CIRRUS LOGIC INC, 10-Q filed on 10/28/2015
Quarterly Report
Document and Entity Information
6 Months Ended
Sep. 26, 2015
Oct. 23, 2015
Document and Entity Information [Abstract]
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Entity Registrant Name
CIRRUS LOGIC INC 
 
Entity Central Index Key
0000772406 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Well-known Seasoned Issuer
Yes 
 
Entity Current Reporting Status
Yes 
 
Entity Voluntary Filers
No 
 
Document Period End Date
Sep. 26, 2015 
 
Document Fiscal Year Focus
2016 
 
Document Fiscal Period Focus
Q2 
 
Current Fiscal Year End Date
--03-26 
 
Entity Common Stock, Shares Outstanding
 
63,695,178 
Consolidated Condensed Balance Sheets (USD $)
In Thousands, unless otherwise specified
Sep. 26, 2015
Mar. 28, 2015
Assets
 
 
Cash and cash equivalents
$ 56,333 
$ 76,401 
Marketable securities
86,460 
124,246 
Accounts receivable, net
169,423 
112,608 
Inventories
143,867 
84,196 
Deferred tax assets
8,502 
18,559 
Prepaid assets
27,021 
27,093 
Other current assets
24,308 
8,810 
Total current assets
515,914 
451,913 
Long-term marketable securities
22,393 
60,072 
Property and equipment, net
158,529 
144,346 
Intangibles, net
179,816 
175,743 
Goodwill
289,565 
263,115 
Deferred tax assets
25,603 
25,593 
Other assets
20,474 
27,996 
Total assets
1,212,294 
1,148,778 
Liabilities and Stockholders' Equity
 
 
Accounts payable
111,023 
112,213 
Accrued salaries and benefits
29,156 
24,132 
Deferred income
5,582 
6,105 
Software license agreement
20,163 
18,711 
Other accrued liabilities
22,018 
15,417 
Total current liabilities
187,942 
176,578 
Debt
160,439 
180,439 
Software license agreement long-term
15,413 
26,204 
Other long-term liabilities
19,577 
8,786 
Total long-term liabilities
195,429 
215,429 
Stockholders' Equity:
 
 
Capital stock
1,183,262 
1,159,494 
Accumulated deficit
(352,374)
(400,613)
Accumulated other comprehensive loss
(1,965)
(2,110)
Total stockholders' equity
828,923 
756,771 
Total liabilities and stockholders' equity
$ 1,212,294 
$ 1,148,778 
Consolidated Condensed Statements of Income (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Sep. 26, 2015
Sep. 27, 2014
Sep. 26, 2015
Sep. 27, 2014
Consolidated Condensed Statements of Income [Abstract]
 
 
 
 
Net sales
$ 306,756 
$ 210,214 
$ 589,389 
$ 362,779 
Cost of sales
164,535 
109,647 
314,714 
186,837 
Gross profit
142,221 
100,567 
274,675 
175,942 
Operating expenses:
 
 
 
 
Research and development
67,258 
44,557 
133,093 
84,334 
Selling, general and administrative
30,103 
21,545 
59,222 
41,228 
Acquisition related costs
 
14,937 
 
14,937 
Restructuring and other, net
 
1,455 
 
1,455 
Patent agreement and other
752 
 
(11,748)
 
Total operating expenses
98,113 
82,494 
180,567 
141,954 
Income from operations
44,108 
18,073 
94,108 
33,988 
Interest income
215 
136 
469 
331 
Interest expense
(816)
(2,806)
(1,708)
(3,468)
Other income
(524)
(11,994)
(388)
(11,493)
Income before income taxes
42,983 
3,409 
92,481 
19,358 
Provision for income taxes
8,103 
2,557 
24,247 
8,258 
Net income
$ 34,880 
$ 852 
$ 68,234 
$ 11,100 
Basic earnings per share
$ 0.55 
$ 0.01 
$ 1.08 
$ 0.18 
Diluted earnings per share
$ 0.53 
$ 0.01 
$ 1.03 
$ 0.17 
Basic weighted average common shares outstanding
63,346 
62,241 
63,310 
62,137 
Diluted weighted average common shares outstanding
66,329 
65,085 
66,378 
64,892 
Consolidated Condensed Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Sep. 26, 2015
Sep. 27, 2014
Sep. 26, 2015
Sep. 27, 2014
Consolidated Condensed Statements of Comprehensive Income [Abstract]
 
 
 
 
Net income
$ 34,880 
$ 852 
$ 68,234 
$ 11,100 
Changes to foreign currency
 
 
 
 
Foreign currency translation
961 
 
178 
 
Changes to available-for-sale securities
 
 
 
 
Unrealized gain (loss) on marketable securities
69 
42 
(79)
142 
Change to pension liabilities
 
 
 
 
Reclassification of actuarial loss to net income
16 
 
32 
 
Net changes to foreign currency derivatives
 
 
 
 
Reclassification of unrealized loss to net income
 
(29)
 
(29)
Benefit (provision) for income taxes
(38)
(15)
14 
(50)
Comprehensive income
$ 35,888 
$ 850 
$ 68,379 
$ 11,163 
Consolidated Condensed Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
6 Months Ended
Sep. 26, 2015
Sep. 27, 2014
Cash flows from operating activities:
 
 
Net income
$ 68,234 
$ 11,100 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
28,021 
11,109 
Stock compensation expense
16,954 
19,529 
Deferred income taxes
10,047 
5,656 
Loss on retirement or write-off of long-lived assets
162 
325 
Actuarial loss amortization on defined benefit pension plan
19 
 
Excess tax benefit from employee stock options
(2,850)
(4,138)
Other non-cash charges
8,993 
14,233 
Net change in operating assets and liabilities:
 
 
Accounts receivable, net
(56,735)
(50,897)
Inventories
(59,671)
(22,768)
Other current assets
774 
2,305 
Accounts payable and other accrued liabilities
(856)
8,777 
Deferred income
(523)
(964)
Income taxes payable
(12,598)
4,059 
Net cash used in operating activities
(29)
(1,674)
Cash flows from investing activities:
 
 
Proceeds from sale of available for sale marketable securities
98,019 
266,989 
Purchases of available for sale marketable securities
(22,605)
(9,290)
Purchases of property, equipment and software
(22,023)
(10,622)
Investments in technology
(2,851)
(1,107)
Loss on foreign exchange hedging activities
 
(11,976)
Acquisition, net of cash obtained
(37,216)
 
Increase in deposits and other assets
(163)
(756)
Net cash provided by (used in) investing activities
13,161 
(210,900)
Cash flows from financing activities:
 
 
Proceeds from long-term revolver
 
226,439 
Principal payments on long-term revolver
(20,000)
 
Debt issuance costs
 
(2,825)
Issuance of common stock, net of shares withheld for taxes
3,945 
1,796 
Repurchase of stock to satisfy employee tax withholding obligations
(791)
(610)
Repurchase and retirement of common stock
(19,204)
 
Excess tax benefit from employee stock options
2,850 
4,138 
Net cash (used in) provided by financing activities
(33,200)
228,938 
Net (decrease) increase in cash and cash equivalents
(20,068)
16,364 
Cash and cash equivalents at beginning of period
76,401 
31,850 
Cash and cash equivalents at end of period
56,333 
48,214 
Wolfson[Member]
 
 
Cash flows from investing activities:
 
 
Acquisition, net of cash obtained
 
$ (444,138)
Basis of Presentation
Basis of Presentation

1.     Basis of Presentation

 

The consolidated condensed financial statements have been prepared by Cirrus Logic, Inc. (“Cirrus Logic,” “we,” “us,” “our,” or the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (the “Commission”).  The accompanying unaudited consolidated condensed financial statements do not include complete footnotes and financial presentations.  As a result, these financial statements should be read along with the audited consolidated financial statements and notes thereto for the year ended March 28, 2015, included in our Annual Report on Form 10-K filed with the Commission on May 27, 2015.  In our opinion, the financial statements reflect all material adjustments, including normal recurring adjustments, necessary for a fair presentation of the financial position, operating results and cash flows for those periods presented.  The preparation of financial statements in conformity with United States (“U.S.”) generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect reported assets, liabilities, revenues and expenses, as well as disclosure of contingent assets and liabilities.  Actual results could differ from those estimates and assumptions.  Moreover, the results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the entire year.  Additionally, prior period amounts have been adjusted to conform to current year presentation.   

Recently Issued Accounting Pronouncements
Recently Issued Accounting Pronouncements

2.     Recently Issued Accounting Pronouncements

 

In May 2014, the 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 August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date after public comment respondents supported a proposal to delay the effective date of this ASU to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period.  The Company is currently evaluating the impact of this ASU on its consolidated financial position, results of operations and cash flows.

 

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 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 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. 

 

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 the impact this ASU would 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 condensed balance sheet as short- and long-term marketable securities, as appropriate.  

 

The following table is a summary of available-for-sale securities at September 26, 2015 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated

 

 

 

 

Gross

 

Gross

 

Fair Value

 

Amortized

 

Unrealized

 

Unrealized

 

(Net Carrying

As of September 26, 2015

Cost

 

Gains

 

Losses

 

Amount)

Corporate debt securities

$

97,501 

 

$

 

$

(163)

 

$

97,346 

U.S. Treasury securities

 

11,504 

 

 

 

 

 -

 

 

11,507 

Commercial paper

 

 -

 

 

 -

 

 

 -

 

 

 -

Total securities

$

109,005 

 

$

11 

 

$

(163)

 

$

108,853 

 

The Company’s specifically identified gross unrealized losses of $163 thousand relate to 26 different securities with total amortized cost of approximately $79.6 million at September 26, 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 September 26, 2015.  Further, the securities with gross unrealized losses had been in a continuous unrealized loss position for less than 12 months as of September 26, 2015. 

 

The following table is a summary of available-for-sale securities at March 28, 2015 (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 

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 relate to 34 different securities with total amortized cost of approximately $154.3 million at March 28, 2015.  Because the Company did not intend to sell the investments at a loss and the Company did not expect to 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 securities by contractual maturities were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 26, 2015

 

March 28, 2015

 

 

Amortized

 

Estimated

 

Amortized

 

Estimated

 

 

Cost

 

Fair Value

 

Cost

 

Fair Value

Within 1 year

 

$

86,488 

 

$

86,460 

 

$

124,275 

 

$

124,246 

After 1 year

 

 

22,517 

 

 

22,393 

 

 

60,116 

 

 

60,072 

Total

 

$

109,005 

 

$

108,853 

 

$

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 (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

 

 

 

 

 

 

 

   

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

   

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

   

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

 

 

 

 

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

 

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

 

The Company’s long-term revolving facility, described in Note 8, bears interest at a base rate plus applicable margin or LIBOR plus applicable margin.  As of September 26, 2015, the fair value of the Company’s long-term revolving facility approximates carrying value.

 

As of September 26, 2015 and March 28, 2015, the Company classified all of its investment portfolio and pension plan assets as Level 1 or Level 2 assets.  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 six months ending September 26, 2015.

 

The following table summarizes the fair value of our financial instruments, exclusive of pension plan assets, at September 26, 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

$

1,055 

 

$

 -

 

$

 -

 

$

1,055 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

$

 -

 

$

97,346 

 

$

 -

 

$

97,346 

U.S. Treasury securities

 

11,507 

 

 

 -

 

 

 -

 

 

11,507 

 

$

11,507 

 

$

97,346 

 

$

 -

 

$

108,853 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Other accrued liabilities

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

$

 -

 

$

 -

 

$

8,600 

 

$

8,600 

 

 

The fair value of our financial assets at March 28, 2015, was determined using the following inputs (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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 

 

$

4,500 

Tranche B - 30 month earn out period

 

 

5,000 

 

7.7 

 

 

4,100 

 

 

$

10,000 

 

 

 

$

8,600 

 

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 Condensed Statements of Income. 

Accounts Receivable, net
Accounts Receivable, net

5.     Accounts Receivable, net

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 26,

 

March 28,

 

2015

 

2015

Gross accounts receivable

$

169,753 

 

$

112,964 

Allowance for doubtful accounts

 

(330)

 

 

(356)

Accounts receivable, net

$

169,423 

 

$

112,608 

 

Inventories
Inventories

 

6.     Inventories

 

Inventories are comprised of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 26,

 

March 28,

 

2015

 

2015

Work in process

$

94,681 

 

$

64,663 

Finished goods

 

49,186 

 

 

19,533 

 

$

143,867 

 

$

84,196 

 

 

 

 

 

The increase in inventory balances at September 26, 2015, as compared to March 28, 2015, is primarily related to production ramps ahead of customer demand.

Acquisition
Acquisition

7.    Acquisitions

Cirrus Logic completed the acquisition of Wolfson Microelectronics plc (the “Acquisition”), a public limited company incorporated in Scotland (“Wolfson”) in the second quarter of fiscal year 2015.  Upon completion of the acquisition, Wolfson was re-registered as a private limited company. 

 

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 final 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 September 26, 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

 

(12,426)

Deferred revenue

 

(551)

Other accrued liabilities

 

(39,417)

Other long-term liabilities

 

(2,449)

Total identifiable liabilities assumed

$

(54,843)

Net identifiable assets acquired

$

222,265 

Goodwill

 

247,216 

Net assets acquired

$

469,481 

 

The goodwill of $247.2 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. 

 

 

The components of 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 

 

 

 

 

In the current fiscal quarter, the Company also acquired two small technology companies for approximately $37.2 million, net of cash obtained, with the goal of broadening its software capabilitiesThe Company is currently evaluating the fair values of the consideration paid, assets acquired and liabilities assumed.  The consolidated condensed 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 current acquisitions. 

Revolving Credit Facilities
Revolving Credit Facilities

8.     Revolving Credit Facilities

Cirrus Logic’s credit agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association, as Administrative Agent, and the Lenders party thereto 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 of Cirrus Logic and its Subsidiaries on a consolidated basis must not be less than $100 million.  At September 26, 2015, the Company was in compliance with all covenants under the Credit Agreement. 

 

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.

 

The Company had borrowed $160.4 million under the Credit Facility as of September 26, 2015, which is included in long-term liabilities on the consolidated condensed balance sheets.  The borrowings were primarily used for refinancing the $225 million interim credit facility described below, which was used for financing the Acquisition in the second quarter of fiscal year 2015.

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 Facility”).  The Interim Facility was to be used for, among other things, payment of the offer consideration in connection with the Acquisition.  The Interim Facility was replaced with the Credit Facility described above, with all outstanding borrowings thereunder refinanced by the Credit Facility

Patent Agreement and Other
Patent Agreement Net Text Block

9.   Patent Agreement and Other

 

On May 8, 2015, we entered into a patent purchase agreement for the sale of certain Company-owned patents relating to our LED lighting products.  As a result of this agreement, on June 22, 2015, the Company received cash consideration of $12.5 million from the purchaser.  Under the agreement, the Company undertook to no longer be engaged in LED lighting and received a license under the sold patents for all other fields of use.  The proceeds were recorded during the first quarter of fiscal year 2016 as a recovery of costs previously incurred and are reflected as a separate line item on the Consolidated Condensed Statements of Income in operating expenses under the caption Patent agreement and other.”    Additionally, in the second quarter of fiscal year 2016, the Company recorded $0.8 million in expense related to a negotiated adjustment to a legal settlement.

 

Income Taxes
Income Taxes

10.   Income Taxes

 

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

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

September 26,

 

September 27,

 

September 26,

 

September 27,

 

2015

 

2014

 

2015

 

2014

Income before income taxes

$

42,983 

 

$

3,409 

 

$

92,481 

 

$

19,358 

Provision for income taxes

$

8,103 

 

$

2,557 

 

$

24,247 

 

$

8,258 

Effective tax rate

 

18.9% 

 

 

75.0% 

 

 

26.2% 

 

 

42.7% 

 

Our income tax expense for the second quarter and first six months of fiscal year 2016 was below the federal statutory rate primarily due to a one-time tax benefit of $4.6 million associated with deferred taxes related to R&D credit carry forwards, along with an increase in income in certain foreign jurisdictions taxed below the federal statutory rate.  Our income tax expense for the second quarter and first six months of fiscal year 2015 was above the federal statutory rate primarily due to the inclusion of foreign losses in the period from the close of the Acquisition to the end of the quarter at foreign statutory rates below the U.S. federal statutory rate.

 

We record unrecognized tax benefits for the estimated risk associated with tax positions taken on tax returns.  The unrecognized tax benefits balance was $8.8 million as of September 26, 2015.          

 

We accrue interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes.  As of September 26, 2015, the balance of accrued interest and penalties was zeroNo interest or penalties were incurred during the first six months of fiscal year 2016 or 2015.

 

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions.  Fiscal years 2012 through 2015 remain open to examination by the major taxing jurisdictions to which we are subject, although carry forward attributes that were generated in tax years prior to fiscal year 2012 may be adjusted upon examination by the tax authorities if they have been, or will be, used in a future period.  The Company is not currently under an income tax audit in any major taxing jurisdiction. 

Pension Plan
Pension Plan

11.   Pension Plan

 

The components of the Company’s net periodic pension expense for the three and six months ended September 26, 2015 and September 27, 2014 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

September 26,

 

September 27,

 

September 26,

 

September 27,

 

2015

 

2014

 

2015

 

2014

Expenses

$

 -

 

$

 -

 

$

 -

 

$

 -

Interest cost

 

 -

 

 

254 

 

 

 -

 

 

254 

Expected return on plan assets

 

 -

 

 

(370)

 

 

 -

 

 

(370)

Amortization of actuarial loss

 

16 

 

 

 -

 

 

32 

 

 

 -

 

$

16 

 

$

(116)

 

$

32 

 

$

(116)

Based on an actuarial study performed as of March 28, 2015, the pension plan is underfunded and a long-term liability is reflected in the Company’s consolidated condensed balance sheet under the caption “Other long-term liabilities”.    

Net Income Per Share
Net Income Per Share

12.   Net Income Per Share

 

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

 

The following table details the calculation of basic and diluted earnings per share for the three and six months ended September 26, 2015 and September 27, 2014 (in thousands, except per share amounts):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

September 26,

 

September 27,

 

September 26,

 

September 27,

 

2015

 

2014

 

2015

 

2014

Numerator:

 

 

 

 

 

 

 

 

 

 

 

Net income

$

34,880 

 

$

852 

 

$

68,234 

 

$

11,100 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

63,346 

 

 

62,241 

 

 

63,310 

 

 

62,137 

Effect of dilutive securities

 

2,983 

 

 

2,844 

 

 

3,068 

 

 

2,755 

Weighted average diluted shares

 

66,329 

 

 

65,085 

 

 

66,378 

 

 

64,892 

Basic earnings per share

$

0.55 

 

$

0.01 

 

$

1.08 

 

$

0.18 

Diluted earnings per share

$

0.53 

 

$

0.01 

 

$

1.03 

 

$

0.17 

 

The weighted outstanding shares excluded from our diluted calculation for the three and six months ended September 26,  2015 were 298 thousand and 279 thousand, respectively, as the shares were anti-dilutive.  The weighted outstanding shares excluded from our diluted calculation for the three and six months ended September 27, 2014 were 642 thousand and 731 thousand, respectively, as the shares were anti-dilutive. 

Legal Matters
Legal Matters

13.   Legal Matters

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

 

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

 

Stockholders' Equtiy
Stockholders Equity Note Disclosure Text Block

14.   Stockholders’ Equity

 

Common Stock 

   

The Company issued a net 0.3 million and 0.7 million shares of common stock during the three and six month periods ending September 26, 2015, respectively, in connection with stock issuances pursuant to the Company’s 2006 Stock Incentive Plan primarily.    The Company issued a net 0.4 million and 0.6 million shares of common stock during the three and six month periods ending September 27, 2014, respectively, in connection with stock issuances pursuant to the Company’s 2006 Stock Incentive Plan primarily.

 

Share Repurchase Program   

    

Since inception, $167.5 million of the Company’s common stock has been repurchased under the Company’s $200 million share repurchase program, leaving $32.5 million available for repurchase under this plan as of September 26, 2015.  During the three and six months ended September 26, 2015, the Company repurchased 0.7 million shares of its common stock for $19.2 million, at an average cost of $29.44.  All of these shares were repurchased in the open market and were funded from existing cash.  All shares of our common stock that were repurchased were retired as of September 26, 2015.

 

Accumulated Other Comprehensive Loss

 

In the first quarter of fiscal year 2016, the Company updated the functional currencies of its smaller foreign entities (from the U.S. dollar to certain local currencies).  As a result, the Company is now presenting the effect of foreign currency translation, which resulted in a $1.0 million and $0.2 million gain for the quarter and six months ended September 26, 2015, respectively.  Additionally, in the current fiscal year, the Company is amortizing the pension actuarial losses out of accumulated other comprehensive income / (loss) to selling, general and administrative expenses.  See Note 11 -  Pension Plan above.    The gains  and losses are presented within other comprehensive income in the Consolidated Condensed Statements of Comprehensive Income.

 

Segment Information
Segment Information

15.   Segment Information

 

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

 

The Company operates and tracks its results in one reportable segment, but reports revenue performance in two product lines, which, beginning in the second quarter of fiscal year 2015, are Portable Audio and Non-Portable Audio and Other.  Our CEO receives and uses enterprise-wide financial information to assess financial performance and allocate resources, rather than detailed information at a product line level.  Additionally, our product lines have similar characteristics and customers.  They share operations support functions such as sales, public relations, supply chain management, various research and development and engineering support, in addition to the general and administrative functions of human resources, legal, finance and information technology.  Therefore, no complete, discrete financial information is maintained for these product lines.

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

September 26,

 

September 27,

 

September 26,

 

September 27,

 

2015

 

2014

 

2015

 

2014

Portable Audio Products

$

257,152 

 

$

163,563 

 

$

493,018 

 

$

276,132 

Non-Portable Audio and Other Products

 

49,604 

 

 

46,651 

 

 

96,371 

 

 

86,647 

 

$

306,756 

 

$

210,214 

 

$

589,389 

 

$

362,779 

 

Subsequent Event
Subsequent Events [Text Block]

 

16.   Subsequent Event

In October 2015, the Board of Directors authorized the repurchase of up to an additional $200 million of the Company’s common stock, in addition to the $32.5 million remaining from the Board’s previous share repurchase authorization in November 2012, described above in Note 14.  

 

Marketable Securities (Tables)

 

 

 

 

 

 

 

 

 

 

Estimated

 

 

 

 

Gross

 

Gross

 

Fair Value

 

Amortized

 

Unrealized

 

Unrealized

 

(Net Carrying

As of September 26, 2015

Cost

 

Gains

 

Losses

 

Amount)

Corporate debt securities

$

97,501 

 

$

 

$

(163)

 

$

97,346 

U.S. Treasury securities

 

11,504 

 

 

 

 

 -

 

 

11,507 

Commercial paper

 

 -

 

 

 -

 

 

 -

 

 

 -

Total securities

$

109,005 

 

$

11 

 

$

(163)

 

$

108,853 

 

The Company’s specifically identified gross unrealized losses of $163 thousand relate to 26 different securities with total amortized cost of approximately $79.6 million at September 26, 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 September 26, 2015.  Further, the securities with gross unrealized losses had been in a continuous unrealized loss position for less than 12 months as of September 26, 2015. 

 

The following table is a summary of available-for-sale securities at March 28, 2015 (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 

U.S. Treasury securities

 

28,010 

 

 

 -

 

 

(15)

 

 

27,995 

Commercial paper

 

2,485 

 

 

 

 

 -

 

 

2,487 

Total securities

$

184,391 

 

$

10 

 

$

(83)

 

$

184,318 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 26, 2015

 

March 28, 2015

 

 

Amortized

 

Estimated

 

Amortized

 

Estimated

 

 

Cost

 

Fair Value

 

Cost

 

Fair Value

Within 1 year

 

$

86,488 

 

$

86,460 

 

$

124,275 

 

$

124,246 

After 1 year

 

 

22,517 

 

 

22,393 

 

 

60,116 

 

 

60,072 

Total

 

$

109,005 

 

$

108,853 

 

$

184,391 

 

$

184,318 

 

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

 

Quoted Prices

 

 

 

 

 

 

 

in Active

 

Significant

 

 

 

 

 

Markets for

 

Other

 

Significant

 

 

 

Identical

 

Observable

 

Unobservable

 

 

 

Assets

 

Inputs

 

Inputs

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

Assets:

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

1,055 

 

$

 -

 

$

 -

 

$

1,055 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

$

 -

 

$

97,346 

 

$

 -

 

$

97,346 

U.S. Treasury securities

 

11,507 

 

 

 -

 

 

 -

 

 

11,507 

 

$

11,507 

 

$

97,346 

 

$

 -

 

$

108,853 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Other accrued liabilities

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

$

 -

 

$

 -

 

$

8,600 

 

$

8,600 

 

 

The fair value of our financial assets at March 28, 2015, was determined using the following inputs (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 

 

Fair Value of Financial Instruments Contingent Consideration (Tables)
Fair Value Inputs, Liabilities, Quantitative Information [Table Text Block]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 

 

$

4,500 

Tranche B - 30 month earn out period

 

 

5,000 

 

7.7 

 

 

4,100 

 

 

$

10,000 

 

 

 

$

8,600 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

September 26,

 

March 28,

 

2015

 

2015

Gross accounts receivable

$

169,753 

 

$

112,964 

Allowance for doubtful accounts

 

(330)

 

 

(356)

Accounts receivable, net

$

169,423 

 

$

112,608 

 

Inventories (Tables)
Schedule of Inventories

 

 

 

 

 

 

 

 

 

 

 

 

 

September 26,

 

March 28,