NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Maxim Integrated Products, Inc. and all of its majority-owned subsidiaries (collectively, the “Company” or “Maxim Integrated”) included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles of the United States of America (“GAAP”) have been condensed or omitted pursuant to applicable rules and regulations. In the opinion of management, all normal recurring adjustments which were considered necessary for fair statement have been included. The year-end condensed consolidated balance sheet data were derived from audited consolidated financial statements but do not include all disclosures required by GAAP. The results of operations for the
nine
months ended
March 25, 2017
are not necessarily indicative of the results to be expected for the entire year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended
June 25, 2016
.
The Company has a 52-to-53-week fiscal year that ends on the last Saturday in June. Accordingly, every fifth or sixth fiscal year will be a 53-week fiscal year. Fiscal year 2016 was a 52-week fiscal year and fiscal year 2017 will also be a 52-week fiscal year.
NOTE 2: RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
(i) New Accounting Updates Recently Adopted
In March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting,
which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The Company early adopted ASU 2016-09 at the beginning of the first quarter of fiscal year 2017. As a result of the adoption, in the first quarter of fiscal year 2017 the Company recorded a
$1.4 million
cumulative-effect adjustment to retained earnings for the recognition of excess tax benefits generated by the settlement of share-based awards in prior periods and a discrete income tax benefit of
$3.3 million
to the income tax provision for excess tax benefits generated by the settlement, in the first quarter of fiscal year 2017, of share-based awards. The adoption also resulted in an increase in cash flow from operating activities and a decrease in cash flow from financing activities of
$3.3 million
in the first quarter of fiscal year 2017. The adoption was on a prospective basis and therefore had no impact on prior periods.
(ii) Recent Accounting Updates Not Yet Effective
In May 2014, the FASB issued ASU No. 2014-09
,
Revenue from Contracts with Customers (Topic 606)
.
This standard provides a single set of guidelines for revenue recognition to be used across all industries and requires additional disclosures. ASU No. 2014-09 is effective for the Company in the first quarter of fiscal year 2019 using either of two methods: (i) retrospective to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU No. 2014-09; or (ii) retrospective with the cumulative effect of initially applying ASU No. 2014-09 recognized at the date of initial application and providing certain additional disclosures as defined per ASU No. 2014-09. Early adoption in the first quarter of fiscal year 2018 is permitted. The Company is currently evaluating the potential impact of this standard on its financial position and results of operations, as well as its selected transition method.
In July 2015, the FASB issued ASU No. 2015-11,
Inventory (Topic 330): Simplifying the Measurement of Inventory
, which changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value. ASU No. 2015-11 defines net realizable value as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The new guidance must be applied on a prospective basis and is effective for the Company in the first quarter of fiscal year 2018, with early adoption permitted. The Company does not believe the implementation of this standard will result in a material impact to its consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01,
Recognition and Measurement of Financial Assets and Financial Liabilities
, which provides guidance for the recognition, measurement, presentation, and disclosure of consolidated financial assets and liabilities. This ASU will be effective for the Company beginning in the first quarter of fiscal year 2019. The application of this ASU will be by means of a cumulative-effect adjustment to the balance sheet. The amendments related to equity securities without
readily determinable fair values (including disclosure requirements) will be applied prospectively to equity investments that exist as of the date of adoption. The Company is evaluating the effects of the adoption of this ASU on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
, which supersedes the lease accounting requirements in Topic 840. ASU 2016-02 requires a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of use asset and a corresponding lease liability. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset, and for operating leases, the lessee would recognize a straight-line total lease expense. The guidance also requires qualitative and specific quantitative disclosures to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities, including significant judgments and changes in judgments. This guidance is effective beginning in the first quarter of fiscal year 2020 on a modified retrospective approach. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04,
Simplifying the Test for Goodwill Impairment (Topic 350)
, which simplifies the measurement of goodwill impairment by removing the second step of the goodwill impairment test, which requires the determination of the fair value of individual assets and liabilities of a reporting unit. Under this guidance, goodwill impairment is to be measured as the amount by which a reporting unit’s carrying value exceeds its fair value with the loss recognized not to exceed the total amount of goodwill allocated to the reporting unit. The guidance is effective beginning in the first quarter of fiscal year 2021 on a prospective basis, with early adoption permitted for interim or annual goodwill impairment tests performed after January 1, 2017. The standard is to be applied on a prospective basis. The Company does not anticipate a material impact to the consolidated financial statements once implemented.
In February 2017, the FASB issued ASU No. 2017-06,
Plan Accounting: Defined Benefit Pension Plans (Topic 960); Defined Contribution Pension Plans (Topic 962); Health and Welfare Benefit Plans (Topic 965): Employee Benefit Plan Master Trust Reporting
. This update provides guidance for reporting by an employee benefit plan for its interest in a master trust. The guidance is effective beginning in the first quarter of fiscal year 2021 on a retrospective basis, with early application permitted as of the beginning of the first quarter of fiscal year 2020. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements.
In March 2017, the FASB issued ASU 2017-07,
Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
, which requires employers that offer or maintain defined benefit plans to disaggregate the service component from the other components of net benefit cost and provides guidance on presentation of the service component and the other components of net benefit cost in the statement of operations. The new standard is effective beginning in the third quarter of fiscal year 2018. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements.
NOTE 3: BALANCE SHEET COMPONENTS
Inventories consist of:
|
|
|
|
|
|
|
|
|
|
March 25,
2017
|
|
June 25,
2016
|
Inventories:
|
(in thousands)
|
Raw materials
|
$
|
10,762
|
|
|
$
|
6,505
|
|
Work-in-process
|
149,007
|
|
|
148,762
|
|
Finished goods
|
81,670
|
|
|
72,662
|
|
|
$
|
241,439
|
|
|
$
|
227,929
|
|
Property, plant and equipment, net consists of:
|
|
|
|
|
|
|
|
|
|
March 25,
2017
|
|
June 25,
2016
|
Property, plant and equipment, net:
|
(in thousands)
|
Land
|
$
|
18,952
|
|
|
$
|
18,952
|
|
Buildings and building improvements
|
254,650
|
|
|
240,507
|
|
Machinery and equipment
|
1,349,101
|
|
|
1,370,322
|
|
|
1,622,703
|
|
|
1,629,781
|
|
Less: accumulated depreciation
|
(985,868
|
)
|
|
(937,230
|
)
|
|
$
|
636,835
|
|
|
$
|
692,551
|
|
Accrued salary and related expenses consist of:
|
|
|
|
|
|
|
|
|
|
March 25,
2017
|
|
June 25,
2016
|
Accrued salary and related expenses:
|
(in thousands)
|
Accrued vacation
|
$
|
28,527
|
|
|
$
|
30,753
|
|
Accrued bonus
|
63,077
|
|
|
90,638
|
|
Accrued severance and post-employment benefits
|
10,697
|
|
|
14,230
|
|
Accrued salaries
|
7,924
|
|
|
14,320
|
|
Other
|
25,477
|
|
|
16,757
|
|
|
$
|
135,702
|
|
|
$
|
166,698
|
|
NOTE 4: FAIR VALUE MEASUREMENTS
The FASB established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. This hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Three levels of inputs that may be used to measure fair value are as follows:
Level 1
- Quoted (unadjusted) prices in active markets for identical assets or liabilities.
The Company’s Level 1 assets consist of money market funds.
Level 2
- Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.
The Company’s Level 2 assets and liabilities consist of U.S. treasury bills and foreign currency forward contracts that are valued using quoted market prices or are determined using a yield curve model based on current market rates. As a result, the Company has classified these investments as Level 2 in the fair value hierarchy. Also within Level 2 assets and liabilities are shares of common stock received as consideration for the sale of the Company's wafer manufacturing facility in San Antonio, Texas, which were valued based on quoted prices in the active market for identical assets, adjusted for estimated timing of sale.
Level 3
- Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company did not hold any Level 3 assets or liabilities as of
March 25, 2017
and
June 25, 2016
.
Assets and liabilities measured at fair value on a recurring basis were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 25, 2017
|
|
As of June 25, 2016
|
|
Fair Value
Measurements Using
|
|
Total
Balance
|
|
Fair Value
Measurements Using
|
|
Total
Balance
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
(in thousands)
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds (1)
|
$
|
1,133,416
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,133,416
|
|
|
$
|
1,658,321
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,658,321
|
|
U.S. treasury bills (2)
|
—
|
|
|
499,154
|
|
|
—
|
|
|
499,154
|
|
|
—
|
|
|
125,439
|
|
|
—
|
|
|
125,439
|
|
Foreign currency forward contracts (3)
|
—
|
|
|
742
|
|
|
—
|
|
|
742
|
|
|
—
|
|
|
695
|
|
|
—
|
|
|
695
|
|
Investment in common stock (3)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
40,000
|
|
|
—
|
|
|
40,000
|
|
Total Assets
|
$
|
1,133,416
|
|
|
$
|
499,896
|
|
|
$
|
—
|
|
|
$
|
1,633,312
|
|
|
$
|
1,658,321
|
|
|
$
|
166,134
|
|
|
$
|
—
|
|
|
$
|
1,824,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts (4)
|
$
|
—
|
|
|
$
|
115
|
|
|
$
|
—
|
|
|
$
|
115
|
|
|
$
|
—
|
|
|
$
|
1,327
|
|
|
$
|
—
|
|
|
$
|
1,327
|
|
Total Liabilities
|
$
|
—
|
|
|
$
|
115
|
|
|
$
|
—
|
|
|
$
|
115
|
|
|
$
|
—
|
|
|
$
|
1,327
|
|
|
$
|
—
|
|
|
$
|
1,327
|
|
(1) Included in Cash and cash equivalents in the accompanying Condensed Consolidated Balance Sheets.
(2) Included in Short-term investments in the accompanying Condensed Consolidated Balance Sheets.
(3) Included in Other current assets in the accompanying Condensed Consolidated Balance Sheets.
(4) Included in Accrued expenses in the accompanying Condensed Consolidated Balance Sheets.
During the
nine
months ended
March 25, 2017
and the year ended
June 25, 2016
, there were no transfers in or out of Level 3 from other levels in the fair value hierarchy.
There were
no
assets or liabilities measured at fair value on a non-recurring basis as of
March 25, 2017
and
June 25, 2016
other than impairments of Long-Lived assets. For details, please refer to Note 14: “Impairment of long-lived assets”.
NOTE 5: FINANCIAL INSTRUMENTS
Short-term investments
Fair values were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 25, 2017
|
|
June 25, 2016
|
|
Amortized Cost
|
|
Gross Unrealized Gain
|
|
Gross Unrealized Loss
|
|
Estimated Fair Value
|
|
Amortized Cost
|
|
Gross Unrealized Gain
|
|
Gross Unrealized Loss
|
|
Estimated Fair Value
|
|
(in thousands)
|
Available-for-sale investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury bills
|
$
|
500,073
|
|
|
$
|
—
|
|
|
$
|
919
|
|
|
$
|
499,154
|
|
|
$
|
124,950
|
|
|
$
|
489
|
|
|
$
|
—
|
|
|
$
|
125,439
|
|
Total available-for-sale investments
|
$
|
500,073
|
|
|
$
|
—
|
|
|
$
|
919
|
|
|
$
|
499,154
|
|
|
$
|
124,950
|
|
|
$
|
489
|
|
|
$
|
—
|
|
|
$
|
125,439
|
|
In the
three
and
nine
months ended
March 25, 2017
and the year ended
June 25, 2016
, the Company did not recognize any impairment charges on short-term investments. The U.S. Treasury bills have maturity dates between December 15, 2017 and June 15, 2019.
Securities received as consideration for sale of assets
During the third quarter of fiscal 2016, the Company received approximately
$40.0 million
in common shares of Tower Semiconductor Ltd. as consideration for the sale of the Company's semiconductor wafer manufacturing facility in San Antonio, Texas. During the
six
months ended
December 24, 2016
, the Company sold all of these common shares for gross proceeds of approximately
$51.0 million
and recorded a realized gain of
$5.0 million
. The Company was required to return to Tower Semiconductor the first
$6.0 million
in gain realized upon the sale of such shares. As of
March 25, 2017
, the Company has paid Tower Semiconductor
$4.0 million
and will pay the remaining
$2.0 million
during the fourth quarter of fiscal 2017.
Derivative instruments and hedging activities
The Company incurs expenditures denominated in non-U.S. currencies, primarily the Philippine Peso and the Thai Baht associated with the Company's manufacturing activities in the Philippines and Thailand, respectively, and the European Union Euro, South Korean Won, Japanese Yen and Chinese Yuan associated with expenditures for sales offices and research and development activities undertaken outside of the U.S.
The Company has established a program that primarily utilizes foreign currency forward contracts to offset the risks associated with the effects of certain foreign currency exposures. The Company does not use these foreign currency forward contracts for trading purposes.
Derivatives designated as cash flow hedging instruments
The Company designates certain forward contracts as hedging instruments. As of
March 25, 2017
and
June 25, 2016
, the notional amounts of the forward contracts the Company held to purchase international currencies were
$41.1 million
and
$68.0 million
, respectively, and the notional amounts of forward contracts the Company held to sell international currencies were
$1.4 million
and
$2.6 million
, respectively.
Derivatives not designated as hedging instruments
As of
March 25, 2017
and
June 25, 2016
, the notional amounts of the forward contracts the Company held to purchase international currencies were
$19.8 million
and
$25.4 million
, respectively, and the notional amounts of forward contracts the Company held to sell international currencies were
$16.9 million
and
$24.6 million
, respectively. The fair values of our outstanding foreign currency forward contracts and related gain (loss) included in the Condensed Consolidated Statements of Income were not material for the
three
and
nine
months ended
March 25, 2017
and the year ended
June 25, 2016
.
Long-term debt
The following table summarizes the Company’s long-term debt:
|
|
|
|
|
|
|
|
|
|
March 25,
2017
|
|
June 25,
2016
|
|
(in thousands)
|
2.5% fixed rate notes due November 2018
|
$
|
500,000
|
|
|
$
|
500,000
|
|
3.375% fixed rate notes due March 2023
|
500,000
|
|
|
500,000
|
|
Short-term credit agreement
|
—
|
|
|
250,000
|
|
Total
|
1,000,000
|
|
|
1,250,000
|
|
Less: Current portion
|
—
|
|
|
(249,717
|
)
|
Less: Reduction for unamortized discount and debt issuance costs
|
(8,123
|
)
|
|
(10,193
|
)
|
Total long-term debt
|
$
|
991,877
|
|
|
$
|
990,090
|
|
On November 21, 2013, the Company completed a public offering of
$500 million
aggregate principal amount of the Company’s
2.5%
coupon senior unsecured and unsubordinated notes due in November 2018 (“2018 Notes”), with an effective interest rate of
2.6%
. Interest on the 2018 Notes is payable semi-annually in arrears on May 15 and November 15 of each year, commencing on May 15, 2014. The net proceeds of this offering were approximately
$494.5 million
, after issuing at a discount and deducting paid expenses.
On March 18, 2013, the Company completed a public offering of
$500 million
aggregate principal amount of the Company’s
3.375%
senior unsecured and unsubordinated notes due in March 2023 (“2023 Notes”), with an effective interest rate of
3.5%
. Interest on the 2023 Notes is payable semi-annually in arrears on March 15 and September 15 of each year. The net proceeds of this offering were approximately
$490.0 million
, after issuing at a discount and deducting paid expenses.
The debt indentures that govern the 2023 Notes and the 2018 Notes, respectively, include covenants that limit the Company's ability to grant liens on its facilities and to enter into sale and leaseback transactions, which could limit the Company's ability to secure additional debt funding in the future. In circumstances involving a change of control of the Company followed by a downgrade of the rating of the 2023 Notes or the 2018 Notes, the Company would be required to make an offer to repurchase the affected notes at a purchase price equal to
101%
of the aggregate principal amount of such notes, plus accrued and unpaid interest.
The Company accounts for all the notes above based on their amortized cost. The discount and expenses are being amortized to Interest and other income (expense), net in the Condensed Consolidated Statements of Income over the life of the notes. The interest expense is recorded in Interest and other income (expense), net in the Condensed Consolidated Statements of Income. Amortized discount and expenses, as well as interest expense associated with the notes was
$7.9 million
and
$7.8 million
during the
three
months ended
March 25, 2017
and
March 26, 2016
, respectively. Amortized discount and expenses, as well as interest expense associated with the notes was
$26.3 million
and
$23.5 million
during the
nine
months ended
March 25, 2017
and
March 26, 2016
, respectively.
The estimated fair value of the Company’s long-term debt was approximately
$1,000 million
as of
March 25, 2017
. The estimated fair value of the debt is based primarily on observable market inputs and is a Level 2 measurement.
The Company recorded interest expense of
$8.1 million
and
$8.2 million
during the
three
months ended
March 25, 2017
, and
March 26, 2016
, respectively. The Company recorded interest expense of
$26.8 million
and
$24.5 million
during the
nine
months ended
March 25, 2017
, and
March 26, 2016
, respectively.
Credit Facility
Revolving credit facility
The Company has access to a
$350 million
senior unsecured revolving credit facility with certain institutional lenders that expires on June 27, 2019. The facility fee is at a rate per annum that varies based on the Company’s index debt rating and any advances under the credit agreement will accrue interest at a base rate plus a margin based on the Company’s index debt rating. The credit agreement requires the Company to comply with certain covenants, including a requirement that the Company maintain a ratio of debt to EBITDA (earnings before interest, taxes, depreciation, and amortization) of not more than
3
to
1
and a minimum interest
coverage ratio (EBITDA divided by interest expense) greater than
3.5
to
1
. As of
March 25, 2017
, the Company had not borrowed any amounts from this credit facility and was in compliance with all debt covenants.
Short-term credit agreement
On June 23, 2016, Maxim Holding Company Ltd., a wholly-owned foreign subsidiary of the Company, entered into a short-term credit agreement (the “Credit Agreement”) with The Bank of Tokyo-Mitsubishi UFJ, Ltd. (the “Lender”), in order to facilitate the return of capital to the Company. The Credit Agreement provides for, among other things, the Lender making an unsecured term loan in an amount equal to
$250.0 million
with a maturity date of June 22, 2017. The net proceeds of this Credit Agreement were approximately
$249.7 million
, after deducting paid issuance costs. The interest rate on the note was based on LIBOR plus a margin. The initial interest rate was
1.69%
per annum and was adjusted quarterly. On December 21, 2016, the
$250.0 million
aggregate principal amount and all outstanding interest on the loan were repaid.
Other Financial Instruments
For the balance of the Company’s financial instruments, cash equivalents, accounts receivable, accounts payable and other accrued liabilities, the carrying amounts approximate fair value due to their short maturities.
NOTE 6: STOCK-BASED COMPENSATION
At
March 25, 2017
, the Company had one stock incentive plan, the Company's 1996 Stock Incentive Plan (the “1996 Plan”) and one employee stock purchase plan, the 2008 Employee Stock Purchase Plan (the “2008 ESPP”). The 1996 Plan was adopted by the Board of Directors to provide the grant of incentive stock options, non-statutory stock options, restricted stock units (“RSUs”), and performance shares, including market stock units (“MSUs”), to employees, directors, and consultants.
Pursuant to the 1996 Plan, the exercise price for incentive stock options and non-statutory stock options is determined to be the fair market value of the underlying shares on the date of grant. Options typically vest ratably over a four-year period measured from the date of grant. Options generally expire no later than ten years after the date of grant, subject to earlier termination upon an optionee's cessation of employment or service.
RSUs granted to employees typically vest ratably over a four-year period and are converted into shares of the Company's common stock upon vesting, subject to the employee's continued service to the Company over that period.
MSUs granted to employees typically vest ratably over a two to four-year period and are converted into shares of the Company's common stock upon vesting, subject to the employee's continued service to the Company over that period. The number of shares that are released at the end of the performance period can range from zero to a maximum cap depending on the Company's performance. The performance metrics of this program are based on relative performance of the Company’s stock price as compared to the Semiconductor Exchange Traded Fund index XSD (the “SPDR S&P”).
The following tables show total stock-based compensation expense by type of award, and the resulting tax effect, included in the Condensed Consolidated Statements of Income for the
three
and
nine
months ended
March 25, 2017
and
March 26, 2016
, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 25, 2017
|
|
March 26, 2016
|
|
Stock Options
|
|
Restricted Stock Units
|
|
Employee Stock Purchase Plan
|
|
Total
|
|
Stock Options
|
|
Restricted Stock Units
|
|
Employee Stock Purchase Plan
|
|
Total
|
|
(in thousands)
|
Cost of goods sold
|
$
|
105
|
|
|
$
|
1,660
|
|
|
$
|
494
|
|
|
$
|
2,259
|
|
|
$
|
120
|
|
|
$
|
1,182
|
|
|
$
|
629
|
|
|
$
|
1,931
|
|
Research and development
|
462
|
|
|
7,602
|
|
|
1,251
|
|
|
9,315
|
|
|
895
|
|
|
7,587
|
|
|
1,522
|
|
|
10,004
|
|
Selling, general and administrative
|
296
|
|
|
5,820
|
|
|
609
|
|
|
6,725
|
|
|
795
|
|
|
4,507
|
|
|
638
|
|
|
5,940
|
|
Pre-tax stock-based compensation expense
|
$
|
863
|
|
|
$
|
15,082
|
|
|
$
|
2,354
|
|
|
$
|
18,299
|
|
|
$
|
1,810
|
|
|
$
|
13,276
|
|
|
$
|
2,789
|
|
|
$
|
17,875
|
|
Less: income tax effect
|
|
|
|
|
|
|
2,659
|
|
|
|
|
|
|
|
|
1,989
|
|
Net stock-based compensation expense
|
|
|
|
|
|
|
|
|
$
|
15,640
|
|
|
|
|
|
|
|
|
$
|
15,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
March 25, 2017
|
|
March 26, 2016
|
|
Stock Options
|
|
Restricted Stock Units
|
|
Employee Stock Purchase Plan
|
|
Total
|
|
Stock Options
|
|
Restricted Stock Units
|
|
Employee Stock Purchase Plan
|
|
Total
|
|
(in thousands)
|
Cost of goods sold
|
$
|
440
|
|
|
$
|
5,000
|
|
|
$
|
1,491
|
|
|
$
|
6,931
|
|
|
$
|
735
|
|
|
$
|
5,140
|
|
|
$
|
1,808
|
|
|
$
|
7,683
|
|
Research and development
|
1,305
|
|
|
22,293
|
|
|
3,536
|
|
|
27,134
|
|
|
2,608
|
|
|
20,671
|
|
|
3,904
|
|
|
27,183
|
|
Selling, general and administrative
|
1,115
|
|
|
16,557
|
|
|
1,756
|
|
|
19,428
|
|
|
2,415
|
|
|
14,271
|
|
|
1,705
|
|
|
18,391
|
|
Pre-tax stock-based compensation expense
|
$
|
2,860
|
|
|
$
|
43,850
|
|
|
$
|
6,783
|
|
|
$
|
53,493
|
|
|
$
|
5,758
|
|
|
$
|
40,082
|
|
|
$
|
7,417
|
|
|
$
|
53,257
|
|
Less: income tax effect
|
|
|
|
|
|
|
8,551
|
|
|
|
|
|
|
|
|
8,046
|
|
Net stock-based compensation expense
|
|
|
|
|
|
|
$
|
44,942
|
|
|
|
|
|
|
|
|
$
|
45,211
|
|
The expenses included in the Condensed Consolidated Statements of Income related to RSUs include expenses related to MSUs of
$1.1 million
and
$0.7 million
for the
three
months ended
March 25, 2017
and
March 26, 2016
, respectively and
$2.5 million
and
$2.0 million
for the
nine
months ended
March 25, 2017
and
March 26, 2016
, respectively.
Stock Options
There were
no
stock options granted in the
three
and
nine
months ended
March 25, 2017
and
three
and
nine
months ended
March 26, 2016
.
The following table summarizes outstanding, exercisable and vested and expected to vest stock options as of
March 25, 2017
and their activity for the
nine
months ended
March 25, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Term (in Years)
|
|
Aggregate Intrinsic Value (1)
|
Balance at June 25, 2016
|
5,935,079
|
|
|
$
|
25.11
|
|
|
|
|
|
Options Granted
|
—
|
|
|
—
|
|
|
|
|
|
Options Exercised
|
(1,970,705
|
)
|
|
22.61
|
|
|
|
|
|
Options Cancelled
|
(351,285
|
)
|
|
25.50
|
|
|
|
|
|
Balance at March 25, 2017
|
3,613,089
|
|
|
$
|
26.26
|
|
|
2.6
|
|
$
|
69,109,520
|
|
Exercisable, March 25, 2017
|
2,473,039
|
|
|
$
|
25.27
|
|
|
2.3
|
|
$
|
49,684,566
|
|
Vested and expected to vest, March 25, 2017
|
3,576,218
|
|
|
$
|
26.23
|
|
|
2.6
|
|
$
|
68,414,258
|
|
|
|
|
(1)
|
Aggregate intrinsic value represents the difference between the exercise price and the closing price per share of the Company’s common stock on March 24, 2017, the last business day preceding the fiscal quarter-end, multiplied by the number of options outstanding, exercisable or vested and expected to vest as of March 25, 2017.
|
As of
March 25, 2017
, there was
$2.2 million
of total unrecognized stock compensation cost related to
1.1 million
unvested stock options, which is expected to be recognized over a weighted average period of approximately
0.7
years.
Restricted Stock Units and Other Awards
The fair value of RSUs and other awards under the Company’s 1996 Plan is estimated using the value of the Company’s common stock on the date of grant, reduced by the present value of dividends expected to be paid on the Company’s common stock prior to vesting. The Company also estimates forfeitures at the time of grant and makes revisions to forfeitures on a quarterly basis.
The weighted-average fair value of RSUs and other awards granted was
$42.30
and
$33.15
per share for the
three
months ended
March 25, 2017
and
March 26, 2016
, respectively and
$37.02
and
$29.25
per share for the
nine
months ended
March 25, 2017
and
March 26, 2016
, respectively.
The following table summarizes the outstanding and expected to vest RSUs and other awards as of
March 25, 2017
and their activity during the
nine
months ended
March 25, 2017
:
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted Average
Remaining
Contractual Term
(in Years)
|
|
Aggregate Intrinsic
Value (1)
|
Balance at June 25, 2016
|
6,620,813
|
|
|
|
|
|
Restricted stock units and other awards granted
|
2,132,967
|
|
|
|
|
|
Restricted stock units and other awards released
|
(1,380,533
|
)
|
|
|
|
|
Restricted stock units and other awards cancelled
|
(743,139
|
)
|
|
|
|
|
Balance at March 25, 2017
|
6,630,108
|
|
|
2.8
|
|
$
|
297,872,452
|
|
Outstanding and expected to vest, March 25, 2017
|
5,421,956
|
|
|
2.7
|
|
$
|
245,939,941
|
|
|
|
|
(1)
|
Aggregate intrinsic value for RSUs and other awards represents the closing price per share of the Company’s common stock on March 24, 2017, the last business day preceding the fiscal quarter-end, multiplied by the number of RSUs outstanding or expected to vest as of March 25, 2017.
|
The Company withheld shares totaling
$8.3 million
and
$17.7 million
in value as a result of employee withholding taxes based on the value of the RSUs on their vesting date for the
three
and
nine
months ended
March 25, 2017
. The total payments for the employees’ tax obligations to the taxing authorities are reflected as financing activities within the Condensed Consolidated Statements of Cash Flows.
As of
March 25, 2017
, there was
$147.8 million
of unrecognized compensation expense related to
6.6 million
unvested RSUs and other awards, which is expected to be recognized over a weighted average period of approximately
2.8
years.
Market Stock Units
The Company granted MSUs to senior members of management in September 2014, 2015 and 2016. The grant of MSUs was in lieu of granting stock options. MSUs are valued based on the relative performance of the Company’s stock price as compared to the Semiconductor Exchange Traded Fund index XSD (the “SPDR S&P”). The fair value of MSUs is estimated using a Monte Carlo simulation model on the date of grant. The Company also estimates forfeitures at the time of grant and makes revisions to forfeitures on a quarterly basis. Compensation expense is recognized based on the initial valuation and is not subsequently adjusted as a result of the Company’s performance relative to that of the XSD index. Vesting for MSUs is contingent upon both service and market conditions, and has a four-year vesting cliff period.
There were
no
MSUs granted for the
three
months ended
March 25, 2017
and
March 26, 2016
.
The weighted-average fair value of MSUs granted was
$37.29
and
$29.64
per share for the
nine
months ended
March 25, 2017
and
March 26, 2016
, respectively.
The following table summarizes the number of MSUs outstanding and expected to vest as of
March 25, 2017
and their activity during the
nine
months ended
March 25, 2017
:
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted Average
Remaining
Contractual Term
(in Years)
|
|
Aggregate Intrinsic
Value (1)
|
Balance at June 25, 2016
|
673,532
|
|
|
|
|
|
Market stock units granted
|
308,432
|
|
|
|
|
|
Market stock units released
|
—
|
|
|
|
|
|
Market stock units cancelled
|
(128,520
|
)
|
|
|
|
|
Balance at March 25, 2017
|
853,444
|
|
|
2.9
|
|
$
|
38,712,220
|
|
Outstanding and expected to vest, March 25, 2017
|
677,094
|
|
|
2.8
|
|
$
|
30,712,962
|
|
|
|
|
(1)
|
Aggregate intrinsic value for MSUs represents the closing price per share of the Company’s common stock on March 24, 2017, the last business day preceding the fiscal quarter-end, multiplied by the number of MSUs outstanding or expected to vest as of March 25, 2017.
|
As of
March 25, 2017
, there was
$17.8 million
of unrecognized compensation expense related to
0.9 million
unvested MSUs, which is expected to be recognized over a weighted average period of approximately
2.9
years.
Employee Stock Purchase Plan
Employees are granted rights to acquire common stock under the 2008 ESPP.
The fair value of ESPP rights granted to employees has been estimated at the date of grant using the Black-Scholes option valuation model using the following assumptions for the offering periods outstanding:
|
|
|
|
|
|
|
|
|
|
ESPP
|
|
ESPP
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
March 25,
2017
|
|
March 26,
2016
|
|
March 25,
2017
|
|
March 26,
2016
|
Expected holding period (in years)
|
0.5
|
|
0.5
|
|
0.5
|
|
0.5
|
Risk-free interest rate
|
0.5%
|
|
0.2% - 0.4%
|
|
0.5% - 0.7%
|
|
0.1% - 0.4%
|
Expected stock price volatility
|
27.2% - 28.2%
|
|
24.2% - 33.1%
|
|
22.1% - 30.4%
|
|
21.8% - 33.1%
|
Dividend yield
|
3.5% - 3.6%
|
|
3.3% - 3.6%
|
|
3.4% - 3.6%
|
|
3.3% - 3.6%
|
As of
March 25, 2017
and
March 26, 2016
, there was
$3.6 million
and
$4.7 million
, respectively, of unrecognized compensation expense related to the 2008 ESPP.
NOTE 7: EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share are computed using the weighted average number of shares of common stock outstanding during the period. For purposes of computing basic earnings (loss) per share, the weighted average number of outstanding shares of common stock excludes unvested RSUs and MSUs. Diluted earnings (loss) per share incorporates the incremental shares issuable upon the assumed exercise of stock options, assumed release of unvested RSUs, Performance Shares, MSUs and assumed issuance of common stock under the 2008 ESPP using the treasury stock method.
The following table sets forth the computation of basic and diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
March 25,
2017
|
|
March 26,
2016
|
|
March 25,
2017
|
|
March 26,
2016
|
|
(in thousands, except per share data)
|
Numerator for basic earnings (loss) per share and diluted earnings (loss) per share
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
140,213
|
|
|
$
|
139,810
|
|
|
$
|
408,304
|
|
|
$
|
135,136
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings (loss) per share
|
282,903
|
|
|
285,854
|
|
|
283,348
|
|
|
285,323
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
Stock options, ESPP, RSUs, and MSUs
|
4,979
|
|
|
3,929
|
|
|
4,861
|
|
|
4,325
|
|
Denominator for diluted earnings (loss) per share
|
287,882
|
|
|
289,783
|
|
|
288,209
|
|
|
289,648
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share
|
|
|
|
|
|
|
|
Basic
|
$
|
0.50
|
|
|
$
|
0.49
|
|
|
$
|
1.44
|
|
|
$
|
0.47
|
|
Diluted
|
$
|
0.49
|
|
|
$
|
0.48
|
|
|
$
|
1.42
|
|
|
$
|
0.47
|
|
For the
three
months ended
March 25, 2017
and
March 26, 2016
and the
nine
months ended
March 25, 2017
and
March 26, 2016
,
no
securities were determined to be anti-dilutive
and therefore none were excluded from the calculation of diluted earnings per share.
NOTE 8: SEGMENT INFORMATION
The Company designs, develops, manufactures and markets a broad range of linear and mixed signal integrated circuits. All of the Company's products are designed through a centralized R&D function, manufactured using centralized manufacturing (internal and external), and sold through a centralized sales force and shared wholesale distributors.
The Company currently has
one
operating segment. In accordance with ASC No. 280,
Segment Reporting
(“ASC 280”), the Company considers operating segments to be components of the Company’s business for which separate financial information is available that is evaluated regularly by the Company’s Chief Operating Decision Maker in deciding how to allocate resources and in assessing performance. The Chief Operating Decision Maker for the Company was assessed and determined to be the CEO. The CEO reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. Accordingly, the Company has determined that it has a single operating and reportable segment.
Enterprise-wide information is provided in accordance with ASC 280. Geographical revenue information is based on customers’ ship-to location. Long-lived assets consist of property, plant and equipment. Property, plant and equipment information is based on the physical location of the assets at the end of each fiscal year.
Net revenues from unaffiliated customers by geographic region were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
March 25,
2017
|
|
March 26,
2016
|
|
March 25,
2017
|
|
March 26,
2016
|
|
(in thousands)
|
United States
|
$
|
65,698
|
|
|
$
|
59,749
|
|
|
$
|
199,234
|
|
|
$
|
183,442
|
|
China
|
209,437
|
|
|
204,840
|
|
|
635,763
|
|
|
626,497
|
|
Rest of Asia
|
186,468
|
|
|
171,607
|
|
|
534,896
|
|
|
494,744
|
|
Europe
|
105,126
|
|
|
104,218
|
|
|
282,048
|
|
|
282,072
|
|
Rest of World
|
14,487
|
|
|
14,838
|
|
|
41,669
|
|
|
41,838
|
|
|
$
|
581,216
|
|
|
$
|
555,252
|
|
|
$
|
1,693,610
|
|
|
$
|
1,628,593
|
|
Net long-lived assets by geographic region were as follows:
|
|
|
|
|
|
|
|
|
|
March 25,
2017
|
|
June 25,
2016
|
|
(in thousands)
|
United States
|
$
|
392,869
|
|
|
$
|
423,653
|
|
Philippines
|
133,309
|
|
|
141,569
|
|
Rest of World
|
110,657
|
|
|
127,329
|
|
|
$
|
636,835
|
|
|
$
|
692,551
|
|
NOTE 9: COMPREHENSIVE INCOME (LOSS)
The changes in accumulated other comprehensive income (loss) by component and related tax effects in the
nine
months ended
March 25, 2017
and
March 26, 2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Unrealized Gains and Losses on Intercompany Receivables
|
|
Unrealized Gains and Losses on Post-Retirement Benefits
|
|
Cumulative Translation Adjustment
|
|
Unrealized Gains and Losses on Cash Flow Hedges
|
|
Unrealized Gains and Losses on Available-For-Sale Securities
|
|
Total
|
June 25, 2016
|
$
|
(6,280
|
)
|
|
$
|
(6,800
|
)
|
|
$
|
(1,136
|
)
|
|
$
|
(492
|
)
|
|
$
|
489
|
|
|
$
|
(14,219
|
)
|
Other comprehensive income (loss) before reclassifications
|
—
|
|
|
7,563
|
|
|
—
|
|
|
(1,266
|
)
|
|
3,043
|
|
|
9,340
|
|
Amounts reclassified out of accumulated other comprehensive loss (income)
|
—
|
|
|
263
|
|
|
—
|
|
|
2,466
|
|
|
(4,451
|
)
|
|
(1,722
|
)
|
Tax effects
|
—
|
|
|
(2,861
|
)
|
|
—
|
|
|
(273
|
)
|
|
—
|
|
|
(3,134
|
)
|
Other comprehensive income (loss)
|
—
|
|
|
4,965
|
|
|
—
|
|
|
927
|
|
|
(1,408
|
)
|
|
4,484
|
|
March 25, 2017
|
$
|
(6,280
|
)
|
|
$
|
(1,835
|
)
|
|
$
|
(1,136
|
)
|
|
$
|
435
|
|
|
$
|
(919
|
)
|
|
$
|
(9,735
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Unrealized Gains and Losses on Intercompany Receivables
|
|
Unrealized Gains and Losses on Post-Retirement Benefits
|
|
Cumulative Translation Adjustment
|
|
Unrealized Gains and Losses on Cash Flow Hedges
|
|
Unrealized Gains and Losses on Available-For-Sale Securities
|
|
Total
|
June 27, 2015
|
$
|
(6,280
|
)
|
|
$
|
(10,004
|
)
|
|
$
|
(1,136
|
)
|
|
$
|
53
|
|
|
$
|
133
|
|
|
$
|
(17,234
|
)
|
Other comprehensive income (loss) before reclassifications
|
—
|
|
|
—
|
|
|
—
|
|
|
(392
|
)
|
|
(18
|
)
|
|
(410
|
)
|
Amounts reclassified out of accumulated other comprehensive loss (income)
|
—
|
|
|
758
|
|
|
—
|
|
|
920
|
|
|
—
|
|
|
1,678
|
|
Tax effects
|
—
|
|
|
(242
|
)
|
|
—
|
|
|
(76
|
)
|
|
—
|
|
|
(318
|
)
|
Other comprehensive income (loss)
|
—
|
|
|
516
|
|
|
—
|
|
|
452
|
|
|
(18
|
)
|
|
950
|
|
March 26, 2016
|
$
|
(6,280
|
)
|
|
$
|
(9,488
|
)
|
|
$
|
(1,136
|
)
|
|
$
|
505
|
|
|
$
|
115
|
|
|
$
|
(16,284
|
)
|
NOTE 10: INCOME TAXES
In the
three
and
nine
months ended
March 25, 2017
, the Company recorded an income tax provision of
$30.2 million
and
$75.7 million
, respectively, compared to
$31.5 million
and
$34.0 million
for the
three
and
nine
months ended
March 26, 2016
, respectively. The Company’s effective tax rate for the
three
and
nine
months ended
March 25, 2017
was
17.7%
and
15.6%
, respectively, compared to
18.4%
and
20.1%
for the
three
and
nine
months ended
March 26, 2016
, respectively.
The Company’s federal statutory tax rate is
35%
. The Company’s effective tax rate for the
three
and
nine
months ended
March 25, 2017
was lower than the statutory rate primarily due to earnings of foreign subsidiaries, generated primarily by the Company's international operations managed in Ireland, that were taxed at lower rates, and a
$4.3 million
and
$9.5 million
of discrete excess tax benefits generated by the settlement of share-based awards in the
three
and
nine
months ended
March 25, 2017
, respectively, partially offset by stock-based compensation for which no tax benefit is expected and
$3.6 million
and
$10.4 million
of discrete interest accruals for unrecognized tax benefits in the
three
and
nine
months ended
March 25, 2017
, respectively.
The Company's effective tax rate for the
three
months ended
March 26, 2016
was lower than the statutory rate primarily due to earnings of foreign subsidiaries, generated primarily by the Company's international operations managed in Ireland, that were taxed at lower rates, partially offset by stock-based compensation for which no tax benefit is expected and
$20.4 million
of non-deductible goodwill included in the sale of the energy metering business.
The Company's effective tax rate for the
nine
months ended
March 26, 2016
was lower than the statutory tax rate primarily due to earnings of foreign subsidiaries, generated primarily by the Company's international operations managed in Ireland, that were taxed at lower rates, partially offset by stock-based compensation for which no tax benefit is expected,
$5.8 million
of discrete interest accruals for unrecognized tax benefits and
$20.4 million
of non-deductible goodwill included in the sale of the energy metering business.
The Company’s federal corporate income tax returns are audited on a recurring basis by the Internal Revenue Service (“IRS”). The IRS has concluded its field examination of the Company’s federal corporate income tax returns for fiscal years 2009 through 2011 and issued a IRS Revenue Agent's Report in July 2016 that includes proposed adjustments for transfer pricing issues related to cost sharing and buy-in license payments for the use of intangible property by one of the Company’s international subsidiaries. The Company disagrees with the proposed transfer pricing adjustments and related penalties, and in September 2016, the Company filed a protest to challenge the proposed adjustments and request a conference with the Appeals Office of the IRS. The Company believes that its reserves for unrecognized tax benefits are sufficient to cover any potential assessments that may result from the final resolution of these transfer pricing issues. In fiscal year 2017, the IRS commenced an audit of the Company’s federal corporate income tax returns for fiscal years 2012 through 2014, which is ongoing.
NOTE 11: COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company is party or subject to various legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business, including proceedings and claims that relate to intellectual property matters. While the outcome of these matters cannot be predicted with certainty, the Company does not believe that the outcome of any of these matters, individually or in the aggregate, will result in losses that are materially in excess of amounts already recognized or reserved, if any.
Indemnification
The Company indemnifies certain customers, distributors, suppliers and subcontractors for attorney fees, damages and costs awarded against such parties in certain circumstances in which the Company's products are alleged to infringe third party intellectual property rights, including patents, registered trademarks or copyrights. The terms of the Company's indemnification obligations are generally perpetual from the effective date of the agreement. In certain cases, there are limits on and exceptions to the Company's potential liability for indemnification relating to intellectual property infringement claims.
Pursuant to the Company's charter documents and separate written indemnification agreements, the Company has certain indemnification obligations to its current officers, employees and directors, as well as certain former officers and directors.
Product Warranty
The changes in the Company’s aggregate product warranty liabilities for the
nine
months ended
March 25, 2017
and
March 26, 2016
were as follows:
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
March 25,
2017
|
|
March 26,
2016
|
Product warranty liability
|
(in thousands)
|
Beginning balance
|
8,606
|
|
|
$
|
13,436
|
|
Accruals for warranties
|
1,394
|
|
|
3,319
|
|
Payments
|
(5,575
|
)
|
|
(9,047
|
)
|
Changes in estimate
|
877
|
|
|
903
|
|
Ending balance
|
$
|
5,302
|
|
|
$
|
8,611
|
|
|
|
|
|
Less: Current portion
|
5,302
|
|
|
8,611
|
|
Non-current portion
|
$
|
—
|
|
|
$
|
—
|
|
NOTE 12: COMMON STOCK REPURCHASES
In July 2013, the Board of Directors authorized the Company to repurchase up to
$1 billion
of the Company’s common stock from time to time at the discretion of the Company’s management. This stock repurchase authorization has no expiration date. All prior authorizations by the Company’s Board of Directors for the repurchase of common stock were superseded by this authorization.
During the
nine
months ended
March 25, 2017
, the Company repurchased approximately
4.4 million
shares of its common stock for
$175.9 million
. As of
March 25, 2017
, the Company had remaining authorization of
$153.8 million
for future share repurchases. The number of shares to be repurchased and the timing of such repurchases will be based on several factors, including the price of the Company’s common stock and general market and business conditions.
NOTE 13: GOODWILL AND INTANGIBLE ASSETS
Goodwill
The Company monitors the recoverability of goodwill recorded in connection with acquisitions, by reporting unit, annually, or more often if events or changes in circumstances indicate that the carrying amount may not be recoverable.
No indicators or instances of impairment were identified in the
nine
months ended
March 25, 2017
or during the fiscal year ended
June 25, 2016
.
Intangible Assets
The useful lives of amortizable intangible assets are as follows:
|
|
|
|
Asset
|
|
Life
|
Intellectual property
|
|
1-10 years
|
Customer relationships
|
|
3-10 years
|
Trade name
|
|
1-4 years
|
Patents
|
|
5 years
|
Intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 25,
2017
|
|
June 25,
2016
|
|
Original
Cost
|
|
Accumulated
Amortization
|
|
Net
|
|
Original
Cost
|
|
Accumulated
Amortization
|
|
Net
|
|
(in thousands)
|
Intellectual property
|
$
|
451,885
|
|
|
$
|
366,741
|
|
|
$
|
85,144
|
|
|
$
|
420,285
|
|
|
$
|
331,321
|
|
|
$
|
88,964
|
|
Customer relationships
|
115,634
|
|
|
98,293
|
|
|
17,341
|
|
|
115,634
|
|
|
92,744
|
|
|
22,890
|
|
Trade name
|
8,500
|
|
|
7,686
|
|
|
814
|
|
|
8,500
|
|
|
6,486
|
|
|
2,014
|
|
Patents
|
2,500
|
|
|
1,818
|
|
|
682
|
|
|
2,500
|
|
|
1,428
|
|
|
1,072
|
|
Total amortizable purchased intangible assets
|
578,519
|
|
|
474,538
|
|
|
103,981
|
|
|
546,919
|
|
|
431,979
|
|
|
114,940
|
|
IPR&D
|
—
|
|
|
—
|
|
|
—
|
|
|
31,600
|
|
|
—
|
|
|
31,600
|
|
Total purchased intangible assets
|
$
|
578,519
|
|
|
$
|
474,538
|
|
|
$
|
103,981
|
|
|
$
|
578,519
|
|
|
$
|
431,979
|
|
|
$
|
146,540
|
|
During the first quarter of fiscal year 2017,
$31.6 million
of IPR&D was completed and reclassified to amortizable Intellectual Property.
The following table presents the amortization expense of intangible assets and its presentation in the Condensed Consolidated Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
March 25,
2017
|
|
March 26,
2016
|
|
March 25,
2017
|
|
March 26,
2016
|
|
(in thousands)
|
Cost of goods sold
|
$
|
11,064
|
|
|
$
|
11,829
|
|
|
$
|
35,420
|
|
|
$
|
43,201
|
|
Intangible asset amortization
|
2,348
|
|
|
2,538
|
|
|
7,139
|
|
|
9,667
|
|
Total intangible asset amortization expenses
|
$
|
13,412
|
|
|
$
|
14,367
|
|
|
$
|
42,559
|
|
|
$
|
52,868
|
|
The following table represents the estimated future amortization expense of intangible assets as of
March 25, 2017
:
|
|
|
|
|
|
Fiscal Year
|
|
Amount
|
|
|
(in thousands)
|
Remaining three months of 2017
|
|
$
|
13,114
|
|
2018
|
|
48,146
|
|
2019
|
|
19,861
|
|
2020
|
|
9,942
|
|
2021
|
|
8,154
|
|
2022
|
|
2,563
|
|
Thereafter
|
|
2,201
|
|
Total intangible assets
|
|
$
|
103,981
|
|
NOTE 14: IMPAIRMENT OF LONG-LIVED ASSETS
Fiscal year 2017:
During the
three
and
nine
months ended
March 25, 2017
, the Company recorded
$1.0 million
and
$7.5 million
, respectively, in impairment of long-lived assets in the Company’s Condensed Consolidated Statements of Income.
The impairment was primarily associated with certain investments in privately held companies. The Company reached its conclusion regarding the asset impairment after the determination was made that due to factors during the
nine
months ended
March 25, 2017
, the financial condition of the privately held companies indicated an other than temporary impairment.
During the second quarter of fiscal year 2016, the Company classified the micro-electromechanical systems (MEMS) business line, including associated tangible assets and goodwill, as held for sale but no impairment charge was recorded as the carrying value of the product line's associated assets approximated or was less than the fair value, less cost to sell. The fair values of the assets were determined after consideration of quoted market prices of similar equipment and offers received. During the first quarter of fiscal year 2017, the Company completed the sale of this business line for approximately
$42.2 million
, resulting in a gain of
$26.6 million
, included in Other operating income (expenses), net, in the Condensed Consolidated Statements of Income.
Fiscal year 2016:
During the fiscal year ended
June 25, 2016
, the Company recorded
$160.6 million
in impairment of long-lived assets in the Company's Consolidated Statements of Income.
During the first quarter of fiscal year 2016, the Company recorded a
$157.7 million
impairment of long-lived assets associated with the Company's wafer manufacturing facility in San Antonio, Texas which was classified as held for sale and written down to fair value, less cost to sell. The Company reached its conclusion regarding the asset impairment after conducting an evaluation of assets' fair values. The fair value of the land, buildings and equipment was determined after consideration of expected discounted future cash flows attributable to the assets and outside appraisals. The Company signed an agreement with TowerJazz Texas, Inc. (formerly known as TJ Texas, Inc.), an indirect wholly-owned subsidiary of Tower Semiconductor Ltd. ("TowerJazz"), for the sale of the semiconductor wafer fabrication facility in San Antonio, Texas on November 18, 2015. During the third quarter of fiscal year 2016, the Company completed the sale of this facility for approximately
$30.0 million
in common shares of TowerJazz, resulting in a loss of
$1.6 million
included in Other operating income (expenses), net in the Condensed Consolidated Statements of Income. In addition, approximately
$10.0 million
in common shares of TowerJazz were received for the sale of the inventory on hand associated with this facility.
In addition, the San Jose wafer fabrication facility was classified as held for sale during the first quarter of fiscal year 2016, but no impairment charge was recorded as the carrying value of the associated assets approximated the fair value, less cost to sell. The fair value of the land, buildings and equipment was determined after consideration of outside appraisals, quoted market prices of similar equipment and offers received. The Company completed the sale of this facility in the second quarter of fiscal year 2016 for approximately
$39.0 million
resulting in a gain of
$3.8 million
included in Other operating income (expenses), net in the Condensed Consolidated Statements of Income.
During the second quarter of fiscal year 2016, the Company classified the energy metering business, including associated tangible and intangible assets and goodwill, as held for sale but no impairment charge was recorded as the carrying value of the product line's associated assets approximated or was less than the fair value, less cost to sell. The fair values of the assets were determined after consideration of offers received. During the third quarter of fiscal year 2016, the Company completed the sale of this product line for approximately
$105.0 million
, resulting in a gain of
$58.9 million
included in Other operating income (expenses), net in the Condensed Consolidated Statements of Income.
NOTE 15: RESTRUCTURING ACTIVITIES
Fiscal year 2017:
During the
three
and
nine
months ended
March 25, 2017
, the Company recorded
$0.5 million
and
$11.3 million
, respectively, in “Severance and restructuring expenses” in the Condensed Consolidated Statements of Income related to various restructuring plans designed to reduce costs. These charges were associated with continued reorganization of certain business units and functions and the closure of the Dallas wafer level packaging (“WLP”) manufacturing facilities. Multiple job classifications and locations were impacted by these activities.
As the Company completed the closure of its Dallas, Texas campus, including ceasing operations of its WLP manufacturing facility in the third quarter of fiscal year 2017, the Company recorded accelerated depreciation charges of
$1.1 million
and
$4.2 million
during the
three
and
nine
months ended
March 25, 2017
, respectively.
Fiscal year 2016:
San Jose Fab Shutdown
In October 2014, the Company initiated a plan to shut down its San Jose wafer fabrication facility. The Company reached the decision that it was not economically feasible to maintain this facility, which was used primarily for fab process development and low volume manufacturing, as the Company intended to utilize other resources to complete such activities in the future. This plan included cash charges related to employee severance and non-cash charges related to accelerated depreciation. This plan has been completed, and the shutdown took place in the second quarter of fiscal year 2016.
During the fiscal year ending
June 25, 2016
, the Company recorded accelerated depreciation charges of
$41.6 million
, in “Cost of goods sold” and
$0.4 million
in “Severance and restructuring expenses” in the Consolidated Statements of Income. The sale of the San Jose wafer fabrication facility took place during the second quarter of fiscal year 2016. The cumulative costs recorded in fiscal year 2015 and 2016 to complete this restructuring plan were
$100.3 million
and no future restructuring costs associated with this plan are expected.
Other Plans
During the fiscal year ending
June 25, 2016
, the Company recorded
$24.0 million
in “Severance and restructuring expenses” in the Consolidated Statements of Income related to various restructuring plans designed to reduce costs. These charges were associated with continued reorganization of certain business units and functions and the closure of the Dallas wafer level packaging (“WLP”) manufacturing facilities. Multiple job classifications and locations were impacted by these activities.
As the Company had planned to close its Dallas, Texas campus, including its WLP manufacturing facility in fiscal year 2017, the Company recorded accelerated depreciation charges of
$13.0 million
during the fiscal year ending
June 25, 2016
.
Restructuring Accruals
The Company has accruals for severance and restructuring payments within Accrued salary and related expenses in the accompanying Condensed Consolidated Balance Sheets. The following table summarizes changes in the accruals associated with these restructuring activities during the
nine
months ended
March 25, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 25, 2016
|
|
Nine Months Ended
March 25, 2017
|
|
Balance, March 25, 2017
|
|
Charges
|
|
Cash Payments
|
|
Change in Estimates
|
|
|
(in thousands)
|
Severance - All plans (1)
|
$
|
7,578
|
|
|
$
|
11,912
|
|
|
$
|
(13,829
|
)
|
|
$
|
(633
|
)
|
|
$
|
5,028
|
|
|
|
(1)
|
Charges and change in estimates are included in Severance and restructuring expenses in the accompanying Condensed Consolidated Statements of Income.
|
Change in estimate:
Due to the above mentioned restructuring activities, the Company recorded accelerated depreciation resulting from the change in estimated useful lives of certain long lived assets included in restructuring plans. In all periods that accelerated depreciation expense was recorded, this resulted in additional expense and therefore impacted operating income (loss), net income (loss) and earnings (loss) per share as presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
March 25,
2017
|
|
March 26,
2016
|
|
March 25,
2017
|
|
March 26,
2016
|
|
(in thousands, except per share data)
|
Operating income (loss), as reported
|
$
|
174,252
|
|
|
$
|
177,708
|
|
|
$
|
495,399
|
|
|
$
|
191,476
|
|
Operating income (loss), excluding accelerated depreciation expense
|
175,355
|
|
|
182,189
|
|
|
499,624
|
|
|
241,621
|
|
Effect of change in estimate
|
$
|
(1,103
|
)
|
|
$
|
(4,481
|
)
|
|
$
|
(4,225
|
)
|
|
$
|
(50,145
|
)
|
|
|
|
|
|
|
|
|
Net income (loss), as reported
|
$
|
140,213
|
|
|
$
|
139,810
|
|
|
$
|
408,304
|
|
|
$
|
135,136
|
|
Net income (loss), excluding accelerated depreciation expense
|
141,121
|
|
|
145,648
|
|
|
412,051
|
|
|
183,352
|
|
Effect of change in estimate
|
$
|
(908
|
)
|
|
$
|
(5,838
|
)
|
|
$
|
(3,747
|
)
|
|
$
|
(48,216
|
)
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share, as reported
|
$
|
0.50
|
|
|
$
|
0.49
|
|
|
$
|
1.44
|
|
|
$
|
0.47
|
|
Diluted earnings (loss) per share, as reported
|
$
|
0.49
|
|
|
$
|
0.48
|
|
|
$
|
1.42
|
|
|
$
|
0.47
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share, excluding accelerated depreciation expense
|
$
|
0.50
|
|
|
$
|
0.51
|
|
|
$
|
1.45
|
|
|
$
|
0.64
|
|
Diluted earnings (loss) per share, excluding accelerated depreciation expense
|
$
|
0.49
|
|
|
$
|
0.50
|
|
|
$
|
1.43
|
|
|
$
|
0.63
|
|
|
|
|
|
|
|
|
|
Effect of change in estimate - basic earnings (loss) per share
|
$
|
—
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.17
|
)
|
Effect of change in estimate - diluted earnings (loss) per share
|
$
|
—
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.16
|
)
|