CIRRUS LOGIC INC, 10-Q filed on 7/22/2015
Quarterly Report
Document and Entity Information
3 Months Ended
Jun. 27, 2015
Jul. 17, 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
Jun. 27, 2015 
 
Document Fiscal Year Focus
2016 
 
Document Fiscal Period Focus
Q1 
 
Current Fiscal Year End Date
--03-26 
 
Entity Common Stock, Shares Outstanding
 
63,499,396 
Consolidated Condensed Balance Sheets (USD $)
In Thousands, unless otherwise specified
Jun. 27, 2015
Mar. 28, 2015
Assets
 
 
Cash and cash equivalents
$ 102,531 
$ 76,401 
Marketable securities
120,226 
124,246 
Accounts receivable, net
120,838 
112,608 
Inventories
126,195 
84,196 
Deferred tax assets
5,276 
18,559 
Prepaid Expense, Current
24,019 
27,093 
Other current assets
8,963 
8,810 
Total current assets
508,048 
451,913 
Long-term marketable securities
50,629 
60,072 
Property and equipment, net
152,018 
144,346 
Intangibles, net
169,158 
175,743 
Goodwill
263,583 
263,115 
Deferred tax assets
25,639 
25,593 
Other assets
24,578 
27,996 
Total assets
1,193,653 
1,148,778 
Liabilities and Stockholders' Equity
 
 
Accounts payable
146,370 
112,213 
Accrued salaries and benefits
21,380 
24,132 
Deferred income
4,736 
6,105 
Software license agreement
19,697 
18,711 
Other accrued liabilities
10,939 
15,417 
Total current liabilities
203,122 
176,578 
Debt
160,439 
180,439 
Software license agreement long-term
18,411 
26,204 
Other long-term liabilities
11,909 
8,786 
Total long-term liabilities
190,759 
215,429 
Stockholders' Equity:
 
 
Capital stock
1,170,436 
1,159,494 
Accumulated deficit
(367,691)
(400,613)
Accumulated other comprehensive loss
(2,973)
(2,110)
Total stockholders' equity
799,772 
756,771 
Total liabilities and stockholders' equity
$ 1,193,653 
$ 1,148,778 
Consolidated Condensed Statements of Income (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Jun. 27, 2015
Jun. 28, 2014
Consolidated Condensed Statements of Income [Abstract]
 
 
Net sales
$ 282,633 
$ 152,565 
Cost of sales
150,179 
77,190 
Gross profit
132,454 
75,375 
Operating expenses:
 
 
Research and development
65,835 
39,777 
Selling, general and administrative
29,119 
19,683 
Patent agreement, net
(12,500)
 
Total operating expenses
82,454 
59,460 
Income from operations
50,000 
15,915 
Interest income
254 
195 
Interest expense
(892)
(662)
Other income
136 
501 
Income before income taxes
49,498 
15,949 
Provision for income taxes
16,144 
5,701 
Net income
$ 33,354 
$ 10,248 
Basic earnings per share
$ 0.53 
$ 0.17 
Diluted earnings per share
$ 0.50 
$ 0.16 
Basic weighted average common shares outstanding
63,274 
62,032 
Diluted weighted average common shares outstanding
66,410 
64,688 
Consolidated Condensed Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Jun. 27, 2015
Jun. 28, 2014
Consolidated Condensed Statements of Comprehensive Income [Abstract]
 
 
Net income
$ 33,354 
$ 10,248 
Changes to foreign currency
 
 
Foreign currency translation
(783)
 
Changes to available-for-sale securities
 
 
Unrealized gain (loss) on marketable securities
(148)
100 
Change to pension liabilities
 
 
Reclassification of actuarial loss to net income
16 
 
Benefit (provision) for income taxes
52 
(35)
Comprehensive income
$ 32,491 
$ 10,313 
Consolidated Condensed Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Jun. 27, 2015
Jun. 28, 2014
Cash flows from operating activities:
 
 
Net income
$ 33,354 
$ 10,248 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
13,388 
4,097 
Stock compensation expense
8,272 
5,622 
Deferred income taxes
12,769 
2,134 
Loss on retirement or write-off of long-lived assets
156 
325 
Actuarial loss amortization on defined benefit pension plan
16 
 
Excess tax benefit from employee stock options
 
(3,119)
Other non-cash charges
3,884 
2,125 
Net change in operating assets and liabilities:
 
 
Accounts receivable, net
(8,230)
(13,999)
Inventories
(41,999)
(22,259)
Other current assets
2,792 
 
Other assets
 
(698)
Accounts payable and other accrued liabilities
20,149 
24,010 
Deferred income
(1,369)
1,767 
Income taxes payable
 
2,513 
Net cash provided by operating activities
43,182 
12,766 
Cash flows from investing activities:
 
 
Proceeds from sale of available for sale marketable securities
36,017 
246,865 
Purchases of available for sale marketable securities
(22,649)
(9,290)
Purchases of property, equipment and software
(10,601)
(3,274)
Investments in technology
(1,816)
(112)
Purchase of hedge
 
(11,095)
(Increase) decrease in deposits and other assets
(232)
118 
Net cash provided by investing activities
719 
223,212 
Cash flows from financing activities:
 
 
Principal payments on long-term revolver
(20,000)
 
Debt issuance costs
 
(2,978)
Issuance of common stock, net of shares withheld for taxes
2,661 
852 
Repurchase of stock to satisfy employee tax withholding obligations
(432)
(277)
Excess tax benefit from employee stock options
 
3,119 
Net cash (used in) provided by financing activities
(17,771)
716 
Net increase in cash and cash equivalents
26,130 
236,694 
Cash and cash equivalents at beginning of period
76,401 
31,850 
Cash and cash equivalents at end of period
$ 102,531 
$ 268,544 
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 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. 

 

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 June 27, 2015 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated

 

 

 

 

Gross

 

Gross

 

Fair Value

 

Amortized

 

Unrealized

 

Unrealized

 

(Net Carrying

As of June 27, 2015

Cost

 

Gains

 

Losses

 

Amount)

Corporate debt securities

$

157,080 

 

$

 

$

(223)

 

$

156,859 

U.S. Treasury securities

 

11,506 

 

 

 -

 

 

(2)

 

 

11,504 

Commercial paper

 

2,490 

 

 

 

 

 -

 

 

2,492 

Total securities

$

171,076 

 

$

 

$

(225)

 

$

170,855 

 

The Company’s specifically identified gross unrealized losses of $225 thousand relates to 43 different securities with total amortized cost of approximately $157.6 million at June 27, 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 June 27, 2015.  Further, the securities with gross unrealized losses had been in a continuous unrealized loss position for less than 12 months as of June 27, 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 relates 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):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 27, 2015

 

March 28, 2015

 

 

Amortized

 

Estimated

 

Amortized

 

Estimated

 

 

Cost

 

Fair Value

 

Cost

 

Fair Value

Within 1 year

 

$

120,288 

 

$

120,226 

 

$

124,275 

 

$

124,246 

After 1 year

 

 

50,788 

 

 

50,629 

 

 

60,116 

 

 

60,072 

Total

 

$

171,076 

 

$

170,855 

 

$

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, and pension plan 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 (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. 

 

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 June 27, 2015, the fair value of the Company’s long-term revolving facility approximates carrying value based on estimated margin.

 

As of June 27, 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 Company has no Level 3 assets or liabilities.  There were no transfers between Level 1, Level 2, or Level 3 measurements for the three month period ending June 27, 2015.

 

The following table summarizes the fair value of our financial instruments, exclusive of pension plan assets, at June 27, 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

$

1,293 

 

$

 -

 

$

 -

 

$

1,293 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

$

 -

 

$

156,859 

 

$

 -

 

$

156,859 

U.S. Treasury securities

 

11,504 

 

 

 -

 

 

 -

 

 

11,504 

Commercial paper

 

 -

 

 

2,492 

 

 

 -

 

 

2,492 

 

$

11,504 

 

$

159,351 

 

$

 -

 

$

170,855 

 

 

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 

 

Accounts Receivable, net
Accounts Receivable, net

 

5.     Accounts Receivable, net

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

June 27,

 

March 28,

 

2015

 

2015

Gross accounts receivable

$

121,194 

 

$

112,964 

Allowance for doubtful accounts

 

(356)

 

 

(356)

Accounts receivable, net

$

120,838 

 

$

112,608 

 

Inventories
Inventories

 

6.     Inventories

 

Inventories are comprised of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 27,

 

March 28,

 

2015

 

2015

Work in process

$

83,521 

 

$

64,663 

Finished goods

 

42,674 

 

 

19,533 

 

$

126,195 

 

$

84,196 

 

 

 

 

 

The increase in inventory balances at June 27, 2015, as compared to March 28, 2015, is primarily related to production ramps ahead of customer demand.

 

 

Acquisition
Acquisition

7.    Acquisition

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 June 27, 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

 

(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 

 

 

 

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 June 27, 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 June 27, 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, maturing with no outstanding borrowings or accrued interest on the maturity date. 

Patent Agreement, net
Patent Agreement Net Text Block

9.   Patent Agreement, net

 

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 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, net.” 

 

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

 

June 27,

 

June 28,

 

2015

 

2014

Income before income taxes

$

49,498 

 

$

15,949 

Provision for income taxes

$

16,144 

 

$

5,701 

Effective tax rate

 

32.6% 

 

 

35.7% 

 

Our income tax expense for the first quarter of fiscal year 2016 was below the federal statutory rate primarily due to income in certain foreign jurisdictions taxed below the federal statutory rate.  Our income tax expense for the first quarter of fiscal year 2015 was slightly above the federal statutory rate primarily due to the effect of the permanent differences that are nondeductible for tax purposes.

 

We record unrecognized tax benefits for the estimated risk associated with tax positions taken on tax returns.  The unrecognized tax benefits balance was $3.0 million as of June 27, 2015.  Due to the Wolfson acquisition and subsequent post-acquisition integration, it is reasonably possible that the total amount of unrecognized tax benefits could increase within the next 12 months.  An estimate of the range of increase is impracticable as of June 27, 2015.       

 

We accrue interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes.  As of June 27, 2015, the balance of accrued interest and penalties was zeroNo interest or penalties were incurred during the first three 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.

Pension Plan
Pension Plan

11.   Pension Plan

 

The components of the Company’s net periodic pension expense for the three months ended June 27, 2015 and June 28, 2014 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

June 27,

 

June 28,

 

 

2015

 

2014

 

Expenses

$

 -

 

$

 -

 

Interest cost

 

 -

 

 

 -

 

Expected return on plan assets

 

 -

 

 

 -

 

Amortization of actuarial loss

 

16 

 

 

 -

 

 

$

16 

 

$

 -

 

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 outstanding stock options and restricted stock awards.

 

The following table details the calculation of basic and diluted earnings per share for the three months ended June 27, 2015 and June 28, 2014 (in thousands, except per share amounts):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

June 27,

 

June 28,

 

2015

 

2014

Numerator:

 

 

 

 

 

Net income

$

33,354 

 

$

10,248 

Denominator:

 

 

 

 

 

Weighted average shares outstanding

 

63,274 

 

 

62,032 

Effect of dilutive securities

 

3,136 

 

 

2,656 

Weighted average diluted shares

 

66,410 

 

 

64,688 

Basic earnings per share

$

0.53 

 

$

0.17 

Diluted earnings per share

$

0.50 

 

$

0.16 

 

The weighted outstanding shares excluded from our diluted calculation for the three months ended June 27, 2015 and June 28, 2014 were 275 thousand and 640 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 0.4 million and 0.2 million shares of common stock during the three month periods ending June 27, 2015 and June 28, 2014, respectively, in connection with stock issuances pursuant to the Company’s 2006 Stock Incentive Plan.

 

Accumulated Other Comprehensive Loss

 

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 presenting the foreign currency translation effect, which amounted to a $0.8 million loss for the quarter ended June 27, 2015, within other comprehensive income in the Consolidated Condensed Statements of Comprehensive Income.  Additionally, in the current quarter, the Company amortized pension actuarial losses out of accumulated other comprehensive income / (loss) to selling, general and administrative expenses.  See Note 11 -  Pension Plan above.

 

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

 

June 27,

 

June 28,

 

2015

 

2014

Portable Audio Products

$

235,866 

 

$

112,570 

Non-Portable Audio and Other Products

 

46,767 

 

 

39,995 

 

$

282,633 

 

$

152,565 

 

 

Subsequent Event
Subsequent Events [Text Block]

16.   Subsequent Event

 

On July 21, 2015, the Company purchased a small, privately-held technology group that broadens our software capabilities for approximately $22 million.  The purchase will be funded with our existing cash resources.

 

Marketable Securities (Tables)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated

 

 

 

 

Gross

 

Gross

 

Fair Value

 

Amortized

 

Unrealized

 

Unrealized

 

(Net Carrying

As of June 27, 2015

Cost

 

Gains

 

Losses

 

Amount)

Corporate debt securities

$

157,080 

 

$

 

$

(223)

 

$

156,859 

U.S. Treasury securities

 

11,506 

 

 

 -

 

 

(2)

 

 

11,504 

Commercial paper

 

2,490 

 

 

 

 

 -

 

 

2,492 

Total securities

$

171,076 

 

$

 

$

(225)

 

$

170,855 

 

The Company’s specifically identified gross unrealized losses of $225 thousand relates to 43 different securities with total amortized cost of approximately $157.6 million at June 27, 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 June 27, 2015.  Further, the securities with gross unrealized losses had been in a continuous unrealized loss position for less than 12 months as of June 27, 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 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 27, 2015

 

March 28, 2015

 

 

Amortized

 

Estimated

 

Amortized

 

Estimated

 

 

Cost

 

Fair Value

 

Cost

 

Fair Value

Within 1 year

 

$

120,288 

 

$

120,226 

 

$

124,275 

 

$

124,246 

After 1 year

 

 

50,788 

 

 

50,629 

 

 

60,116 

 

 

60,072 

Total

 

$

171,076 

 

$

170,855 

 

$

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

$

1,293 

 

$

 -

 

$

 -

 

$

1,293 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

$

 -

 

$

156,859 

 

$

 -

 

$

156,859 

U.S. Treasury securities

 

11,504 

 

 

 -

 

 

 -

 

 

11,504 

Commercial paper

 

 -

 

 

2,492 

 

 

 -

 

 

2,492 

 

$

11,504 

 

$

159,351 

 

$

 -

 

$

170,855 

 

 

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 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

June 27,

 

March 28,

 

2015

 

2015

Gross accounts receivable

$

121,194 

 

$

112,964 

Allowance for doubtful accounts

 

(356)

 

 

(356)

Accounts receivable, net

$

120,838 

 

$

112,608 

 

Inventories (Tables)
Schedule of Inventories

 

 

 

 

 

 

 

 

 

 

 

 

 

June 27,

 

March 28,

 

2015

 

2015

Work in process

$

83,521 

 

$

64,663 

Finished goods

 

42,674 

 

 

19,533 

 

$

126,195 

 

$

84,196 

 

Acquisition (Tables)
Schedule of Recognized Identified Assets Acquired and Liabilities Assumed [Table Text Block]

 

 

 

 

 

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

 

(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 

 

Acquisition Acquired Intangibles (Tables)
Schedule of Finite-Lived Intangible Assets Acquired as Part of Business Combination [Table Text Block]

 

 

 

 

 

 

 

 

 

 

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 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

June 27,

 

June 28,

 

2015

 

2014

Income before income taxes

$

49,498 

 

$

15,949 

Provision for income taxes

$

16,144 

 

$

5,701 

Effective tax rate

 

32.6% 

 

 

35.7% 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

June 27,

 

June 28,

 

 

2015

 

2014

 

Expenses

$

 -

 

$

 -

 

Interest cost

 

 -

 

 

 -

 

Expected return on plan assets

 

 -

 

 

 -

 

Amortization of actuarial loss

 

16 

 

 

 -

 

 

$

16 

 

$

 -

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

June 27,

 

June 28,

 

2015

 

2014

Numerator:

 

 

 

 

 

Net income

$

33,354 

 

$

10,248 

Denominator:

 

 

 

 

 

Weighted average shares outstanding

 

63,274 

 

 

62,032 

Effect of dilutive securities

 

3,136 

 

 

2,656 

Weighted average diluted shares

 

66,410 

 

 

64,688 

Basic earnings per share

$

0.53 

 

$

0.17 

Diluted earnings per share

$

0.50 

 

$

0.16 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

June 27,

 

June 28,

 

2015

 

2014

Portable Audio Products

$

235,866 

 

$

112,570 

Non-Portable Audio and Other Products

 

46,767 

 

 

39,995 

 

$

282,633 

 

$

152,565 

 

Marketable Securities (Narrative) (Details) (USD $)
Jun. 27, 2015
security
Mar. 28, 2015
security
Marketable Securities [Abstract]
 
 
Gross Unrealized Losses
$ (225,000)
$ (83,000)
Amortized cost on available for sale securities held at gross unrealized loss
$ 157,600,000 
$ 154,300,000 
Number of securities
43 
34 
Marketable Securities (Schedule of Available-for-sale Securities) (Details) (USD $)
In Thousands, unless otherwise specified
Jun. 27, 2015
Mar. 28, 2015
Schedule of Available-for-sale Securities [Line Items]
 
 
Estimated Fair Value
$ 170,855 
$ 184,318 
Gross Unrealized Gains
10 
Gross Unrealized Losses
(225)
(83)
Amortized Cost
171,076 
184,391 
Corporate Debt Securities - U.S. [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Estimated Fair Value
156,859 
153,836 
Gross Unrealized Gains
Gross Unrealized Losses
(223)
(68)
Amortized Cost
157,080 
153,896 
U.S. Treasury Securities [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Estimated Fair Value
11,504 
27,995 
Gross Unrealized Losses
(2)
(15)
Amortized Cost
11,506 
28,010 
Commercial Paper [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Estimated Fair Value
2,492 
2,487 
Gross Unrealized Gains
Amortized Cost
$ 2,490 
$ 2,485 
Marketable Securities (Schedule of Cost and Estimated Fair Value of Available-for-sale Securities by Contractual Maturity) (Details) (USD $)
In Thousands, unless otherwise specified
Jun. 27, 2015
Mar. 28, 2015
Marketable Securities [Abstract]
 
 
Within 1 year, Amortized Cost
$ 120,288 
$ 124,275 
After 1 year, Amortized Cost
50,788 
60,116 
Within 1 year, Estimated Fair Value
120,226 
124,246 
After 1 year, Estimated Fair Value
50,629 
60,072 
Amortized Cost
171,076 
184,391 
Estimated Fair Value
$ 170,855 
$ 184,318 
Fair Value of Financial Instruments (Schedule of Fair Value of Financial Assets and Liabilities) (Details) (USD $)
In Thousands, unless otherwise specified
Jun. 27, 2015
Mar. 28, 2015
Cash Equivalents [Member] |
Money-Market Funds [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Fair value of financial assets
$ 1,293 
$ 996 
Cash Equivalents [Member] |
Money-Market Funds [Member] |
Quoted Prices In Active Markets For Identical Assets Level 1 [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Fair value of financial assets