The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and
summary of significant accounting policies
Business
InvenSense, Inc. (the Company) was incorporated in California in June 2003 and reincorporated in Delaware in January 2004. The
Company designs, develops, markets and sells sensor systems on a chip, including accelerometers, gyroscopes and microphones for the mobile, wearable, smart home, gaming, industrial, and automotive market segments. The Company delivers leading
solutions based on its advanced motion and sound technology and is dedicated to bringing the best-in-class size, performance and cost solutions to market. The Company targets solutions such as: smartphones, tablets, wearables, console and portable
video gaming devices, digital television and set-top box remote controls, fitness accessories, sports equipment, digital still cameras, automobiles, ultra-books, laptops, hearing aids, stabilization systems, tools, navigation devices, remote
controlled toys and other household consumer and industrial devices.
These condensed consolidated financial statements should be read in
conjunction with the condensed consolidated financial statements and the notes thereto for the fiscal year ended April 3, 2016 included in the Companys Annual Report on Form 10-K filed on May 25, 2016 with the Securities and Exchange
Commission (SEC). No material changes have been made to the Companys significant accounting policies since the Companys Annual Report on Form 10-K for the fiscal year ended April 3, 2016.
Certain significant business risks and uncertainties
The Company participates in the high-technology industry and believes that a number of factors including, but not limited to the following
could have a material effect on the Companys future financial position, results of operations, or cash flows: reliance on a limited number of primary customers to support the Companys revenue generating activities; changes in end-user
demand for the products manufactured and sold by the Company and its customers; the receipt, reduction, cancellation or delay of significant orders by customers; advances and trends in new technologies and industry standards; new product
announcements and introductions by the Companys competitors; the general cyclicality and seasonality of the semiconductor and consumer electronics industries and the resulting effect on the Companys business; market acceptance of the
Companys and its customers products; the Companys development and introduction of new products on a timely basis; developing new sales channels and attracting new customers; significant warranty claims, including those not covered
by the Companys suppliers; delays in the Companys customers ability to manufacture and ship products that incorporate the Companys products caused by internal and external factors unrelated to the Companys business and
that are out of its control; shortages of key third party components; the effects of competitive pricing pressures, including decreases in average selling prices of the Companys products; write-downs of inventory for excess quantity, changes
in business priorities, technological obsolescence and erosion in net realizable value; strategic relationships, including key component suppliers; litigation or claims against the Company based on intellectual property, patent, product, regulatory,
or other factors; and the Companys ability to attract and retain employees necessary to support its growth. Further information on potential risks that could affect the Companys business and financial results is included in the
Companys Annual Report on Form
10-K
for the year ended April 3, 2016 filed with SEC on May 25, 2016.
Basis of consolidation
The consolidated
financial statements have been prepared in conformity with U.S. generally accepted accounting principles, or GAAP, and include the Companys accounts and the accounts of its wholly-owned subsidiaries. All intercompany accounts and transactions
have been eliminated in consolidation. The functional currency of each of the Companys subsidiaries is the U.S. dollar. Foreign currency gains or losses are recorded as other income (expense), net, in the condensed consolidated statements of
operations.
Fiscal year
The
Companys fiscal year is a 52 or 53 week period ending on the Sunday closest to March 31. Fiscal year 2016 was a 53-week fiscal year ended April 3, 2016 (Fiscal year 2016). The extra week was included in the Companys
fourth fiscal quarter ended April 3, 2016. The Companys fiscal year ended March 29, 2015 (fiscal year 2015) was comprised of 52 weeks.
The first fiscal quarter in each of the two most recent fiscal years included 13 weeks.
Basis of presentation
The accompanying
unaudited condensed consolidated financial statements have been prepared in accordance with GAAP and applicable rules and regulations of the SEC regarding interim financial reporting. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.
7
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The condensed consolidated balance sheet as of April 3, 2016, included herein was
derived from the audited financial statements as of that date, but does not include all disclosures required by GAAP. The unaudited interim condensed consolidated financial statements, in the opinion of management, reflect adjustments, consisting of
all normal recurring adjustments, necessary to present fairly the Companys financial position, results of operations, comprehensive loss and cash flows for the interim periods. The results of operations for the period ended July 3, 2016
is not necessarily indicative of the results to be expected for the fiscal year ending April 2, 2017 or for any future year or interim period.
Use of estimates
The preparation of the
Companys condensed consolidated financial statements and related notes in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the condensed consolidated financial statements and related notes and the reported amounts of income and expenses during the reporting period. Significant estimates included in the condensed consolidated financial
statements and related notes include income taxes, inventory valuation, stock-based compensation, loss contingencies, warranty reserves, goodwill, valuation of acquired assets, and valuation of convertible senior note, including the related
convertible notes hedges and warrants. These estimates are based upon information available as of the date of the condensed consolidated financial statements, and actual results could differ from those estimates.
Goodwill
Goodwill represents the excess
of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. In accordance with Accounting Standard Codification (ASC) 350, the Company reviews goodwill for
impairment at the reporting unit level on an annual basis or whenever events or changes in circumstances indicate the carrying value may not be recoverable. As the Company uses the market approach to assess impairment, its common stock price is an
important component of the fair value calculation. The Company has determined that it has a single reporting unit for purposes of performing its goodwill impairment test. The Company monitors the recoverability of goodwill recorded in connection
with acquisitions annually, or whenever events or changes in circumstances indicate the carrying value may not be recoverable. There were no changes in the carrying amount of goodwill since April 3, 2016. The Company performs the annual
goodwill impairment analysis in the third quarter of each fiscal year. As of July 3, 2016, no events or changes in circumstances indicate the carrying value may not be recoverable.
Concentration of credit risk
The
majority of the Companys products are shipped to distributors, original design manufacturers and contract manufacturers (collectively referred to as intermediaries), who are the legal counter-parties to the Companys sales.
When the Company references customers, sales and revenue in this report, the Company is referring to the manufacturers of consumer electronics devices who are the end customers for our products. However, any disclosure about the composition of the
Companys accounts receivable refers to the intermediaries. Some of the Companys intermediaries may serve more than one of the Companys customers. As a result, attempting to compare or correlate disclosures about the
Companys accounts receivable composition as of a particular date with the disclosures regarding revenues generated by the Companys customers for the period ending on the same date can be difficult or misleading.
One distributor accounted for 67% of accounts receivable at July 3, 2016. One distributor accounted for 48% of accounts receivable and
another distributor accounted for 11% of accounts receivable at April 3, 2016.
For the three months ended July 3, 2016, Apple
Inc. (Apple) accounted for 46% of net revenue. For the three months ended June 28, 2015, Apple accounted for 38% of net revenue, Samsung Electronics Co., Ltd. (Samsung) accounted for 23% of net revenue, and Xiaomi Inc.
(Xiaomi) accounted for 10% of net revenue.
8
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Warranty
The Company offers one year standard warranty on its products. In selective cases, the warranty period can be extended to multiple years. The
Companys accrual for anticipated warranty costs has increased primarily due to an increase in the product return rate under the warranty agreements. The accrual also includes managements judgment regarding anticipated rates of warranty
claims and associated repair costs. The following table summarizes the activity related to product warranty liability during the three months ended July 3, 2016 and June 28, 2015:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
July 3,
|
|
|
June 28,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Beginning balance
|
|
$
|
625
|
|
|
$
|
341
|
|
Provision for warranty
|
|
|
624
|
|
|
|
297
|
|
Adjustments related to changes in estimate
|
|
|
(536
|
)
|
|
|
(162
|
)
|
Less: actual warranty costs
|
|
|
(12
|
)
|
|
|
(53
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
701
|
|
|
$
|
423
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares outstanding during the
period, which excludes dilutive unvested restricted stock. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares outstanding, including unvested restricted stock, certain warrants to
purchase common stock and potential dilutive shares from the dilutive effect of outstanding stock options using the treasury stock method. In periods in which the Company has reported a net loss, the common stock equivalents are excluded from the
calculation of diluted net loss per share of common stock as their effect is antidilutive under the treasury stock method.
The following
table presents the calculation of basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
July 3,
|
|
|
June 28,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands, except per share data)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(20,185
|
)
|
|
$
|
(5,847
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic shares:
|
|
|
|
|
|
|
|
|
Weighted-average shares used in computing basic net loss per share
|
|
|
93,236
|
|
|
|
91,076
|
|
|
|
|
|
|
|
|
|
|
Diluted shares:
|
|
|
|
|
|
|
|
|
Weighted-average shares used in computing basic net loss per share
|
|
|
93,236
|
|
|
|
91,076
|
|
Effect of potentially dilutive securities:
|
|
|
|
|
|
|
|
|
Stock options and unvested restricted stock
|
|
|
|
|
|
|
|
|
Common stock warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in computing diluted net loss per share
|
|
|
93,236
|
|
|
|
91,076
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.22
|
)
|
|
$
|
(0.06
|
)
|
Diluted
|
|
$
|
(0.22
|
)
|
|
$
|
(0.06
|
)
|
9
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following summarizes the potentially dilutive securities outstanding at the end of each
period that were excluded from the computation of diluted net loss per share for the periods presented as their effect would have been antidilutive:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
July 3,
|
|
|
June 28,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Employee stock options
|
|
|
11,186
|
|
|
|
8,865
|
|
Unvested restricted stock units
|
|
|
5,010
|
|
|
|
4,161
|
|
|
|
|
|
|
|
|
|
|
Total antidilutive securities
|
|
|
16,196
|
|
|
|
13,026
|
|
|
|
|
|
|
|
|
|
|
In November 2013, the Company issued $175.0 million aggregate principal amount of 1.75% Convertible Senior
Notes due on November 1, 2018 (the Notes). On or after August 1, 2018 until the maturity date, the Notes may be converted at the option of the holders under certain circumstances. The conversion rate is initially 45.683 shares
per $1,000 principal amount of the Notes (equivalent to an initial conversion price of approximately $21.89 per share of common stock), subject to certain adjustments (see Note 5).
Segment information
The Company operates
in one operating segment, the design, development, manufacture and marketing of sensor systems on a chip. The Chief Executive Officer has been identified as the Chief Operating Decision Maker as defined by Financial Accounting Standards Board
(FASB) ASC 280 Segment Reporting. Enterprise-wide information is provided in accordance with ASC 280. Geographical revenue information is based on the location of the head offices of the Companys customers. Property and
equipment information is based on the physical location of the assets at the end of each fiscal period.
Property and equipment by country
were as follows:
|
|
|
|
|
|
|
|
|
|
|
July 3,
|
|
|
April 3,
|
|
Country
|
|
2016
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Taiwan
|
|
$
|
23,745
|
|
|
$
|
25,183
|
|
United States
|
|
|
9,421
|
|
|
|
9,207
|
|
Other
|
|
|
1,968
|
|
|
|
1,881
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35,134
|
|
|
$
|
36,271
|
|
|
|
|
|
|
|
|
|
|
10
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Net revenue from unaffiliated customers by location of the Companys customers
headquarters offices was as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
July 3,
|
|
|
June 28,
|
|
Region
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
United States
|
|
$
|
30,105
|
|
|
$
|
43,803
|
|
China
|
|
|
12,446
|
|
|
|
24,606
|
|
Korea
|
|
|
5,794
|
|
|
|
28,723
|
|
Japan
|
|
|
5,280
|
|
|
|
4,136
|
|
Taiwan
|
|
|
5,425
|
|
|
|
3,186
|
|
Rest of world
|
|
|
1,586
|
|
|
|
1,842
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
60,636
|
|
|
$
|
106,296
|
|
|
|
|
|
|
|
|
|
|
A majority of sales to U.S. headquartered companies are sold to their distributors or contract manufacturers
located overseas.
Recent accounting pronouncements
In June 2016, the FASB issued Accounting Standards Update (ASU) 2016-13, Financial Instruments Credit Losses. Under the
new guidance, credit losses for certain types of financial instruments will be estimated based on expected losses. The new guidance also modifies the impairment models for available-for-sale debt securities and for purchased financial assets with
credit deterioration since their origination. The new guidance will be effective for the Company starting in the first quarter of fiscal 2021. Early adoption is permitted starting in the first quarter of fiscal 2020. The Company is in the process of
determining the effects the adoption will have on its consolidated financial statements as well as whether to adopt the new guidance early.
In March, 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends ASC Topic
718, CompensationStock Compensation. The new guidance simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes,
forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The new guidance will be effective for the Company starting in the first quarter of fiscal 2018. Early adoption is permitted in any
annual or interim period. The Company is in the process of determining the effects the adoption will have on its consolidated financial statements as well as whether to adopt the new guidance early.
In February 2016, the FASB issued new guidance related to leases that outlines a comprehensive lease accounting model and supersedes the
current lease guidance. The new guidance requires lessees to recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms of greater than 12 months. It also changes the definition of a lease and expands the
disclosure requirements of lease arrangements. The new guidance must be adopted using the modified retrospective approach and will be effective for the Company starting in the first quarter of fiscal 2020. Early adoption is permitted. The Company is
in the process of determining the effects the adoption will have on its consolidated financial statements as well as whether to adopt the new guidance early.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU No. 2014-09
provides guidance that companies will recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the payment to which a company expects to be entitled in exchange for those goods or services. The standard
requires public entities to apply the amendments in ASU 2014-09 for annual reporting periods beginning after December 15, 2016, including interim reporting periods therein. On April 1, 2015, the FASB proposed for a one-year deferral of the
effective date for this pronouncement. The Company then will be required to implement the new revenue recognition standard for the first quarter of fiscal year 2019. The Company is currently evaluating the impact on its consolidated financial
statements.
11
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. Cash equivalents and available-for-sale investments
At July 3, 2016, cash and cash equivalents totaled $23.1 million, of which $11.4 million was cash and $11.7 million was cash
equivalents invested in money market funds. At July 3, 2016, $13.2 million of the cash and cash equivalents were held by the Companys foreign subsidiaries. Additionally, as of July 3, 2016, the Company had short-term
available-for-sale investments of $247.3 million.
At April 3, 2016, cash and cash equivalents totaled $41.1 million, of which
$25.4 million was cash and $15.7 million was cash equivalents invested in money market funds. At April 3, 2016, $21.0 million of the cash and cash equivalents were held by the Companys foreign subsidiaries. Additionally, as of
April 3, 2016, the Company had short-term available-for-sale investments of $243.8 million.
The Company applies the provisions
of ASC 820-10,
Fair Value Measurements
. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the exit price) in an orderly transaction between market
participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. ASC 820-10 requires disclosure that
establishes a framework for measuring fair value and expands disclosure about fair value measurements. The standard describes a fair value hierarchy based on three levels of inputs that may be used to measure fair value. The inputs for the first two
levels are considered observable and the last is unobservable and include the following:
Level 1Unadjusted quoted prices in
active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2Quoted
prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; or
Level 3Unobservable inputs in which there is little or no market data, and as a result, prices or valuation techniques are employed
that require inputs that are significant to the fair value measurement.
This hierarchy requires the Company to use observable market
data, when available, and to minimize the use of unobservable inputs when determining fair value. On a recurring basis, the Company measures certain financial assets and liabilities at fair value. The fair values of the Companys money market
funds were derived from quoted market prices as active markets for these instruments exist. The Company chose not to elect the fair value option as prescribed by ASC 825-10-05 Fair Value Option for its financial assets and liabilities
that had not been previously carried at fair value. Therefore, financial assets and liabilities not carried at fair value, such as accounts payable, are reported at their carrying values.
12
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Fair value measurements at each reporting date were as follows:
July 3, 2016:
Assets and
liabilities measured at fair value on a recurring basis were presented in the Companys condensed consolidated balance sheet as of July 3, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 3,
2016
balance
|
|
|
Quoted prices
in active
markets for
identical assets
or liabilities
Level 1
|
|
|
Significant
other
observable
inputs
Level 2
|
|
|
Significant
other
unobservable
inputs
Level 3
|
|
|
|
(in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
11,676
|
|
|
$
|
11,676
|
|
|
$
|
|
|
|
$
|
|
|
Corporate notes and bonds
|
|
|
135,477
|
|
|
|
|
|
|
|
135,477
|
|
|
|
|
|
Commercial paper
|
|
|
77,317
|
|
|
|
|
|
|
|
77,317
|
|
|
|
|
|
U.S. agency securities
|
|
|
34,480
|
|
|
|
|
|
|
|
34,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
258,950
|
|
|
$
|
11,676
|
|
|
$
|
247,274
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
1,909
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
11,676
|
|
|
$
|
11,676
|
|
|
$
|
|
|
|
$
|
|
|
Short-term investments
|
|
|
247,274
|
|
|
|
|
|
|
|
247,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
258,950
|
|
|
$
|
11,676
|
|
|
$
|
247,274
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
1,909
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contingent consideration
|
|
$
|
1,909
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 3,
2016
amortized cost
|
|
|
gross
unrealized
gain
|
|
|
gross
unrealized
loss
|
|
|
July 3,
2016
estimated FMV
|
|
|
|
(in thousands)
|
|
Corporate notes and bonds
|
|
$
|
135,503
|
|
|
$
|
11
|
|
|
$
|
(37
|
)
|
|
$
|
135,477
|
|
Commercial paper
|
|
|
77,343
|
|
|
|
6
|
|
|
|
(32
|
)
|
|
|
77,317
|
|
U.S. agency securities
|
|
|
34,457
|
|
|
|
23
|
|
|
|
|
|
|
|
34,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale investments
|
|
$
|
247,303
|
|
|
$
|
40
|
|
|
$
|
(69
|
)
|
|
$
|
247,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total aggregate fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
258,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair values of money market funds were derived from quoted market prices as active markets for these
instruments exist. The fair values of corporate notes and bonds, commercial paper and U.S. agency securities were derived from non-binding market consensus prices that are corroborated by observable market data.
None of the gross unrealized losses as of July 3, 2016 were considered to be other-than-temporary impairments.
There were no transfers of assets measured at fair value between Level 1 and Level 2 during the three months ended July 3,
2016.
13
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
April 3, 2016:
Assets and liabilities measured at fair value on a recurring basis were presented in the Companys condensed consolidated balance sheet as
of April 3, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 3,
2016
balance
|
|
|
Quoted prices
in active
markets for
identical assets
or liabilities
Level 1
|
|
|
Significant
other
observable
inputs
Level 2
|
|
|
Significant
other
unobservable
inputs
Level 3
|
|
|
|
(in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
15,697
|
|
|
$
|
15,697
|
|
|
$
|
|
|
|
$
|
|
|
Corporate notes and bonds
|
|
|
163,675
|
|
|
|
|
|
|
|
163,675
|
|
|
|
|
|
Commercial paper
|
|
|
45,473
|
|
|
|
|
|
|
|
45,473
|
|
|
|
|
|
U.S. agency securities
|
|
|
34,607
|
|
|
|
|
|
|
|
34,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
259,452
|
|
|
$
|
15,697
|
|
|
$
|
243,755
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
1,909
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
15,697
|
|
|
$
|
15,697
|
|
|
$
|
|
|
|
$
|
|
|
Short-term investments
|
|
|
243,755
|
|
|
|
|
|
|
|
243,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
259,452
|
|
|
$
|
15,697
|
|
|
$
|
243,755
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
1,909
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contingent consideration
|
|
$
|
1,909
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 3,
2016
amortized cost
|
|
|
gross
unrealized
gain
|
|
|
gross
unrealized
loss
|
|
|
April 3,
2016
estimated FMV
|
|
|
|
(in thousands)
|
|
Corporate notes and bonds
|
|
$
|
163,712
|
|
|
$
|
19
|
|
|
$
|
(56
|
)
|
|
$
|
163,675
|
|
Commercial paper
|
|
|
45,480
|
|
|
|
3
|
|
|
|
(10
|
)
|
|
|
45,473
|
|
U.S. agency securities
|
|
|
34,589
|
|
|
|
25
|
|
|
|
(7
|
)
|
|
|
34,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale investments
|
|
$
|
243,781
|
|
|
$
|
47
|
|
|
$
|
(73
|
)
|
|
$
|
243,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total aggregate fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
259,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair values of money market funds were derived from quoted market prices as active markets for these
instruments exist. The fair values of corporate notes and bonds, commercial paper and U.S. agency securities were derived from non-binding market consensus prices that are corroborated by observable market data.
There were no transfers of assets measured at fair value between Level 1 and Level 2 during fiscal year 2016.
14
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Level 3 financial liabilities:
The following table provides a summary of changes in fair value of the Companys contingent consideration categorized as Level 3 for the
three months ended July 3, 2016 and June 28, 2015:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
July 3, 2016
|
|
|
June 28, 2015
|
|
|
|
(in thousands)
|
|
Beginning balance
|
|
$
|
1,909
|
|
|
$
|
9,124
|
|
Add: Contingent consideration in connection with acquisitions
|
|
|
|
|
|
|
|
|
Payments made on contingent liabilities
|
|
|
|
|
|
|
|
|
Change in fair value and other
|
|
|
|
|
|
|
(5,307
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
1,909
|
|
|
$
|
3,817
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration on acquired businesses (see Note 8) was measured at fair value using Level 3 inputs
as defined in the fair value hierarchy. The following table presents certain information about the significant unobservable inputs used in the fair value measurement for the contingent consideration measured at fair value on a recurring basis using
significant unobservable inputs:
|
|
|
|
|
Description
|
|
Valuation Techniques
|
|
Significant Unobservable Inputs
|
Liabilities: Contingent consideration
|
|
Present value of a Probability Weighted Earn-out model using an appropriate discount rate.
|
|
Estimate of achieving the milestones.
|
An increase in the estimate of probability of meeting the milestones could result in a significantly higher
estimated fair value of the contingent consideration liability. Alternatively, a decrease in the estimate of probability of meeting the milestones could result in a significantly lower estimated fair value of contingent consideration liability. The
fair value of contingent consideration was derived from a probability weighted earn-out model of future contingent payments. The cash payments are expected to be made upon meeting the milestones (see Note 8). The initial valuation of the contingent
consideration was based on a collaborative effort of the Companys engineering and finance departments, and third party valuation experts. The estimate of meeting the milestones and discount rates is reviewed quarterly and updated as and when
necessary. Potential valuation adjustments will be made to adjust the contingent consideration payments. These adjustments will be recorded in the statements of operations.
In fiscal year 2016, the fair value of contingent consideration declined by $5.3 million. The decline in fair value was the result of a
reduction in the probability of a design win milestone associated with the Movea, S.A. (Movea) acquisition from 50% to 0% and a reduction in the probability of a design win associated with the Trusted Positioning, Inc. (TPI)
acquisition from 50% to 0%. The decline in fair value of the design win milestones for Movea and TPI was $4.0 million and $2.4 million, respectively, which were recorded as a credit to research and development expense. The earn-out payments for the
Movea and TPI design win milestones were not made as these milestones were not met and expired during fiscal year 2016. Offsetting this amount is an increase in the fair value of two TPI cloud application milestones as a result of an increase in the
estimated probability of achievement of those milestones. The increase in the fair value of the cloud application milestones was $1.1 million, which was recorded as a debit to research and development expense in fiscal year 2016. A design milestone
for TPI was achieved and the payment of $1.9 million was made in fiscal year 2016. The last milestone of $1.9 million for TPI is expected to be paid in fiscal year 2017.
3. Balance sheet details
Inventories
Inventories at July 3, 2016 and April 3, 2016 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
July 3, 2016
|
|
|
April 3, 2016
|
|
|
|
(in thousands)
|
|
Work in process
|
|
$
|
32,124
|
|
|
$
|
40,329
|
|
Finished goods
|
|
|
19,502
|
|
|
|
21,968
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
51,626
|
|
|
$
|
62,297
|
|
|
|
|
|
|
|
|
|
|
15
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Prepaid expenses and other current assets
Prepaid expenses and other current assets at July 3, 2016 and April 3, 2016 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
July 3, 2016
|
|
|
April 3, 2016
|
|
|
|
(in thousands)
|
|
Prepaid expenses
|
|
$
|
5,646
|
|
|
$
|
5,256
|
|
Income tax receivable
|
|
|
77
|
|
|
|
156
|
|
Other receivables
|
|
|
994
|
|
|
|
1,676
|
|
Other current assets
|
|
|
1,295
|
|
|
|
2,162
|
|
|
|
|
|
|
|
|
|
|
Total prepaid expenses and other current assets
|
|
$
|
8,012
|
|
|
$
|
9,250
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
Property and equipment at July 3, 2016 and April 3, 2016 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
July 3, 2016
|
|
|
April 3, 2016
|
|
|
|
(in thousands)
|
|
Production and lab equipment
|
|
$
|
54,215
|
|
|
$
|
52,821
|
|
Computer equipment and software
|
|
|
9,783
|
|
|
|
9,074
|
|
Equipment under construction
|
|
|
669
|
|
|
|
607
|
|
Leasehold improvements and furniture and fixtures
|
|
|
8,568
|
|
|
|
8,396
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
73,235
|
|
|
|
70,898
|
|
Accumulated depreciation and amortization
|
|
|
(38,101
|
)
|
|
|
(34,627
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipmentnet
|
|
$
|
35,134
|
|
|
$
|
36,271
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the three months ended July 3, 2016 and June 28, 2015 was $3.3 million and
$3.1 million, respectively. Equipment under construction consists primarily of production and lab equipment. Equipment under construction is not subject to depreciation until it is available for its intended use. All of the equipment under
construction is expected to be completed and placed in service by the end of fiscal 2017.
Accrued liabilities
Accrued liabilities at July 3, 2016 and April 3, 2016 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
July 3, 2016
|
|
|
April 3, 2016
|
|
|
|
(in thousands)
|
|
Payroll-related expenses
|
|
$
|
7,297
|
|
|
$
|
8,030
|
|
Bonuses
|
|
|
3,002
|
|
|
|
5,040
|
|
Contingent consideration, current portion
|
|
|
1,908
|
|
|
|
1,908
|
|
Deferred revenue
|
|
|
1,727
|
|
|
|
1,949
|
|
Legal fees
|
|
|
293
|
|
|
|
197
|
|
Accrued contractual coupon interest payable on convertible senior notes
|
|
|
549
|
|
|
|
1,313
|
|
Income tax payable
|
|
|
1,834
|
|
|
|
553
|
|
Other tax payable
|
|
|
768
|
|
|
|
768
|
|
Customer deposit
|
|
|
2,750
|
|
|
|
4,008
|
|
Other accrued liabilities
|
|
|
7,133
|
|
|
|
6,482
|
|
|
|
|
|
|
|
|
|
|
Total accrued liabilities
|
|
$
|
27,261
|
|
|
$
|
30,248
|
|
|
|
|
|
|
|
|
|
|
16
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Other long-term liabilities
Other long-term liabilities at July 3, 2016 and April 3, 2016 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
July 3, 2016
|
|
|
April 3, 2016
|
|
|
|
(in thousands)
|
|
Long-term tax payable
|
|
$
|
14,421
|
|
|
$
|
13,928
|
|
Deferred rent
|
|
|
3,210
|
|
|
|
3,436
|
|
Deferred tax liabilities
|
|
|
2,790
|
|
|
|
3,026
|
|
Deferred revenue
|
|
|
3,900
|
|
|
|
4,100
|
|
Long-term debt
|
|
|
2,424
|
|
|
|
2,465
|
|
Other long-term liabilities
|
|
|
10
|
|
|
|
275
|
|
|
|
|
|
|
|
|
|
|
Total other long-term liabilities
|
|
$
|
26,755
|
|
|
$
|
27,230
|
|
|
|
|
|
|
|
|
|
|
4. Commitments and contingencies
Operating lease obligations
The Company
has non-cancelable operating leases for its facilities through fiscal year 2022.
Future minimum lease payments, net of future minimum
lease income, under operating leases as of July 3, 2016 are as follows:
|
|
|
|
|
|
|
Amount
|
|
Fiscal Years Ending:
|
|
(in thousands)
|
|
2017 (remainder)
|
|
|
4,081
|
|
2018
|
|
|
6,503
|
|
2019
|
|
|
6,600
|
|
2020
|
|
|
5,277
|
|
2021
|
|
|
1,388
|
|
Beyond
|
|
|
513
|
|
|
|
|
|
|
Total
|
|
$
|
24,362
|
|
|
|
|
|
|
The Companys lease agreements provide for rental payments which have certain lease incentives and
graduated rental payments. As a result, the rent expense is recognized on a straight-line basis over the term of the lease. The Companys rental expense under operating leases was approximately $1.2 million and $1.3 million for the three months
ended July 3, 2016 and June 28, 2015, respectively. The Companys rental income from sublease was approximately $0.4 million and $0.3 million for the three months ended July 3, 2016 and June 28, 2015, respectively.
Purchase Commitments
The Company has
non-cancelable purchase commitments with its foundry vendors. Future minimum payments of $22.1 million under the purchase commitments as of July 3, 2016 are due in less than twelve months.
17
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Legal proceedings and contingencies
From time to time the Company is involved in various disputes and litigation matters that arise in the ordinary course of our business,
including disputes and lawsuits related to intellectual property and employment issues. In addition, the Company is a party to class action lawsuits.
In January and March of 2015, purported shareholders filed five substantially similar class action complaints in the U.S. District Court,
Northern District of California against the Company and two of the Companys current and former executives (Class Action Defendants) (
Jim McMillan v. InvenSense, Inc., et al.
Case No. 3:15-cv-00084-JD,
filed January 7, 2015;
William Lendales v. InvenSense, Inc. et al.
, Case No. 3:15-cv-00142-VC, filed on January 12, 2015;
Plumber & Steamfitters Local 21 Pension Fund v. InvenSense, Inc., et al.
, Case
No. 5:15-cv-00249-BLF, filed on January 16, 2015;
William B. Davis vs. InvenSense, Inc., et al.
, Case No. 5:15-cv-00425-RMW, filed on January 29, 2015; and
Saratoga Advantage Trust Technology &
Communications Portfolio v. InvenSense et al.
, Case No. 3:15-cv-01134, filed on March 11, 2015). On April 23, 2015, those cases were consolidated into a single proceeding which is currently pending in the U.S. District Court,
Northern District of California and captioned
In re InvenSense, Inc. Securities Litigation
, Case No. 3:15-cv-00084-JD (the Securities Case), and the Vossen Group was designated as lead plaintiff. On May 26,
2015, the lead plaintiffs filed a consolidated amended class action complaint, which alleges that the defendants violated the federal securities laws by making materially false and misleading statements regarding our business results between
July 29, 2014 and October 28, 2014, and seeks unspecified damages along with plaintiffs costs and expenses, including attorneys fees. On June 25, 2015, the Class Action Defendants filed a motion seeking dismissal of
the case and a hearing on that motion was held on October 7, 2015. On March 28, 2016, the court granted the motion to dismiss, in part with prejudice and in part with leave to amend. On April 18, 2016, the lead plaintiffs
counsel filed an amended complaint. On May 5, 2016, the Class Action Defendants filed a motion seeking dismissal of the case and a hearing on that motion was held on June 29, 2016. The Court has not yet issued an order. In light of
the unresolved legal issues, the amount of any potential loss cannot be estimated. At this stage, the Company is unable to predict the outcome of this matter and, accordingly, cannot estimate the potential financial impact on the Companys
business, operating results, cash flows or financial position.
In addition, in January and March of 2015, other purported
shareholders filed three substantially similar shareholder derivative complaints against two of our current and former officers and several of our current directors, twice in the U.S. District Court, Northern District of California and once in Santa
Clara Superior Court (
George E Rollins v. Behrooz Abdi et al.,
Case No. 5:15-cv-00184-PSG, filed on January 13, 2015;
Linda Karr v. Behrooz Abdi et al.,
Case No. 5:15-cv-00200-NC, filed on January 14,
2015; and
Robert Bilbrey v. Behrooz Abdi et al.
, Case No. 1-15-CV-278742 was filed on March 20, 2015) (collectively, the Derivative Cases). In the Derivative Cases complaints, the plaintiffs make allegations similar
to those presented in the Securities Case, but the plaintiffs asserts various state law causes of action, including claims of breach of fiduciary duty and unjust enrichment. The Company has undertaken an evaluation of these complaints. Plaintiffs in
the Derivative Cases have agreed to an indefinite stay pending developments in the Securities Case.
The semiconductor and MEMS industries
are characterized by companies that hold large numbers of patents and other intellectual property rights and that vigorously pursue, protect and enforce intellectual property rights.
Robert Bosch GmbH (Bosch), one of the Companys competitors, and the Company have each previously made generalized assertions
of potential patent infringement by the other. On October 28, 2015, the Company and Bosch resolved all assertions of potential infringement between them and entered into a multi-year, worldwide patent cross license agreement for MEMS and sensor
technologies, excluding patents covering InvenSenses CMOS-MEMS eutectic bonding production process and Boschs two-layer porous silicon production process, and an upfront payment of $11.5 million to Bosch. The other terms of the
settlement and the patent cross license agreement remain confidential and are not expected to have a material impact on the Companys future results. Based on the status of the negotiations, the Company recognized a pre-tax charge of $11.7
million during the quarter ended June 28, 2015. On October 28, 2015, Bosch and the Company resolved all assertions of potential infringement made by the other. There were no significant changes to the final terms which required any
additional charge in the fiscal year 2016. In the future, other third parties may assert against the Company and its customers and distributors, their patent and other intellectual property rights to technologies that are important to the
Companys business.
18
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company is not aware of any other pending legal matters or claims, individually or in the
aggregate, that are expected to have a material adverse impact on its condensed consolidated financial position, results of operations, or cash flows. However, the Companys analysis of whether a claim may proceed to litigation cannot be
predicted with certainty, nor can the results of litigation be predicted with certainty. Nevertheless, defending any of these actions, regardless of the outcome, may be costly, time consuming, distract management personnel, and have a negative
effect on the Companys business. An adverse outcome in any of these actions, including a judgment or settlement, may have a material adverse effect on the Companys future business, operating results, and/or financial condition.
The Company indemnifies certain customers, distributors, suppliers and subcontractors for attorney fees and damages and costs awarded against
such parties in certain circumstances in which the Companys products are alleged to infringe third-party intellectual property rights, including patents, registered trademarks or copyrights. Indemnification costs are charged to operations as
incurred.
The Companys Third Amended and Restated Bylaws require the Company to indemnify its directors and officers and employees
to the fullest extent permitted by the Delaware General Corporation Law (DGCL). In addition, the Companys directors, the Companys chief executive officer and certain executive officers have entered into separate
indemnification agreements with the Company. The Companys Second Amended and Restated Certificate of Incorporation, as amended, limits the liability of directors to the Company or its stockholders to the fullest extent permitted by the DGCL.
The obligation to indemnify generally means that the Company is required to pay or reimburse the individuals reasonable legal expenses and possibly damages and other liabilities incurred in connection with these matters.
5. Convertible senior notes
In November
2013, the Company issued $175.0 million aggregate principal amount of 1.75% Convertible Senior Notes due on November 1, 2018 (the Notes), in a private placement to qualified institutional buyers pursuant to Rule 144A under the
Securities Act of 1933 (the Securities Act). The Notes have not been registered under the Securities Act, or applicable state securities laws or blue sky laws, and may not be offered or sold in the United States absent registration under
the Securities Act and applicable state securities laws or available exemptions from the registration requirements.
The Notes are senior
unsecured obligations of the Company and rank equally in right of payment with all of the Companys existing and future senior unsecured indebtedness and are junior to any of the Companys existing and future secured indebtedness. The
Notes pay interest in cash semi-annually (May and November) at a rate of 1.75% per annum. Net proceeds received by the Company, after issuance costs, were approximately $169.3 million.
On or after August 1, 2018 until the maturity date, the Notes may be converted at the option of the holders. Holders may convert the
Notes at their option prior to August 1, 2018 only under the following circumstances:
1) During any calendar quarter and only during
such calendar quarter, if the last reported sale price of the Companys common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately
preceding calendar quarter is greater than or equal to 130% of the conversion price of $21.89 on each applicable trading day;
2) During
the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last
reported sale price of our common stock and the conversion rate on each such trading day; or
3) Upon the occurrence of specified
corporate events, including if there is a fundamental change.
19
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Upon conversion, the Company will pay cash up to the aggregate principal amount of the Notes
to be converted and pay or deliver cash, shares of its own common stock or a combination of cash and shares of its own common stock, at the Companys election, in respect of the remainder, if any, of its conversion obligation in excess of the
aggregate principal amount of the Notes being converted.
The conversion rate is initially 45.683 shares per $1,000 principal amount of
the Notes (equivalent to an initial conversion price of approximately $21.89 per share of common stock), subject to certain adjustments.
The Notes are not redeemable by the Company prior to the maturity date. At an event of default or fundamental change, the principal amount of
the Notes plus accrued and unpaid interest may become due immediately at the Note holders option.
The Company separately accounts
for the liability and equity components of the Notes. The initial debt component of the Notes was valued at $135.7 million based on the contractual cash flows discounted at an appropriate comparable market non-convertible debt borrowing rate at
the date of issuance of 7.3%, with the equity component representing the residual amount of the proceeds of $39.3 million which was recorded as a debt discount. The issuance costs were allocated pro-rata based on the relative initial carrying
amounts of the debt and equity components, including the Note hedges and warrants transactions described below. As a result, $2.5 million of the issuance costs were allocated to the equity component of the Notes, $3.0 million of issuance costs
paid to the initial purchaser were accounted for as a debt discount and $0.25 million of the issuance costs were classified as other non-current assets. Debt issuance costs were reclassified and presented in the balance sheet as a direct
deduction from the carrying value of the debt liability, consistent with the presentation of a debt discount in the first quarter of the Companys fiscal year 2016 pertaining to the requirement of ASU 2015-03,
Simplifying the
Presentation of Debt Issuance Costs.
The debt discount and the issuance costs allocated to the debt component are amortized as additional interest expense over the term of the Notes using the effective interest method. As of July 3,
2016, the remaining amortization period of the debt discount and the issuance costs is 2.3 years. The effective interest rate of the Notes is 7.84% per annum (1.75% coupon rate plus 6.09% of non-cash accretion expense).
Convertible notes hedges and warrants
Concurrent with the issuance of the Notes on November 6 and 7, 2013, the Company purchased call options for its own common stock to hedge
the Notes (the Note Hedge) and sold call options for its own common stock (the Warrants). The Note Hedges and Warrants transactions are structured to reduce the potential future economic dilution associated with the
conversion of the Notes and are excluded from the computation of diluted earnings per share for each period presented, as the Companys average stock price during each period is less than the conversion price.
The Note HedgesOn November 6 and 7, 2013, the Company purchased call options from a counterparty for an aggregate price of
approximately $39.1 million, which gives the Company the right to buy from the counterparty up to approximately 8.0 million shares of the Companys common stock at a price of $21.89 per share, subject to adjustments. The Note Hedge is
exercisable upon conversion of the Notes for a number of shares equal to the product of 0.045683 and amount of the converted Note. Upon exercise of the Note Hedge, the Company will receive from the counterparty cash, shares of the Companys
common stock, or a combination thereof, equal to the amount by which the market price per share of the Companys common stock exceeds $21.89 during the applicable valuation period. By the Note Hedge terms, the Company will receive cash and
shares in a combination that offsets share dilution caused by conversion of the Notes.
WarrantsOn November 6 and 7, 2013, the
Company sold call options to the same counterparty for approximately $25.6 million, which gives the counterparty the right to buy from the Company up to approximately 8.0 million shares of the Companys common stock at an exercise
price of $28.66 per share, subject to adjustments, on a series of days commencing on February 1, 2019 and ending May 13, 2019. Upon exercise of the Warrants, the Company has the option to deliver cash or shares of its common stock equal to
the difference between the market price on the exercise date and the strike price of the Warrants. Upon exercise of the Warrants, the Company will pay to the initial purchaser cash, shares of the Companys common stock, or a combination thereof
(at the Companys choice), equal to the amount by which the market price per share of the Companys common stock exceeds $28.66 during the applicable valuation period.
The Note Hedges and Warrants are classified in stockholders equity in the Companys condensed consolidated balance sheets.
20
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table summarizes the principal amounts and related unamortized discount on the
Notes :
|
|
|
|
|
|
|
|
|
|
|
July 3, 2016
|
|
|
April 3, 2016
|
|
|
|
(in thousands)
|
|
Principal amount of the Notes
|
|
$
|
175,000
|
|
|
$
|
175,000
|
|
Unamortized discount on the Notes
|
|
|
21,710
|
|
|
|
23,809
|
|
Unamortized debt issuance costs
|
|
|
139
|
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
Net carrying value
|
|
$
|
153,151
|
|
|
$
|
151,038
|
|
|
|
|
|
|
|
|
|
|
The following table presents the amount of interest expense recognized related to the Notes:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
July 3,
2016
|
|
|
June 28,
2015
|
|
|
|
(in thousands)
|
|
Contractual coupon interest expense
|
|
$
|
764
|
|
|
$
|
764
|
|
Accretion of debt discount
|
|
|
2,099
|
|
|
|
1,945
|
|
Amortization of debt issuance costs
|
|
|
14
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
Total interest expense related to the Notes
|
|
$
|
2,877
|
|
|
$
|
2,722
|
|
|
|
|
|
|
|
|
|
|
As of July 3, 2016, the Companys aggregate future principal debt maturities are as follows:
|
|
|
|
|
Fiscal Year
|
|
July 3, 2016
|
|
|
|
(in thousands)
|
|
2019
|
|
$
|
175,000
|
|
|
|
|
|
|
Total
|
|
$
|
175,000
|
|
|
|
|
|
|
The Notes are shown in the accompanying condensed consolidated balance sheets at their original issuance
value, net of unamortized discount, and are not marked to market each period. The approximate fair value of the Notes as of July 3, 2016 was $163.4 million. The fair value of the Notes was determined using quoted market prices for similar
securities, which, due to limited trading activity, are considered Level 2 in the fair value hierarchy.
6. Stockholders equity
Stock plans
In July 2011, the
Companys Board of Directors and its stockholders approved the establishment of the 2011 Stock Incentive Plan (the 2011 Plan). The 2011 Plan provides for annual increases in the number of shares available for issuance thereunder on
the first business day of each fiscal year, equal to four percent (4%) of the number of shares of the Companys common stock outstanding as of such date, which resulted in an annual increase of 3.7 million shares for fiscal year 2017.
Under the 2011 Plan, the Board of Directors may grant either incentive stock options, nonqualified stock options, or stock awards to
eligible persons, including employees, nonemployees, members of the Board of Directors, consultants and other independent advisors who provide services to the Company.
The Companys 2004 Stock Incentive Plan (the 2004 Plan), was adopted by the Companys board of directors and approved by
the Companys stockholders on April 13, 2004, and was last amended on August 31, 2011. The 2004 Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended, to employees and any parent and subsidiary corporations employees, and for the grant of non-qualified stock options and restricted stock to employees, directors and consultants and any parent and subsidiary corporations
employees. The Company has not granted any additional awards under the 2004 Plan following the completion of the Companys initial public offering in November 2011. However, the 2004 Plan continues to govern the terms and conditions of
outstanding awards granted thereunder.
21
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Incentive stock options may only be granted to employees and at an exercise price of no less
than fair value on the date of grant. Nonqualified stock options may be granted at an exercise price of no less than 100% of fair value on the date of grant. For owners of more than 10% of the Companys common stock, options may only be granted
for an exercise price of not less than 110% of fair value, and these options generally expire 10 years from the date of grant. Stock options may be exercisable immediately but subject to repurchase. Stock options vest over the period determined
by the Board of Directors, generally four years.
Stock option activities of the Company under the 2011 Plan and 2004 Plan (the
Plans) are as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
issued and
outstanding
|
|
|
Weighted-
average
exercise
price
|
|
|
Weighted-
average
remaining
contractual
term
(in years)
|
|
|
Aggregate
intrinsic
value
|
|
Balance April 3, 2016
|
|
|
10,126
|
|
|
$
|
12.76
|
|
|
|
7.53
|
|
|
$
|
5,016
|
|
Options granted
|
|
|
2,595
|
|
|
|
5.77
|
|
|
|
|
|
|
|
|
|
Exercised options
|
|
|
(23
|
)
|
|
|
6.08
|
|
|
|
|
|
|
|
|
|
Cancelled options
|
|
|
(567
|
)
|
|
|
14.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance July 3, 2016
|
|
|
12,131
|
|
|
$
|
11.18
|
|
|
|
7.73
|
|
|
$
|
2,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest July 3, 2016
|
|
|
10,683
|
|
|
$
|
11.44
|
|
|
|
7.51
|
|
|
$
|
1,986
|
|
Exercisable July 3, 2016
|
|
|
5,208
|
|
|
$
|
12.15
|
|
|
|
5.98
|
|
|
$
|
1,228
|
|
Valuation of stock-based awards
The Company applies the provisions of ASC 718-10 CompensationStock Compensation which establishes the accounting for
stock-based awards based on the fair value of the award measured at grant date. Accordingly, stock-based compensation cost is recognized in the condensed consolidated statements of operations as a component of both cost of revenues and
operating expenses over the requisite service period. ASC 718-10 requires tax benefits in excess of compensation cost to be reported as a financing cash flow rather than as a reduction of taxes paid. The determination of the fair value of
stock-based payment awards on the date of grant using the Black-Scholes option pricing model is affected by the volatilities of a peer group of companies based on industry, stage of life cycle, size and financial leverage, actual and projected
employee stock option exercise behaviors, risk-free interest rate and expected dividends. The Company uses historical experience to estimate expected term. The expected volatility was based on the historical stock volatilities of the Companys
historical data with that of a peer group of publicly listed companies over a period equal to the expected terms. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term. The Company
does not anticipate paying any cash dividends in the foreseeable future and, therefore, uses an expected dividend yield of zero.
The
aggregate intrinsic value of the stock options exercised during the three months ended July 3, 2016 and June 28, 2015 was $22,000 and $2.3 million, respectively. The aggregate intrinsic value was calculated as the difference between the
exercise price of the stock options and the estimated fair market value of the underlying common stock at the date of exercise.
22
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The number of options expected to vest takes into account an estimate of expected
forfeitures. As of July 3, 2016, the remaining unamortized stock-based compensation expense, reduced for estimated forfeitures related to non-vested options, was $19.2 million to be amortized over a weighted-average remaining period of
3.4 years. Total unrecognized expense will be adjusted for future changes in estimated forfeitures.
The Company used the following
weighted-average assumptions in determining stock-based compensation expense for options granted in the three months ended July 3, 2016 and June 28, 2015
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
July 3,
2016
|
|
|
June 28,
2015
|
|
Expected term (in years)
|
|
|
5.5
|
|
|
|
5.1
|
|
Volatility
|
|
|
49.0
|
%
|
|
|
45.2
|
%
|
Risk-free interest rate
|
|
|
1.4
|
%
|
|
|
1.5
|
%
|
Dividend rate
|
|
|
0
|
%
|
|
|
0
|
%
|
The weighted-average grant date fair value of the Companys stock options granted in the three month
ended July 3, 2016 and June 28, 2015 was $2.65 and $6.14 per share, respectively.
Market-based awards
During the three months ended July 3, 2016, the Companys chief executive officer was granted options to purchase an aggregate of
700,000 shares of common stock with an exercise price of $5.65 per share. Vesting is contingent upon meeting various price target thresholds that will trigger a four year ratable vesting period if the minimum twenty day closing stock prices cross
thresholds of $12.50, $15.50 and $17.50. The vesting threshold of one of the awards was subsequently changed from $15.50 to $15.00. As of July 3, 2016, zero shares were exercisable pursuant to the options. The exercise price of the options
represents the closing price of the Companys common stock on the date of grant, and the options have a term of 10 years. The fair value of each option granted was estimated on the date of grant using a Monte Carlo Simulation analysis valuation
model, assumes that price target thresholds will be achieved and results in an estimated term of 7.9 years. Even if the price target thresholds are not met, compensation cost is not reversed. The Company used the following assumptions in estimating
the fair value of the award; expected volatility 44.0%, expected dividends 0%, and risk-free rate of 1.75%. The weighted-average grant-date fair value of options granted during the period was $2.16. At July 3, 2016, there was $1.5 million of
total unrecognized compensation expense to be recognized over a period of approximately 8 years.
23
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Restricted stock units and restricted stock
Restricted stock unit and restricted stock activity of the Company under the Plans are as follows:
|
|
|
|
|
|
|
|
|
Restricted stock units and restricted stock activities
|
|
Shares
|
|
|
Weighted Average
Grant Date Fair
Value Per Share
|
|
|
|
(in thousands, except per share amount)
|
|
Unvested at April 3, 2016
|
|
|
4,972
|
|
|
$
|
13.47
|
|
Granted
|
|
|
896
|
|
|
|
6.10
|
|
Released
|
|
|
(365
|
)
|
|
|
14.54
|
|
Forfeited
|
|
|
(313
|
)
|
|
|
14.65
|
|
|
|
|
|
|
|
|
|
|
Unvested at July 3, 2016
|
|
|
5,190
|
|
|
$
|
12.05
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units and restricted stock granted to employees are generally subject to the employees
continued service to the Company over the vesting period. The fair value of restricted stock units and restricted stock is determined using the fair value of the Companys common stock on the date of the grant. Compensation expense is generally
recognized on a straight-line basis over the requisite service period of each grant adjusted for estimated forfeitures. As of July 3, 2016, the remaining unamortized stock-based compensation expense, reduced for estimated forfeitures related to
non-vested restricted stock units and restricted stock, was $41.4 million to be amortized over a weighted-average remaining period of 2.7 years.
The weighted-average grant-date fair value per share of restricted stock units and restricted stock awarded in the three months ended
July 3, 2016 and June 28, 2015 was $6.10 and $15.07, respectively.
2013 Employee stock purchase plan
Under the 2013 Employee Stock Purchase Plan, as amended (the ESPP), eligible employees may apply accumulated payroll deductions,
which may not exceed 10% of an employees compensation, to the purchase of shares of the Companys common stock at periodic intervals. The purchase price of stock under the ESPP is equal to 85% of the lower of (i) the fair market
value of the Companys common stock on the first day of each offering period, or (ii) the fair market value of the Companys common stock on the purchase date (as defined in the ESPP). Each offering period consists of one purchase
period of approximately six months duration.
At the 2015 annual meeting of stockholders, stockholders of the Company approved an
amendment to the ESPP to increase the number of shares of common stock reserved for future issuance by 1,000,000 shares which brought the total amount of common stock reserved for issuance pursuant to the ESPP to an aggregate of 1,400,000 shares. As
of July 3, 2016, 722,000 shares had been purchased pursuant to the ESPP.
Compensation expense recognized in connection with the ESPP
was $0.2 million for each of the three months ended July 3, 2016 and June 28, 2015.
24
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Common stock
As of July 3, 2016 and April 3, 2016, common stock reserved for future issuance was as follows:
|
|
|
|
|
|
|
|
|
Common stock reserved for issuance
|
|
July 3, 2016
|
|
|
April 3, 2016
|
|
|
|
(in thousands)
|
|
Stock plans
|
|
|
|
|
|
|
|
|
Outstanding stock options
|
|
|
12,131
|
|
|
|
10,126
|
|
Outstanding restricted stock units and restricted stock
|
|
|
5,190
|
|
|
|
4,972
|
|
Reserved for future equity incentive grants
|
|
|
10,414
|
|
|
|
9,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,735
|
|
|
|
24,393
|
|
Purchase plan
|
|
|
678
|
|
|
|
1,000
|
|
Shares issuable upon exercise of warrants to purchase common stock
|
|
|
7,995
|
|
|
|
7,995
|
|
|
|
|
|
|
|
|
|
|
Total common stock reserved for future issuances
|
|
|
36,408
|
|
|
|
33,388
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
Total employee stock-based compensation cost for the Companys stock plans for the three months ended July 3, 2016 and June 28,
2015 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
July 3,
2016
|
|
|
June 28,
2015
|
|
|
|
(in thousands)
|
|
Cost of revenue
|
|
$
|
616
|
|
|
$
|
600
|
|
Research and development
|
|
|
4,074
|
|
|
|
3,835
|
|
Selling, general and administrative
|
|
|
3,486
|
|
|
|
4,200
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
8,176
|
|
|
$
|
8,635
|
|
|
|
|
|
|
|
|
|
|
7. Income taxes
In the three months ended July 3, 2016 and June 28, 2015, the Company recorded an income tax provision of $1.87 million and $0.2
million, respectively. The primary difference between the 2016 effective tax rate and the federal statutory tax rate relates to the valuation allowances on certain of the Companys net operating losses and tax credits, foreign tax rate
differences, integration of acquired technologies, and non-deductible stock-based compensation expense.
On July 27, 2015, the Tax
Court issued an opinion (
Altera Corp. et al. v. Commissioner
) regarding the treatment of stock-based compensation expense in intercompany cost-sharing arrangements. However, U.S. Treasury has not withdrawn the requirement to include
stock-based compensation from its regulations. Also, there is uncertainty related to the Internal Revenue Service (IRS) response to the Tax Court opinion, the final resolution of this issue, and the potential favorable benefits to the
Company. As such, no impact will be recorded at this time. The Company will continue to monitor developments related to this opinion and the potential impact of those developments on the Companys current and prior fiscal years.
The Company does not provide for federal income taxes on undistributed earnings of its foreign subsidiaries because it is the Companys
intent to reinvest earnings in definitely offshore.
The Company has recorded $33.4 million of uncertain tax positions within Other
long-term liabilities on the condensed consolidated balance sheet as at July 3, 2016. The Company does not expect any significant increases or decreases to its unrecognized tax benefits within the next twelve months. While management
believes that the Company has adequately provided for all tax positions, amounts asserted by tax authorities could be greater or less than the recorded position. Accordingly, the Companys provisions on federal, state and foreign tax-related
matters to be recorded in the future may change as revised estimates are made or the underlying matters are settled or otherwise resolved.
The Company is in the process of an IRS examination for tax years 2011, 2012, 2013 and 2014. The Company may be subject to examination by
California for tax years 2010 and forward. Generally, the Company is subject to routine examination for tax years 2008 and forward in various foreign tax jurisdictions in which it operates.
25
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. Acquisition
The Company completed one acquisition in fiscal year 2016 and two acquisitions in fiscal year 2015. The acquisitions have been accounted for
under ASC 805. Under ASC 805, the total purchase consideration of the acquisition is allocated to the tangible assets and identifiable intangible assets and liabilities assumed based on their relative fair values. The excess of the purchase
consideration over the net tangible and identifiable intangible assets is recorded as goodwill, and was derived from expected benefits from future technology development, synergies and the knowledgeable and experienced workforce who joined the
Company after the acquisition.
Fiscal year 2016
In December 2015, the Company acquired certain assets of Spirit Corp LLC and its affiliates used in the development of navigation solutions.
The total cash consideration associated with the acquisition was approximately $7 million for which the purchase price was attributable to the acquired in-process research and development. The fair value of in-process research and
development was determined using a cost approach, which includes an estimate of time and expenses required to recreate the intangible asset. The Company also will record approximately $1 million post-acquisition expense that may be payable
in the future should certain specified milestones be met. This acquisition is not significant to the Companys results of operations.
Fiscal year
2015
Movea S.A
On
July 22, 2014, the Company acquired 100% equity interest of Movea, a leading provider of software for ultra-low power location, activity tracking and context sensing.
The Company paid $60.9 million in cash as consideration for the acquisition, and an additional $13.0 million in cash contingent upon the
achievement of certain milestones within one year of the acquisition described below.
The table below is a summary of the purchase price
allocation of the fair value of assets acquired and liabilities assumed in connection with the acquisition of Movea (in thousands):
|
|
|
|
|
Cash consideration
|
|
$
|
60,900
|
|
Contingent consideration
|
|
|
8,400
|
|
|
|
|
|
|
|
|
$
|
69,300
|
|
|
|
|
|
|
Allocation of purchase price:
|
|
|
|
|
Current assets
|
|
$
|
3,082
|
|
Fixed assets
|
|
|
209
|
|
Other non-current assets
|
|
|
592
|
|
Developed technology
|
|
|
7,200
|
|
Goodwill
|
|
|
68,330
|
|
Current liabilities
|
|
|
(5,016
|
)
|
Long-term liabilities
|
|
|
(5,097
|
)
|
|
|
|
|
|
Total purchase price
|
|
$
|
69,300
|
|
|
|
|
|
|
The purchase price included $2.6 million of long-term debt which was included in the long-term liabilities.
The debt was measured at fair value using the effective interest rate method which approximates carrying value as of July 3, 2016.
26
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The purchase price includes contingent considerations of (i) $8.0 million payable in
cash to the former Movea shareholders upon a design win with a major smartphone manufacturer within one year of closing date, and (ii) $5.0 million payable in cash to the former Movea shareholders upon a specific product development milestone
before December 29, 2014. The fair value of the contingent consideration of $8.4 million was derived from a probability weighted earn-out model of future contingent payments and recorded in accrued liabilities. The product development milestone
of $5.0 million was achieved and the payment was made in fiscal year 2015. The difference between the contractual amount of $5.0 million and the fair value of this contingent consideration was recorded in research and development expense for fiscal
year 2015. In fiscal year 2016, the fair value of contingent consideration for Movea declined by $4.0 million. The decline in fair value was the result of a reduction in the probability of a design win milestone associated with the Movea acquisition
from 50% to 0%. The decline in fair value of the design win milestones for Movea was recorded as a credit to research and development expense.
The purchase price exceeded the fair value of the net tangible and identifiable intangible assets acquired and, as a result, the Company
recorded goodwill in connection with this transaction. The acquisition provides assembled workforce and synergy with other of the Companys offerings. These factors primarily contributed to a purchase price that resulted in goodwill.
The following table presents certain information on acquired identifiable intangible assets related to the Movea acquisition:
|
|
|
|
|
|
|
|
|
|
|
Estimated fair value
(in thousands)
|
|
|
Estimated useful life
(in years)
|
|
Developed technology
|
|
$
|
7,200
|
|
|
|
5
|
|
The fair value of developed technology was determined using a cost approach, which includes an estimate of
time and expenses required to recreate the intangible asset. The fair value of developed technology was capitalized as of the acquisition date and is being amortized using a straight-line method to cost of revenue over the estimated useful life of
five years.
Trusted Positioning, Inc.
On August 29, 2014, the Company completed the acquisition of TPI, which is an indoor/outdoor positioning software company.
27
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Companys acquisition of TPI was completed through a step acquisition. In fiscal
year 2014, the Company made investments totaling $0.3 million to own approximately 4.57% of TPIs outstanding common stock. On August 29, 2014, the Company purchased the remaining outstanding common stock of TPI for a total consideration
of $25.9 million. The total purchase price, as presented in the table below, consists of (i) cash of $11.4 million, (ii) issuance of 236,000 shares of the Companys common stock with a fair value of $5.7 million, (iii) contingent
considerations with a combined fair value of $7.6 million payable upon TPIs achievement of certain product development milestones, and (iv) initial investments with a fair value of $1.2 million.
The table below is a summary of the purchase price allocation for the 100% equity interest of the fair value of assets acquired and
liabilities assumed in connection with the acquisition of TPI (in thousands):
|
|
|
|
|
Cash consideration
|
|
$
|
11,379
|
|
Issuance of common stock
|
|
|
5,703
|
|
Contingent consideration
|
|
|
7,634
|
|
Fair value of previously held 4.57% equity interest
|
|
|
1,215
|
|
|
|
|
|
|
|
|
$
|
25,931
|
|
|
|
|
|
|
Allocation of purchase price:
|
|
|
|
|
Current assets
|
|
$
|
392
|
|
Fixed assets
|
|
|
50
|
|
Other non-current assets
|
|
|
546
|
|
Developed technology
|
|
|
8,600
|
|
Goodwill
|
|
|
19,893
|
|
Current liabilities
|
|
|
(1,247
|
)
|
Long-term liabilities
|
|
|
(2,303
|
)
|
|
|
|
|
|
Total purchase price
|
|
$
|
25,931
|
|
|
|
|
|
|
The purchase price includes contingent consideration comprised of (i) $5 million payable upon a
design win within one year of acquisition, (ii) $3 million payable upon achieving a development milestone before December 29, 2014, (iii) $2 million payable upon successful development of cloud application within two years
of acquisition and (iv) $2 million upon first deployment of cloud application which is expected within one year of successful development of cloud application. The contingent considerations, which was derived from a probability weighted
earn-out model of future contingent payments, have a combined fair value of $7.6 million, of which $4.9 million was recorded in accrued liabilities and $2.7 million was recorded in other long-term liabilities. The development
milestone of $3 million was achieved and the payment was made in fiscal year 2015. The difference between the contractual amount of $3.0 million and the fair value of this contingent consideration was recorded in the research and development
expense for the year ended March 29, 2015.
In fiscal year 2016, the fair value of contingent consideration for TPI declined by $1.3
million. The decline in fair value was the result of a reduction in the probability of a design win associated with the TPI acquisition from 50% to 0%. The decline in fair value of the design win milestones for TPI was $2.4 million which was
recorded as a credit to research and development expense. Offsetting this amount is an increase in the fair value of two TPI cloud application milestones as a result of an increase in the estimated probability of achievement of those milestones. The
increase in the fair value of the cloud application milestones was $1.1 million which was recorded as a debit to research and development expense. A design milestone for TPI was achieved and the payment of $1.9 million was made in fiscal year 2016.
28
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents certain information on acquired identifiable intangible assets
related to the TPI acquisition:
|
|
|
|
|
|
|
|
|
|
|
Estimated fair value
(in thousands)
|
|
|
Estimated useful life
(in years)
|
|
Developed technology
|
|
$
|
8,600
|
|
|
|
5
|
|
The fair value of developed technology was determined using a cost approach, which includes an estimate of
time and expenses required to recreate the intangible asset. The fair value of developed technology was capitalized as of the acquisition date and will be amortized using a straight-line method to cost of revenue over the estimated useful life of
five years.
9. Goodwill and intangible assets
The Company monitors the recoverability of goodwill recorded in connection with acquisitions annually, or whenever events or changes in
circumstances indicate the carrying value may not be recoverable. There were no changes in the carrying amount of goodwill since April 3, 2016. The Company performs the annual goodwill impairment analysis during the third quarter of each fiscal
year. As of and for the three months ended July 3, 2016, the Company concluded that the $139.2 million of goodwill was not impaired.
Purchased intangible assets subject to amortization consist primarily of developed technology, customer relationships and patents and are
reported net of accumulated amortization. Developed technology, customer relationships and patents are amortized on a straight line basis over the estimated useful life of the assets. In-process research and development (IPR&D) is
assessed for impairment until the development is completed and products are available for sale. In fiscal year 2015, the Company recorded $0.8 million of impairment on IPR&D on the MEMS Microphone business. In fiscal year 2016, one product from
one of the IPR&D projects was released to production. The IPR&D value allocated to this project of $3.3 million was transferred to developed technology. The estimated useful life for this technology is five years. Another product from one of
the IPR&D projects was also released to production in fiscal year 2016. The IPR&D value allocated to this project of $1.7 million was transferred to developed technology. The amortization of the product started in the first quarter of
fiscal year 2017. The estimated useful life for this technology is also five years. The costs that the Company incurred on the IPR&D projects after the acquisition were expensed. The Company expects to complete the remaining IPR&D project
during fiscal year 2017 at which time amortization will commence.
29
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Amortization for acquired intangible assets for the three months ended July 3, 2016 and
June 28, 2015 was approximately $2.4 million and $2.1 million, respectively. The following table represents intangible assets and accumulated amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 3, 2016
|
|
|
|
Gross
|
|
|
Accumulated
amortization
|
|
|
Net
|
|
|
|
(in thousands)
|
|
Developed technology
|
|
$
|
49,310
|
|
|
$
|
19,387
|
|
|
$
|
29,923
|
|
Customer relationships
|
|
|
1,560
|
|
|
|
594
|
|
|
|
966
|
|
Patents
|
|
|
2,120
|
|
|
|
534
|
|
|
|
1,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets subject to amortization
|
|
$
|
52,990
|
|
|
$
|
20,515
|
|
|
$
|
32,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 3, 2016
|
|
|
|
Gross
|
|
|
Accumulated
amortization
|
|
|
Net
|
|
|
|
(in thousands)
|
|
Developed technology
|
|
$
|
49,310
|
|
|
$
|
17,159
|
|
|
$
|
32,151
|
|
Customer relationships
|
|
|
1,560
|
|
|
|
539
|
|
|
|
1,021
|
|
Patents
|
|
|
2,120
|
|
|
|
443
|
|
|
|
1,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets subject to amortization
|
|
$
|
52,990
|
|
|
$
|
18,141
|
|
|
$
|
34,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated future amortization expense related to intangible assets at July 3, 2016, is as follows:
|
|
|
|
|
|
|
Estimated
amortization
|
|
Fiscal Year
|
|
(in thousands)
|
|
2017 (remainder)
|
|
|
7,126
|
|
2018
|
|
|
9,500
|
|
2019
|
|
|
9,500
|
|
2020
|
|
|
5,556
|
|
2021
|
|
|
793
|
|
|
|
|
|
|
Total
|
|
$
|
32,475
|
|
|
|
|
|
|
30