1.      Description of Business 

 

Description of Business

 

            Cirrus Logic, Inc. (“Cirrus Logic,” “We,” “Us,” “Our,” or the “Company”) develops high-precision, analog and mixed-signal integrated circuits (“ICs”) for a broad range of consumer and industrial markets.  Building on our diverse analog mixed-signal patent portfolio, Cirrus Logic delivers highly optimized products for consumer and professional audio, automotive entertainment, and targeted industrial applications including energy control, energy management, light emitting diode (“LED”) and energy exploration.   

 

            We were incorporated in California in 1984, became a public company in 1989, and were reincorporated in the State of Delaware in February 1999.  Our primary facility housing engineering, sales and marketing, and administration functions is located in Austin, Texas.  In addition, we have sales locations internationally and throughout the United States.  Specifically, we serve customers from international sales offices in Europe and Asia, including the People’s Republic of China, Hong Kong, South Korea, Japan, Singapore, Taiwan, and the United Kingdom.  Our common stock, which has been publicly traded since 1989, is listed on the NASDAQ Global Select Market under the symbol CRUS.

 

Basis of Presentation

 

            We prepare financial statements on a 52- or 53-week year that ends on the last Saturday in March.  Fiscal years 2011 and 2013 were 52-week years, whereas fiscal year 2012 was a 53-week year.

 

Principles of Consolidation

 

            The accompanying consolidated financial statements have been prepared in accordance with U. S. generally accepted accounting principles (U.S. GAAP) and include the accounts of the Company and its wholly-owned subsidiaries.  All significant intercompany balances and transactions have been eliminated.

 

Reclassifications    

 

            Certain reclassifications have been made to prior year balances in order to conform to the current year’s presentation of financial information.

 

Use of Estimates

 

            The preparation of financial statements in accordance with U.S. GAAP requires the use of management estimates.  These estimates are subjective in nature and involve judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at fiscal year-end and the reported amounts of revenue and expenses during the reporting period.  Actual results could differ from these estimates.

2.      Summary of Significant Accounting Policies

 

Cash and Cash Equivalents

 

            Cash and cash equivalents consist primarily of money market funds, commercial paper, and U.S. Government Treasury and Agency instruments with original maturities of three months or less at the date of purchase. 

 

Marketable Securities

 

            We determine the appropriate classification of marketable securities at the time of purchase and reevaluate this designation as of each balance sheet date.  We classify these securities as either held-to-maturity, trading, or available-for-sale.  As of March 30, 2013 and March 31, 2012, all marketable securities and restricted investments were classified as available-for-sale securities.  The Company classifies its investments as “available for sale” because it expects to possibly sell some securities prior to maturity.  The Company’s investments are subject to market risk, primarily interest rate and credit risk.  The Company’s investments are managed by an outside professional manager within investment guidelines set by the Company.  Such guidelines include security type, credit quality, and maturity, and are intended to limit market risk by restricting the Company’s investments to high quality debt instruments with relatively short-term maturities.  The fair value of investments is determined using observable or quoted market prices for those securities.

 

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

 

Inventories 

 

            We use the lower of cost or market method to value our inventories, with cost being determined on a first-in, first-out basis.  One of the factors we consistently evaluate in the application of this method is the extent to which products are accepted into the marketplace.  By policy, we evaluate market acceptance based on known business factors and conditions by comparing forecasted customer unit demand for our products over a specific future period, or demand horizon, to quantities on hand at the end of each accounting period.

 

            On a quarterly and annual basis, we analyze inventories on a part-by-part basis.  Inventory quantities on hand in excess of forecasted demand are considered to have reduced market value and, therefore, the cost basis is adjusted to the lower of cost or market.  Typically, market values for excess or obsolete inventories are considered to be zero.  Product life cycles and the competitive nature of the industry are factors considered in the estimation of customer unit demand at the end of each quarterly accounting period.

 

            Inventories were comprised of the following (in thousands):

 

 

Property, Plant and Equipment, net

 

            Property, plant and equipment is recorded at cost, net of depreciation and amortization.  Depreciation and amortization is calculated on a straight-line basis over estimated economic lives, ranging from three to 39 years.  Leasehold improvements are depreciated over the shorter of the term of the lease or the estimated useful life.  Furniture, fixtures, machinery, and equipment are all depreciated over a useful life of three to 10 years, while buildings are depreciated over a period of up to 39 years.  In general, our capitalized software is amortized over a useful life of three years, with capitalized enterprise resource planning software being amortized over a useful life of 10 years.  Gains or losses related to retirements or dispositions of fixed assets are recognized in the period incurred. 

 

            

 

Property, plant and equipment was comprised of the following (in thousands):

 

 

 

            The increase in the land and buildings balances in fiscal year 2013 was primarily attributable to the construction of the new headquarters facility, which was placed in service during fiscal year 2013, and the purchase of surrounding properties during fiscal year 2013.  Depreciation and amortization expense on property, plant, and equipment for fiscal years 2013, 2012, and 2011 was $10.2 million, $6.3 million, and $4.8 million, respectively. 

 

Goodwill and Intangibles, net

 

            Intangible assets include purchased technology licenses and patents that are reported at cost and are amortized on a straight-line basis over their useful lives, generally ranging from one to ten years.  Acquired intangibles include existing technology, core technology or patents, license agreements, trademarks, covenants not-to-compete and customer agreements.  These assets are amortized on a straight-line basis over lives ranging from four to fifteen years. 

 

            Goodwill is recorded at the time of an acquisition and is calculated as the difference between the aggregate consideration paid for an acquisition and the fair value of the net tangible and intangible assets acquired.  Goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests.  If the assumptions and estimates used to allocate the purchase price are not correct, or if business conditions change, purchase price adjustments or future asset impairment charges could be required.  The value of our intangible assets, including goodwill, could be impacted by future adverse changes such as: (i) any future declines in our operating results, (ii) a decline in the valuation of technology company stocks, including the valuation of our common stock, (iii) a significant slowdown in the worldwide economy and the semiconductor industry, or (iv) any failure to meet the performance projections included in our forecasts of future operating results.  The Company tests goodwill and indefinite lived intangibles for impairment on an annual basis or more frequently if the Company believes indicators of impairment exist.  Impairment evaluations involve management estimates of asset useful lives and future cash flows.  Significant management judgment is required in the forecasts of future operating results that are used in the evaluations.  It is possible, however, that the plans and estimates used may be incorrect.  If our actual results, or the plans and estimates used in future impairment analysis, are lower than the original estimates used to assess the recoverability of these assets, we could incur additional impairment charges in a future period.  There are no impairments of goodwill or intangibles in 2013, 2012, and 2011.

 

Long-Lived Assets

 

            We test for impairment losses on long-lived assets and definite-lived intangibles used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts.  We measure any impairment loss by comparing the fair value of the asset to its carrying amount.  We estimate fair value based on discounted future cash flows, quoted market prices, or independent appraisals. 

 

Foreign Currency Translation

 

            All of our international subsidiaries have the U.S. dollar as the functional currency.  The local currency financial statements are remeasured into U.S. dollars using current rates of exchange for assets and liabilities.  Gains and losses from remeasurement are included in other income (expense), net.  Revenue and expenses from our international subsidiaries are remeasured using the monthly average exchange rates in effect for the period in which the items occur.  For all periods presented, our foreign currency remeasurement expense was not significant.

 

Concentration of Credit Risk

 

            Financial instruments that potentially subject us to material concentrations of credit risk consist primarily of cash equivalents, marketable securities, long-term marketable securities, and trade accounts receivable.  We are exposed to credit risk to the extent of the amounts recorded on the balance sheet.  By policy, our cash equivalents, marketable securities, and long-term marketable securities are subject to certain nationally recognized credit standards, issuer concentrations, sovereign risk, and marketability or liquidity considerations.

 

            In evaluating our trade receivables, we perform credit evaluations of our major customers’ financial condition and monitor closely all of our receivables to limit our financial exposure by limiting the length of time and amount of credit extended.  In certain situations, we may require payment in advance or utilize letters of credit to reduce credit risk.  By policy, we establish a reserve for trade accounts receivable based on the type of business in which a customer is engaged, the length of time a trade account receivable is outstanding, and other knowledge that we may possess relating to the probability that a trade receivable is at risk for non-payment. 

 

            For fiscal year 2013, we had three contract manufacturers, Futaihua Industrial, Hongfujin Precision and Protek, who represented 21 percent, 36 percent, and 16 percent of our consolidated gross accounts receivable, respectively.  In fiscal year 2012, we had two contract manufacturers, Futaihua Industrial and Hongfujin Precision, who represented 28 percent and 14 percent, respectively, of our consolidated gross accounts receivable.  No other distributor or customer had receivable balances that represented more than 10 percent of consolidated gross accounts receivable as of the end of fiscal year 2013 or 2012.

 

            Since the components we produce are largely proprietary and generally not available from second sources, we consider our end customer to be the entity specifying the use of our component in their design.  These end customers may then purchase our products directly from us, from a distributor, or through a third party manufacturer contracted to produce their end product.  For fiscal years 2013, 2012, and 2011, our ten largest end customers represented approximately 89 percent, 74 percent, and 62 percent of our sales, respectively.  For fiscal years 2013, 2012, and 2011, we had one end customer, Apple Inc., who purchased through multiple contract manufacturers and represented approximately 82 percent, 62 percent, and 47 percent of the Company’s total sales, respectively.  Further, we had one distributor, Avnet, Inc., that represented 15 percent, and 24 percent of our sales for fiscal years 2012, and 2011, respectively.    No other customer or distributor represented more than 10 percent of net sales in fiscal years 2013, 2012, or 2011.

 

Revenue Recognition

 

            We recognize revenue when all of the following criteria are met: persuasive evidence that an arrangement exists, delivery of goods has occurred, the sales price is fixed or determinable and collectability is reasonably assured.  We evaluate our distributor arrangements, on a distributor by distributor basis, with respect to each of the four criteria above.  For a majority of our distributor arrangements, we provide rights of price protection and stock rotation.  As a result, revenue is deferred at the time of shipment to our domestic distributors and certain international distributors due to the determination that the ultimate sales price to the distributor is not fixed or determinable.  Once the distributor has resold the product, and our final sales price is fixed or determinable, we recognize revenue for the final sales price and record the related costs of sales.  For certain of our smaller international distributors, we do not grant price protection rights and provide minimal stock rotation rights.  For these distributors, revenue is recognized upon delivery to the distributor, less an allowance for estimated returns, as the revenue recognition criteria have been met upon shipment. 

 

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

 

Warranty Expense

 

            We warrant our products and maintain a provision for warranty repair or replacement of shipped products.  The accrual represents management’s estimate of probable returns.  Our estimate is based on an analysis of our overall sales volume and historical claims experience, and the sales volume and historical claims experience at our largest customer, Apple, Inc.  The estimate is re-evaluated periodically for accuracy.

 

Shipping Costs

 

            Our shipping and handling costs are included in cost of sales for all periods presented in the Consolidated Statements of Comprehensive Income.

 

Advertising Costs

 

            Advertising costs are expensed as incurred.  Advertising costs were $1.5 million, $1.8 million, and $1.3 million, in fiscal years 2013, 2012, and 2011, respectively.

 

Stock-Based Compensation

 

            Stock-based compensation is measured at the grant date based on the grant-date fair value of the awards and is recognized as an expense, on a ratable basis, over the vesting period, which is generally between zero and four years.  Determining the amount of stock-based compensation to be recorded requires the Company to develop estimates used in calculating the grant-date fair value of stock options.  The Company calculates the grant-date fair value for stock options using the Black-Scholes valuation model.  The use of valuation models requires the Company to make estimates of assumptions such as expected volatility, expected term, risk-free interest rate, expected dividend yield, and forfeiture rates.  The grant-date fair value of restricted stock units is the market value at grant date multiplied by the number of units. 

 

Income Taxes

 

            We provide for the recognition of deferred tax assets if realization of such assets is more likely than not.  The Company evaluates the ability to realize its deferred tax assets based on all the facts and circumstances, including projections of future taxable income and expiration dates of carryover attributes on a quarterly basis.  We have provided a valuation allowance against a portion of our net U.S. deferred tax assets due to uncertainties regarding its realization.  The calculation of our tax liabilities involves assessing uncertainties with respect to the application of complex tax rules and the potential for future adjustment of our uncertain tax positions by the Internal Revenue Service or other taxing jurisdiction.  We recognize liabilities for uncertain tax positions based on the two-step process.  The first step requires us to determine if the weight of available evidence indicates that the tax position has met the threshold for recognition; therefore, we must evaluate whether it is more likely than not that the position will be sustained on audit, including resolution of any related appeals or litigation processes.  The second step requires us to measure the tax benefit of the tax position taken, or expected to be taken, in an income tax return as the largest amount that is more than 50 percent likely of being realized upon ultimate settlement.  We reevaluate the uncertain tax positions each quarter based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, expirations of statutes of limitation, effectively settled issues under audit, and new audit activity.  If our estimates of these taxes are greater or less than actual results, an additional tax benefit or charge will result. 

 

            Although we believe the measurement of our liabilities for uncertain tax positions is reasonable, no assurance can be given that the final outcome of these matters will not be different than what is reflected in the historical income tax provisions and accruals.  If additional taxes are assessed as a result of an audit or litigation, it could have a material effect on our income tax provision and net income in the period or periods for which that determination is made.  We operate within multiple taxing jurisdictions and are subject to audit in these jurisdictions.  These audits can involve complex issues which may require an extended period of time to resolve and could result in additional assessments of income tax. We believe adequate provisions for income taxes have been made for all periods.

 

Net Income Per Share

 

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

 

            The following table details the calculation of basic and diluted earnings per share for fiscal years 2013, 2012, and 2011 (in thousands, except per share amounts):

 

   

            The weighted outstanding options excluded from our diluted calculation for the years ended March 30, 2013, March 31, 2012, and March 26, 2011, were 453,000,  1,052,000,  and 615,000, respectively, as the exercise price exceeded the average market price during the period.

 

Accumulated Other Comprehensive Loss

 

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

 

Recently Issued Accounting Pronouncements

 

            In July 2012, the FASB issued ASU No. 2012-02, Intangibles – Goodwill and Other (ASC Topic 350) – Testing Indefinite-Lived Intangible Assets for Impairment.  With the amendments in this update, an entity has the option to first assess qualitative factors to determine whether it is more likely than not that indefinite-lived assets, other than goodwill, are impaired.  If, after the assessment, an entity concludes it is not more likely than not that the asset is impaired, then the entity is not required to assess further.  If an entity concludes otherwise, the fair value determination and quantitative impairment test is required, in accordance with Subtopic 350-30.  The amendments in this ASU are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted.  The adoption of this ASU is not expected to have a material impact on our consolidated financial position, results of operations or cash flows.

 

            In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (ASC Topic 220) –Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.  With the amendments in this update, an entity is required to “report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income.  For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts.”  The amendments in this ASU are effective prospectively for reporting periods beginning after December 15, 2012, with early adoption permitted.  We began complying with this ASU, as defined, in fiscal year 2013 and the adoption of this ASU currently does not, and is not expected to have a material impact on our consolidated financial position, results of operations or cash flows.

3.      Marketable Securities

 

            The Company’s investments that have original maturities greater than 90 days have been classified as available-for-sale securities in accordance with U.S. GAAP.  Marketable securities are categorized on the consolidated balance sheet as marketable securities, as appropriate.

 

            The following table is a summary of available-for-sale securities (in thousands):

 

 

            The Company’s specifically identified gross unrealized losses of $164 thousand relates to 43 different securities with a total amortized cost of approximately $124.1 million at March 30, 2013. Because the Company does not intend to sell the investments at a loss and the Company will not be required to sell the investments before recovery of its amortized cost basis, it did not consider the investment in these securities to be other-than-temporarily impaired at March 30, 2013.  Further, the securities with gross unrealized losses had been in a continuous unrealized loss position for less than 12 months as of March 30, 2013.

 

 

            The Company’s specifically identified gross unrealized losses of  $39 thousand relates to 37 different securities with a total amortized cost of approximately $72.6 million at March 31, 2012.  Because the Company does not intend to sell the investments at a loss and the Company will not be required to sell the investments before recovery of its amortized cost basis, it did not consider the investment in these securities to be other-than-temporarily impaired at March 31, 2012.  Further, the securities with gross unrealized losses had been in a continuous unrealized loss position for less than 12 months as of March 31, 2012.

 

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

 

 

 

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 investment portfolio assets. The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

 

 

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

 

As of March 30, 2013 and March 31, 2012, the Company classified all investment portfolio assets as Level 1 or Level 2 assets.  The Company has no Level 3 assets.  There were no transfers between Level 1, Level 2, or Level 3 measurements for the years ending March 30, 2013 and March 31, 2012.

 

The fair value of our financial assets at March 30, 2013, was determined using the following inputs (in thousands):

 

 

 

 

The fair value of our financial assets at March 31, 2012, was determined using the following inputs (in thousands):

 

 

5.      Accounts Receivable, net 

            

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

 

 

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

 

 

6.      Goodwill and Intangibles, net

 

            The goodwill balance included on the Consolidated Balance Sheets under the caption “Goodwill and intangibles, net” is $6.0 million at March 30, 2013 and March 31, 2012.

 

 

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

 

 

 

Amortization expense for all intangibles in fiscal years 2013, 2012, and 2011 was $3.4 million, $3.7 million, and $3.3 million, respectively.  The following table details the estimated aggregate amortization expense for all intangibles owned as of March 30, 2013, for each of the five succeeding fiscal years (in thousands):

 

 

7.     Asset Sale

 

The Company entered into an agreement to sell certain assets associated with Apex Precision Power (“Apex”) products in Tucson, Arizona for $26.1 million.  On August 17, 2012, the Company closed the transaction under this agreement.  After closing the transaction, the Company maintained a high voltage / high power IC design team in Tucson.  See Note 9 for information regarding the subsequent closure and relocation of the Tucson design center. The Company received $22.2 million in cash and has recorded a long-term note receivable for $3.9 million to be paid in its entirety by August 17, 2014.  The gain recorded on the sale was $0.2 million and is included on the Consolidated Statement of Comprehensive Income under the caption, “Restructuring and other, net”.

 

8.     Revolving Line of Credit

 

            The Company maintained a revolving credit agreement (“Credit Agreement”) with Wells Fargo Bank, National Association, as administrative agent and issuing lender, Barclays Bank, as syndication agent, Wells Fargo Securities, LLC and Barclays Capital, as joint lead arrangers and co-book managers.  The aggregate borrowing limit under the unsecured revolving credit facility was $100 million with a $15 million letter of credit sublimit and was intended to provide the Company with short-term borrowings for working capital and other general corporate purposes.  The interest rate payable was, at the Company's election, (i) a base rate plus the applicable margin, where the base rate is determined by reference to the highest of 1) the prime rate publicly announced by the administrative agent, 2) the Federal Funds Rate plus 0.50%, and 3) LIBOR for a one month period plus the difference between the applicable margin for LIBOR rate loans and the applicable margin for base rate loans, or (ii) the LIBOR rate plus the applicable margin that varies according to the leverage ratio of the borrower.  Certain representations and warranties were required under the Credit Agreement, and the Company must have been in compliance with specified financial covenants, including (i) the requirement that the Company maintain a ratio of consolidated funded indebtedness to consolidated EBITDA of not greater than 1.75 to 1.0, computed in accordance with the terms of the Credit Agreement, and (ii) a minimum ratio of consolidated EBITDA to consolidated interest expense of not less than 3.50 to 1.0.  At March 30, 2013, the Company was in compliance with these covenants.

 

            At March 30, 2013, the Company had no outstanding amounts under the facility.  Additionally, there were no borrowings under the facility during fiscal year 2013.  The credit facility expired on April 19, 2013 and was not renewed.

 

9.      Restructuring Costs

 

            On November 6, 2012, the Company committed to a plan to close its Tucson, Arizona design center and move those operations, including development efforts related to motor control technology, to the Company’s headquarters in Austin, Texas.  This restructuring eliminated approximately 25 employees in Tucson, Arizona, or 4% of the Company’s total workforce, as well as relocated to Austin, Texas approximately 20 positions, which are primarily research and development positions.  As of December 29, 2012, the closure was materially completed.

 

            The Company incurred a one-time charge for relocation, severance-related items and facility-related costs to operating expenses totaling $3.5 million in the third quarter of fiscal year 2013.  This charge, along with asset sale activities described in Note 7, are presented as a separate line item on the consolidated statement of comprehensive income in operating expenses under the caption “Restructuring and other, net,” which was and will be paid through calendar year 2015.  The charge included $1.1 million in relocation and related costs and $2.4 million in facility related costs and other related charges.

 

            Of the $3.5 million expense incurred, approximately $2.0 million has been paid, and consisted of severance and relocation-related costs of approximately $0.9 million, an asset impairment charge of approximately $1.0 million, and facility-related costs of approximately $0.1 million.  As of March 30, 2013, we have a remaining restructuring accrual of $1.5 million, included in “Other accrued liabilities” on the consolidated balance sheet.

 

10.      Employee Benefit Plans

 

            We have a 401(k) Profit Sharing Plan (the “401(k) Plan”) covering all of our qualifying domestic employees.  Under the 401(k) Plan, employees may elect to contribute any percentage of their annual compensation up to the annual IRS limitations.  We match 50 percent of the first 6 percent of the employees’ annual contribution to the plan.  We made matching employee contributions of $1.5 million, $1.3 million, and $1.0 million during fiscal years 2013, 2012, and 2011, respectively.

 

11.      Equity Compensation

 

The Company is currently granting equity awards from the 2006 Stock Incentive Plan (the “Plan”), which was approved by stockholders in July 2006.  The Plan provides for granting of stock options, restricted stock awards, restricted stock units, performance awards, phantom stock awards, and bonus stock awards, or any combination of the foregoing.  To date, the Company has granted stock options, restricted stock awards, and restricted stock units under the Plan.  Stock options generally vest between zero and four years, and are exercisable for a period of ten years from the date of grant.  Generally, restricted stock awards are subject to vesting schedules up to four years.  Restricted stock units are generally subject to vesting from one to three years, depending upon the terms of the grant.

 

 

The following table summarizes the activity in total shares available for grant (in thousands):

 

 

Stock Compensation Expense

 

The following table summarizes the effects of stock-based compensation on cost of goods sold, research and development, sales, general and administrative, pre-tax income, and net income after taxes for options granted under the Company’s equity incentive plans (in thousands, except per share amounts):  

 

   

            The total share based compensation expense included in the table above and which is attributable to restricted stock awards and restricted stock units was $16.3 million, $6.3 million, and $1.1 million for fiscal years 2013, 2012, and 2011, respectively.

 

            As of March 30, 2013, there was $39.7 million of compensation costs related to non-vested stock options, restricted stock awards, and restricted stock units granted under the Company’s equity incentive plans not yet recognized in the Company’s financial statements.  The unrecognized compensation cost is expected to be recognized over a weighted average period of 0.96 years for stock options, 1.27 years for restricted stock awards, and 1.57 years for restricted stock units.

 

Stock Option Awards

 

We estimated the fair value of each stock option grant on the date of grant using the Black-Scholes option-pricing model using a dividend yield of zero and the following additional assumptions:

 

   

 

The Black-Scholes valuation calculation requires us to estimate key assumptions such as stock price volatility, expected term, risk-free interest rate and dividend yield.  The expected stock price volatility is based upon implied volatility from traded options on our stock in the marketplace.  The expected term of options granted is derived from an analysis of historical exercises and remaining contractual life of stock options, and represents the period of time that options granted are expected to be outstanding.  The risk-free interest rate reflects the yield on zero-coupon U.S. Treasury securities for a period that is commensurate with the expected term assumption.  Finally, we have never paid cash dividends, do not currently intend to pay cash dividends, and thus have assumed a zero percent dividend yield.

 

Using the Black-Scholes option valuation model, the weighted average estimated fair values of employee stock options granted in fiscal years 2013, 2012, and 2011, were $20.43, $7.58, and $9.61, respectively. 

 

During fiscal year 2013, 2012, and 2011, we received a net $12.0 million, $4.1 million, and $31.0 million, respectively, from the exercise of 1.7 million, 0.6 million and 4.7 million, respectively, stock options granted under the Company’s stock Plan.

 

The total intrinsic value of stock options exercised during fiscal year 2013, 2012, and 2011, was $48.6 million, $7.6 million, and $50.4 million, respectively.  Intrinsic value represents the difference between the market value of the Company’s common stock at the time of exercise and the strike price of the stock option.

 

As of March 30, 2013, approximately 9.4 million shares of common stock were reserved for issuance under the stock option Plan.  

 

 

Additional information with respect to stock option activity is as follows (in thousands, except per share amounts): 

 

 

Additional information with regards to outstanding options that are vesting, expected to vest, or exercisable as of March 30, 2013 is as follows (in thousands, except years and per share amounts): 

 

 

 

In accordance with U.S. GAAP, stock options outstanding that are expected to vest are presented net of estimated future option forfeitures, which are estimated as compensation costs are recognized.  Options with a fair value of $4.8 million, $6.3 million, and $6.0 million, became vested during fiscal years 2013, 2012, and 2011, respectively.

 

The following table summarizes information regarding outstanding and exercisable options as of March 30, 2013 (in thousands, except per share amounts): 

 

               As of March 30, 2013 and March 31, 2012, the number of options exercisable was 3.2 million and 3.8 million, respectively.

 

Restricted Stock Awards

 

The Company periodically grants restricted stock awards (“RSA’s”) to select employees.  The grant date for these awards is equal to the measurement date and the awards are valued as of the measurement date and amortized over the requisite vesting period, which is no more than four years.  Each full value award, including RSA’s, reduces the total shares available for grant under the Plan at a rate of 1.5 shares per RSA granted.  As of March 30, 2013, approximately 0.1 million shares attributable to RSA awards were reserved for issuance under the Plan.  A summary of the activity for RSA’s in fiscal year 2013, 2012, and 2011 is presented below (in thousands, except per share amounts):

 

 

            The weighted average remaining recognition period for RSA’s outstanding as of March 30, 2013 was 1.27 years.  RSA’s with a fair value of $951 thousand, $637 thousand, and $37 thousand became vested during fiscal years 2013, 2012, and 2011, respectively.

 

Restricted Stock Units

 

            Commencing in fiscal year 2011, the Company began granting restricted stock units (“RSU’s”) to select employees. These awards are valued as of the grant date and amortized over the requisite vesting period.  Generally, RSU’s vest 100 percent on the first to third anniversary of the grant date depending on the vesting specifications.  Each full value award, including RSU’s, reduces the total shares available for grant under the 2006 option plan at a rate of 1.5 shares per RSU granted.  As of March 30, 2013, approximately 3.2 million shares attributable to RSU awards were reserved for issuance under the Plan, which includes the additional shares associated with this full value award multiplier. A summary of the activity for RSU’s in fiscal year 2013, 2012, and 2011 is presented below (in thousands, except year and per share amounts):

 

 

 

       Additional information with regards to outstanding restricted stock units that are vesting or expected to vest as of March 30, 2013, is as follows (in thousands, except year and per share amounts): 

   

 

            RSU’s outstanding that are expected to vest are presented net of estimated future forfeitures, which are estimated as compensation costs are recognized.  RSU’s with a fair value of $3.8 million became vested during fiscal year 2013.  No RSU’s became vested during fiscal year 2012 or 2011.  In fiscal year 2013, the Company required employees with vested RSU’s the option to cash settle or net settle, removing the option to sell all.  As a result, the Company repurchases a portion of the shares at fair value, and uses the cash on behalf of the employee to satisfy the tax withholding requirements.  In fiscal year 2013, the vesting of RSU’s reduced the authorized and unissued share balance by approximately 0.2 million, while the net released, outstanding share balance increased by approximately 0.1 million shares and resulted in the $1.7 million payment and subsequent retirement of these shares out of the Plan.