulated other comprehensive loss
(2,110)
(886)
Total stockholders' equity
756,771 
637,358 
Total liabilities and stockholders' equity
$ 1,148,778 
$ 724,744 
Consolidated Balance Sheets (Parenthetical) (USD $)
Mar. 28, 2015
Mar. 29, 2014
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
63,085,000 
61,956,000 
Common stock, shares outstanding
63,085,000 
61,956,000 
Consolidated Statements of Income (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Mar. 28, 2015
Mar. 29, 2014
Mar. 30, 2013
Consolidated Statements of Comprehensive Income [Abstract]
 
 
 
Net sales
$ 916,568 
$ 714,338 
$ 809,786 
Cost of sales
490,820 
358,175 
414,595 
Gross profit
425,748 
356,163 
395,191 
Operating expenses:
 
 
 
Research and development
197,878 
126,189 
114,071 
Selling, general and administrative
99,509 
74,861 
76,998 
Acquisition related costs
18,137 
 
 
Restructuring and other, net
1,455 
(598)
3,292 
Patent infringement settlements, net
 
695 
 
Total operating expenses
316,979 
201,147 
194,361 
Income from operations
108,769 
155,016 
200,830 
Interest income
579 
848 
440 
Interest expense
(5,627)
 
 
Other expense
(12,172)
(127)
(80)
Income before income taxes
91,549 
155,737 
201,190 
Provision for income taxes
36,371 
47,626 
64,592 
Net income
$ 55,178 
$ 108,111 
$ 136,598 
Basic earnings per share
$ 0.88 
$ 1.72 
$ 2.12 
Diluted earnings per share
$ 0.85 
$ 1.65 
$ 2.00 
Basic weighted average common shares outstanding
62,503 
62,926 
64,580 
Diluted weighted average common shares outstanding
65,235 
65,535 
68,454 
Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Mar. 28, 2015
Mar. 29, 2014
Mar. 30, 2013
Statement of Comprehensive Income [Abstract]
 
 
 
Net income
$ 55,178 
$ 108,111 
$ 136,598 
Net changes to available-for-sale securities
 
 
 
Unrealized gain (loss) on marketable securities
107 
(31)
(157)
Net changes to pension liabilities
 
 
 
Actuarial loss on pension plan
(1,625)
 
 
Benefit for income taxes
294 
64 
 
Comprehensive income
$ 53,954 
$ 108,144 
$ 136,441 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Mar. 28, 2015
Mar. 29, 2014
Mar. 30, 2013
Cash flows from operating activities:
 
 
 
Net income
$ 55,178 
$ 108,111 
$ 136,598 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
34,855 
14,883 
13,562 
Stock compensation expense
37,549 
23,074 
21,495 
Deferred income taxes
32,238 
35,959 
60,600 
Loss on retirement or write-off of long-lived assets
1,618 
568 
 
Actuarial loss on defined benefit pension plan
292 
 
 
Excess tax benefit from employee stock options
(37,692)
(8,445)
(106)
Other non-cash charges
22,167 
5,760 
4,792 
Net change in operating assets and liabilities:
 
 
 
Accounts receivable, net
(37,344)
6,815 
(25,232)
Inventories
16,077 
49,557 
(67,606)
Other current assets
321 
 
 
Other assets
 
1,239 
134 
Accounts payable
36,504 
(9,443)
22,423 
Accrued salaries and benefits
7,047 
(3,169)
3,260 
Deferred income
(77)
660 
(2,272)
Income taxes payable
(639)
9,496 
263 
Other accrued liabilities
(4,581)
(7,027)
(7,087)
Net cash provided by operating activities
163,513 
228,038 
160,824 
Cash flows from investing activities:
 
 
 
Proceeds from sale of available for sale marketable securities
301,847 
139,037 
127,336 
Purchases of available for sale marketable securities
(133,436)
(321,519)
(178,847)
Purchases of property, equipment and software
(32,311)
(15,058)
(52,902)
Investments in technology
(4,387)
(2,296)
(3,009)
Loss on foreign exchange hedging activities
(11,976)
 
 
Proceeds from sale of Apex assets
 
 
22,220 
(Increase) decrease in deposits and other assets
(36)
(111)
402 
Net cash used in investing activities
(324,437)
(220,349)
(84,800)
Cash flows from financing activities:
 
 
 
Proceeds from long-term revolver
226,439 
 
 
Principal payments on long-term revolver
(46,000)
 
 
Debt issuance costs
(2,825)
 
 
Issuance of common stock, net of shares withheld for taxes
5,327 
5,320 
12,008 
Repurchase of stock to satisfy employee tax withholding obligations
(4,624)
(3,868)
(1,674)
Repurchase and retirement of common stock
(10,534)
(52,138)
(86,059)
Excess tax benefit from employee stock options
37,692 
8,445 
106 
Net cash provided by (used in) financing activities
205,475 
(42,241)
(75,619)
Net increase (decrease) in cash and cash equivalents
44,551 
(34,552)
405 
Cash and cash equivalents at beginning of period
31,850 
66,402 
65,997 
Cash and cash equivalents at end of period
76,401 
31,850 
66,402 
Cash payments during the year for:
 
 
 
Income taxes
4,973 
2,118 
5,125 
Interest
2,391 
 
 
Wolfson [Member]
 
 
 
Cash flows from investing activities:
 
 
 
Acquisition, net of cash obtained
(444,138)
 
 
Acoustic Technologies [Member]
 
 
 
Cash flows from investing activities:
 
 
 
Acquisition, net of cash obtained
 
$ (20,402)
 
Consolidated Statements of Stockholders' Equity (USD $)
In Thousands
Common Stock [Member]
Additional Paid-in Capital [Member]
Accumulated Deficit [Member]
Accumulated Other Comprehensive Loss [Member]
Total
Balance at Mar. 31, 2012
$ 64 
$ 1,008,164 
$ (541,609)
$ (762)
$ 465,857 
Balance, shares at Mar. 31, 2012
64,394 
 
 
 
 
Net income
 
 
136,598 
 
136,598 
Change in unrealized gain (loss) on marketable securities, net of tax
 
 
 
(157)
(157)
Issuance of stock under stock option plans and other, net of shares withheld for employee taxes, value
12,006 
(1,674)
 
10,334 
Issuance of stock under stock option plans and other, net of shares withheld for employee taxes, shares
1,907 
 
 
 
 
Repurchase and retirement of common stock, value
(3)
 
(86,056)
 
(86,059)
Repurchase and retirement of common stock, shares
(3,010)
 
 
 
 
Amortization of deferred stock compensation
 
21,495 
 
 
21,495 
Excess tax benefit from employee stock options
 
106 
 
 
106 
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 options
 
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 options
 
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 
 
 
 
 
Description of Business
Description of Business

1.      Description of Business 

 

Description of Business

 

Cirrus Logic, Inc. (“Cirrus Logic,” “We,” “Us,” “Our,” or the “Company”) develops high-precision, analog and mixed-signal integrated circuits (“ICs”) for a broad range of innovative customers.  Building on our diverse analog and mixed-signal product portfolio, Cirrus Logic delivers highly optimized products for a variety of audio, industrial and energy-related 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, 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 2015, 2014 and 2013 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

 

Marketable Securities

 

We determine the appropriate classification of marketable securities at the time of purchase and reevaluate this designation as of each balance sheet date.  We classify these securities as either held-to-maturity, trading, or available-for-sale.  As of March 28, 2015 and March 29, 2014, all marketable securities were classified as available-for-sale securities.  The Company classifies its investments as “available for sale” because it expects to possibly sell some securities prior to maturity.  The Company’s investments are subject to market risk, primarily interest rate and credit risk.  The Company’s investments are managed by an outside professional manager within investment guidelines set by the Company.  Such guidelines include security type, credit quality, and maturity, and are intended to limit market risk by restricting the Company’s investments to high quality debt instruments with relatively short-term maturities.  The fair value of investments is determined using observable or quoted market prices for those securities.

 

Available-for-sale securities are carried at fair value, with unrealized gains and losses included as a component of accumulated other comprehensive loss.  Realized gains and losses, declines in value judged to be other than temporary, and interest on available-for-sale securities are included in net income.  The cost of securities sold is based on the specific identification method.

 

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 in fiscal year 2015 for excess and obsolete inventory, including scrapped inventory, amounted to $7.2 million, primarily associated with a customer build forecast that exceeded actual market demand, resulting in excess inventory levels for certain high volume products.  No significant inventory charges were recorded in fiscal year 2014.  

 

Inventories were comprised of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 28,

 

March 29,

 

2015

 

2014

Work in process

$

64,663 

 

$

37,967 

Finished goods

 

19,533 

 

 

31,776 

 

$

84,196 

 

$

69,743 

 

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 28,

 

March 29,

 

2015

 

2014

Land

$

26,332 

 

$

23,806 

Buildings

 

49,963 

 

 

37,899 

Furniture and fixtures

 

10,281 

 

 

9,440 

Leasehold improvements

 

2,525 

 

 

2,387 

Machinery and equipment

 

79,682 

 

 

59,552 

Capitalized software

 

25,000 

 

 

24,437 

Construction in progress

 

22,922 

 

 

3,797 

Total property, plant and equipment

 

216,705 

 

 

161,318 

Less: Accumulated depreciation and amortization

 

(72,359)

 

 

(57,668)

Property, plant and equipment, net

$

144,346 

 

$

103,650 

 

Depreciation and amortization expense on property, plant, and equipment for fiscal years 2015, 2014, and 2013, was $15.4 million, $12.1 million, and $10.2 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, trademarks, tradenames, and customer relationships.  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 2015, 2014 and 2013.  There were no material intangible asset impairments in fiscal years 2015, 2014, or 2013. 

 

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

 

All of our international subsidiaries have the U.S. dollar as the functional currency.  The local currency financial statements are translated into U.S. dollars using current rates of exchange for assets and liabilities.  Gains and losses from remeasurement are included in other expense.    

 

Hedging and Forwards 

 

Hedging and forward contracts are accounted for based upon the provisions of Accounting Standards Codification (“ASC) Topic 815, “Derivatives and Hedging” and ASC Topic 820, “Fair Value Measurements and Disclosures.

 

All derivative instruments shall be carried at fair value per ASC 820.  If a derivative instrument meets certain hedge accounting criteria, the provisions of ASC 815 may be applied.  The Company regularly reviews all financial instruments and contracts.  When a derivative is identified, it is evaluated against the criteria in ASC 815 to determine the appropriate accounting methodology.  Derivatives that qualify for hedge accounting per ASC 815 are classified as one of the following: fair value hedge, cash flow hedge or foreign currency hedge.

 

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 26 percent and 15 percent, respectively, and one direct customer, Samsung Electronics who represented 22 percent of our consolidated gross trade accounts receivable as of the end of fiscal year 2015.  For fiscal year 2014, we had three contract manufacturers, Futaihua Industrial, Hongfujin Precision and Protek who represented 14 percent, 44 percent, and 12 percent, respectively, of our consolidated gross trade accounts receivable.  Additionally, in fiscal year 2014, we had one distributor, Avnet, Inc. who represented 11 percent of our consolidated gross trade accounts receivable.  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 2015 or 2014.

 

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 2015, 2014, and 2013, our ten largest end customers represented approximately 87 percent, 88 percent, and 89 percent, of our sales, respectively.  For fiscal years 2015, 2014, and 2013, we had one end customer, Apple Inc., who purchased through multiple contract manufacturers and represented approximately 72 percent, 80 percent, and 82 percent, of the Company’s total sales, respectively.  No other customer or distributor represented more than 10 percent of net sales in fiscal years 2015, 2014, or 2013.    

 

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.  We evaluate our distributor arrangements, on a distributor by distributor basis, with respect to each of the four criteria above.  For a majority of our distributor arrangements, we provide rights of price protection and stock rotation.  As a result, revenue is 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 is not fixed or determinable.  Once the distributor has resold the product, and our final sales price is fixed or determinable, we recognize revenue for the final sales price and record the related costs of sales.  For certain of our smaller international distributors, we do not grant price protection rights and provide minimal stock rotation rights.  For these distributors, revenue is recognized upon delivery to the distributor, less an allowance for estimated returns, as the revenue recognition criteria have been met upon shipment. 

 

Further, for sales where revenue is deferred, the Company defers the associated cost of goods sold on our Consolidated Balance Sheet, net within the deferred income caption.  The Company routinely evaluates the products held by our distributors for impairment to the extent such products may be returned by the distributor within these limited rights and such products would be considered excess or obsolete if included within our own inventory.  Products returned by distributors and subsequently scrapped have historically been immaterial to the Company.

 

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 $1.1 million, $1.4 million, and $1.5 million, in fiscal years 2015, 2014, and 2013, 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 provide for the recognition of deferred tax assets if realization of such assets is more likely than not.  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 attributes on a quarterly basis.  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 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.  If our estimates of these taxes are greater or less than actual results, an additional tax benefit or charge will result. 

 

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 2015, 2014, and 2013, (in thousands, except per share amounts):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

2014

 

2013

Numerator:

 

 

 

 

 

 

 

 

Net income

$

55,178 

 

$

108,111 

 

$

136,598 

Denominator:

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

62,503 

 

 

62,926 

 

 

64,580 

Effect of dilutive securities

 

2,732 

 

 

2,609 

 

 

3,874 

Weighted average diluted shares

 

65,235 

 

 

65,535 

 

 

68,454 

Basic earnings per share

$

0.88 

 

$

1.72 

 

$

2.12 

Diluted earnings per share

$

0.85 

 

$

1.65 

 

$

2.00 

   

The weighted outstanding options excluded from our diluted calculation for the years ended March 28, 2015, March 29, 2014, and March 30, 2013 were 718 thousand, 833 thousand, and 453 thousand, respectively, as the exercise price exceeded the average market price during the period.

 

Accumulated Other Comprehensive Loss

 

Our accumulated other comprehensive loss is comprised of foreign currency translation adjustments from prior years when we had subsidiaries whose functional currency was not the U.S. Dollar, unrealized gains and losses on investments classified as available-for-sale and actuarial gains and losses on our pension plan assets.  See Note 16 – Accumulated Other Comprehensive Loss for additional discussion. 

 

Recently Issued Accounting Pronouncements

 

In August 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“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 the impact of this ASU and expects no material modifications to its financial statements.

 

In May 2014, the FASB issued 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.  The amendments in this ASU are effective for interim and annual reporting periods beginning after December 15, 2016, with early adoption not permitted by the FASB; however, in April 2015 the FASB issued for public comment a proposal to delay the effective date of this ASU to annual reporting periods beginning after December 15, 2017.  The Company is currently evaluating the impact of this ASU on its consolidated financial position, results of operations and cash flows.

 

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 be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability.  ASU 2015-03 is to be applied retrospectively and represents a change in accounting principle.  This ASU is 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 the effect that the adoption of this ASU will have on its financial statements.

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, 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 28, 2015

Cost

 

Gains

 

Losses

 

Amount)

Corporate debt securities

$

153,896 

 

$

 

$

(68)

 

$

153,836 

Commercial paper

 

2,485 

 

 

 

 

 -

 

 

2,487 

U.S. Treasury securities

 

28,010 

 

 

 -

 

 

(15)

 

 

27,995 

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 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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated

 

 

 

Gross

 

Gross

 

Fair Value

 

Amortized

 

Unrealized

 

Unrealized

 

(Net Carrying

As of March 29, 2014

Cost

 

Gains

 

Losses

 

Amount)

Corporate debt securities

$

246,878 

 

$

52 

 

$

(245)

 

$

246,685 

U.S. Treasury securities

 

56,986 

 

 

10 

 

 

(2)

 

 

56,994 

Agency discount notes

 

2,008 

 

 

 

 

 -

 

 

2,009 

Commercial paper

 

41,962 

 

 

10 

 

 

(2)

 

 

41,970 

Certificates of deposit

 

5,006 

 

 

 -

 

 

(4)

 

 

5,002 

Total securities

$

352,840 

 

$

73 

 

$

(253)

 

$

352,660 

 

The Company’s specifically identified gross unrealized losses of  $253 thousand relates to 74 different securities with a total amortized cost of approximately $207.8 million at March 29, 2014.  Because the Company does not intend to sell the investments at a loss and 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 29, 2014.  Further, the securities with gross unrealized losses had been in a continuous unrealized loss position for less than 12 months as of March 29, 2014.

 

The cost and estimated fair value of available-for-sale investments by contractual maturity were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 28, 2015

 

March 29, 2014

 

 

Amortized

 

Estimated

 

Amortized

 

Estimated

 

 

Cost

 

Fair Value

 

Cost

 

Fair Value

Within 1 year

 

$

124,275 

 

$

124,246 

 

$

263,418 

 

$

263,417 

After 1 year

 

 

60,116 

 

 

60,072 

 

 

89,422 

 

 

89,243 

Total

 

$

184,391 

 

$

184,318 

 

$

352,840 

 

$

352,660 

 

 

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 foreign currency derivative assets/liabilities.  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, obligations of U.S. government-sponsored enterprises, commercial paper, and certificates of deposit 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. 

 

The Company’s long-term revolving facility, described in Note 9, bears interest at a base rate plus applicable margin or LIBOR plus applicable margin.  As of March 28, 2015, the fair value of the Company’s long-term revolving facility approximates carrying value based on estimated margin.

 

As of March 28, 2015 and March 29, 2014, the Company classified all investment portfolio assets and pension plan assets (discussed in Note 11) as Level 1 or Level 2 assets.  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 28, 2015 and March 29, 2014.

 

The following summarizes the fair value of our financial instruments, exclusive of pension plan assets detailed in Note 11, 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

Assets:

 

 

 

 

 

 

 

 

 

 

 

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 

 

The following summarizes the fair value of our financial instruments at March 29, 2014 (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

$

20,456 

 

$

 -

 

$

 -

 

$

20,456 

Commercial paper

 

 -

 

 

1,878 

 

 

 -

 

 

1,878 

 

$

20,456 

 

$

1,878 

 

$

 -

 

$

22,334 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

$

 -

 

$

246,685 

 

$

 -

 

$

246,685 

U.S. Treasury securities

 

56,994 

 

 

 -

 

 

 -

 

 

56,994 

Agency discount notes

 

 -

 

 

2,009 

 

 

 -

 

 

2,009 

Commercial paper

 

 -

 

 

41,970 

 

 

 -

 

 

41,970 

Certificates of deposit

 

 -

 

 

5,002 

 

 

 -

 

 

5,002 

 

$

56,994 

 

$

295,666 

 

$

 -

 

$

352,660 

 

Accounts Receivable, Net
Accounts Receivable, Net

 

5.      Accounts Receivable, net 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 28,

 

March 29,

 

2015

 

2014

Gross accounts receivable

$

112,964 

 

$

63,449 

Allowance for doubtful accounts

 

(356)

 

 

(229)

Accounts receivable, net

$

112,608 

 

$

63,220 

 

The following table summarizes the changes in the allowance for doubtful accounts (in thousands):

 

 

 

 

 

 

 

Balance, March 31, 2012

$

(371)

Bad debt expense, net of recoveries

 

70 

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)

 

 

Intangibles, Net
Intangible Assets Disclosure [Text Block]

6.      Intangibles, net

 

The intangibles, net balance included on the Consolidated Balance Sheets was $175.7 million and $12.0 million at March 28, 2015 and March 29, 2014, respectively.  The increase in the intangibles balance primarily resulted from the Acquisition discussed below in Note 7 - Acquisition. 

 

The following information details the gross carrying amount and accumulated amortization of our intangible assets (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 28, 2015

 

 

March 29, 2014

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 (6.5)

 

98,645 

 

 

(13,596)

 

 

9,826 

 

 

(4,206)

In-process research & development ("IPR&D") (7.3)

 

72,750 

 

 

(3,918)

 

 

 -

 

 

 -

Trademarks and tradename (5.4)

 

3,037 

 

 

(1,141)

 

 

1,600 

 

 

(384)

Customer relationships (10.0)

 

15,381 

 

 

(1,117)

 

 

2,400 

 

 

(120)

Technology licenses (3.1)

 

23,018 

 

 

(17,316)

 

 

18,000 

 

 

(15,117)

Total

$

214,661 

 

$

(38,918)

 

$

33,656 

 

$

(21,657)

 

(a)

Intangible assets are fully amortized.

 

Amortization expense for intangibles in fiscal years 2015, 2014, and 2013 was $18.2 million, $2.8 million, and $3.4 million, respectively.  The following table details the estimated aggregate amortization expense for all intangibles owned as of March 28, 2015, for each of the five succeeding fiscal years and in the aggregate thereafter (in thousands):

 

 

 

 

 

 

 

For the year ended March 26, 2016

$

32,304 

For the year ended March 25, 2017

$

29,020 

For the year ended March 31, 2018

$

27,742 

For the year ended March 30, 2019

$

27,053 

For the year ended March 28, 2020

$

26,370 

Thereafter

$

33,266 

 

Acquisition
Business Combination Disclosure [Text Block]

7.     Acquisition

On August 21, 2014, Cirrus Logic completed the acquisition of Wolfson Microelectronics plc (the “Acquisition”), a public limited company incorporated in Scotland (“Wolfson”).  Upon completion of the acquisition, Wolfson was re-registered as a private limited company.  Wolfson is a supplier of high performance, mixed-signal audio solutions for the consumer electronics market.  The Acquisition accelerates Cirrus Logic’s strategic roadmap, further strengthens our technology portfolio with the addition of MEMS microphones and extensive software capabilities, while significantly expanding our development capacity.

The enterprise value for Wolfson in connection with the Acquisition was approximately £283 million (approximately $469 million, and was based on the agreed upon offer of £2.35 per share (the “Offer”) for the entire issued and to be issued share capital of Wolfson.  Cirrus Logic financed the Acquisition through a combination of existing cash on Cirrus Logic’s balance sheet and $225 million in debt funding from Wells Fargo Bank, National Association, as discussed below in Note 9.  Upon the completion of the Acquisition, in the second quarter of fiscal year 2015, the Company recorded approximately $12.0 million of realized losses on foreign currency contracts used to hedge the purchase of Wolfson’s share capital which was denominated in pounds sterling.  The contracts were not accounted for under ASC 815.  The loss is included in the consolidated statements of income under the caption “Other expense” for the year ended March 28, 2015. 

The Acquisition was accounted for as a business purchase pursuant to ASC Topic 805, Business Combinations, and the operations of Wolfson have been included in the Company’s consolidated financial statements since August 21, 2014, the date of acquisition.  The following table presents the preliminary allocation of the purchase price to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition as of March 28, 2015 (in thousands):

 

 

 

 

 

 

 

Amount

Cash and cash equivalents

$

25,342 

Inventory

 

30,530 

Other current assets

 

16,226 

Property, plant and equipment

 

27,398 

Intangible assets

 

175,987 

Pension assets

 

1,625 

Total identifiable assets acquired

$

277,108 

 

 

 

Deferred tax liability - current

 

(11,958)

Deferred revenue

 

(551)

Other accrued liabilities

 

(39,417)

Other long-term liabilities

 

(2,449)

Total identifiable liabilities assumed

$

(54,375)

Net identifiable assets acquired

$

222,733 

Goodwill

 

246,748 

Net assets acquired

$

469,481 

 

The goodwill of $246.7 million arising from the Acquisition is attributable primarily to expected synergies and the product and customer base of Wolfson.  None of the goodwill is expected to be deductible for income tax purposes.  As of March 28, 2015, the changes in the recognized amounts of goodwill resulting from the Acquisition are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 27,

 

 

Fair Value

 

 

March 28,

 

 

 

2014

 

 

Adjustments

 

 

2015

Inventory

 

$

28,658 

 

$

1,872 

 

$

30,530 

Other current assets

 

 

15,633 

 

 

593 

 

 

16,226 

Property, plant and equipment

 

 

29,093 

 

 

(1,695)

 

 

27,398 

Deferred tax liability - current

 

 

(11,483)

 

 

(475)

 

 

(11,958)

Other accrued liabilities

 

 

(41,417)

 

 

2,000 

 

 

(39,417)

Total Goodwill

 

$

249,043 

 

$

(2,295)

 

$

246,748 

 

 

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

$

74,247 

 

6.2

Technology intellectual property

 

14,572 

 

5.3

Trademark

 

1,437 

 

1.3

IPR&D

 

72,750 

 

7.3

Customer relationships

 

12,981 

 

10.0

Total

$

175,987 

 

 

 

 

The IPR&D intangible assets included the following research and development projects acquired through the Acquisition (in thousands): (1) intellectual property (“IP”) migration and product development at 152 nm process technology (“152 nm”); (2) IP migration and product development at 55 and 65 nm process technology (“55/65 nm”); (3) MEMs transducer development (“MEM”); and (4) single die monolithic integration of MEMS structures and ASICS (“integrated MEMs”).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IPR&D intangible assets

 

Amount

 

 

Approximate Costs to Complete

 

Estimated Cost Completion Date (calendar year)

152 nm

$

8,905 

 

$

862 

 

2015

55/65 nm

 

36,807 

 

 

17,350 

 

2019

MEMs

 

15,596 

 

 

604 

 

2015

Integrated MEMs

 

11,442 

 

 

2,784 

 

2016

Total

$

72,750 

 

$

21,600 

 

 

 

The fair value of the IPR&D acquired intangible assets was determined using the multi-period excess earnings (“MPEEM”) method, which is a variation of the income approach.  The method estimates an intangible asset’s value based on the present value of the incremental after-tax cash flows, or excess earnings, attributable to the intangible asset.  The present value is calculated using a discount rate commensurate with the risk inherent in the IPR&D intangible asset as well as any tax benefits related to ownership.

 

The initial allocation of the purchase price is preliminary and subject to completion, including the areas of taxation, where valuation assessments are in progress.  The adjustments arising from the completion of the outstanding matters may materially affect the preliminary purchase accounting and would be retroactively reflected in the financial statements as of March 28, 2015, and for the interim periods affected.

   

The Company recognized a total of $18.1 million of acquisition related costs that were expensed in the second and third quarters of fiscal year 2015.  The majority of the costs included in this amount were associated with bank and legal fees, as well as certain expenses for stock compensation related to the Acquisition.  These costs are included in the consolidated statements of income in the line item entitled “Acquisition related costs.”  Restructuring costs related to the Acquisition were $1.5 million for the year ended March 28, 2015, primarily related to severance payments and the consolidation of our sales functions.  These costs are included in the line item “Restructuring and other, net” on the consolidated statements of income.  Prior year credits related to changes in estimates for the Tucson, Arizona design center facility, due to a new sublease on the vacated property in connection with the closing of this facility. 

   

The Company’s consolidated statements of income for the year ending March 28, 2015 included $98.3 million of revenue attributable to Wolfson, from the acquisition date to the end of the period.  Earnings disclosure related to Wolfson for the year ending March 28, 2015, is excluded as it would be impracticable, due to the integration of Wolfson’s operations with the Company’s operations, resulting in the inability to allocate costs and services shared across both companies’ product lines. 

   

Giving pro forma effect to the Acquisition as if it had occurred as of March 31, 2013, the beginning of the Company’s fiscal year 2014, and after applying the Company’s accounting policies and adjusting the results to reflect these changes since March 31, 2013,  $142.5 million and $179.4 million of pro forma revenue would have been attributable to Wolfson for the fiscal year ended March 28, 2015 and March 29, 2014, respectively.  Disclosure of pro forma earnings attributable to Wolfson is excluded as it would be impracticable, due to the integration of Wolfson’s operations with the Company’s operations, resulting in the inability to allocate costs and services shared across both companies’ product lines. 

Revolving Line of Credit
Revolving Line of Credit

9.     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 described below, 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.  At March 28, 2015, the Company was in compliance with all covenants under the Credit Agreement.  The Company had borrowed $180.4 million under this facility as of March 28, 2015, which is included in long-term liabilities on the consolidated balance sheets under the caption “Debt.”  The borrowings were primarily used for refinancing the Interim Credit Facility described below (which was used for financing the Acquisition).

 

Cirrus Logic entered into a credit agreement (the “Interim Credit Agreement”) with Wells Fargo Bank, National Association as administrative agent and lender, on April 29, 2014, in connection with the Acquisition.  The Interim Credit Agreement provided for a $225 million senior secured revolving credit facility (the “Interim Credit Facility”).  The Interim Credit Facility was to be used for, among other things, payment of the Offer Consideration in connection with the Acquisition.  The Interim Credit Facility would have matured on the earliest to occur of (a) January 23, 2015, (b) the date of termination of the Commitments as a result of a permanent reduction of all of the Commitments (as defined in the Interim Credit Agreement) by Cirrus Logic or (c) the date of termination of the Commitments as a result of an event of default.  The Interim Credit Facility was replaced with the Credit Facility described above and matured under scenario (b) above with no outstanding borrowings or accrued interest on the maturity date. 

Restructuring Costs
Restructuring Costs

10.      Restructuring Costs

 

The current fiscal year restructuring costs incurred related to the Acquisition discussed above in Note 7.  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, approximately $2.8 million 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 $0.6 million.  As of March 28, 2015, we have a remaining restructuring accrual of $0.1 million, included in “Other accrued liabilities” on the Consolidated Balance Sheet.

 

Postretirement Benefit Plans
Employee Benefit Plans

11.      Postretirement Benefit Plans

 

Pension Plan

 

As a result of the Acquisition, the Company now fully funds a defined benefit pension scheme (“the Scheme”) maintained by Wolfson, for 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.

Prior to the Acquisition, Wolfson paid deficit contributions of approximately $1.65 million in April 2014.  As of March 28, 2015, the Company was obligated, and subsequently paid, approximately $1.4 million to the Scheme by April 30, 2015 and is obligated to pay approximately $0.6 million by April 30, 2016, which is recorded on the consolidated balance sheets in “Accrued salaries and benefits” and “Other long-term liabilities,” respectively.  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):

 

 

 

 

 

 

 

Change in benefit obligation:

 

 

Beginning balance at August 21, 2014

$

22,959 

Expenses

 

16 

Interest cost

 

544 

Benefits paid and expenses

 

(255)

Actuarial loss

 

3,827 

Total benefit obligation at March 28, 2015

 

27,091 

 

 

 

Change in plan assets:

 

 

Beginning balance at August 21, 2014

 

25,021 

Actual return on plan assets

 

1,969 

Benefits paid and expenses

 

(255)

Fair value of plan assets at March 28, 2015

 

26,735 

 

 

 

Funded status of Scheme at March 28, 2015

$

(356)

 

The assets and obligations of the Scheme are denominated in British Pounds.  Based on an actuarial study performed as of March 28, 2015, the Scheme is underfunded and a long-term liability is reflected in the Company’s consolidated balance sheet under the caption “Other long-term liabilities”.  The weighted-average discount rate assumption used to determine benefit obligations as of March 28, 2015 was 3.2%.    

 

The components of the Company’s net periodic pension expense (income) are as follows (in thousands):

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Years Ended

 

 

March 28,

 

March 29,

 

 

2015

 

2014

 

Expenses

$

16 

 

$

 -

 

Interest cost

 

544 

 

 

 -

 

Expected return on plan assets

 

(792)

 

 

 -

 

 

$

(232)

 

$

 -

 

  

The following weighted-average assumptions were used to determine net periodic benefit costs for the year ended March 28, 2015:

 

 

 

 

 

 

 

 

 

Discount rate

 

4.00 

%

Expected long-term return on plan assets

 

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 28, 2015, using the same three-level hierarchy of fair-value inputs described in Note 4 (in thousands).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quoted Prices

 

 

 

 

 

 

 

 

 

 

in Active

 

Significant