UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 10-K
þ
ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended March 31,
2012
£
TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from
________ to ________
___________________
Commission File Number
0-17795
CIRRUS LOGIC, INC.
DELAWARE
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77-0024818
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(State or other
jurisdiction of incorporation or organization)
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(I.R.S. Employer
Identification No.)
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2901 Via Fortuna, Austin, TX 78746
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(Address of principal executive offices)
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Registrants telephone number,
including area code: (512) 851-4000
Securities registered pursuant to Section
12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of
the Act:
Common Stock, $0.001 Par Value
Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined in Rule 405
of the Securities Act. YES
þ
NO
£
Indicate by check
mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. YES
£
NO
þ
Indicate by check
mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. YES
þ
NO
£
Indicate by check
mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
YES
þ
NO
£
Indicate by check
mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
(§ 229.405 of this chapter) is not contained herein, and will not be contained,
to the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
£
Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated filer, and smaller reporting company
in Rule 12b-2 of the Exchange Act.
Large accelerated filer
þ
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Accelerated filer
£
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Non-accelerated filer
£
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Smaller reporting
company
£
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Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Act).
YES
£
NO
þ
The aggregate market value of the registrants voting and non-voting
common equity held by non-affiliates was $863,787,764 based upon the closing
price reported on the NASDAQ Global Select Market as of September 23, 2011.
Stock held by directors, officers and stockholders owning 5 percent or more of
the outstanding common stock were excluded as they may be deemed affiliates.
This determination of affiliate status is not a conclusive determination for any
other purpose.
As of May 29, 2012, the number of outstanding shares of the registrants
Common Stock, $0.001 par value, was 64,479,256.
DOCUMENTS INCORPORATED BY
REFERENCE
Certain information contained in the registrants proxy statement for its
annual meeting of stockholders to be held July 26, 2012 is incorporated by
reference in Part II Item 5. and Part III of this Annual Report on Form
10-K.
CIRRUS LOGIC, INC.
FORM 10-K
For The Fiscal Year Ended March 31,
2012
INDEX
PART
I
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Item 1.
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Business
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3
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Item 1A.
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Risk
Factors
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8
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Item 1B.
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Unresolved Staff
Comments
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19
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Item 2.
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Properties
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19
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Item 3.
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Legal Proceedings
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20
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Item 4.
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Mine Safety
Disclosures
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20
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PART II
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Item 5.
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Market for Registrants Common
Equity, Related Stockholder Matters and Issuer Purchases of
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Equity
Securities
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21
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Item 6.
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Selected Consolidated
Financial Data
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22
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Item 7.
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Managements Discussion and
Analysis of Financial Condition and Results of Operations
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23
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Item 7A.
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Quantitative and
Qualitative Disclosures about Market Risk
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33
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Item 8.
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Financial Statements and
Supplementary Data
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34
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Item 9.
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Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure
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63
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Item 9A.
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Controls and
Procedures
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63
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PART III
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Item 10.
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Directors and Executive Officers
of the Registrant
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64
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Item 11.
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Executive
Compensation
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64
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Item 12.
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Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder
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Matters
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64
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Item 13.
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Certain Relationships
and Related Transactions
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64
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Item 14.
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Principal Accountant Fees and
Services
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64
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PART IV
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Item 15.
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Exhibits and Financial Statement
Schedules
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64
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Signatures
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67
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Exhibit Index
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Financial
Certifications
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Page 2 of 67
PART I
ITEM 1.
Business
Cirrus Logic,
Inc. (Cirrus Logic, Cirrus, We, Us, Our, or the Company) develops
high-precision, analog and mixed-signal integrated circuits (ICs) for a broad
range of audio and energy markets. Building on our diverse analog mixed-signal
patent portfolio, Cirrus Logic delivers highly optimized products for consumer
and commercial audio, automotive entertainment, and targeted industrial and
energy-related applications. We also develop ICs, board-level modules and
hybrids for high-power amplifier applications branded as the Apex Precision
Power (Apex) line of products.
We were incorporated in California in 1984, became a public company in
1989 and were reincorporated in the State of Delaware in February 1999. Our
primary facility housing engineering, sales and marketing, and administrative
functions is located in Austin, Texas. In addition, we have engineering,
administrative, and assembly facilities in Tucson, Arizona, as well as sales
locations throughout the United States. We also serve customers from
international sales offices in Europe and Asia, including the Peoples Republic
of China, Hong Kong, South Korea, Japan, Singapore, Taiwan and the United
Kingdom. Our common stock, which has been publicly traded since 1989, is listed
on the NASDAQ Global Select Market under the symbol CRUS.
We maintain a Web site with the address
www.cirrus.com
. We are not
including the information contained on our Web site as a part of, or
incorporating it by reference into, this Annual Report on Form 10-K. We make
available free of charge through our Web site our Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments
to these reports, as soon as reasonably practicable after we electronically file
such material with, or furnish such material to, the Securities and Exchange
Commission (the SEC). To receive a free copy of this Form 10-K, please forward
your written request to Cirrus Logic, Inc., Attn: Investor Relations, 2901 Via
Fortuna, Austin, Texas 78746, or via email at Investor.Relations@cirrus.com. In
addition, the SEC maintains a website at http://www.sec.gov that contains
reports, proxy and information statements filed electronically with the SEC by
Cirrus Logic.
Background of the Semiconductor
Industry
In general, the semiconductor industry produces three types of products:
analog, digital and mixed-signal. Analog semiconductors process a continuous
range of signals that can represent functions such as temperature, speed,
pressure and sound. Digital semiconductors process information represented by
discrete values, for example, 0s and 1s. Mixed-signal semiconductors combine
analog and digital circuits in a single product. The design of the analog
component of a mixed-signal IC is particularly complex and difficult, and
requires experienced engineers to optimize speed, power and resolution within
standard manufacturing processes.
The convergence and sophistication of our customers products, such as
portable audio applications, home entertainment and automotive audio devices, is
made possible in part by advances in semiconductor technology. Semiconductor
companies are attempting to differentiate their products based on offering new
features and functionality to customers, while at the same time shrinking
product sizes, reducing power consumption, and lowering overall system
costs.
Due to the extremely high costs involved in developing and operating a
wafer fabrication facility, many semiconductor companies, including Cirrus, rely
on third party foundries to manufacture their ICs. We believe that our fabless
manufacturing model significantly reduces our capital requirements and allows us
to focus our resources on the design, development, and marketing of our
ICs.
Page 3 of 67
Segments
We determine our operating segments in accordance with Financial
Accounting Standards Board (FASB) guidelines. Our Chief Executive Officer
(CEO) has been identified as the chief operating decision maker as defined by
these guidelines.
The Company
operates and tracks its results in one reportable segment based on the
aggregation of activity from its two product lines. Our CEO receives and uses
enterprise-wide financial information to assess financial performance and
allocate resources, rather than detailed information at a product line level.
Additionally, our product lines have similar characteristics and customers. They
share operations support functions such as sales, public relations, supply chain
management, various research and development and engineering support, in
addition to the general and administrative functions of human resources, legal,
finance and information technology. Therefore, there is no discrete
financial information maintained for these product lines. We report revenue in
two product categories: audio products and energy products. For fiscal years
2012, 2011, and 2010, audio product sales were $350.7 million, $264.8 million,
and $153.7 million, respectively. For fiscal years 2012, 2011, and 2010, energy
product sales were $76.1 million, $104.7 million, and $67.3 million,
respectively.
See Note 15 - Segment Information, of the Notes to Consolidated Financial
Statements contained in Item 8 for further details including sales and property,
plant and equipment, net, by geographic locations.
Company Strategy
Our strategy is somewhat different from many mixed-signal semiconductor
companies. In addition to developing a few catalog-type products that can be
used by a broad array of customers, we are particularly focused on providing
innovative custom products to market leading customers in the various markets we
serve.
Specifically, we target growing markets where we can showcase our
expertise in analog and digital signal processing to solve challenging problems.
Our approach has been to develop new catalog components that embody our latest
innovations, which we then use to engage with the leading customers in a
particular market or application. We then focus on building a strong engineering
relationship with the design teams at these customers and work to develop highly
differentiated products that address their specific needs using our own
intellectual property (IP), sometimes in combination with theirs. When we have
been successful with this approach, one initial design win has expanded into
many additional products. This strategy gives us the opportunity to increase our
content per box with a customer over time through the addition of new features
and the integration of other system components into our products.
Markets and Products
The following provides a detailed discussion regarding our audio and
energy product lines:
Audio Products
: High-precision analog and mixed-signal components, as well as audio
digital signal processor (DSP) products for consumer, professional and
automotive entertainment markets.
Energy Products
: High-precision analog and mixed-signal components for energy-related
applications, such as light emitting diode (LED) lighting, energy measurement,
energy exploration and energy control systems. Energy products also include ICs,
board-level modules and hybrids for high-power pulse width modulation (PWM)
and power amplifier applications.
AUDIO PRODUCTS
We are a recognized leader in analog and mixed-signal audio converter and
audio DSP products that enable todays new consumer, professional and automotive
entertainment applications. Our broad portfolio of approximately 250 active
proprietary products includes analog-to-digital converters (ADCs),
digital-to-analog converters (DACs), codecs - chips that integrate ADCs and
DACs into a single IC, digital interface ICs, volume
Page 4 of 67
controls and digital
amplifiers, as well as audio DSPs for consumer electronics applications such as
audio/video receivers (AVRs) and digital TVs. Our products are used in a wide
array of consumer applications, including portable media players, smartphones,
tablets, AVRs, DVD and Blu-ray Disc players, complete home theater systems,
set-top boxes, gaming devices, sound cards and digital televisions. Applications
for products within professional markets include digital mixing consoles,
multi-track digital recorders and effects processors. Applications for products
within automotive markets include amplifiers, satellite radio systems,
telematics and multi-speaker car-audio systems.
ENERGY PRODUCTS
We provide
high-precision analog and mixed-signal ICs for targeted energy control, energy
measurement and energy exploration applications, as well as ICs, board-level
modules, and hybrids from the Apex brand of products for high-power PWM and
power amplifier applications. We have approximately 450 active proprietary
products which include LED driver ICs, power factor correction ICs, ADCs, DACs,
linear amplifiers, PWM amplifiers, and amplifier ICs. Our products are used in a
wide array of high-precision, energy-related applications including LED retrofit
lamps, digital utility meters, power supplies, lighting ballasts, motor control,
energy exploration, and high-power systems. New additions to our proprietary
product portfolio in the past fiscal year include:
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1.
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The CS1501/1601 are digitally
controlled, variable frequency discontinuous conduction mode (VF-DCM),
active power factor correction ICs intended for use in switch-mode power
supplies rated up to 300 watts. The CS1501 is designed to address power
supplies, such as laptop adapters, digital TVs and PC power, while the
CS1601 targets lighting applications, such as LED and fluorescent
electronic lighting ballasts.
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2.
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The CS161X family of TRIAC
dimmable LED drivers, which have been tested to provide near 100 percent
compatibility with the worlds base of installed dimmers, is the first LED
driver IC product family from Cirrus Logic that targets the retrofit
incandescent replacement market, which many analysts believe will grow to
1 billion units by 2015.
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Customers, Marketing, and
Sales
We offer approximately 700 products to more than 3,000 active customers
worldwide through both direct and indirect sales channels. Our major customers
are among the worlds leading electronics manufacturers. We target both large
existing and emerging growth consumer electronic and energy markets that derive
value from our expertise in advanced analog and mixed-signal design processing,
systems-level integrated circuit engineering and embedded software development.
We derive our sales both domestically and from a variety of locations across the
world, including the Peoples Republic of China, the European Union, Hong Kong,
Japan, South Korea, Taiwan, and the United Kingdom. Our domestic sales force
includes a network of regional direct sales offices located in California,
Massachusetts, Ohio, Nevada, North Carolina, and Texas. International sales
offices and staff are located in Germany, Hong Kong, Shanghai and Shenzhen in
the Peoples Republic of China, Singapore, South Korea, Taiwan, Japan and the
United Kingdom. We supplement our direct sales force with external sales
representatives and distributors. Our technical support staff is located in
Texas and Arizona. Our worldwide sales force provides geographically specific
support to our customers and specialized selling of product lines with unique
customer bases. See Note 15 - Segment Information, of the Notes to Consolidated
Financial Statements contained in Item 8 for further detail and for additional
disclosure regarding sales and property, plant and equipment, net, by geographic
locations.
Since the components we produce are largely proprietary and generally not
available from second sources, we generally consider our end customer to be the
entity specifying the use of our component in their design. These end customers
may then purchase our products directly from us, from an external sales
representative or distributor, or through a third party manufacturer contracted
to produce their designs. For fiscal years 2012, 2011, and 2010, our ten largest
end customers represented approximately 74 percent, 62 percent, and 54 percent,
of our sales, respectively. For fiscal years 2012, 2011, and 2010, we had one
end customer, Apple Inc., who purchased through multiple contract manufacturers
and represented approximately 62 percent, 47 percent, and 35 percent, of the
Companys total sales, respectively. For fiscal years 2012, 2011, and 2010, we
had one distributor, Avnet Inc., who represented 15 percent, 24 percent, and 26
percent, of our sales, respectively.
Page 5 of 67
Manufacturing
As a fabless semiconductor company, we contract with third parties for
wafer fabrication and nearly all of our assembly and test operations. We use
multiple wafer foundries, assembly sources and test houses in the production of
our inventory. The Company owns a 54,000 square foot facility in Tucson,
Arizona, which serves as the assembly and test facility
for its Apex product line. With the exception of these Apex products, our
outsourced manufacturing strategy allows us to concentrate on our design
strengths, minimize fixed costs and capital expenditures while giving us access
to advanced manufacturing facilities, and provide the flexibility to source
multiple leading-edge technologies through strategic relationships. After wafer
fabrication by the foundry, third-party assembly vendors package the wafer die.
The finished products are then tested before shipment to our customers. While we
do have some redundancy of fabrication processes by using multiple outside
foundries, any interruption of supply by one or more of these foundries could
materially impact us. As a result, we maintain some amount of business
interruption insurance to help reduce the risk of wafer supply interruption, but
we are not fully insured against such risk. Our supply chain management
organization is responsible for the management of all aspects of the
manufacturing, assembly, and testing of our products, including process and
package development, test program development, and production testing of
products in accordance with our ISO-certified quality management
system.
Although our
products are made from basic materials (principally silicon, metals and
plastics), all of which are available from a number of suppliers, capacity at
wafer foundries sometimes becomes constrained. The limited availability of
certain materials may impact our suppliers ability to meet our demand needs or
impact the price we are charged. The prices of certain other basic materials,
such as metals, gases and chemicals used in the production of circuits can
increase as demand grows for these basic commodities. In most cases, we do not
procure these materials ourselves; nevertheless, we are reliant on such
materials for producing our products because our outside foundry and package and
test subcontractors must procure them. To help mitigate risks associated with
constrained capacity, we use multiple foundries, assembly and test
sources.
Patents, Licenses and
Trademarks
We rely on patent, copyright, trademark, and trade secret laws to protect
our intellectual property, products, and technology. As of March 31, 2012, we
held approximately 1,027 granted U.S. patents, 109 U.S. pending patent
applications and various corresponding international patents and applications.
Our U.S. patents expire in calendar years 2012 through 2030. While our patents
are an important element of our success, our business as a whole is not
dependent on any one patent or group of patents. We do not anticipate any
material effect on our business due to any patents expiring in 2012, and we
continue to obtain new patents through our ongoing research and
development.
We have maintained U.S. federal trademark registrations for CIRRUS LOGIC,
CIRRUS, Cirrus Logic logo designs, CRYSTAL, APEX and APEX PRECISION
POWER. These U.S. registrations may be renewed as long as the marks continue to
be used in interstate commerce. We have also filed or obtained foreign
registration for these marks in other countries or jurisdictions where we
conduct, or anticipate conducting, international business.
To complement our own research and development efforts, we have also
licensed and expect to continue to license, a variety of intellectual property
and technologies important to our business from third parties.
Research and Development
We concentrate our research and development efforts on the design and
development of new products for each of our principal markets. We also fund
certain advanced-process technology development, as well as other emerging
product opportunities. Expenditures for research and development in fiscal years
2012, 2011, and 2010 were $85.7 million, $63.9 million, and $51.4 million,
respectively. Our future success is highly dependent upon our ability to develop
complex new products, to transfer new products to volume production, to
introduce them into the marketplace in a timely fashion, and to have them
selected for design into products of systems manufacturers. Our future success
may also depend on assisting our customers with integration of our components
into their new products, including providing support from the concept stage
through design, launch and production ramp.
Page 6 of 67
Competition
Markets for our
products are highly competitive and we expect that competition will continue to
increase. Our ability to compete effectively and to expand our business will
depend on our ability to continue to recruit key engineering talent, to execute
on new product developments, to persuade customers to design-in these new
products into their applications, and to provide lower-cost versions of existing
products. We compete with other semiconductor suppliers that offer standard
semiconductors, application-specific standard product and fully customized ICs,
including embedded software, chip and board-level products.
While no single company competes with us in all of our product lines, we
face significant competition in all markets where our products are available. We
expect to face additional competition from new entrants in our markets, which
may include both large domestic and international IC manufacturers and smaller,
emerging companies.
The principal competitive factors in our markets include: time to market;
quality of hardware/software design and end-market systems expertise; price;
product benefits that are characterized by performance, features, quality and
compatibility with standards; access to advanced process and packaging
technologies at competitive prices; and sales and technical support, which
includes assisting our customers with integration of our components into their
new products and providing support from the concept stage through design, launch
and production ramp.
Product life cycles may vary greatly by product category. For example,
many consumer electronic devices have shorter design-in cycles; therefore, our
competitors have increasingly frequent opportunities to achieve design wins in
next-generation systems. Conversely, this also provides us frequent
opportunities to displace competitors in products that have previously not
utilized our design. The industrial and automotive markets typically have longer
life cycles, which provide continued revenue streams over long periods of
time.
Backlog
Sales are made primarily pursuant to short-term purchase orders for
delivery of products. The quantity actually ordered by the customer, as well as
the shipment schedules, are frequently revised, without significant penalty, to
reflect changes in the customers needs. The majority of our backlog is
typically requested for delivery within six months. In markets where the end
system life cycles are relatively short, customers typically request delivery in
six to ten weeks. We believe a backlog analysis at any given time gives little
indication of our future business except on a short-term basis, principally
within the next 60 days.
We utilize backlog as an indicator to assist us in production planning.
However, backlog is influenced by several factors including market demand,
pricing, and customer order patterns in reaction to product lead times.
Quantities actually purchased by customers, as well as prices, are subject to
variations between booking and delivery because of changes in customer needs or
industry conditions. As a result, we believe that our backlog at any given time
is an incomplete indicator of future sales.
Employees
As of March 31, 2012, we had 676 full-time employees, an increase of 106
employees, or 19 percent, over the end of fiscal year 2011. Of our full-time
employees, 54 percent were engaged in research and product development
activities, 34 percent in sales, marketing, general and administrative
activities, and 12 percent in manufacturing-related activities. Our future
success depends, in part, on our ability to continue to attract, retain and
motivate highly qualified technical, marketing, engineering, and administrative
personnel.
We have never had a work stoppage and none of our employees are
represented by collective bargaining agreements. We consider our employee
relations to be good.
Page 7 of 67
Forward--Looking
Statements
This Annual
Report on Form 10-K and certain information incorporated herein by reference
contain forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 27A of the Securities the Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All
statements included or incorporated by reference in this Annual Report on Form
10-K, other than statements that are purely historical, are forward-looking
statements. In some cases, forward-looking statements are identified by words
such as expect, anticipate, target, project, believe, goals,
estimates, and intend. Variations of these types of words and similar
expressions are intended to identify these forward-looking statements. Any
statements that refer to our plans, expectations, strategies or other
characterizations of future events or circumstances are forward-looking
statements. Readers are cautioned that these forward-looking statements are
predictions and are subject to risks, uncertainties, and assumptions that are
difficult to predict. Therefore, actual results may differ materially and
adversely from those expressed in any forward-looking statements. Among the
important factors that could cause actual results to differ materially from
those indicated by our forward-looking statements are those discussed in
Item 1A. Risk Factors
and elsewhere in this report, as well as in the documents
filed by us with the SEC, specifically the most recent reports on Form 10-Q and
8-K, each as it may be amended from time to time.
We caution you not to place undue reliance on these forward-looking
statements, which speak only as of the date of this report, and we undertake no
obligation to update this information to reflect events or circumstances after
the filing of this report with the SEC, except as required by law. All
forward-looking statements, expressed or implied, included in this Form 10-K and
attributable to Cirrus Logic are expressly qualified in their entirety by this
cautionary statement. This cautionary statement should also be considered in
connection with any subsequent written or oral forward-looking statements that
we may make or persons acting on our behalf may issue. We undertake no
obligation to revise or update publicly any forward-looking statement for any
reason.
Item 1A.
Risk Factors
Our business faces significant risks. The risk factors set forth below
may not be the only risks that we face and there is a risk that we may have
failed to identify all possible risk factors. Additional risks that we are not
aware of yet or that currently are not significant may adversely affect our
business operations. You should read the following cautionary statements in
conjunction with the factors discussed elsewhere in this and other Cirrus Logic
filings with the SEC. These cautionary statements are intended to highlight
certain factors that may affect the financial condition and results of
operations of Cirrus Logic and are not meant to be an exhaustive discussion of
risks that apply to companies such as ours.
We depend on a limited number of
customers and distributors for a substantial portion of our sales, and the loss
of, or a significant reduction in orders from, any key customer or distributor
could significantly reduce our sales.
While we generate sales from a broad base of customers worldwide, the
loss of any of our key customers, or a significant reduction in sales to any one
of them, would significantly reduce our sales and adversely affect our business.
For the twelve month periods ending March 31, 2012, and March 26, 2011, our ten
largest end customers represented approximately 74 percent and 62 percent of our
sales, respectively. For the twelve month periods ending March 31, 2012, and
March 26, 2011, we had one end customer, Apple Inc., who purchased through
multiple contract manufacturers and represented approximately 62 percent and 47
percent of the Companys total sales, respectively. For the twelve month periods
ending March 31, 2012, and March 26, 2011, we had one distributor, Avnet Inc.,
who represented 15 percent and 24 percent of our sales, respectively.
We may not be able to maintain or increase sales to certain of our key
customers for a variety of reasons, including the following:
Page 8 of 67
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our agreements with our customers
typically do not require them to purchase a minimum quantity of our
products;
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many of our customers have pre-existing
or concurrent relationships with our current or potential competitors that may
affect the customers decisions to purchase our products;
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our customers face intense competition
from other manufacturers that do not use our products; and
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our customers regularly evaluate
alternative sources of supply in order to diversify their supplier base, which
increases their negotiating leverage with us and their ability to obtain
components from alternative sources.
Our key customer
relationships often require us to develop new products that may involve
significant technological challenges. Our customers frequently place
considerable pressure on us to meet their tight development schedules. In
addition, we may from time to time enter into customer agreements providing for
exclusivity periods during which we may only sell specified products or
technology to that customer. Accordingly, we may have to devote a substantial
amount of resources to strategic relationships, which could detract from or
delay our completion of other important development projects or the development
of next generation products and technologies.
Our failure to develop and ramp new
products into production in a timely manner could harm our operating
results.
Our success depends upon our ability to develop new products for new and
existing customers, and to introduce these products in a timely and
cost-effective manner. New product introductions involve significant investment
of resources and potential risks. Delays in new product introductions or
less-than-anticipated market acceptance of our new products are possible and
would have an adverse effect on our sales and earnings. The development of new
products is highly complex and, from time-to-time, we have experienced delays in
developing and introducing these new products. Successful product development
and introduction depend on a number of factors including, but not limited
to:
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proper new product
definition;
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timely completion of design and testing
of new products;
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assisting our customers with integration
of our components into their new products, including providing support from
the concept stage through design, launch and production ramp;
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successfully developing and implementing
the software necessary to integrate our products into our customers
products;
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achievement of acceptable manufacturing
yields;
-
availability of wafer fabrication,
assembly, and test capacity; and
-
market acceptance of our products and
the products of our customers.
Both sales and margins may be materially affected if new product
introductions are delayed, or if our products are not designed into successive
generations of new or existing customers products. Our failure to develop and
introduce new products successfully could harm our business and operating
results.
In addition, difficulties associated with adapting our technology and
product design to the proprietary process technology and design rules of outside
foundries can lead to reduced yields of our products. Since low yields may
result from either design or process technology failures, yield problems may not
be effectively determined or resolved until an actual product exists that can be
analyzed and tested to identify process sensitivities relating to the design
rules that are used. As a result, yield problems may not be identified until
well into the production process, and resolution of yield problems may require
cooperation between us and our manufacturer. This risk could be compounded by
the offshore location of certain of our manufacturers, increasing the effort and
time required to identify, communicate and resolve manufacturing yield problems.
Manufacturing defects that we do not discover during the manufacturing or
testing process may lead to costly product recalls. These risks may lead to
increased costs or delayed product delivery, which would harm our profitability
and customer relationships.
Page 9 of 67
Shifts in industry-wide capacity and
our practice of ordering and purchasing our products based on sales forecasts
may result in significant fluctuations in inventory and our quarterly and annual
operating results.
We rely on
independent foundries and assembly and test houses to manufacture our products.
Our reliance on these third party suppliers involves certain risks and
uncertainties. For example, shifts in industry-wide capacity from shortages to
oversupply, or from oversupply to shortages, may result in significant
fluctuations in our quarterly and annual operating results. In addition, we may
order wafers and build inventory in advance of receiving purchase orders from
our customers. Because our industry is highly cyclical and is subject to
significant downturns resulting from excess capacity, overproduction, reduced
demand, order cancellations, or technological obsolescence, there is a risk that
we will forecast inaccurately and produce excess inventories of particular
products. In addition, if we experience supply constraints or manufacturing
problems at a particular supplier, we could be required to switch suppliers or
qualify additional suppliers. Switching and/or qualifying additional suppliers
could be an expensive process and take as long as six to twelve months to
complete, which could result in material adverse fluctuations to our operating
results.
We generally order our products through non-cancelable purchase orders
from third-party foundries based on our sales forecasts, and our customers can
generally cancel or reschedule orders they place with us without significant
penalties. If we do not receive orders as anticipated by our forecasts, or our
customers cancel orders that are placed, we may experience increased inventory
levels.
Due to the product manufacturing cycle characteristic of IC manufacturing
and the inherent imprecision in the accuracy of our customers forecasts,
product inventories may not always correspond to product demand, leading to
shortages or surpluses of certain products. As a result of such inventory
imbalances, future inventory write-downs and charges to gross margin may occur
due to lower of cost or market accounting, excess inventory, and inventory
obsolescence. The risks associated with building excess inventory levels may
increase during a significant production ramp along the lines of the ramp the
Company anticipates in fiscal year 2013.
In general, our customers may cancel
or reschedule orders on short notice without incurring significant penalties;
therefore, our sales and operating results in any quarter are difficult to
forecast.
In general, we rely on customers issuing purchases order to buy our
products rather than long-term supply contracts. Customers may cancel or
reschedule orders on short notice without incurring significant penalties.
Therefore, cancellations, reductions, or delays of orders from any significant
customer could have a material adverse effect on our business, financial
condition, and results of operations.
In addition, a significant portion of our sales and earnings in any
quarter depends upon customer orders for our products that we receive and
fulfill in that quarter. Because our expense levels are based in part on our
expectations as to future revenue and to a large extent are fixed in the short
term, we likely will be unable to adjust spending on a timely basis to
compensate for any unexpected shortfall in sales. Accordingly, any significant
shortfall of sales in relation to our expectations could hurt our operating
results.
Our sales could be materially
impacted by the failure of other component suppliers to deliver required parts
needed in the final assembly of our customers end products.
The products we supply our customers are typically a portion of the many
components provided from multiple suppliers in order to complete the final
assembly of an end product. If one or more of these other component suppliers
are unable to deliver their required component(s) in order for the final product
to be assembled, our customer may delay, or ultimately cancel, their orders from
us.
Page 10 of 67
We are dependent on third-party
manufacturing and supply relationships for the majority of our products. Our
reliance on third-party foundries and suppliers involves certain risks that may
result in increased costs, delays in meeting our customers demand, and loss of
revenue.
We do not own or
operate a semiconductor fabrication facility and do not have the resources to
manufacture the majority of our products internally. We depend upon third
parties to manufacture, assemble, package and test the majority of our products.
As a result, we are subject to risks associated with these third parties,
including:
-
insufficient capacity available to meet
our demand;
-
inadequate manufacturing yields and
excessive costs;
-
inability of these third parties to
obtain an adequate supply of raw materials;
-
difficulties selecting and integrating
new subcontractors;
-
limited warranties on products supplied
to us;
-
potential increases in prices;
and
-
increased exposure to potential
misappropriation of our intellectual property.
Our outside foundries and assembly and test suppliers generally
manufacture our products on a purchase order basis, and we have few long-term
supply arrangements with these suppliers. Therefore, our third party
manufacturers and suppliers are not obligated to supply us with products for any
specific period of time, quantity, or price, except as may be provided in any
particular purchase order or in relation to an existing supply agreement. A
manufacturing or supply disruption experienced by one or more of our outside
suppliers or a disruption of our relationship with an outside foundry could
negatively impact the production of certain of our products for a substantial
period of time.
In addition, difficulties associated with adapting our technology and
product design to the proprietary process technology and design rules of outside
foundries can lead to reduced yields of our products. Since low yields may
result from either design or process technology failures, yield problems may not
be effectively determined or resolved until an actual product exists that can be
analyzed and tested to identify process sensitivities relating to the design
rules that are used. As a result, yield problems may not be identified until
well into the production process, and resolution of yield problems may require
cooperation between us and our manufacturer. This risk could be compounded by
the offshore location of certain of our manufacturers, increasing the effort and
time required to identify, communicate and resolve manufacturing yield problems.
Manufacturing defects that we do not discover during the manufacturing or
testing process may lead to costly product recalls. These risks may lead to
increased costs or delayed product delivery, which would harm our profitability
and customer relationships.
In some cases, our requirements may represent a small portion of the
total production of the third-party suppliers. As a result, we are subject to
the risk that a producer will cease production of an older or lower-volume
process that it uses to produce our parts. We cannot assure you that our
external foundries will continue to devote resources to the production of parts
for our products or continue to advance the process design technologies on which
the manufacturing of our products are based. Each of these events could increase
our costs, lower our gross margin, cause us to hold more inventories, or
materially impact our ability to deliver our products on time.
Because we depend on subcontractors
internationally to perform key manufacturing functions for us, we are subject to
political, economic, and natural disaster risks that could disrupt the
fabrication, assembly, packaging, or testing of our products.
We depend on third-party subcontractors, primarily in Asia, for the
fabrication, assembly, packaging, and testing of most of our products.
International operations may be subject to a variety of risks, including
political instability, global health conditions, currency controls, exchange
rate fluctuations, changes in import/export regulations, tariff and freight
rates, as well as the risks of natural disasters such as earthquakes, tsunamis,
and floods. Although we seek to reduce our dependence on any one subcontractor,
this concentration of subcontractors and manufacturing operations in Asia
subjects us to the risks of conducting business internationally, including
associated
Page 11 of 67
political and economic conditions. If we experience manufacturing
problems at a particular location, or a supplier is unable to continue operating
due to financial difficulties, natural disasters, or other reasons, we would be
required to transfer manufacturing to a backup supplier. Converting or transferring
manufacturing from a primary supplier to a backup facility could be expensive
and time consuming. As a result, delays in our production or shipping by the
parties to whom we outsource these functions could reduce our sales, damage our
customer relationships, and damage our reputation in the marketplace, any of
which could harm our business, results of operations, and financial
condition.
Our products are complex and could
contain defects, which could result in material costs to us.
Product
development in the markets we serve is becoming more focused on the integration
of multiple functions on individual devices. There is a general trend towards
increasingly complex products. The greater integration of functions and
complexity of operations of our products increases the risk that we or our
customers or end users could discover latent defects or subtle faults after
volumes of product have been shipped. This could result in material costs to us,
including, but not limited to:
-
reduced margins;
-
damage to our reputation;
-
a material recall and replacement costs for
product warranty and support;
-
payments to our customer related to the
recall claims as a result of various industry or business practices,
contractual requirements, or in order to maintain good customer
relationships;
-
an adverse impact to our customer
relationships by the occurrence of significant defects;
-
a delay in recognition or loss of revenues,
loss of market share, or failure to achieve market acceptance;
and
-
a diversion of the attention of our
engineering personnel from our product development efforts.
In addition, any defects or other
problems with our products could result in financial losses or other damages to
our customers who could seek damages from us for their losses. A product
liability or warranty claim brought against us, even if unsuccessful, would
likely be time consuming and costly to defend. In particular, the sale of
systems and components that are incorporated into certain applications for the
automotive industry involves a high degree of risk that such claims may be
made.
While we believe that we are reasonably
insured against some of these risks and that we have attempted to contractually
limit our financial exposure with many of our customers, a warranty or product
liability claim against us in excess of our available insurance coverage and
established reserves, or a requirement that we participate in a customer product
recall, would have adverse effects (that could be material) on our business,
results of operations, and financial condition.
Costs related to product defects and errata may
harm our results of operations and business.
Costs associated with unexpected product
defects and errata (deviations from published specifications) due to, for
example, unanticipated problems in our design and manufacturing processes, could
include:
-
writing off the value of inventory of
such products;
-
disposing of products that cannot be fixed;
-
recalling such
products that have been shipped to customers;
-
providing product replacements
for, or modifications to, such products; and
-
defending against litigation
related to such products.
These costs could be substantial and may
increase our expenses and lower our profitability. In addition, our reputation
with our customers or users of our products could be damaged as a result of such
product defects and errata, and the demand for our products could be reduced.
The announcement of product defects and/or errata could
Page 12 of 67
cause customers to
purchase products from our competitors as a result of anticipated shortages of
our components or for other reasons. These factors could harm our financial
results and the prospects for our business.
As we carry only limited insurance
coverage, any incurred liability resulting from uncovered claims could adversely
affect our financial condition and results of operations.
Our
insurance policies may not be adequate to fully offset losses from covered
incidents, and we do not have coverage for certain losses. For example, there is
limited coverage available with respect to the services provided by our third
party foundries and assembly and test subcontractors. Although we believe that
our existing insurance coverage is consistent with common practices of companies
in our industry, our insurance coverage may be inadequate to protect us against
product recalls, natural disasters, and other unforeseen catastrophes that could
adversely affect our financial condition and results of operations.
We have historically experienced fluctuations
in our operating results and expect these fluctuations to continue in future
periods.
Our quarterly and annual operating
results are affected by a wide variety of factors that could materially and
adversely affect our net sales, gross margin, and operating results. If our
operating results fall below expectations of market analysts or investors, the
market price of our common stock could decrease significantly. We are subject to
business cycles and it is difficult to predict the timing, length, or volatility
of these cycles. These business cycles may create pressure on our sales, gross
margin, and/or operating results.
Factors that could cause fluctuations and
materially and adversely affect our net sales, gross margin and operating
results include, but are not limited to:
-
the volume and timing of orders
received;
-
changes in the mix of our products
sold;
-
market acceptance of our products and the
products of our customers;
-
excess or obsolete
inventory;
-
competitive pricing
pressures;
-
our ability to introduce new products on a
timely basis;
-
the timing and extent of our research and
development expenses;
-
the failure to anticipate changing customer
product requirements;
-
disruption in the supply of wafers, assembly,
or test services;
-
reduction of manufacturing
yields;
-
certain production and other risks associated
with using independent manufacturers, assembly houses, and testers;
and
-
product obsolescence, price erosion,
competitive developments, and other competitive factors.
We may be adversely impacted by current global
economic conditions. As a result, our financial results and the market price of
our common shares may decline.
Current global economic conditions could
make it difficult for our customers, our suppliers, and us to accurately
forecast and plan future business activities, and could cause global businesses
to defer or reduce spending on our products, or increase the costs of
manufacturing our products. During challenging economic times our customers and
distributors may face issues gaining timely access to sufficient credit, which
could impact their ability to make timely payments to us. If that were to occur,
we may be required to increase our allowance for doubtful accounts and our days
sales outstanding would increase.
Page 13 of 67
We cannot predict the timing, strength,
or duration of any economic slowdown or subsequent economic recovery. If the
economy or markets in which we operate were to deteriorate, our business,
financial condition, and results of operations will likely be materially and/or
adversely affected.
Our results may be affected by the
fluctuation in sales in the consumer entertainment market.
Because we sell
products in the consumer entertainment market, we are likely to be affected by
seasonality in the sales of our products. Further, a decline in consumer
confidence and consumer spending relating to economic conditions, terrorist
attacks, armed conflicts, oil prices, global health conditions, natural
disasters, and/or the political stability of countries that we operate in or
sell into could have a material adverse effect on our business.
Our products may be subject to average selling
prices that decline over short time periods. If we are unable to increase our
volumes, introduce new or enhanced products with higher selling prices, or
reduce our costs, our business and operating results could be
harmed.
Historically in the semiconductor
industry, average selling prices of products have decreased over time. If the
average selling price of any of our products decline and we are unable to
increase our unit volumes, introduce new or enhanced products with higher
margins, and/or reduce manufacturing costs to offset anticipated decreases in
the prices of our existing products, our operating results may be adversely
affected. In addition, because of procurement lead times, we are limited in our
ability to reduce total costs quickly in response to any sales shortfalls.
Because of these factors, we may experience material adverse fluctuations in our
future operating results on a quarterly or annual basis.
We have significant international sales, and
risks associated with these sales could harm our operating
results.
Export sales, principally to Asia,
include sales to U.S-based customers with overseas manufacturing plants or
manufacturing sub-contractors. These export sales represented 88 percent, 82
percent, and 79 percent of our net sales in fiscal years 2012, 2011, and 2010,
respectively. We expect export sales to continue to represent a significant
portion of product sales. This reliance on international sales subjects us to
the risks of conducting business internationally, including risks associated
with political and economic instability, global health conditions, currency
controls, exchange rate fluctuations and changes in import/export regulations,
tariff and freight rates, as well as the risks of natural disaster, especially
in Asia. For example, the political or economic instability in a given region
may have an adverse impact on the financial position of end users in the region,
which could affect future orders and harm our results of operations. Our
international sales operations involve a number of other risks including, but
not limited to:
-
unexpected changes in government regulatory
requirements;
-
changes to countries banking and credit
requirements;
-
changes in diplomatic and trade
relationships;
-
delays resulting from difficulty in obtaining
export licenses for technology;
-
tariffs and other barriers and
restrictions;
-
competition with non-U.S. companies or other
domestic companies entering the non-U.S. markets in which we
operate;
-
longer sales and payment cycles;
-
problems in collecting accounts receivable;
and
-
the burdens of complying with a variety of
non-U.S. laws.
In addition, our competitive
position may be affected by the exchange rate of the U.S. dollar against other
currencies. Consequently, increases in the value of the dollar would increase
the price in local currencies of our products in non-U.S. markets and make our
products relatively more expensive. Alternatively, decreases in the
Page 14 of 67
value of
the dollar will increase the relative cost of operations that are based
overseas. We cannot provide assurances that regulatory, political and other
factors will not adversely affect our operations in the future or require us
to modify our current business practices.
We are subject to the export control
regulations of the U.S. Department of State and the Department of Commerce. A
violation of these export control regulations could have a material adverse
effect on our business or our results of operations, cash flows, or financial
position.
The nature of our
international business, and in particular, the manufacture and sale of certain
products from our Apex Precision Power Product line, subjects us to the export
control regulations of the U.S. Department of State and the Department of
Commerce. If these export control regulations are violated, it could result in
monetary penalties and denial of export privileges. The U.S. government is very
strict with respect to compliance and has served notice generally that failure
to comply with these regulations may subject violators to fines and/or
imprisonment. Although we are not aware of any material violation of any export
control regulations, a failure to comply with any of the above mentioned
regulations could have a material adverse effect on our business.
Our international operations subject
our business to additional political and economic risks that could have an
adverse impact on our business.
In addition to export sales constituting a large portion of our net
sales, we maintain international operations, sales, and technical support
personnel. International expansion has required, and will continue to require,
significant management attention and resources. There are risks inherent in
expanding our presence into non-U.S. regions, including, but not limited
to:
-
difficulties in staffing and managing non-U.S.
operations;
-
failure of non-U.S. laws to adequately protect our
U.S. intellectual property, patent, trademarks, copyrights know-how and other
proprietary rights;
-
global health conditions and potential natural
disasters;
-
political and economic instability in
international regions;
-
international currency controls and exchange rate
fluctuations;
-
vulnerability to terrorist groups targeting
American interests abroad; and
-
legal uncertainty regarding liability and
compliance with non-U.S. laws and regulatory requirements.
If we are unable to successfully manage the demands of our international
operations, it may have a material adverse effect on our business, financial
condition, or results of operations.
Our failure to manage our
distribution channel relationships could adversely affect our
business.
The future of our business, as well as the future growth of our business,
will depend in part on our ability to manage our relationships with current and
future distributors and external sales representatives and to develop additional
channels for the distribution and sale of our products. The inability to
successfully manage these relationships could adversely affect our
business.
Strong competition in the
semiconductor market may harm our business.
The IC industry is intensely competitive and is frequently characterized
by rapid technological change, price erosion, technological obsolescence, and a
push towards IC component integration. Because of shortened product life cycles
and even shorter design-in cycles in a number of the markets that we serve, our
competitors have increasingly frequent opportunities to achieve design wins in
next-generation systems. In the event that competitors succeed in supplanting
our products, our market share may not be sustainable and our net sales, gross
margin and operating results would be adversely affected. Additionally, further
component integration could eliminate the need for our products.
Page 15 of 67
We compete in a
number of fragmented markets. Our principal competitors in these markets include
AKM Semiconductor Inc., Analog Devices Inc., Austriamicrosystems AG, Dialog
Semiconductor, Freescale Semiconductor Inc., Integrated Device Technology Inc.,
iWatt Inc., Infineon Technologies AG, Linear Technologies Corporation, Maxim
Integrated Products Inc., NXP Semiconductors N.V., ON Semiconductor Corporation,
Power Integrations Inc., Realtek Semiconductor Corporation, ST Microelectronics
N.V., Texas Instruments, Inc., and Wolfson Microelectronics plc. Many of these
competitors have greater financial, engineering, manufacturing, marketing,
technical, distribution, and other resources; broader product lines; broader
intellectual property portfolios; and longer relationships with customers. We
also expect intensified competition from emerging companies and from customers
who develop their own IC products. In addition, some of our current and future
competitors maintain their own fabrication facilities, which could benefit them
in connection with cost, capacity, and technical issues.
Increased competition could adversely affect our business. We cannot
provide assurances that we will be able to compete successfully in the future or
that competitive pressures will not adversely affect our financial condition and
results of operations. Competitive pressures could reduce market acceptance of
our products and result in price reductions and increases in expenses that could
adversely affect our business and our financial condition.
We may be unable to protect our
intellectual property rights.
Our success depends in part on our ability to obtain patents and to
preserve our other intellectual property rights covering our products. We seek
patent protection for those inventions and technologies for which we believe
such protection is suitable and is likely to provide a competitive advantage to
us. We also rely on trade secrets, proprietary technology, non-disclosure and
other contractual terms, and technical measures to protect our technology and
manufacturing knowledge. We work actively to foster continuing technological
innovation to maintain and protect our competitive position. We cannot provide
assurances that steps taken by us to protect our intellectual property will be
adequate, that our competitors will not independently develop or design around
our patents, or that our intellectual property will not be misappropriated. In
addition, the laws of some non-U.S. countries may not protect our intellectual
property as well as the laws of the United States.
Any of these events could materially and adversely affect our business,
operating results, and financial condition. Policing infringement of our
technology is difficult, and litigation may be necessary in the future to
enforce our intellectual property rights. Any such litigation could be
expensive, take significant time, and divert managements attention from other
business concerns.
Potential intellectual property
claims and litigation could subject us to significant liability for damages and
could invalidate our proprietary rights.
The IC industry is characterized by frequent litigation regarding patent
and other intellectual property rights. We may find it necessary to initiate a
lawsuit to assert our patent or other intellectual property rights. These legal
proceedings could be expensive, take significant time, and divert managements
attention from other business concerns. We cannot provide assurances that we
will ultimately be successful in any lawsuit, nor can we provide assurances that
any patent owned by us will not be invalidated, circumvented, or challenged. We
cannot provide assurances that rights granted under our patents will provide
competitive advantages to us, or that any of our pending or future patent
applications will be issued with the scope of the claims sought by us, if at
all.
As is typical in the IC industry, we and our customers have, from time to
time, received and may in the future receive, communications from third parties
asserting patents, mask work rights, or copyrights. In the event third parties
were to make a valid intellectual property claim and a license was not available
on commercially reasonable terms, our operating results could be harmed.
Litigation, which could result in substantial cost to us and diversion of our
management, technical and financial resources, may also be necessary to defend
us against claimed infringement of the rights of others. An unfavorable outcome
in any such suit could have an adverse effect on our future operations and/or
liquidity.
Page 16 of 67
If we fail to attract, hire and
retain qualified personnel, we may not be able to develop, market, or sell our
products or successfully manage our business.
Competition for
highly qualified personnel in our industry is intense. The number of technology
companies in the geographic areas in which we operate is greater than it has
been historically and we expect competition for qualified personnel to
intensify. There are only a limited number of individuals in the job market with
the requisite skills. Our Human Resources organization focuses significant
efforts on attracting and retaining individuals in key technology positions. The
loss of the services of key personnel or our inability to hire new personnel
with the requisite skills could restrict our ability to develop new products or
enhance existing products in a timely manner, sell products to our customers, or
manage our business effectively.
We may acquire other companies or
technologies, which may create additional risks associated with our ability to
successfully integrate them into our business.
We continue to consider future acquisitions of other companies, or their
technologies or products, to improve our market position, broaden our
technological capabilities, and expand our product offerings. If we are able to
acquire companies, products or technologies that would enhance our business, we
could experience difficulties in integrating them. Integrating acquired
businesses involves a number of risks, including, but not limited to:
-
the potential disruption of our ongoing
business;
-
unexpected costs or incurring unknown
liabilities;
-
the diversion of management resources from other
strategic and operational issues;
-
the inability to retain the employees of the
acquired businesses;
-
difficulties relating to integrating the
operations and personnel of the acquired businesses;
-
adverse effects on the existing customer
relationships of acquired companies;
-
the potential incompatibility of business
cultures;
-
adverse effects associated with entering into
markets and acquiring technologies in areas in which we have little
experience; and
-
acquired intangible assets becoming impaired as a
result of technological advancements, or worse-than-expected performance of
the acquired company.
If we are unable to successfully address any of these risks, our business
could be harmed.
We may not be able to borrow funds
under our credit facility or secure future financing.
On April 19, 2012, we entered into a Credit Agreement (the Credit
Agreement) with Wells Fargo Bank, National Association, as Administrative Agent
and Issuing Lender, Barclays Bank, as Syndication Agent, Wells Fargo Securities,
LLC and Barclays Capital, as Joint Lead Arrangers and Co-Book Managers, and the
lenders referred to therein (the Lenders). The Credit Agreement provides for a
$100 million unsecured revolving credit facility (the Credit Facility) with a
$15 million letter of credit sublimit. We view this Credit Facility as a source
of available liquidity to fund fluctuations in our working capital requirements.
For example, if we experience an increase in order activity from our customers,
our cash balance may decrease due to the need to purchase inventories to fulfill
those orders. If this occurs, we may need to draw on this facility. This
facility contains various conditions, covenants and representations with which
we must be in compliance in order to borrow funds. We cannot assure that we will
be in compliance with these conditions, covenants and representations in the
future when we may need to borrow funds under this facility. In addition, this
facility expires on April 18, 2013, after which time we may need to secure new
financing to continue funding fluctuations in our working capital requirements.
We cannot assure that we will be able to secure new financing, or financing on
terms that are acceptable to us.
Our ability to
service our indebtedness will depend upon, among other things, our future
financial and operating performance, which will be affected by prevailing
economic conditions and financial, business, regulatory, and other factors, some
of which are beyond our control. If our operating results are not sufficient to
service our
Page 17 of 67
future indebtedness, we will be forced to take actions such as
reducing or delaying business activities, acquisitions, investments, and/or
capital expenditures, selling assets, restructuring or refinancing our
indebtedness, or seeking additional equity capital or bankruptcy protection. We
may not be able to effect any of these remedies on satisfactory terms or at
all.
Our financial results may be
adversely affected by changes in the valuation allowance on our deferred tax
assets.
The Company has a significant amount of deferred tax assets. Our ability
to recognize these deferred tax assets is dependent upon our ability to
determine whether it is more likely than not that we will be able to realize, or
actually use, these deferred tax assets. That determination depends primarily on
our ability to generate future U.S. taxable income. Our judgments regarding
future profitability may change due to future market conditions, changes in U.S.
or international tax laws and other factors. These changes, if any, may require
possible material adjustments to the net deferred tax asset and an accompanying
reduction or increase in net income in the period in which such determinations
are made.
Our stock price has been and is
likely to continue to be volatile.
The market price of our common stock fluctuates significantly. This
fluctuation has been or may be the result of numerous factors, including, but
not limited to:
-
actual or anticipated fluctuations in our
operating results;
-
announcements concerning our business or those of
our competitors, customers, or suppliers;
-
loss of a significant customer, or
customers;
-
changes in financial estimates by securities
analysts or our failure to perform as anticipated by the
analysts;
-
news, commentary, and rumors emanating from the
media relating to us, our customers, or the industry. These reports may be
unrelated to the actual operating performance of the Company, and in some
cases, may be potentially misleading or incorrect;
-
announcements regarding technological innovations
or new products by us or our competitors;
-
announcements by us of significant acquisitions,
strategic partnerships, joint ventures, or capital
commitments;
-
announcements by us of significant divestitures or
sale of certain assets or intellectual property;
-
litigation arising out of a wide variety of
matters, including, among others, employment matters and intellectual property
matters;
-
departure of key personnel;
-
single significant stockholders selling for any
reason;
-
general conditions in the IC industry;
and
-
general market conditions and interest
rates.
We have provisions in our
Certification of Incorporation and Bylaws, and are subject to certain provisions
of Delaware law, which could prevent, delay or impede a change of control of our
company. These provisions could affect the market price of our
stock.
Certain
provisions of Delaware law and of our Certificate of Incorporation and Bylaws
could make it more difficult for a third party to acquire us, even if our
stockholders support the acquisition. These provisions include, but are not
limited to:
-
the inability of stockholders to call a special
meeting of stockholders;
-
a prohibition on stockholder action by written
consent; and
Page 18 of 67
-
a requirement that stockholders provide advance
notice of any stockholder nominations of directors or any proposal of new
business to be considered at any meeting of stockholders.
We are also subject to the anti-takeover laws of Delaware that may
prevent, delay or impede a third party from acquiring or merging with us, which
may adversely affect the market price of our common stock.
We are subject to the risks of
owning real property.
We are nearing completion of construction of our U.S. headquarters in
Austin, Texas, and we own our facility in Tucson, Arizona. The ownership of our
U.S. headquarters, along with the ownership of our facility in Tucson, subject
us to the risks of owning real property, which may include:
-
the possibility of environmental contamination and
the costs associated with correcting any environmental
problems;
-
adverse changes in the value of these properties,
due to interest rate changes, changes in the neighborhood in which the
property is located, or other factors;
-
increased cash commitments for constructing a new
building in Austin, Texas, or improving the current building and property in
Tucson, Arizona; and
-
the risk of financial loss in excess of amounts
covered by insurance, or uninsured risks, such as the loss caused by damage to
the buildings as a result of fire, floods, or other natural
disasters.
ITEM 1B.
Unresolved Staff Comments
None.
ITEM 2.
Properties
As of May 1, 2012, our principal leased facilities, located in Austin,
Texas, consisted of approximately 214,000 square feet of office space. This
leased space includes our headquarters and engineering facility, which has
197,000 square feet, of which we have subleased approximately 15,000 square
feet. Our principal leased facilities in Austin, Texas also include 17,000
square feet of leased space at our failure analysis facility with lease terms
that extend into calendar year 2013. Both the lease and subleases at our current
headquarters and engineering facility have terms ending in August 2012. In lieu
of renewing this lease and its subleases, we will be moving the Austin employees
staffed there into the Companys new corporate headquarters in Austin, Texas. We
anticipate completing the construction of this facility in the summer of 2012.
The new headquarters facility will consist of approximately 135,000 square feet
of office space and will primarily be occupied by research and development
personnel. With the sharp increase in staffing levels following construction
commencement, it was necessary to obtain additional office space to fulfill
these needs. The Company purchased an adjacent property in May 2011 and, in
February 2012, entered into a lease agreement for nearby office space. The
purchased property consists of about 16,000 square feet of space, 7,000 square
feet of which is currently subleased through November 2014. We expect to staff
this facility with a mixture of administrative personnel, research and
development personnel, and testing equipment once the current subleases expire
and renovations are complete. The leased property consists of approximately
30,000 square feet. We expect the five year lease term to commence on our
anticipated arrival date beginning June 2012. This facility will primarily be
occupied by administrative personnel.
Our operations in
Tucson, Arizona are supported by two facilities, which house the employees who
design, manufacture, and sell our Apex brand of products. The first facility is
a 56,000 square foot building owned by the Company which includes an assembly
facility as well as engineering and administrative personnel that supports the
manufacture and sale of our Apex brand of products. The second facility is
28,000 square feet of leased office space primarily occupied by engineering
personnel. The term of this lease extends through May 2015.
Page 19 of 67
Below is a detailed schedule that identifies our occupied leased and
owned property locations as of May 1, 2012, with various lease terms through
fiscal year 2015:
Design Centers
|
|
Sales Support Offices USA
|
|
Sales Support Offices
International
|
Austin, Texas
|
|
Burlington,
Massachusetts
|
|
Hong Kong, China
|
Tucson, Arizona
|
|
|
|
Shanghai, China
|
|
|
|
|
Shenzhen, China
|
|
|
|
|
Tokyo, Japan
|
|
|
|
|
Singapore
|
|
|
|
|
Seoul, South Korea
|
|
|
|
|
Taipei, Taiwan
|
|
|
|
|
Buckinghamshire, United
Kingdom
|
See Note 9 - Commitments and Contingencies of the Notes to Consolidated
Financial Statements contained in Item 8 for further detail.
ITEM 3.
Legal Proceedings
As of the balance sheet date, to the best of our knowledge, the Company
is not a party to any material pending litigation. From time to time, various
claims, charges and litigation are asserted or commenced against us arising
from, or related to, contractual matters, intellectual property, employment
disputes, as well as other issues. Frequent claims and litigation involving
these types of issues are not uncommon in our industry. As to any of these
potential claims or litigation, we cannot predict the ultimate outcome with
certainty.
ITEM 4.
Mine Safety Disclosures
Not applicable.
Page 20 of 67
PART II
ITEM 5.
Market for Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
Our Common Stock is traded on the NASDAQ Global Select Market under the
symbol CRUS. The following table shows, for the periods indicated, the high and
low intra-day sales prices for our Common Stock.
|
High
|
|
Low
|
Fiscal year ended March 31,
2012
|
|
|
|
|
|
First
quarter
|
$
|
21.96
|
|
$
|
13.13
|
Second quarter
|
|
18.51
|
|
|
12.52
|
Third
quarter
|
|
18.35
|
|
|
13.40
|
Fourth quarter
|
|
24.85
|
|
|
15.69
|
Fiscal year ended March 26, 2011
|
|
|
|
|
|
First quarter
|
$
|
18.85
|
|
$
|
7.86
|
Second
quarter
|
|
21.20
|
|
|
14.55
|
Third quarter
|
|
19.07
|
|
|
12.39
|
Fourth
quarter
|
|
25.48
|
|
|
15.86
|
As of May 29,
2012, there were approximately 710 holders of record of our Common
Stock.
We have not paid cash dividends on our Common Stock and currently intend
to continue a policy of retaining any earnings for reinvestment in our
business.
The information under the caption Equity Compensation Plan Information
in our 2012 Proxy Statement is incorporated herein by reference.
Stock Price Performance
Graph
The following graph and table show a comparison of the five-year
cumulative total stockholder return, calculated on a dividend reinvestment
basis, for Cirrus Logic, the S&P 500 Composite Index (the S&P 500),
and the Semiconductor Subgroup of the S&P Electronics Index (the S&P
Semiconductors Index).
Page 21 of 67
|
3/31/07
|
|
3/29/08
|
|
3/28/09
|
|
3/27/10
|
|
3/26/11
|
|
3/31/12
|
Cirrus Logic, Inc.
|
100.00
|
|
86.55
|
|
52.22
|
|
103.00
|
|
276.24
|
|
310.70
|
S&P 500
Index
|
100.00
|
|
94.38
|
|
60.10
|
|
87.78
|
|
100.83
|
|
110.48
|
S&P 500 Semiconductors Index
|
100.00
|
|
93.62
|
|
69.29
|
|
105.35
|
|
117.51
|
|
135.18
|
|
(1)
|
|
The graph assumes that $100 was
invested in our common stock and in each index at the market close on
March 31, 2007, and that all dividends were reinvested. No cash dividends
were declared on our common stock during the periods
presented.
|
|
|
|
(2)
|
|
Stockholder returns over the
indicated period should not be considered indicative of future stockholder
returns.
|
The information in this Form 10-K appearing under the heading Stock
Price Performance Graph is being furnished pursuant to Item 2.01(e) of
Regulation S-K under the securities Act of 1933, as amended, and shall not be
deemed to be soliciting material or filed with the Securities and Exchange
Commission or subject to Regulation 14A or 14C, other than as provided in Item
201(e) of Regulation S-K, or to the liabilities of Section 18 of the Securities
Exchange Act of 1934, as amended.
ITEM 6.
Selected Consolidated Financial Data
The information
contained below should be read along with
Item
7 Managements Discussion and Analysis of Financial Condition and Results of
Operations
and
Item 8 Financial Statements and Supplementary Data
(Amounts in thousands, except per share amounts).
|
Fiscal Years
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
|
(1)
|
|
(1)
|
|
(1)
|
|
(2)
|
|
(3)
|
Net sales
|
$
|
426,843
|
|
$
|
369,571
|
|
$
|
220,989
|
|
$
|
174,642
|
|
$
|
181,885
|
|
Net Income (loss)
|
|
87,983
|
|
|
203,503
|
|
|
38,398
|
|
|
3,475
|
|
|
(5,846
|
)
|
Basic earnings (loss)
per share
|
$
|
1.35
|
|
$
|
3.00
|
|
$
|
0.59
|
|
$
|
0.05
|
|
$
|
(0.07
|
)
|
Diluted earnings (loss) per
share
|
$
|
1.29
|
|
$
|
2.82
|
|
$
|
0.59
|
|
$
|
0.05
|
|
$
|
(0.07
|
)
|
Financial position at
year end:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents,
restricted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investments and
marketable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
$
|
184,788
|
|
$
|
215,055
|
|
$
|
141,626
|
|
$
|
120,232
|
|
$
|
187,498
|
|
Total
assets
|
|
544,462
|
|
|
496,621
|
|
|
267,610
|
|
|
207,004
|
|
|
298,306
|
|
Working capital
|
|
278,602
|
|
|
267,416
|
|
|
142,965
|
|
|
126,908
|
|
|
194,665
|
|
Long-term
obligations
|
|
5,620
|
|
|
6,188
|
|
|
7,119
|
|
|
8,328
|
|
|
9,381
|
|
Total stockholders equity
|
$
|
465,857
|
|
$
|
438,379
|
|
$
|
218,601
|
|
$
|
172,928
|
|
$
|
240,935
|
|
|
1)
|
|
Refer to the consolidated
financial statements and the Notes thereto contained in Item 8 of this
Form 10-K for fiscal years 2012, 2011, and 2010 for an expanded discussion
of factors that materially affect the comparability of the information
reflected in the selected consolidated financial data presented
above.
|
|
|
|
2)
|
|
The reduction in cash, cash
equivalents, restricted investments, and marketable securities, as well as
total stockholders equity, in fiscal year 2009 was primarily attributable
to the completion of a $150 million stock repurchase program, which
commenced in late fiscal year 2008 and was completed in fiscal year
2009.
|
|
|
|
3)
|
|
Net income in fiscal year 2008
was unfavorably impacted by a $10.5 million restructuring charge, a $4.6
million charge to increase the valuation allowance on our U.S. deferred
tax assets, a $4.5 million increase in research and development expenses
primarily attributable to the acquisition of Apex Microtechnology, a $3.7
million charge for an impairment of non-marketable securities, and a $1.8
million charge for acquired in-process research and development associated
with the Apex Microtechnology acquisition.
|
Page 22 of 67
ITEM 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations
You should read the following discussion in conjunction with our
audited historical consolidated financial statements and notes thereto, which
are included elsewhere in this Form 10-K. Managements Discussion and Analysis
of Financial Condition and Results of Operations contains statements that are
forward-looking. These statements are based on current expectations and
assumptions that are subject to risk, uncertainties and other factors. Actual
results could differ materially because of the factors discussed in Part I, Item
1A. Risk Factors of this Form 10-K.
Critical Accounting
Policies
Our discussion and analysis of the Companys financial condition and
results of operations are based upon the consolidated financial statements
included in this report, which have been prepared in accordance with U.S.
generally accepted accounting principles. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported
amounts. We evaluate the estimates on an on-going basis. We base these estimates
on historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions and
conditions.
We believe the
following critical accounting policies involve significant judgments and
estimates that are used in the preparation of the consolidated financial
statements:
-
For purposes of determining the variables used in
the calculation of stock compensation expense for stock options, we perform an
analysis of current market data and historical company data to calculate an
estimate of implied volatility, the expected term of the option, and the
expected forfeiture rate. With the exception of the expected forfeiture rate,
which is not an input, we use these estimates as variables in the
Black-Scholes option pricing model. Depending upon the number of stock options
granted, any fluctuations in these calculations could have a material effect
on the results presented in our Consolidated Statement of Operations. In
addition, any differences between estimated forfeitures and actual forfeitures
could also have a material impact on our financial statements. See Note 8
Equity Compensation of the Notes to Consolidated Financial Statements for
additional details.
-
We recognize revenue when all of the following
criteria are met: persuasive evidence that an arrangement exists, delivery of
goods has occurred, the sales price is fixed or determinable and
collectability is reasonably assured. We evaluate our distributor
arrangements, on a distributor by distributor basis, with respect to each of
the four criteria above. For a majority of our distributor arrangements, we
provide rights of price protection and stock rotation. As a result, revenue is
deferred at the time of shipment to our domestic distributors and certain
international distributors due to the determination that the ultimate sales
price to the distributor is not fixed or determinable. Once the distributor
has resold the product, and our final sales price is fixed or determinable, we
recognize revenue for the final sales price and record the related costs of
sales. For certain of our smaller international distributors, we do not grant
price protection rights and provide minimal stock rotation rights. For these
distributors, revenue is recognized upon delivery to the distributor, less an
allowance for estimated returns, as the revenue recognition criteria have been
met upon shipment.
Further, the
Company defers the associated cost of goods sold on our consolidated balance
sheet, net within the deferred income caption. The Company routinely evaluates
the products held by our distributors for impairment to the extent such
products may be returned by the distributor within these limited rights and
such products would be considered excess or obsolete if included within our
own inventory. Products returned by distributors and subsequently scrapped
have historically been immaterial to the Company.
-
We provide for the recognition of deferred tax
assets if realization of such assets is more likely than not. The Company
evaluates the ability to realize its deferred tax assets by using a three year
forecast to determine the amount of net operating losses and other deferred
tax assets that would be utilized if we achieved the results set
Page 23 of 67
forth in the
three year forecast. The Company limited the forecast period to three years
because of the cyclical and competitive nature of the semiconductor industry,
and the Companys reliance on a key customer who represented approximately 62
percent of total sales in fiscal year 2012. There can be no assurance that we
will achieve the results set forth in our three year forecast and our actual
results may differ materially from our forecast.
We have provided a valuation allowance against a
portion of our net U.S. deferred tax assets due to uncertainties regarding
their realization. We evaluate our ability to realize our deferred tax assets
basis by determining whether or not the anticipated future taxable income is
expected to be sufficient to utilize the deferred tax assets that we have
recognized. If our future income is not sufficient to utilize the deferred tax
assets that we have recognized, we increase the valuation allowance to the
point at which all of the remaining recognized deferred tax assets will be
utilized by the future taxable income. If our anticipated future taxable
income is sufficient to conclude that additional deferred tax assets should be
recognized, we decrease the valuation allowance. The calculation of our tax
liabilities involves dealing with uncertainties in the application of complex
tax rules and the potential for future adjustment of our uncertain tax
positions by the Internal Revenue Service or other taxing jurisdiction. If our
estimates of these taxes are greater or less than actual results, an additional
tax benefit or charge will result. See Note 14 Income Taxes of the Notes to
Consolidated Financial Statements contained in Item 8
.
-
The Company evaluates the collectability of
accounts receivable. We maintain allowances for doubtful accounts for
estimated losses resulting from the inability or failure of our customers to
make required payments. We regularly evaluate our allowance for doubtful
accounts based upon the age of the receivable, our ongoing customer relations,
as well as any disputes with the customer. If the financial condition of our
customers were to deteriorate, resulting in an impairment of their ability to
make payments, additional allowances may be required, which could have a
material effect on our operating results and financial position. Additionally,
we may maintain an allowance for doubtful accounts for estimated losses on
receivables from customers with whom we are involved in litigation. See Note 5
Accounts Receivable, net of the Notes to Consolidated Financial Statements
contained in Item 8.
-
Inventories are recorded at the lower of cost or
market, with cost being determined on a first-in, first-out basis. We write
down inventories to net realizable value based on forecasted demand,
management judgment, and the age of inventory. Actual demand and market
conditions may be different from those projected by management, which could
have a material effect on our operating results and financial position. See
Note 2 Summary of Significant Accounting Policies of the Notes to
Consolidated Financial Statements contained in Item 8.
-
We evaluate the recoverability of property, plant,
and equipment and intangible assets by testing for impairment losses on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets carrying amounts. An impairment loss is recognized in
the event the carrying value of these assets exceeds the fair value of the
applicable assets. Impairment evaluations involve management estimates of
asset useful lives and future cash flows. Actual useful lives and cash flows
could be different from those estimated by management, which could have a
material effect on our operating results and financial position. See Note 6
Intangibles, net of the Notes to Consolidated Financial Statements contained
in Item 8.
-
The Company evaluates goodwill and other
intangible assets. Goodwill is recorded at the time of an acquisition and is
calculated as the difference between the total consideration paid for an
acquisition and the fair value of the net tangible and intangible assets
acquired. The Company tests goodwill for impairment on an annual basis or more
frequently if the Company believes indicators of impairment exist. Impairment
evaluations involve management estimates of asset useful lives and future cash
flows. Significant management judgment is required in the forecasts of future
operating results that are used in the evaluations. It is possible, however,
that the plans and estimates used may be incorrect. If our actual results, or
the plans and estimates used in future impairment analysis, are lower than the
original estimates used to assess the recoverability of these assets, we could
incur additional impairment charges in a future period. There were no
impairments of goodwill in fiscal years 2012, 2011, or 2010.
Page 24 of 67
-
Our available-for-sale investments, non-marketable
securities and other investments are subject to a periodic impairment
review
.
Investments are considered to be impaired when a decline in fair value is
judged to be other-than-temporary. This determination requires significant
judgment and actual results may be materially different than our estimate.
Marketable securities are evaluated for impairment if the decline in fair
value below cost basis is significant and/or has lasted for an extended period
of time. Non-marketable securities or other investments are considered to be
impaired when a decline in fair value is judged to be other-than-temporary.
For investments accounted for using the cost method of accounting, we evaluate
information (e.g., budgets, business plans, financial statements) in addition
to quoted market prices, if any, in determining whether an
other-than-temporary decline in value exists. Factors indicative of an
other-than-temporary decline include recurring operating losses, credit
defaults, and subsequent rounds of financings at an amount below the cost
basis of the investment. This list is not all inclusive and we weigh all
quantitative and qualitative factors in determining if an other-than-temporary
decline in value of an investment has occurred. When a decline in value is
deemed to be other-than-temporary, we recognize an impairment loss in the
current periods operating results to the extent of the
decline. Actual values could be different from those estimated by management,
which could have a material effect on our operating results and financial
position. See Note 3 Marketable Securities of the Notes to Consolidated
Financial Statements contained in Item 8.
We are subject to
the possibility of loss contingencies for various legal matters. See Note 10
Legal Matters of the Notes to Consolidated Financial Statements contained in
Item 8
.
We
regularly evaluate current information available to us to determine whether any
accruals should be made based on the status of the case, the results of the
discovery process and other factors. If we ultimately determine that an accrual
should be made for a legal matter, this accrual could have a material effect on
our operating results and financial position and the ultimate outcome may be
materially different than our estimate.
Recently Issued Accounting
Pronouncements
In May 2011, the FASB issued Accounting Standards Update (ASU) No.
2011-04,
Fair Value Measurement (Accounting
Standards Codification (ASC) Topic 820) Amendments to Achieve Common Fair
Value Measurement and Disclosure Requirements in U.S. GAAP and
IFRSs
. The amendments in this ASU result in
common fair value measurement and disclosure requirements in U.S. GAAP and
international financial reporting standards (IFRS). The ASU provides for
certain changes in current GAAP disclosure requirements, including the
measurement of level 3 assets and measuring the fair value of an instrument
classified in a reporting entitys shareholders equity. The amendments in this
ASU are to be applied prospectively, and are effective during interim and annual
periods beginning after December 15, 2011. The adoption of this guidance is not
anticipated to have a material impact on our consolidated financial position,
results of operations or cash flows.
In May 2011, the FASB issued ASU No. 2011-05,
Comprehensive Income (ASC Topic 220) Presentation of Comprehensive
Income
. With this update, an entity has the
option to present the total of comprehensive income, the components of net
income, and the components of other comprehensive income either in a single
continuous statement of comprehensive income or in two separate but consecutive
statements. In both choices, an entity is required to present each component of
net income along with total net income, each component of other comprehensive
income along with a total for other comprehensive income, and a total amount for
comprehensive income. Current U.S. GAAP allows reporting entities the option to
present the components of other comprehensive income as part of the statement of
changes in stockholders equity; this update eliminates that option. The
amendments in this ASU should be applied retrospectively, and are effective for
fiscal years, and interim periods within those years, beginning after December
15, 2011. The adoption of this guidance will affect financial statement
presentation only and therefore, will not have a material impact on our
consolidated financial position, results of operations or cash flows. This ASU
was further revised in ASU No. 2011-12,
Comprehensive Income (Topic 220) - Deferral of the Effective Date for
Amendments to the Presentation of Reclassifications of Items Out of Accumulated
Other Comprehensive Income in Accounting Standards Update No. 2011-05
that was issued in December 2011. The
adoption of this guidance is not anticipated to have a material impact on our
consolidated financial position, results of operations or cash flows, but will
result in an additional statement of other comprehensive income.
Page 25 of 67
In September 2011, the FASB issued ASU No. 2011-08,
IntangiblesGoodwill and Other (Topic 350 - Testing Goodwill
for Impairment
. Under the amendments in this
Update, an entity has the option to first assess qualitative factors to
determine whether the existence of events or circumstances leads to a
determination that it is more likely than not that the fair value of a reporting
unit is less than its carrying amount. If an entity determines it is not more
likely than not that the fair value of a reporting unit is less than its
carrying amount, then performing the two-step impairment test is unnecessary.
However, if an entity concludes otherwise, then it is required to perform the
first step of the two-step impairment test and proceed as dictated in previous
FASB guidance. Under the amendments in this Update, an entity has the option to
bypass the qualitative assessment for any reporting unit in any period and
proceed directly to performing the first step of the two-step goodwill
impairment test. An entity may resume performing the qualitative assessment in
any subsequent period. The amendments are effective for annual and interim
goodwill impairment tests performed for fiscal years beginning after December
15, 2011, with early adoption permitted. The adoption of this guidance is not
anticipated to have a material impact on our consolidated financial position,
results of operations or cash flows.
Overview
Cirrus Logic
develops high-precision analog and mixed-signal ICs for a broad range of audio
and energy markets. We track operating results in one reportable segment, but
assess financial performance by product line, which currently are audio and
energy product lines. In fiscal year 2012, the Company completed the $80 million
stock repurchase program at an average of $15.51 per share that we began in
2011, continued to target growing markets that we were focused on in previous
years and developed new winning designs. We also successfully launched our first
LED controller within the energy product line in the current fiscal year focused
on our new lighting initiative.
Fiscal Year 2012
Fiscal year 2012 net sales of $426.8 million represented a 15 percent
increase, which is our target annual growth rate, over fiscal year 2011 net
sales of $369.6 million. Audio product line sales of $350.7 million in fiscal
year 2012 represented a 32 percent increase over fiscal year 2011 sales of
$264.8 million and were primarily attributable to higher sales of portable audio
products. Energy product line sales of $76.1 million in fiscal year 2012
represented a 27 percent decrease from fiscal year 2011 sales of $104.7 million,
and were attributable to decreased sales across product lines, primarily in the
seismic product line.
In fiscal year 2012, we launched our first LED controller within our
energy product line and continued our strategy of targeting growing markets,
where we can showcase our expertise in analog and digital signal processing to
solve challenging problems.
Overall gross margin of 54.0 percent for fiscal year 2012 remained
strong, representing an approximate 14 percent increase in gross profit over prior years. The
Company achieved net income of $88.0 million in fiscal year 2012, which included
a benefit for income taxes in the amount of $8.0 million upon realizing net
deferred tax assets. Additionally, the Companys number of employees grew to 676
in the current fiscal year, due to the increased demand for engineering talent
for existing projects.
Fiscal Year 2011
The Company completed a $150 million stock repurchase program in fiscal
year 2011 and continued our strategy of targeting and developing relationships
with Tier 1 customers in growing markets, such as portable audio products,
including smartphones; automobile audio amplifiers; and energy measurement and
energy control. We built on our diverse analog and signal-processing patent
portfolio by delivering highly optimized products for a variety of audio and
energy-related applications. We dedicated substantial resources and investments
towards portable audio products, but also invested in energy-related
applications.
Fiscal year 2011 net sales of $369.6 million represented a 67 percent
increase over fiscal year 2010 net sales of $221.0 million. Audio product line
sales of $264.8 million in fiscal year 2011 represented a 72 percent increase
over fiscal year 2010 sales of $153.7 million, and were primarily attributable
to higher sales of portable audio
Page 26 of 67
and surround codec products. Energy product
line sales of $104.7 million in fiscal year 2011 represented a 56 percent
increase over fiscal year 2010 sales of $67.3 million, and were primarily
attributable to higher sales of seismic, power meter, and power amplification
products.
Overall gross margin of 54.7 percent for fiscal year 2011 reflected an
increase from fiscal year 2010 margin of 53.7 percent due to enhanced supply
chain management and in particular to the sales of seismic, power meter, and
power amplification products.
With expanding design win opportunities in both our audio and energy
product lines, the Company continued to hire engineering talent, which resulted
in an increase of 64 research and development employees, or 26 percent, as
compared to the end of fiscal year 2010.
The Company achieved net income of $203.5 million in fiscal year 2011,
which included a benefit for income taxes in the amount of $119.3 million as a
result of the realization of an additional $120.0 million of net deferred tax
assets. Finally, the Companys cash, cash equivalents and investments balances
as of March 26, 2011, of $215.1 million reflects an increase of $73.5 million,
or 52 percent, over the ending balances from the prior fiscal year.
Fiscal Year 2010
Fiscal year 2010
net sales of $221 million represented a 27 percent increase over fiscal year
2009 net sales of $174.6 million. Increased sales from our audio product line,
in particular portable audio and surround codec products, were key drivers in
the overall improvement in top-line revenues in fiscal year 2010 versus the
prior fiscal year.
Net sales from our energy product line reflected a net 13 percent
reduction from fiscal year 2009 results, but we saw improvements in a variety of
our energy product lines throughout fiscal year 2010, as our traditional
industrial business benefitted from the improving economy. Seismic product sales
were down from prior year peak levels, although they improved sequentially
throughout fiscal year 2010.
Overall gross margin of 53.7 percent for fiscal year 2010 reflected a
decrease from fiscal year 2009 margin of 55.6 percent due to the recent growth
in sales of portable audio products, as well as a mix change to lower margin
products in our energy product line driven primarily by a reduction in seismic
product sales in fiscal year 2010.
Results of Operations
The following table summarizes the results of our operations for each of
the past three fiscal years as a percentage of net sales. All percentage amounts
were calculated using the underlying data, in thousands:
|
|
Fiscal Years Ended
|
|
|
March
31,
|
|
March
26,
|
|
March
27,
|
|
|
2012
|
|
2011
|
|
2010
|
Net sales
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
Gross margin
|
|
54
|
%
|
|
55
|
%
|
|
54
|
%
|
Research and
development
|
|
20
|
%
|
|
17
|
%
|
|
23
|
%
|
Selling, general and
administrative
|
|
15
|
%
|
|
16
|
%
|
|
21
|
%
|
Patent agreement,
net
|
|
|
%
|
|
(1
|
%)
|
|
|
%
|
Income from operations
|
|
19
|
%
|
|
23
|
%
|
|
11
|
%
|
Interest
income
|
|
|
%
|
|
|
%
|
|
1
|
%
|
Other income (expense), net
|
|
|
%
|
|
|
%
|
|
|
%
|
Income before income
taxes
|
|
19
|
%
|
|
23
|
%
|
|
12
|
%
|
Benefit for income taxes
|
|
(2
|
%)
|
|
(32
|
%)
|
|
(5
|
%)
|
Net income
|
|
21
|
%
|
|
55
|
%
|
|
17
|
%
|
Page 27 of 67
Net Sales
We report sales in two product categories: audio products and energy
products. Our sales by product line are as follows (in thousands):
|
|
March
31,
|
|
March
26,
|
|
March
27,
|
|
|
2012
|
|
2011
|
|
2010
|
Audio
products
|
|
$
|
350,743
|
|
$
|
264,840
|
|
$
|
153,661
|
Energy products
|
|
|
76,100
|
|
|
104,731
|
|
|
67,328
|
Total
|
|
$
|
426,843
|
|
$
|
369,571
|
|
$
|
220,989
|
Net sales for fiscal year 2012 increased 15 percent, to $426.8 million
from $369.6 million in fiscal year 2011. The increase in net sales reflects an
$85.9 million increase in audio product sales and a $28.6 million decrease in
energy product sales. The audio products group experienced growth primarily from
the sales of portable products, while the decline in energy product group sales
was attributable to decreased sales across product lines.
Net sales for
fiscal year 2011 increased 67 percent, to $369.6 million from $221.0 million in
fiscal year 2010. The increase in net sales reflects a $111.2 million increase
in audio product sales and a $37.4 million increase in energy product sales. The
audio products group experienced growth primarily from the sales of portable and
surround codecs products, while the energy product group sales increases were
primarily attributable to sales of seismic, power meter, and power amplification
products.
Export sales, principally to Asia, including sales to U.S.-based
customers that manufacture products at plants overseas, were approximately
$376.6 million in fiscal year 2012, $302.7 million in fiscal year 2011, and
$173.6 million in fiscal year 2010. Export sales to customers located in Asia
were 79 percent, 70 percent, and 65 percent of net sales in fiscal years 2012,
2011, and 2010, respectively. All other export sales represented 9 percent, 12
percent, and 14 percent of net sales in fiscal years 2012, 2011, and 2010,
respectively.
Our sales are denominated primarily in U.S. dollars. During fiscal years
2012, 2011, and 2010, we did not enter into any foreign currency hedging
contracts.
Gross Margin
Overall gross margin of 54.0 percent for fiscal year 2012 reflects a
decrease from fiscal year 2011 margin of 54.7 percent, primarily due to energy
product line decreases, and in particular, the decreased sales of seismic
products. This decrease was offset by a 3 percent increase in margins in the
audio product lines, primarily portable products. Fiscal year 2012 sales of
product written down in prior periods contributed approximately $1.8 million, or
0.4 percent, to gross margin compared to approximately $1.5 million, or 0.4
percent, in fiscal year 2011. In total, excess and obsolete inventory charges,
including scrapped inventory, decreased by $5.2 million from fiscal year 2011
and resulted in an increase of gross margin of 1.2 percent. The $5.2 million
decrease in excess and obsolete inventory charges was primarily attributable to
a charge of approximately $4.2 million in the fourth quarter of fiscal year
2011, discussed below. Additionally, in fiscal year 2012, gross margin was
negatively affected 0.5 percent as a result of the production issue discussed
below.
Overall gross margin of 54.7 percent for fiscal year 2011 reflects an
increase from fiscal year 2010 margin of 53.7 percent, primarily due to enhanced
supply chain management, sales activity within the energy product line, and in
particular to the sales of seismic, power meter, and power amplification
products. The sale of product written down in prior fiscal years contributed
approximately $1.5 million, or 0.4 percent, to gross margin compared to
approximately $1.3 million, or 0.6 percent, in fiscal year 2010. In total,
excess and obsolete inventory charges, including scrapped inventory, increased
by $5.1 million from fiscal year 2010 and resulted in a decrease of gross margin
by 1.4 percent. The $5.1 million increase in excess and obsolete inventory
charges was primarily attributable to a charge of approximately $4.2 million in
the fourth quarter of the Companys current fiscal year due to a production
issue with a new audio device that entered high volume production in March
2011.
Page 28 of 67
Research and Development
Expenses
Fiscal year 2012 research and development expenses of $85.7 million
reflect an increase of $21.8 million, or 34 percent, from fiscal year 2011. The
variance was primarily due to an 18 percent increase in research and development
headcount and associated salary and benefit expenses. Additionally, research and
development expenses related to product development and maintenance increased in
the current year, due primarily to an increase in CAD technology and an
increased number of projects under development.
Fiscal year 2011 research and development expenses of $63.9 million
reflect an increase of $12.5 million, or 24 percent, from fiscal year 2010. The
variance was primarily due to a 26 percent increase in research and development
headcount and associated employee expenses, including variable compensation
attributable to improved operating profit. Additionally, employment expenses
also increased primarily due to contract labor costs and employee hiring related
expenses.
Selling, General and Administrative
Expenses
Fiscal year 2012
selling, general and administrative expenses of $65.2 million reflect an
increase of $6.5 million, or 11 percent, compared to fiscal year 2011. The $6.5
million increase was primarily attributable to an increase in salaries and
benefits as a result of a 19 percent increase in headcount in the selling,
general and administrative category. There were also increases in expenses
related to maintenance and supplies, depreciation and professional expenses
compared to fiscal year 2011.
Fiscal year 2011 selling, general and administrative expenses of $58.7
million reflect an increase of $15.4 million, or 36 percent, compared to fiscal
year 2010. The $15.4 million increase was primarily attributable to increased
variable compensation costs driven by improved operating profit, as well as to
higher stock option expenses and external sales representative commissions. The
number of employees in the selling, general, and administrative expense category
remained essentially unchanged from the end of fiscal year 2010.
Patent Agreement, Net
On July 13, 2010, we entered into a Patent Purchase Agreement for the
sale of certain Company-owned patents. As a result of this agreement, on August
31, 2010, the Company received cash consideration of $4.0 million from the
purchaser. The proceeds were recorded as a recovery of costs previously incurred
and are reflected as a separate line item on the consolidated statement of
operations in operating expenses under the caption
Patent agreement, net.
On June 11, 2009, we entered into a Patent Purchase Agreement for the
sale of certain Company-owned patents and on August 26, 2009, the Company
received cash consideration of $1.4 million from the purchaser. The proceeds
were recorded as a recovery of costs previously incurred and are reflected as a
separate line item on the consolidated statement of operations in operating
expenses under the caption
Patent agreement,
net.
Interest Income
Interest income in fiscal years 2012, 2011, and 2010, was $0.5 million,
$0.9 million, and $1.3 million, respectively. The decreases in interest income
in fiscal years 2012 and 2011, were attributable to lower yields on invested
capital.
Benefit for Income Taxes
We recorded an income tax benefit of $8.0 million in fiscal year 2012 on
a pre-tax income of $80.0 million, yielding an effective tax benefit rate of 10
percent. Our effective tax rate was lower than the U.S. statutory rate of 35
percent, primarily as a result of the release of a portion of the valuation
allowance on certain deferred tax assets that have not yet been
utilized.
Page 29 of 67
We recorded an income tax benefit of $119.3 million in fiscal year 2011
on a pre-tax income of $84.2 million, yielding an effective tax benefit rate of
142 percent. Our effective tax rate was lower than the U.S. statutory rate of 35
percent, primarily as a result of the release of a portion of the valuation
allowance on certain deferred tax assets that have not yet been utilized. The
release of a portion of the valuation allowance generated a $120.0 million tax
benefit and was based on an evaluation of the net U.S. deferred tax assets that
we expected to be more likely than not to be utilized in future years as a
result of projected net income.
We recorded an income tax benefit of $11.7 million in fiscal year 2010 on
a pre-tax income of $26.7 million, yielding an effective tax benefit rate of 44
percent. Our effective tax rate was lower than the U.S. statutory rate of 35
percent, primarily as a result of the realization of deferred tax assets that
had been fully reserved and the release of a portion of the valuation allowance
on certain deferred tax assets that have not yet been utilized. The release of a
portion of the valuation allowance generated an $11.8 million tax benefit and
was based on an evaluation of the net U.S. deferred tax assets that we expected
to utilize in the next year as a result of projected tax basis net
income.
We evaluate our ability to realize our deferred tax assets on a quarterly
basis. We have deferred tax assets that we have recognized since it is more
likely than not that these assets will be realized.
Outlook
Based on our
strategic plan, our long-term business model targets for the Company are annual
revenue growth of 15 percent, gross margins of 55 percent, and operating profit
of 20 percent. In fiscal year 2013, we anticipate a sharply higher level of
revenue beginning in the latter portion of the fiscal year with full production
of multiple new products, with both new and existing customers. We also
anticipate our gross margin percentage to remain in the mid-50s.
Liquidity and Capital
Resources
In fiscal year 2012, our net cash provided by operating activities was
$83.2 million. The positive cash flow from operating activities was
predominantly due to the cash components of our net income, partially offset by
a $16.8 million reduction in working capital. In fiscal year 2011, our net cash
provided by operating activities was $86.9 million. The positive cash flow from
operating activities was predominantly due to the cash components of our net
income, which were partially offset by a $12.8 million reduction in working
capital. In fiscal year 2010, our operating activities generated $25.1 million
in cash. The positive cash flow from operating activities was predominantly due
to the cash components of our net income, which were partially offset by a $14.0
million decrease in working capital.
In fiscal year 2012, we generated approximately $18.4 million in cash
from investing activities, principally due to the net proceeds from the sale of
marketable securities partially offset by $42 million in capital expenditures.
In fiscal year 2011, we used approximately $74.2 million in cash from investing
activities, principally due to the net purchase of $52.7 million in marketable
securities. In addition, during fiscal year 2011, we invested $20.1 million in
property, equipment, and capitalized software, primarily attributable to the
purchase of land for our new corporate headquarters in the amount of $10.8
million, coupled with $2.4 million in headquarters construction costs. During
fiscal year 2011, we also incurred $1.5 million for investments in technology.
In fiscal year 2010, we used approximately $42.6 million in cash from investing
activities, principally due to the net purchase of $36.8 million in marketable
securities. In addition, during fiscal year 2010, we invested $3.7 million in
property, equipment, and capitalized software and $2.2 million in
technology.
During fiscal years 2012, 2011, and 2010, we generated $4.1 million,
$31.0 million, and $2.0 million, respectively, in cash from financing activities
related to the receipt of cash from common stock issuances as a result of the
exercises of employee stock options. In fiscal year 2012, the Company utilized
approximately $76.8 million in cash to repurchase and retire portions of its
outstanding common stock as part of the $80 million stock repurchase program
that began in fiscal year 2011. In fiscal year 2011 we completed a $20 million
stock repurchase program and started the $80 million stock repurchase
program.
Page 30 of 67
During fiscal year 2012 our restricted cash requirement expired. As of
March 31, 2011, we had restricted investments of $5.8 million, which primarily
secured certain obligations under our lease agreement for our principal facility
located in Austin, Texas.
As of March 31, 2012, the Company has no debt arrangements. On April 19,
2012, the Company entered into a credit agreement providing for a $100 million
revolving credit facility with a $15 million letter of credit sublimit. Through
May 29, 2012, we have not drawn against the revolving line of credit. See
Revolving Credit Facility below for additional details regarding this
facility.
The Company continued construction of our new headquarters facility in
Austin, Texas, with completion expected in the summer of calendar year 2012. We
estimate that total facility construction costs and the costs related to
furniture, fixtures, and equipment to fully move our headquarters employees into
this new facility will be approximately $40.8 million. Through March 31, 2012,
we have paid $23.1 million related to the new building, leaving an anticipated
$17.7 million to be paid, of which approximately $3 million is accrued at March
31, 2012, under the caption Other accrued liabilities on the consolidated
balance sheet. We have funded the costs related to this project with cash flows
from operations and expect the remainder of the project to be funded internally
from existing and future cash flows.
Although we
cannot provide assurances to our stockholders that we will be able to generate
cash in the future, we anticipate that our existing capital resources and cash
flow generated from future operations will enable us to maintain our current
level of operations for at least the next 12 months along with our ability to
draw from our revolving credit line.
Revolving Credit
Facility
On April 19, 2012 (the Closing Date), we entered into a Credit
Agreement (the Credit Agreement) with Wells Fargo Bank, National Association,
as Administrative Agent and Issuing Lender, Barclays Bank, as Syndication Agent,
Wells Fargo Securities, LLC and Barclays Capital, as Joint Lead Arrangers and
Co-Book Managers, and the lenders referred to therein (the
Lenders).
The Credit Agreement provides for the Credit Facility, which matures on
the earliest to occur of (a) the first anniversary of the Closing Date, (b) the
date of termination of the Commitments as a result of a permanent reduction of
all of the Commitments by the Company or (c) the date of termination of the
Commitments as a result of an Event of Default (the Maturity Date). The
Company must repay the outstanding principal amount of all borrowings, together
with all accrued but unpaid interest thereon, on the Maturity Date.
Borrowings under the Credit Facility may, at the Companys election, bear
interest at either (a) a Base Rate plus the Applicable Margin (Base Rate
Loans), where the Base Rate is determined by reference to the highest of (i)
the prime rate publicly announced from time to time by the Administrative Agent,
(ii) the Federal Funds Rate plus 0.50% and (iii) if available and not less than
0%, LIBOR for an interest period of one month plus the difference between the
Applicable Margin for LIBOR Rate Loans and the Applicable Margin for Base Rate
Loans at such time; or (b) a LIBOR Rate plus the Applicable Margin (LIBOR Rate
Loans), where the Libor Rate is determined by the Administrative Agent pursuant
to a formula under which the LIBOR Rate is equal to LIBOR divided by an amount
equal to 1.00 minus the Eurodollar Reserve Percentage. The Applicable Margin
ranges from 0% to .25% per annum for Base Rate Loans and 1.25% to 1.75% per
annum for LIBOR Rate Loans.
A Commitment Fee accrues at a rate per annum equal to the Applicable
Margin, which ranges from 0.20% to 0.30% per annum, on the average daily unused
portion of the Commitment of the non-defaulting Lenders.
The exact Applicable Margin and Commitment Fee will depend upon the
Companys performance under specified financial criteria.
With certain exceptions relating to LIBOR Rate Loans, the Company may
prepay borrowings, in whole or in part, at any time upon prior written notice to
the Administrative Agent. If, at any time, the total of outstanding borrowings
and outstanding letters of credit exceeds the Commitments under the Credit
Facility, the Company must prepay the amount of the excess immediately upon
notice from the Administrative Agent.
Page 31 of 67
The Credit Agreement contains customary affirmative covenants, including,
among others, covenants regarding the payment of taxes and other obligations,
maintenance of insurance, reporting requirements and compliance with applicable
laws and regulations. Further, the Credit Agreement contains customary negative
covenants limiting the ability of the Company or any Subsidiary Guarantors to,
among other things, incur debt, grant liens, make investments, effect certain
fundamental changes, make certain asset dispositions, make certain restricted
payments, enter into certain transactions with Affiliates and permit aggregate
Capital Expenditures to exceed $90.0 million on a rolling four-quarter basis.
The Credit Facility also contains certain negative financial covenants providing
that (a) the ratio of Consolidated funded indebtedness to Consolidated EBITDA
for the prior four consecutive quarters must not be greater than 1.75 to 1.00
and (b) the ratio of Consolidated EBITDA for the prior four consecutive quarters
to Consolidated interest expense for the prior four consecutive quarters must
not be less than 3.50 to 1.00.
Upon an Event of Default, the Lenders may declare all outstanding
principal and accrued but unpaid interest under the Credit Facility immediately
due and payable and may exercise the other rights and remedies provided for
under the Credit Agreement. Events of Default under the Credit Agreement include
payment defaults, cross defaults with certain other indebtedness, breaches of
covenants or representations, warranties, certifications or statements of fact,
Changes in Control and bankruptcy events. In certain circumstances, upon the
occurrence and during the continuance of an Event of Default, the Credit
Agreement provides that all outstanding obligations will bear interest at the
Default Rate.
Off Balance Sheet
Arrangements
As of March 31,
2012, the Company did not have any material off-balance-sheet arrangements, as
defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
Contractual Obligations
In our business activities, we incur certain commitments to make future
payments under contracts such as purchase orders, operating leases and other
long-term contracts. The Company has no debt arrangements as of March 31, 2012.
Maturities under these contracts are set forth in the following table as of
March 31, 2012:
|
|
Payment due by
period (in thousands)
|
|
|
< 1
year
|
|
13
years
|
|
35
years
|
|
> 5
years
|
|
Total
|
Facilities leases, net
|
|
|
$
|
3,271
|
|
|
|
$
|
2,463
|
|
|
|
$
|
1,914
|
|
|
|
$
|
163
|
|
|
$
|
7,811
|
Equipment leases
|
|
|
|
12
|
|
|
|
|
13
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
26
|
Wafer purchase commitments
|
|
|
|
46,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,252
|
Assembly purchase commitments
|
|
|
|
1,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,046
|
Outside test purchase commitments
|
|
|
|
2,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,685
|
Manufacturing raw materials
|
|
|
|
867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
867
|
Other purchase commitments
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
Total
|
|
|
$
|
54,147
|
|
|
|
$
|
2,476
|
|
|
|
$
|
1,915
|
|
|
|
$
|
163
|
|
|
$
|
58,701
|
Certain of our operating lease obligations include escalation clauses.
These escalating payment requirements are reflected in the table.
Page 32 of 67
ITEM 7A.
Quantitative and Qualitative Disclosures about Market
Risk
We are exposed to market risks associated with interest rates on our debt
securities, currency movements on non-U.S. dollar denominated assets and
liabilities, and the effect of market factors on the value of our marketable
equity securities. We assess these risks on a regular basis and have established
policies that are designed to protect against the adverse effects of these and
other potential exposures. All of the potential changes noted below are based on
sensitivity analyses as of March 31, 2012. Actual results may differ
materially.
Interest Rate Risk
Our primary financial instruments include cash equivalents, marketable
securities, accounts receivable, accounts payable, and accrued liabilities. The
Companys investments are managed by outside professional managers within
investment guidelines set by the Company. These guidelines include security
type, credit quality, and maturity, and are intended to limit market risk by
restricting the Companys investments to high quality debt instruments with
relatively short-term maturities. The Company does not use derivative financial
instruments in its investment portfolio. Due to the short-term nature of our
investment portfolio and the current low interest rate environment, our downside
exposure to interest rate risk is minimal.
To provide a meaningful assessment of the interest rate risk associated
with our investment portfolio, we performed a sensitivity analysis to determine
the impact a change in interest rates would have on the value of our investment
portfolio. At March 31, 2012, an immediate one percent, or 100 basis points,
increase or decrease in interest rates could result in a $0.6 million
fluctuation in our annual interest income. However, our investment portfolio
holdings as of March 31, 2012, yielded less than 100 basis points, which reduces
our downside interest rate risk to the amount of interest income recognized in
fiscal year 2012, or $0.5 million. At March 26, 2011, an immediate one percent, or 100 basis
points, increase or decrease in interest rates could result in a $1.8 million
fluctuation in our annual interest income. However, our investment portfolio
holdings as of March 26, 2011, yielded less than 100 basis points, which reduces
our downside interest rate risk to the amount of interest income recognized in
fiscal year 2011, or $0.9 million. At March 27, 2010, an immediate one percent,
or 100 basis points, increase or decrease in interest rates could result in a
$1.3 million fluctuation in our annual interest income. However, our investment
portfolio holdings as of March 27, 2010, yielded less than 100 basis points,
which reduced our downside interest rate risk to an amount slightly less than
the $1.3 million calculation. For all of these fiscal years, the risks
associated with fluctuating interest rates were limited to our annual interest
income and not the underlying principal as we generally have the ability to hold
debt related investments to maturity. The amounts disclosed in this paragraph
are based on a 100 basis point fluctuation in interest rates applied to the
average cash balance for that fiscal year.
Foreign Currency Exchange
Risk
Our revenue and
spending is transacted primarily in U.S. dollars; however, in fiscal years 2012,
2011, and 2010, we entered into routine transactions in other currencies to fund
the operating needs of our design, technical support, and sales offices outside
of the U.S. As of March 31, 2012 and March 26, 2011, a ten percent change in the
value of the related currencies would not have a material impact on our results
of operations and financial position.
In addition to the direct effects of changes in exchange rates on the
value of open exchange contracts, we may, from time to time, have changes in
exchange rates that can also affect the volume of sales or the foreign currency
sales prices of our products and the relative costs of operations based
overseas.
Page 33 of 67
ITEM 8.
Financial Statements and Supplementary Data
Index to Consolidated Financial
Statements
Reports of
Independent Registered Public Accounting Firm
|
35
|
Consolidated Balance Sheets as of March
31, 2012, and March 26, 2011
|
37
|
Consolidated
Statements of Operations for the Fiscal Years Ended March 31, 2012; March
26, 2011; and
|
|
March 27, 2010
|
38
|
Consolidated Statements of Cash Flows
for the Fiscal Years Ended March 31, 2012; March 26, 2011; and
|
|
March 27, 2010
|
39
|
Consolidated
Statements of Stockholders Equity for the Fiscal Years Ended March 31,
2012, March 26,
|
|
2011, and March 27,
2010
|
40
|
Notes to Consolidated Financial
Statements
|
41
|
Page 34 of 67
Report of Independent Registered
Public Accounting Firm
The Board of Directors and Stockholders of
Cirrus Logic, Inc.
We have audited the accompanying
consolidated balance sheets of Cirrus Logic, Inc. (the Company) as of March 31,
2012 and March 26, 2011, and the related consolidated statements of operations,
stockholders equity, and cash flows for each of the three fiscal years in the
period ended March 31, 2012. These financial statements are the responsibility
of the Companys management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of Cirrus Logic, Inc. at March 31, 2012 and March 26, 2011,
and the consolidated results of its operations and its cash flows for each of
the three fiscal years in the period ended March 31, 2012, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with
the standards of the Public Company Accounting Oversight Board (United States),
Cirrus Logic, Inc.s internal control over financial reporting as of March 31,
2012, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated May 30, 2012 expressed an unqualified opinion
thereon.
|
/s/ Ernst & Young LLP
|
|
Austin, Texas
|
|
May 30, 2012
|
|
Page 35 of 67
Report of Independent Registered
Public Accounting Firm
The Board of Directors and Stockholders of
Cirrus Logic, Inc.
We have audited Cirrus Logic, Inc.s (the
Company) internal control over financial reporting as of March 31, 2012, based
on criteria established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the COSO
criteria). Cirrus Logic, Inc.s management is responsible for maintaining
effective internal control over financial reporting, and for its assessment of
the effectiveness of internal control over financial reporting included in the
accompanying Managements Annual Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the Companys internal
control over financial reporting based on our audit.
We conducted our audit in accordance with
the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A companys internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles. A companys internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys
assets that could have a material effect on the financial statements.
Because of its inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, Cirrus Logic, Inc.
maintained, in all material respects, effective internal control over financial
reporting as of March 31, 2012, based on the COSO criteria
.
We also have audited, in accordance with
the standards of the Public Company Accounting Oversight Board (United States),
the consolidated balance sheets of Cirrus Logic, Inc. as of March 31, 2012 and
March 26, 2011, and the related consolidated statements of operations,
stockholders equity, and cash flows for each of the three fiscal years in the
period ended March 31, 2012 of Cirrus Logic, Inc. and our report dated May 30,
2012 expressed an unqualified opinion thereon.
|
/s/ Ernst & Young LLP
|
|
Austin, Texas
|
|
May 30, 2012
|
|
Page 36 of 67
CIRRUS LOGIC, INC.
CONSOLIDATED
BALANCE SHEETS
(in
thousands)
|
March
31,
|
|
March
26,
|
|
2012
|
|
2011
|
Assets
|
Current assets:
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
65,997
|
|
|
$
|
37,039
|
|
Restricted investments
|
|
|
|
|
|
5,786
|
|
Marketable
securities
|
|
115,877
|
|
|
|
159,528
|
|
Accounts receivable, net
|
|
44,153
|
|
|
|
39,098
|
|
Inventories
|
|
55,915
|
|
|
|
40,497
|
|
Deferred tax assets
|
|
53,137
|
|
|
|
30,797
|
|
Prepaid
assets
|
|
12,017
|
|
|
|
3,457
|
|
Other current assets
|
|
4,491
|
|
|
|
3,268
|
|
Total current assets
|
|
351,587
|
|
|
|
319,470
|
|
Long-term marketable
securities
|
|
2,914
|
|
|
|
12,702
|
|
Property, plant and
equipment, net
|
|
66,978
|
|
|
|
34,563
|
|
Intangibles, net
|
|
18,241
|
|
|
|
20,125
|
|
Deferred tax
assets
|
|
89,071
|
|
|
|
102,136
|
|
Goodwill
|
|
6,027
|
|
|
|
6,027
|
|
Other
assets
|
|
9,644
|
|
|
|
1,598
|
|
Total assets
|
$
|
544,462
|
|
|
$
|
496,621
|
|
|
Liabilities and Stockholders
Equity
|
Current liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
$
|
38,108
|
|
|
$
|
27,639
|
|
Accrued salaries and benefits
|
|
13,634
|
|
|
|
12,402
|
|
Deferred
income
|
|
7,228
|
|
|
|
6,844
|
|
Supplier agreement
|
|
5,000
|
|
|
|
|
|
Other accrued
liabilities
|
|
9,015
|
|
|
|
5,169
|
|
Total current liabilities
|
|
72,985
|
|
|
|
52,054
|
|
Other long-term
liabilities
|
|
5,620
|
|
|
|
6,188
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
Preferred
Stock, 5.0 million shares authorized but unissued
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, 280,000 shares authorized, 64,394
shares
|
|
|
|
|
|
|
|
and 68,664 shares issued and outstanding at March 31, 2012 and March
26,
|
|
|
|
|
|
|
|
2011, respectively
|
|
64
|
|
|
|
69
|
|
Additional
paid-in capital
|
|
1,008,164
|
|
|
|
991,878
|
|
Accumulated deficit
|
|
(541,609
|
)
|
|
|
(552,814
|
)
|
Accumulated
other comprehensive loss
|
|
(762
|
)
|
|
|
(754
|
)
|
Total stockholders equity
|
|
465,857
|
|
|
|
438,379
|
|
Total liabilities and stockholders equity
|
$
|
544,462
|
|
|
$
|
496,621
|
|
The accompanying notes are an integral
part of these financial statements.
Page 37 of 67
CIRRUS LOGIC,
INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS
(in thousands, except per share amounts)
|
Fiscal
Years Ended
|
|
March 31,
|
|
March 26,
|
|
March 27,
|
|
2012
|
|
2011
|
|
2010
|
Net sales
|
|
$
|
426,843
|
|
|
|
|
$
|
369,571
|
|
|
|
|
$
|
220,989
|
|
|
Cost
of sales
|
|
|
196,402
|
|
|
|
|
|
167,576
|
|
|
|
|
|
102,258
|
|
|
Gross
Margin
|
|
|
230,441
|
|
|
|
|
|
201,995
|
|
|
|
|
|
118,731
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
85,697
|
|
|
|
|
|
63,934
|
|
|
|
|
|
51,421
|
|
|
Selling, general and
administrative
|
|
|
65,208
|
|
|
|
|
|
58,734
|
|
|
|
|
|
43,306
|
|
|
Patent
agreement, net
|
|
|
|
|
|
|
|
|
(4,000
|
)
|
|
|
|
|
(1,400
|
)
|
|
Total operating expenses
|
|
|
150,905
|
|
|
|
|
|
118,668
|
|
|
|
|
|
93,327
|
|
|
Income from operations
|
|
|
79,536
|
|
|
|
|
|
83,327
|
|
|
|
|
|
25,404
|
|
|
Interest income
|
|
|
517
|
|
|
|
|
|
860
|
|
|
|
|
|
1,345
|
|
|
Other income (expense), net
|
|
|
(70
|
)
|
|
|
|
|
27
|
|
|
|
|
|
(66
|
)
|
|
Income before income taxes
|
|
|
79,983
|
|
|
|
|
|
84,214
|
|
|
|
|
|
26,683
|
|
|
Benefit for income taxes
|
|
|
(8,000
|
)
|
|
|
|
|
(119,289
|
)
|
|
|
|
|
(11,715
|
)
|
|
Net
income
|
|
$
|
87,983
|
|
|
|
|
$
|
203,503
|
|
|
|
|
$
|
38,398
|
|
|
Basic earnings per share:
|
|
$
|
1.35
|
|
|
|
|
$
|
3.00
|
|
|
|
|
$
|
0.59
|
|
|
Diluted earnings per share:
|
|
$
|
1.29
|
|
|
|
|
$
|
2.82
|
|
|
|
|
$
|
0.59
|
|
|
Basic weighted average common shares
outstanding:
|
|
|
64,934
|
|
|
|
|
|
67,857
|
|
|
|
|
|
65,338
|
|
|
Diluted weighted average common shares outstanding:
|
|
|
68,063
|
|
|
|
|
|
72,103
|
|
|
|
|
|
65,626
|
|
|
The accompanying notes are an integral
part of these financial statements.
Page 38 of 67
CIRRUS LOGIC,
INC.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(in thousands)
|
Fiscal Years Ended
|
|
March
31,
|
|
March
26,
|
|
March
27,
|
|
2012
|
|
2011
|
|
2010
|
Cash flows from
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
87,983
|
|
|
$
|
203,503
|
|
|
$
|
38,398
|
|
Adjustments to
reconcile net income to net cash provided by
|
|
|
|
|
|
|
|
|
|
|
|
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
9,972
|
|
|
|
8,145
|
|
|
|
7,888
|
|
Loss (gain) on retirement or write-off of long lived assets
|
|
23
|
|
|
|
(24
|
)
|
|
|
70
|
|
Amortization of lease settlement
|
|
|
|
|
|
|
|
|
|
(83
|
)
|
Deferred income taxes
|
|
(10,154
|
)
|
|
|
(120,045
|
)
|
|
|
(11,932
|
)
|
Gain on marketable securities
|
|
|
|
|
|
|
|
|
|
(500
|
)
|
Stock compensation expense
|
|
12,178
|
|
|
|
8,141
|
|
|
|
5,318
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
(5,055
|
)
|
|
|
(15,135
|
)
|
|
|
(13,149
|
)
|
Inventories
|
|
(15,418
|
)
|
|
|
(5,101
|
)
|
|
|
(15,518
|
)
|
Other assets
|
|
(9,783
|
)
|
|
|
(1,158
|
)
|
|
|
(937
|
)
|
Accounts payable
|
|
10,469
|
|
|
|
7,299
|
|
|
|
10,454
|
|
Accrued salaries and benefits
|
|
1,232
|
|
|
|
2,440
|
|
|
|
3,530
|
|
Deferred revenues
|
|
384
|
|
|
|
356
|
|
|
|
3,062
|
|
Income taxes payable
|
|
(130
|
)
|
|
|
(80
|
)
|
|
|
116
|
|
Other accrued liabilities
|
|
1,494
|
|
|
|
(1,401
|
)
|
|
|
(1,581
|
)
|
Net cash provided by
operating activities
|
|
83,195
|
|
|
|
86,940
|
|
|
|
25,136
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from
sale of available for sale marketable securities
|
|
181,282
|
|
|
|
202,753
|
|
|
|
111,167
|
|
Purchases of available for sale marketable securities
|
|
(127,852
|
)
|
|
|
(255,426
|
)
|
|
|
(147,929
|
)
|
Proceeds from
sale of non-marketable securities
|
|
|
|
|
|
|
|
|
|
500
|
|
Purchases of property, plant and equipment
|
|
(35,948
|
)
|
|
|
(20,060
|
)
|
|
|
(3,654
|
)
|
Investments in
technology
|
|
(6,604
|
)
|
|
|
(1,527
|
)
|
|
|
(2,185
|
)
|
Acquisition of business, net of cash acquired
|
|
|
|
|
|
|
|
|
|
(550
|
)
|
Decrease
(increase) in restricted investments
|
|
5,786
|
|
|
|
69
|
|
|
|
(100
|
)
|
(Increase) decrease in deposits and other assets
|
|
1,773
|
|
|
|
(58
|
)
|
|
|
190
|
|
Net cash provided by
(used) in investing activities
|
|
18,437
|
|
|
|
(74,249
|
)
|
|
|
(42,561
|
)
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase and
retirement of common stock
|
|
(76,782
|
)
|
|
|
(22,766
|
)
|
|
|
|
|
Issuance of common stock, net of issuance costs
|
|
4,108
|
|
|
|
31,005
|
|
|
|
2,030
|
|
Net cash provided by
(used in) financing activities
|
|
(72,674
|
)
|
|
|
8,239
|
|
|
|
2,030
|
|
Net increase (decrease) in cash and
cash equivalents
|
|
28,958
|
|
|
|
20,930
|
|
|
|
(15,395
|
)
|
Cash and cash
equivalents at beginning of year
|
|
37,039
|
|
|
|
16,109
|
|
|
|
31,504
|
|
Cash and cash equivalents at end of
year
|
$
|
65,997
|
|
|
$
|
37,039
|
|
|
$
|
16,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow
information
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments (refunds) during the year
for:
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Income taxes
|
$
|
2,268
|
|
|
$
|
784
|
|
|
$
|
90
|
|
The accompanying notes are an integral
part of these financial statements.
Page 39 of 67
CIRRUS LOGIC,
INC.
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS EQUITY
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Common
Stock
|
|
Paid-in
|
|
Accumulated
|
|
Comprehensive
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Income
(Loss)
|
|
Total
|
Balance, March 28, 2009
|
|
65,241
|
|
|
|
|
$
|
65
|
|
|
|
|
$
|
945,390
|
|
|
|
$
|
(771,951
|
)
|
|
|
|
$
|
(576
|
)
|
|
|
$
|
172,928
|
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,398
|
|
|
|
|
|
|
|
|
|
|
38,398
|
|
Change in unrealized gain
on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(73
|
)
|
|
|
|
(73
|
)
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,325
|
|
Issuance of stock under stock option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
plans and other
|
|
412
|
|
|
|
|
|
1
|
|
|
|
|
|
2,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,030
|
|
Amortization of deferred stock
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,318
|
|
Balance, March 27, 2010
|
|
65,653
|
|
|
|
|
|
66
|
|
|
|
|
|
952,737
|
|
|
|
|
(733,553
|
)
|
|
|
|
|
(649
|
)
|
|
|
|
218,601
|
|
Components of comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
203,503
|
|
|
|
|
|
|
|
|
|
|
203,503
|
|
Change
in unrealized gain on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(105
|
)
|
|
|
|
(105
|
)
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
203,398
|
|
Issuance of stock under stock
option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
plans
and other
|
|
4,770
|
|
|
|
|
|
5
|
|
|
|
|
|
31,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,005
|
|
Repurchase and retirement of common stock
|
|
(1,759
|
)
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
(22,764
|
)
|
|
|
|
|
|
|
|
|
|
(22,766
|
)
|
Amortization of deferred stock
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,141
|
|
Balance, March 26, 2011
|
|
68,664
|
|
|
|
|
|
69
|
|
|
|
|
|
991,878
|
|
|
|
|
(552,814
|
)
|
|
|
|
|
(754
|
)
|
|
|
|
438,379
|
|
Components of comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87,983
|
|
|
|
|
|
|
|
|
|
|
87,983
|
|
Change
in unrealized gain on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
(8
|
)
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87,975
|
|
Issuance of stock under stock
option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
plans
and other
|
|
642
|
|
|
|
|
|
|
|
|
|
|
|
4,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,108
|
|
Repurchase and retirement of common stock
|
|
(4,912
|
)
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
(76,778
|
)
|
|
|
|
|
|
|
|
|
|
(76,783
|
)
|
Amortization of deferred stock
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,178
|
|
Balance, March 31, 2012
|
|
64,394
|
|
|
|
|
$
|
64
|
|
|
|
|
$
|
1,008,164
|
|
|
|
$
|
(541,609
|
)
|
|
|
|
$
|
(762
|
)
|
|
|
$
|
465,857
|
|
The accompanying notes are an integral
part of these financial statements.
Page 40 of 67
CIRRUS LOGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
1. Description of
Business
Description of Business
Cirrus Logic,
Inc. (Cirrus Logic, Cirrus, We, Us, Our, or the Company) develops
high-precision, analog and mixed-signal integrated circuits (ICs) for a broad
range of consumer and industrial markets. Building on our diverse analog and
mixed-signal patent portfolio, Cirrus Logic delivers highly optimized products
for consumer and commercial audio, automotive entertainment, and targeted
industrial applications including energy control, energy measurement and energy
exploration. We also develop ICs, board-level modules and hybrids for high-power
amplifier applications branded as the Apex Precision Power (Apex) line of
products. We also provide complete system reference designs based on our
technology that enable our customers to bring products to market in a timely and
cost-effective manner.
We were incorporated in California in 1984, became a public company in
1989, and were reincorporated in the State of Delaware in February 1999. Our
primary facilities housing engineering, sales and marketing, administration, and
test operations are located in Austin, Texas. In addition, we have engineering,
administrative and assembly facilities in Tucson, Arizona and sales locations
internationally and throughout the United States. We also serve customers from
international sales offices in Europe and Asia, including the Peoples Republic
of China, Hong Kong, South Korea, Japan, Singapore, Taiwan, and the United
Kingdom. Our common stock, which has been publicly traded since 1989, is listed
on the NASDAQ Global Select Market under the symbol CRUS.
Basis of Presentation
We prepare financial statements on a 52- or 53-week year that ends on the
last Saturday in March. Fiscal years 2011 and 2010 were 52-week years, whereas
fiscal year 2012 was a 53-week year.
Principles of
Consolidation
The accompanying consolidated financial statements have been prepared in
accordance with U. S. generally accepted accounting principles (U.S. GAAP) and
include the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been
eliminated.
Reclassifications
Certain reclassifications have been made to prior year balances in order
to conform to the current years presentation of financial
information.
Use of Estimates
The preparation of financial statements in accordance with U.S. GAAP
requires the use of management estimates. These estimates are subjective in
nature and involve judgments that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at fiscal
year-end and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from these estimates.
2. Summary of Significant Accounting
Policies
Cash and Cash
Equivalents
Cash and cash equivalents consist primarily of money market funds,
commercial paper, and U.S. Government Treasury and Agency instruments with
original maturities of three months or less at the date of purchase.
Page 41 of 67
Restricted Investments
As of March 31,
2012, and March 26, 2011, we had restricted investments of zero and $5.8
million, respectively, in support of our letters of credit needs. The letters of
credit primarily secured certain obligations under our operating lease agreement
for our headquarters and engineering facility in Austin, Texas, which expired in
fiscal year 2012.
Marketable Securities
We determine the appropriate classification of marketable securities at
the time of purchase and reevaluate this designation as of each balance sheet
date. We classify these securities as either held-to-maturity, trading, or
available-for-sale. As of March 31, 2012, and March 26, 2011, all marketable
securities and restricted investments were classified as available-for-sale
securities. The Company classifies its investments as available for sale
because it expects to possibly sell some securities prior to maturity. The
Companys investments are subject to market risk, primarily interest rate and
credit risk. The Companys investments are managed by an outside professional
manager within investment guidelines set by the Company. Such guidelines include
security type, credit quality, and maturity, and are intended to limit market
risk by restricting the Companys investments to high quality debt instruments
with relatively short-term maturities. The fair value of investments is
determined using observable or quoted market prices for those
securities.
Available-for-sale securities are carried at fair value, with unrealized
gains and losses included as a component of accumulated other comprehensive
loss. Realized gains and losses, declines in value judged to be other than
temporary, and interest on available-for-sale securities are included in net
income. The cost of securities sold is based on the specific identification
method.
Inventories
We use the lower of cost or market method to value our inventories, with
cost being determined on a first-in, first-out basis. One of the factors we
consistently evaluate in the application of this method is the extent to which
products are accepted into the marketplace. By policy, we evaluate market
acceptance based on known business factors and conditions by comparing
forecasted customer unit demand for our products over a specific future period,
or demand horizon, to quantities on hand at the end of each accounting
period.
On a quarterly and annual basis, we analyze inventories on a part-by-part
basis. Inventory quantities on hand in excess of forecasted demand are
considered to have reduced market value and, therefore, the cost basis is
adjusted to the lower of cost or market. Typically, market values for excess or
obsolete inventories are considered to be zero. Product life cycles and the
competitive nature of the industry are factors considered in the estimation of
customer unit demand at the end of each quarterly accounting period.
Inventories were comprised of the following (in thousands):
|
Year Ended
|
|
March 31,
|
|
March 26,
|
|
2012
|
|
2011
|
Work in process
|
|
$
|
30,921
|
|
|
|
$
|
22,048
|
|
Finished goods
|
|
|
24,994
|
|
|
|
|
18,449
|
|
Inventories
|
|
$
|
55,915
|
|
|
|
$
|
40,497
|
|
Property, Plant and Equipment,
net
Property, plant
and equipment is recorded at cost, net of depreciation and amortization.
Depreciation and amortization is calculated on a straight-line basis over
estimated economic lives, ranging from three to 39 years. Leasehold improvements
are depreciated over the shorter of the term of the lease or the estimated
useful life. Furniture, fixtures, machinery, and equipment are all depreciated
over a useful life of three to 10 years, while buildings are depreciated over a
period of up to 39 years. In general, our capitalized software is amortized
Page 42 of 67
over a useful life of three years, with
capitalized enterprise resource planning software being amortized over a useful
life of 10 years. Gains or losses related to retirements or dispositions of
fixed assets are recognized in the period incurred.
Property, plant
and equipment was comprised of the following (in thousands):
|
March 31,
|
|
March 26,
|
|
2012
|
|
2011
|
Land and buildings
|
|
$
|
22,410
|
|
|
|
|
$
|
19,051
|
|
|
Furniture and fixtures
|
|
|
4,320
|
|
|
|
|
|
4,215
|
|
|
Leasehold improvements
|
|
|
6,765
|
|
|
|
|
|
6,732
|
|
|
Machinery and equipment
|
|
|
37,481
|
|
|
|
|
|
29,583
|
|
|
Capitalized software
|
|
|
23,459
|
|
|
|
|
|
22,579
|
|
|
Construction in progress
|
|
|
28,497
|
|
|
|
|
|
2,986
|
|
|
Total property, plant and
equipment
|
|
|
122,932
|
|
|
|
|
|
85,146
|
|
|
Less: Accumulated depreciation and amortization
|
|
|
(55,954
|
)
|
|
|
|
|
(50,583
|
)
|
|
Property, plant and equipment, net
|
|
$
|
66,978
|
|
|
|
|
$
|
34,563
|
|
|
The increase in
the construction in progress balance in fiscal year 2012 was primarily
attributable to costs incurred during the construction of the new headquarters
facility. Depreciation and amortization expense on property, plant, and
equipment for fiscal years 2012, 2011 and 2010 was $6.3 million, $4.8 million,
and $4.3 million, respectively. During fiscal year 2011 we retired fully
depreciated assets with an original cost of $3.7 million.
Other-Than-Temporary
Impairment
All of the Companys available-for-sale investments and other investments
are subject to a periodic impairment review. Investments are considered to be
impaired when a decline in fair value is judged to be other-than-temporary.
Marketable securities are evaluated for impairment if the decline in fair value
below cost basis is significant and/or has lasted for an extended period of
time. Other investments are considered to be impaired when a decline in fair
value is judged to be other-than-temporary. For investments accounted for using
the cost method of accounting, management evaluates information (e.g., budgets,
business plans, financial statements) in addition to quoted market price, if
any, in determining whether an other-than-temporary decline in value exists.
Factors indicative of an other-than-temporary decline include recurring
operating losses, credit defaults, and subsequent rounds of financings at an
amount below the cost basis of the investment. When a decline in value is deemed
to be other-than-temporary, we recognize an impairment loss in the current
periods operating results to the extent of the decline.
Goodwill and Intangibles,
net
Intangible assets include purchased technology licenses and patents that
are reported at cost and are amortized on a straight-line basis over their
useful lives, generally ranging from one to ten years. Acquired intangibles
include existing technology, core technology or patents, license agreements,
trademarks, covenants not-to-compete and customer agreements. These assets are
amortized on a straight-line basis over lives ranging from four to fifteen
years. Goodwill is recorded at the time of an acquisition and is calculated as
the difference between the aggregate consideration paid for an acquisition and
the fair value of the net tangible and intangible assets acquired.
Goodwill and intangible assets deemed to have indefinite lives are not
amortized but are subject to annual impairment tests. If the assumptions and
estimates used to allocate the purchase price are not correct, or if business
conditions change, purchase price adjustments or future asset impairment charges
could be required. The value of our intangible assets, including goodwill, could
be impacted by future adverse changes such as: (i) any future declines in our
operating results, (ii) a decline in the valuation of technology company stocks,
Page 43 of 67
including the valuation of our common
stock, (iii) a significant slowdown in the worldwide economy and the
semiconductor industry, or (iv) any failure to meet the performance projections
included in our forecasts of future operating results. The Company tests
goodwill and indefinite lived intangibles for impairment on an annual basis or
more frequently if the Company believes indicators of impairment exist.
Impairment evaluations involve management estimates of asset useful lives and
future cash flows. Significant management judgment is required in the forecasts
of future operating results that are used in the evaluations. It is possible,
however, that the plans and estimates used may be incorrect. If our actual
results, or the plans and estimates used in future impairment analysis, are
lower than the original estimates used to assess the recoverability of these
assets, we could incur additional impairment charges in a future period. There
are no impairments of goodwill in 2012, 2011, and 2010.
Long-Lived Assets
We test for
impairment losses on long-lived assets and definite-lived intangibles used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets
carrying amounts. We measure any impairment loss by comparing the fair value of
the asset to its carrying amount. We estimate fair value based on discounted
future cash flows, quoted market prices, or independent appraisals.
Foreign Currency
Translation
All of our
international subsidiaries have the U.S. dollar as the functional currency. The
local currency financial statements are remeasured into U.S. dollars using
current rates of exchange for assets and liabilities. Gains and losses from
remeasurement are included in other income (expense), net. Revenue and expenses
from our international subsidiaries are remeasured using the monthly average
exchange rates in effect for the period in which the items occur. For all
periods presented, our foreign currency remeasurement expense was not
significant.
Concentration of Credit
Risk
Financial instruments that potentially subject us to material
concentrations of credit risk consist primarily of cash equivalents, restricted
investments, marketable securities, long-term marketable securities, and trade
accounts receivable. We are exposed to credit risk to the extent of the amounts
recorded on the balance sheet. By policy, our cash equivalents, restricted
investments, marketable securities, and long-term marketable securities are
subject to certain nationally recognized credit standards, issuer
concentrations, sovereign risk, and marketability or liquidity
considerations.
In evaluating our trade receivables, we perform credit evaluations of our
major customers financial condition and monitor closely all of our receivables
to limit our financial exposure by limiting the length of time and amount of
credit extended. In certain situations, we may require payment in advance or
utilize letters of credit to reduce credit risk. By policy, we establish a
reserve for trade accounts receivable based on the type of business in which a
customer is engaged, the length of time a trade account receivable is
outstanding, and other knowledge that we may possess relating to the probability
that a trade receivable is at risk for non-payment.
For fiscal years 2012 and 2011, we had one contract manufacturer,
Futaihua Industrial, who represented 28 percent and 42 percent, respectively of
our consolidated gross accounts receivable. In fiscal year 2012, we had one
contract manufacturer, Hongfujin Precision, who represented 14 percent of our
consolidated gross accounts receivable. For fiscal year 2011, we had one
distributor, Avnet, Inc. who represented 17 percent, of our consolidated gross
accounts receivable. No other distributor or customer had receivable balances
that represented more than 10 percent of consolidated gross accounts receivable
as of the end of fiscal years 2012 or 2011.
Since the components we produce are largely proprietary and generally not
available from second sources, we consider our end customer to be the entity
specifying the use of our component in their design. These end customers may
then purchase our products directly from us, from a distributor, or through a
third party
Page 44 of 67
manufacturer contracted to produce their
end product. For fiscal years 2012, 2011, and 2010, our ten largest end
customers represented approximately 74 percent, 62 percent, and 54 percent of
our sales, respectively. For fiscal years 2012, 2011, and 2010, we had one end
customer, Apple Inc., who purchased through multiple contract manufacturers and
represented approximately 62 percent, 47 percent, and 35 percent of the
Companys total sales, respectively. Further, we had one distributor, Avnet,
Inc., that represented 15 percent, 24 percent, and 26 percent of our sales for
fiscal years 2012, 2011, and 2010, respectively.
No other customer or distributor
represented more than 10 percent of net sales in fiscal years 2012, 2011, or
2010.
Revenue Recognition
We recognize
revenue
when all of the following criteria are met: persuasive evidence that an
arrangement exists, delivery of goods has occurred, the sales price is fixed or
determinable and collectability is reasonably assured. We evaluate our
distributor arrangements, on a distributor by distributor basis, with respect to
each of the four criteria above. For a majority of our distributor arrangements,
we provide rights of price protection and stock rotation. As a result, revenue
is deferred at the time of shipment to our domestic distributors and certain
international distributors due to the determination that the ultimate sales
price to the distributor is not fixed or determinable. Once the distributor has
resold the product, and our final sales price is fixed or determinable, we
recognize revenue for the final sales price and record the related costs of
sales. For certain of our smaller international distributors, we do not grant
price protection rights and provide minimal stock rotation rights. For these
distributors, revenue is recognized upon delivery to the distributor, less an
allowance for estimated returns, as the revenue recognition criteria have been
met upon shipment.
Further, the Company defers the associated cost of goods sold on our
consolidated balance sheet, net within the deferred income caption. The Company
routinely evaluates the products held by our distributors for impairment to the
extent such products may be returned by the distributor within these limited
rights and such products would be considered excess or obsolete if included
within our own inventory. Products returned by distributors and subsequently
scrapped have historically been immaterial to the Company.
Warranty Expense
We warrant our products and maintain a provision for warranty repair or replacement of shipped products. The
accrual represents management’s estimate of probable returns. Our estimate is based on an analysis of our overall
sales volume and historical claims experience, and the sales volume and historical claims experience at our largest
customer, Apple, Inc. The estimate is re-evaluated periodically for accuracy.
Shipping Costs
Our shipping and handling costs are included in cost of sales for all
periods presented.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs were $1.8
million, $1.3 million, and $1.0 million, in fiscal years 2012, 2011, and 2010,
respectively.
Stock-Based Compensation
Stock-based compensation is measured at the grant date based on the
grant-date fair value of the awards and is recognized as an expense, on a
ratable basis, over the vesting period, which is generally between zero and four
years. Determining the amount of stock-based compensation to be recorded
requires the Company to develop estimates used in calculating the grant-date
fair value of stock options. The Company calculates the grant-date fair value
for stock options using the Black-Scholes valuation model. The use of valuation
models requires the Company to make estimates of assumptions such as expected
volatility, expected term, risk-free interest rate, expected dividend yield, and
forfeiture rates.
Page 45 of 67
Income Taxes
We recognize
deferred tax assets if realization of such assets is more likely than not. We
have provided a valuation allowance against a portion of our net U.S. deferred
tax assets due to uncertainties regarding their realization. We evaluate our
ability to realize our deferred tax assets on a quarterly basis.
We recognize liabilities for uncertain tax positions based on the
two-step process. The first step requires us to determine if the weight of
available evidence indicates that the tax position has met the threshold for
recognition; therefore, we must evaluate whether it is more likely than not that
the position will be sustained on audit, including resolution of any related
appeals or litigation processes. The second step requires us to measure the tax
benefit of the tax position taken, or expected to be taken, in an income tax
return as the largest amount that is more than 50 percent likely of being
realized upon ultimate settlement. We reevaluate the uncertain tax positions
each quarter based on factors including, but not limited to, changes in facts or
circumstances, changes in tax law, effectively settled issues under audit, and
new audit activity. Depending on the jurisdiction, such a change in recognition
or measurement may result in the recognition of a tax benefit or an additional
charge to the tax provision in the period.
Net Income Per Share
Basic net income per share is based on the weighted effect of common
shares issued and outstanding and is calculated by dividing net income by the
basic weighted average shares outstanding during the period. Diluted net income
per share is calculated by dividing net income by the weighted average number of
common shares used in the basic net income per share calculation, plus the
equivalent number of common shares that would be issued assuming exercise or
conversion of all potentially dilutive common shares outstanding. These
potentially dilutive items consist primarily of outstanding stock options and
restricted stock awards.
The weighted outstanding options excluded from our diluted calculation
for the years ended March 31, 2012, March 26, 2011, and March 27, 2010, were
1,052,000, 615,000, and 8,043,000, respectively, as the exercise price exceeded
the average market price during the period.
Accumulated Other Comprehensive
Loss
Our accumulated other comprehensive loss is comprised of foreign currency
translation adjustments from prior years when we had subsidiaries whose
functional currency was not the U.S. Dollar, as well as unrealized gains and
losses on investments classified as available-for-sale. See Note 13
Accumulated Other Comprehensive loss for additional discussion.
Recently Issued Accounting
Pronouncements
In May 2011, the FASB issued Accounting Standards Update (ASU) No.
2011-04,
Fair Value Measurement (Accounting
Standards Codification (ASC) Topic 820) Amendments to Achieve Common Fair
Value Measurement and Disclosure Requirements in U.S. GAAP and
IFRSs
. The amendments in this ASU result in
common fair value measurement and disclosure requirements in U.S. GAAP and
international financial reporting standards (IFRS). The ASU provides for
certain changes in current GAAP disclosure requirements, including the
measurement of level 3 assets and measuring the fair value of an instrument
classified in a reporting entitys shareholders equity. The amendments in this
ASU are to be applied prospectively, and are effective during interim and annual
periods beginning after December 15, 2011. The adoption of this guidance is not
anticipated to have a material impact on our consolidated financial position,
results of operations or cash flows.
In May 2011, the FASB issued ASU No. 2011-05,
Comprehensive Income (ASC Topic 220) Presentation of Comprehensive
Income
. With this update, an entity has the
option to present the total of comprehensive income, the components of net
income, and the components of other comprehensive income either in a single
continuous statement of comprehensive income or in two separate but consecutive
statements. In both choices, an entity is required to present each component of
net income along with total net income, each component of other comprehensive
income along with a total for other comprehensive income, and a total amount for
comprehensive income. Current U.S. GAAP allows reporting entities the option to
present the components of
Page 46 of 67
other comprehensive income as part of the
statement of changes in stockholders equity; this update eliminates that
option. The amendments in this ASU should be applied retrospectively, and are
effective for fiscal years, and interim periods within those years, beginning
after December 15, 2011. This ASU was further revised in ASU No. 2011-12,
Comprehensive Income (Topic 220) - Deferral of
the Effective Date for Amendments to the Presentation of Reclassifications of
Items Out of Accumulated Other Comprehensive Income in Accounting Standards
Update No. 2011-05
that was issued in
December 2011. The adoption of this guidance will affect financial statement
presentation only and therefore, will not have a material impact on our
consolidated financial position, results of operations or cash flows.
In September
2011, the FASB issued ASU No. 2011-08,
IntangiblesGoodwill and Other (Topic 350 - Testing Goodwill for
Impairment
. Under the amendments in this ASU,
an entity has the option to first assess qualitative factors to determine
whether the existence of events or circumstances leads to a determination that
it is more likely than not that the fair value of a reporting unit is less than
its carrying amount. If an entity determines it is not more likely than not that
the fair value of a reporting unit is less than its carrying amount, then
performing the two-step impairment test is unnecessary. However, if an entity
concludes otherwise, then it is required to perform the first step of the
two-step impairment test and proceed as dictated in previous FASB guidance.
Under the amendments in this ASU, an entity has the option to bypass the
qualitative assessment for any reporting unit in any period and proceed directly
to performing the first step of the two-step goodwill impairment test. An entity
may resume performing the qualitative assessment in any subsequent period. The
amendments are effective for annual and interim goodwill impairment tests
performed for fiscal years beginning after December 15, 2011, with early
adoption permitted. The adoption of this guidance is not anticipated to have a
material impact on our consolidated financial position, results of operations or
cash flows, but will result in an additional statement of other comprehensive
income.
3. Marketable Securities
The Companys investments that have original maturities greater than 90
days have been classified as available-for-sale securities in accordance with US
GAAP. Marketable securities are categorized on the consolidated balance sheet as
restricted investments and marketable securities, as appropriate.
The following table is a summary of available-for-sale securities (in
thousands):
|
|
Amortized
|
|
Gross
Unrealized
|
|
Gross
Unrealized
|
|
Estimated Fair Value
|
As of March 31,
2012:
|
|
Cost
|
|
Gains
|
|
Losses
|
|
(Net Carrying Amount)
|
Corporate securities
U.S.
|
|
|
48,011
|
|
|
|
33
|
|
|
|
(19
|
)
|
|
|
48,025
|
|
U.S. Treasury securities
|
|
|
30,264
|
|
|
|
1
|
|
|
|
(4
|
)
|
|
|
30,261
|
|
Agency discount
notes
|
|
|
16,789
|
|
|
|
8
|
|
|
|
(1
|
)
|
|
|
16,796
|
|
Commercial paper
|
|
|
23,719
|
|
|
|
5
|
|
|
|
(15
|
)
|
|
|
23,709
|
|
Total
securities
|
|
|
$118,783
|
|
|
|
$47
|
|
|
|
$(39
|
)
|
|
|
$118,791
|
|
The Companys
specifically identified gross unrealized losses of $39 thousand relates to 37
different securities with a total amortized cost of approximately $72.6 million
at March 31, 2012. Because the Company does not intend to sell the investments
at a loss and the Company will not be required to sell the investments before
recovery of its amortized cost basis, it did not consider the investment in
these securities to be other-than-temporarily impaired at March 31, 2012.
Further, the securities with gross unrealized losses had been in a continuous
unrealized loss position for less than 12 months as of March 31,
2012.
|
|
Amortized
|
|
Gross Unrealized
|
|
Gross Unrealized
|
|
Estimated Fair Value
|
As of March 26, 2011:
|
|
Cost
|
|
Gains
|
|
Losses
|
|
(Net Carrying
Amount)
|
Corporate securities U.S.
|
|
|
64,228
|
|
|
|
22
|
|
|
|
(38
|
)
|
|
|
64,212
|
|
U.S.
Treasury securities
|
|
|
35,268
|
|
|
|
13
|
|
|
|
|
|
|
|
35,281
|
|
Agency discount notes
|
|
|
16,588
|
|
|
|
5
|
|
|
|
(2
|
)
|
|
|
16,591
|
|
Commercial paper
|
|
|
56,130
|
|
|
|
23
|
|
|
|
(7
|
)
|
|
|
56,146
|
|
Total
securities
|
|
|
$172,214
|
|
|
|
$63
|
|
|
|
$(47
|
)
|
|
|
$172,230
|
|
Page 47 of 67
The Companys
specifically identified gross unrealized losses of $47 thousand relates to 28
different securities with a total amortized cost of approximately $61.8 million
at March 26, 2011. Because the Company does not intend to sell the investments
at a loss and the Company will not be required to sell the investments before
recovery of its amortized cost basis, it did not consider the investment in
these securities to be other-than-temporarily impaired at March 26, 2011.
Further, the securities with gross unrealized losses had been in a continuous
unrealized loss position for less than 12 months as of March 26,
2011.
The cost and estimated fair value of available-for-sale investments by
contractual maturity were as follows:
|
|
March 31,
2012
|
|
March 26,
2011
|
|
|
Amortized
|
|
Estimated
|
|
Amortized
|
|
Estimated
|
|
|
Cost
|
|
Fair Value
|
|
Cost
|
|
Fair
Value
|
Within 1
year
|
|
|
$115,871
|
|
|
|
$115,876
|
|
|
|
$159,516
|
|
|
|
$159,528
|
|
After 1 year
|
|
|
2,912
|
|
|
|
2,915
|
|
|
|
12,698
|
|
|
|
12,702
|
|
|
|
|
$118,783
|
|
|
|
$118,791
|
|
|
|
$172,214
|
|
|
|
$172,230
|
|
4. Fair Value of Financial
Instruments
The Company has determined that the only assets and liabilities in the
Companys financial statements that are required to be measured at fair value on
a recurring basis are the Companys investment portfolio assets. The Company
defines fair value as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at
the measurement date. The Company applies the following fair value hierarchy,
which prioritizes the inputs used to measure fair value into three levels and
bases the categorization within the hierarchy upon the lowest level of input
that is available and significant to the fair value measurement. The hierarchy
gives the highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1 measurements) and the lowest priority
to unobservable inputs (Level 3 measurements).
-
Level 1 Quoted prices in active
markets for identical assets or liabilities.
-
Level 2 Inputs other than Level 1 that
are observable, either directly or indirectly, such as quoted prices for
similar assets or liabilities; quoted prices in markets that are not active;
or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or
liabilities.
-
Level 3 Unobservable inputs that are
supported by little or no market activity and that are significant to the fair
value of the assets or liabilities.
The Companys investment portfolio assets consist of corporate debt
securities, money market funds, U.S. Treasury securities, obligations of U.S.
government-sponsored enterprises, and commercial paper, and are reflected on our
consolidated balance sheet under the headings cash and cash equivalents,
restricted investments, marketable securities, and long-term marketable
securities. The Company determines the fair value of its investment portfolio
assets by obtaining non-binding market prices from its third-party portfolio
managers on the last day of the quarter, whose sources may use quoted prices in
active markets for identical assets (Level 1 inputs) or inputs other than quoted
prices that are observable either directly or indirectly (Level 2 inputs) in
determining fair value.
As of March 26, 2011, the Company classified all investment portfolio
assets as Level 1 inputs. In fiscal year 2012, the Company determined that
certain of its available-for-sale marketable securities should have been
classified as Level 2. These changes in the disclosed classification had no
effect on the reported fair values of these investments. Prior period amounts
have been reclassified to properly present the securities as Level 2. The
Company has no Level 3 assets.
Page 48 of 67
The fair value of
our financial assets at March 31, 2012, was determined using the following
inputs (in thousands):
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
Significant
|
|
|
|
|
|
|
|
|
Markets for
|
|
Other
|
|
Significant
|
|
|
|
|
Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
|
|
Description
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market
funds
|
|
$
|
40,557
|
|
|
|
$
|
|
|
|
|
$
|
|
|
$
|
40,557
|
Commercial
paper
|
|
|
|
|
|
|
|
15,952
|
|
|
|
|
|
|
|
15,952
|
Corporate debt
securities
|
|
|
|
|
|
|
|
1,112
|
|
|
|
|
|
|
|
1,112
|
|
|
$
|
40,557
|
|
|
|
$
|
17,064
|
|
|
|
$
|
|
|
$
|
57,621
|
Available-for-sale
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt
securities
|
|
$
|
|
|
|
|
$
|
48,025
|
|
|
|
$
|
|
|
$
|
48,025
|
U.S. Treasury
securities
|
|
|
30,261
|
|
|
|
|
|
|
|
|
|
|
|
|
30,261
|
Agency discount
notes
|
|
|
|
|
|
|
|
16,796
|
|
|
|
|
|
|
|
16,796
|
Commercial
paper
|
|
|
|
|
|
|
|
23,709
|
|
|
|
|
|
|
|
23,709
|
|
|
$
|
30,261
|
|
|
|
$
|
88,530
|
|
|
|
$
|
|
|
$
|
118,791
|
The fair value of our financial assets at March 26, 2011, was determined
using the following inputs (in thousands):
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
Significant
|
|
|
|
|
|
|
|
|
Markets for
|
|
Other
|
|
Significant
|
|
|
|
|
Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
|
|
Description
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market
funds
|
|
$
|
17,700
|
|
|
|
$
|
|
|
|
|
$
|
|
|
$
|
17,700
|
Commercial
paper
|
|
|
|
|
|
|
|
4,999
|
|
|
|
|
|
|
|
4,999
|
U.S. Treasury
securities
|
|
|
|
|
|
|
|
10,500
|
|
|
|
|
|
|
|
10,500
|
|
|
$
|
17,700
|
|
|
|
$
|
15,499
|
|
|
|
$
|
|
|
$
|
33,199
|
Available-for-sale
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt
securities
|
|
$
|
|
|
|
|
$
|
64,212
|
|
|
|
$
|
|
|
$
|
64,212
|
U.S. Treasury
securities
|
|
|
35,281
|
|
|
|
|
|
|
|
|
|
|
|
|
35,281
|
Agency discount
notes
|
|
|
|
|
|
|
|
16,591
|
|
|
|
|
|
|
|
16,591
|
Commercial
paper
|
|
|
|
|
|
|
|
56,146
|
|
|
|
|
|
|
|
56,146
|
|
|
$
|
35,281
|
|
|
|
$
|
136,949
|
|
|
|
$
|
|
|
$
|
172,230
|
5. Accounts Receivable, net
The following are
the components of accounts receivable, net (in thousands):
|
March
31,
|
|
March
26,
|
|
2012
|
|
2011
|
Gross accounts
receivable
|
|
$44,524
|
|
|
|
$39,519
|
|
Less: Allowance for doubtful
accounts
|
|
(371
|
)
|
|
|
(421
|
)
|
Accounts receivable,
net
|
|
$44,153
|
|
|
|
$39,098
|
|
Page 49 of 67
The following
table summarizes the changes in the allowance for doubtful accounts (in
thousands):
Balance, March 28,
2009
|
$
|
(451
|
)
|
Bad debt expense, net of recoveries
|
|
(37
|
)
|
Balance, March 27,
2010
|
|
(488
|
)
|
Write-off of uncollectible accounts, net of recoveries
|
|
67
|
|
Balance, March 26,
2011
|
|
(421
|
)
|
Write-off of uncollectible accounts, net of recoveries
|
|
50
|
|
Balance, March 31,
2012
|
$
|
(371
|
)
|
6. Intangibles, net
The following information details the gross carrying amount and
accumulated amortization of our intangible assets (in thousands):
|
March 31,
2012
|
|
March 26,
2011
|
Intangible Category
(Weighted-Average
|
Gross
|
|
Accumulated
|
|
Gross
|
|
Accumulated
|
Amortization Period
(years))
|
Amount
|
|
Amortization
|
|
Amount
|
|
Amortization
|
Core technology
(9.0)
|
|
$
1,390
|
|
|
|
$
(1,390
|
)
|
|
|
$
1,390
|
|
|
|
$
(1,390
|
)
|
License agreements (9.0)
|
|
440
|
|
|
|
(440
|
)
|
|
|
440
|
|
|
|
(440
|
)
|
Existing technology
(13.3)
|
|
17,235
|
|
|
|
(7,318
|
)
|
|
|
17,235
|
|
|
|
(6,321
|
)
|
Trademarks (4.0) (a)
|
|
2,758
|
|
|
|
(320
|
)
|
|
|
2,758
|
|
|
|
(320
|
)
|
Non-compete
agreements (5.0)
|
|
398
|
|
|
|
(258
|
)
|
|
|
398
|
|
|
|
(179
|
)
|
Customer relationships (14.6)
|
|
4,682
|
|
|
|
(1,515
|
)
|
|
|
4,682
|
|
|
|
(1,179
|
)
|
Technology licenses
(3.3)
|
|
14,187
|
|
|
|
(11,608
|
)
|
|
|
16,928
|
|
|
|
(13,877
|
)
|
|
|
$41,090
|
|
|
|
$(22,849
|
)
|
|
|
$43,831
|
|
|
|
$(23,706
|
)
|
|
(a)
|
|
Trademarks also
includes $2.4 million of indefinite-lived assets, which are not included
in the weighted-average amortization period
above.
|
Amortization expense
for all intangibles in fiscal years 2012, 2011, and 2010 was
$3.7 million, $3.3 million, and $3.6 million, respectively. The following table
details the estimated aggregate amortization expense for all intangibles owned
as of March 31, 2012, for each of the five succeeding fiscal years (in
thousands):
For the year ended
March 31, 2013
|
$
|
2,734
|
For the year ended March 30,
2014
|
$
|
2,176
|
For the year ended
March 29, 2015
|
$
|
1,623
|
For the year ended March 28,
2016
|
$
|
1,303
|
For the year ended
March 26, 2017
|
$
|
1,273
|
7. Employee Benefit
Plans
We have a 401(k) Profit Sharing Plan (the Plan) covering all of our
qualifying domestic employees. Under the Plan, employees may elect to contribute
any percentage of their annual compensation up to the annual IRS limitations. We
match 50 percent of the first 6 percent of the employees annual contribution to
the plan. We made matching employee contributions of $1.3 million, $1.0 million,
and $0.9 million during fiscal years 2012, 2011, and 2010,
respectively.
Page 50 of 67
8. Equity Compensation
Stock Compensation
Expense
The Company is
currently granting equity awards from the 2006 Stock Incentive Plan (the
Plan), which was approved by stockholders in July 2006. The Plan provides for
granting of stock options, restricted stock awards, restricted stock units,
performance awards, phantom stock awards, and bonus stock awards, or any
combination of the foregoing. To date, the Company has granted stock options,
restricted stock awards, and restricted stock units under the Plan. Stock
options generally vest between zero and four years, and are exercisable for a
period of ten years from the date of grant. Generally, restricted stock awards
are subject to vesting schedules up to four years. Restricted stock units are
generally subject to vesting from one to three years, depending upon the terms
of the grant.
The following table summarizes the effects of stock-based compensation on
cost of goods sold, research and development, sales, general and administrative,
pre-tax income (loss), and net income after taxes for options granted under the
Companys equity incentive plans (in thousands, except per share
amounts):
|
|
Fiscal Years Ended
|
|
|
March 31,
|
|
March 26,
|
|
March 27,
|
|
|
2012
|
|
2011
|
|
2010
|
Cost of sales
|
|
|
$ 398
|
|
|
|
$ 243
|
|
|
|
$ 212
|
|
Research and development
|
|
|
5,590
|
|
|
|
2,641
|
|
|
|
1,882
|
|
Sales, general and
administrative
|
|
|
6,190
|
|
|
|
5,257
|
|
|
|
3,224
|
|
Effect on pre-tax income
|
|
|
12,178
|
|
|
|
8,141
|
|
|
|
5,318
|
|
Income Tax Benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share based compensation expense (net of taxes)
|
|
|
$12,178
|
|
|
|
$8,141
|
|
|
|
$5,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share based compensation effects on
basic earnings (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
per share
|
|
|
$ 0.19
|
|
|
|
$ 0.12
|
|
|
|
$ 0.08
|
|
Share based compensation effects on
diluted earnings (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
per share
|
|
|
$ 0.18
|
|
|
|
$ 0.11
|
|
|
|
$ 0.08
|
|
Share based compensation effects on
operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
cash flow
|
|
|
12,178
|
|
|
|
8,141
|
|
|
|
5,318
|
|
Share based compensation effects on
financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
cash flow
|
|
|
|
|
|
|
|
|
|
|
|
|
The total share based compensation expense included in the table above
and which is attributable to restricted stock awards and restricted stock units
was $6.3 million, $1.1 million, and $0.1 million for fiscal years 2012, 2011,
and 2010, respectively.
As of March 31, 2012, there was $24.7 million of compensation costs
related to non-vested stock options, restricted stock awards, and restricted
stock units granted under the Companys equity incentive plans not yet
recognized in the Companys financial statements. The unrecognized compensation
cost is expected to be recognized over a weighted average period of 1.03 years
for stock options, 0.37 years for restricted stock awards, and 1.94 years for
restricted stock units.
Stock Option Awards
We estimated the fair value of each stock option grant on the date of
grant using the Black-Scholes option-pricing model using a dividend yield of
zero and the following additional assumptions:
|
Year
Ended
|
|
March
31,
|
|
March
26,
|
|
March
27,
|
|
2012
|
|
2011
|
|
2010
|
Expected stock price
volatility
|
59.25-66.11
|
%
|
|
52.03-67.11
|
%
|
|
50.71-56.59
|
%
|
Risk-free interest
rate
|
0.27-1.43
|
%
|
|
1.19-2.06
|
%
|
|
1.80-2.25
|
%
|
Expected term (in
years)
|
2.32-3.82
|
|
|
3.83-4.34
|
|
|
4.33-4.64
|
|
Page 51 of 67
The Black-Scholes
valuation calculation requires us to estimate key assumptions such as stock
price volatility, expected term, risk-free interest rate and dividend yield. The
expected stock price volatility is based upon implied volatility from traded
options on our stock in the marketplace. The expected term of options granted is
derived from an analysis of historical exercises and remaining contractual life
of stock options, and represents the period of time that options granted are
expected to be outstanding. The risk-free interest rate reflects the yield on
zero-coupon U.S. Treasury securities for a period that is commensurate with the
expected term assumption. Finally, we have never paid cash dividends, do not
currently intend to pay cash dividends, and thus have assumed a zero percent
dividend yield.
Using the Black-Scholes option valuation model, the weighted average
estimated fair values of employee stock options granted in fiscal years 2012,
2011, and 2010, were $7.58, $9.61, and $2.89, respectively.
During fiscal year 2012, 2011, and 2010, we received a net $4.1 million,
$31.0 million, and $2.0 million, respectively, from the exercise of 0.6 million
4.7 million, and 0.4 million, respectively, stock options granted under the
Companys stock Plan.
The total intrinsic value of stock options exercised during fiscal year
2012, 2011, and 2010 was $7.6 million, $50.4 million, and $0.8 million,
respectively. Intrinsic value represents the difference between the market value
of the Companys common stock at the time of exercise and the strike price of
the stock option.
As of March 31, 2012, approximately 12.2 million
shares of common stock
were reserved for issuance under the stock option Plan.
Additional information with respect to stock option activity is as
follows (in thousands, except per share amounts):
|
|
|
|
|
Outstanding Options
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
Options
Available
|
|
|
|
|
|
Average
|
|
for Grant
|
|
Number
|
|
Exercise Price
|
Balance, March 28, 2009
|
|
12,104
|
|
|
|
9,063
|
|
|
|
$ 7.45
|
|
Option plans
terminated
|
|
(477
|
)
|
|
|
|
|
|
|
|
|
Options granted
|
|
(2,471
|
)
|
|
|
2,471
|
|
|
|
5.53
|
|
Options
exercised
|
|
|
|
|
|
(401
|
)
|
|
|
5.01
|
|
Options forfeited
|
|
774
|
|
|
|
(264
|
)
|
|
|
5.44
|
|
Options
expired
|
|
|
|
|
|
(490
|
)
|
|
|
9.63
|
|
Balance, March 27, 2010
|
|
9,930
|
|
|
|
10,379
|
|
|
|
$ 6.74
|
|
Option plans
terminated
|
|
(300
|
)
|
|
|
|
|
|
|
|
|
Options granted
|
|
(1,927
|
)
|
|
|
977
|
|
|
|
16.75
|
|
Options
exercised
|
|
|
|
|
|
(4,718
|
)
|
|
|
6.57
|
|
Options forfeited
|
|
472
|
|
|
|
(153
|
)
|
|
|
5.90
|
|
Options
expired
|
|
|
|
|
|
(304
|
)
|
|
|
23.68
|
|
Balance, March 26, 2011
|
|
8,175
|
|
|
|
6,181
|
|
|
|
$ 7.63
|
|
Option plans
terminated
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
Options granted
|
|
(2,049
|
)
|
|
|
450
|
|
|
|
15.63
|
|
Options
exercised
|
|
|
|
|
|
(593
|
)
|
|
|
6.88
|
|
Options forfeited
|
|
165
|
|
|
|
(67
|
)
|
|
|
7.70
|
|
Options
expired
|
|
|
|
|
|
(67
|
)
|
|
|
15.68
|
|
Balance, March 31, 2012
|
|
6,257
|
|
|
|
5,904
|
|
|
|
$ 8.23
|
|
Additional information with regards to outstanding options that are
vesting, expected to vest, or exercisable as of March 31, 2012 is as follows (in
thousands, except per share amounts):
|
|
|
Weighted
|
|
Weighted
Average
|
|
|
|
Number
of
|
|
Average
|
|
Remaining
Contractual
|
|
Aggregate
|
|
Options
|
|
Exercise Price
|
|
Term (years)
|
|
Intrinsic Value
|
Vested and expected
to vest
|
5,703
|
|
$8.09
|
|
6.64
|
|
$89,617
|
Exercisable
|
3,836
|
|
$7.08
|
|
5.99
|
|
$64,121
|
Page 52 of 67
In accordance
with U.S. GAAP, stock options outstanding that are expected to vest are
presented net of estimated future option forfeitures, which are estimated as
compensation costs are recognized. Options with a fair value of $6.3 million,
$6.0 million, and $4.0 million, became vested during fiscal years 2012, 2011,
and 2010, respectively.
The following table summarizes information regarding outstanding and
exercisable options as of March 31, 2012 (in thousands, except per share
amounts):
|
|
|
|
|
|
Options
Outstanding
|
|
Options
Exercisable
|
|
|
|
|
|
|
|
Weighted
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Contractual
Life
|
|
Average
Exercise
|
|
Number
|
|
Average
|
Range of Exercise Prices
|
|
Number
|
|
(years)
|
|
Price
|
|
Exercisable
|
|
Exercise
Price
|
$
|
1.83 -
|
$
|
5.25
|
|
|
|
1,332
|
|
|
5.85
|
|
|
$
4.94
|
|
|
|
1,039
|
|
|
|
$
4.93
|
|
$
|
5.27 -
|
$
|
5.53
|
|
|
|
91
|
|
|
7.21
|
|
|
5.49
|
|
|
|
48
|
|
|
|
5.48
|
|
$
|
5.55 -
|
$
|
5.55
|
|
|
|
1,515
|
|
|
7.50
|
|
|
5.55
|
|
|
|
798
|
|
|
|
5.55
|
|
$
|
5.66 -
|
$
|
7.26
|
|
|
|
1,100
|
|
|
5.27
|
|
|
6.54
|
|
|
|
1,045
|
|
|
|
6.53
|
|
$
|
7.32 -
|
$
|
15.41
|
|
|
|
1,141
|
|
|
7.03
|
|
|
11.38
|
|
|
|
604
|
|
|
|
8.42
|
|
$
|
16.21 -
|
$
|
23.33
|
|
|
|
725
|
|
|
8.18
|
|
|
17.77
|
|
|
|
302
|
|
|
|
18.05
|
|
|
|
|
|
|
|
|
5,904
|
|
|
6.70
|
|
|
$
8.23
|
|
|
|
3,836
|
|
|
|
$
7.08
|
|
As of March 31, 2012 and March 26, 2011, the number of options
exercisable was 3.8 million and 2.9 million, respectively.
Restricted Stock Awards
The Company periodically grants restricted stock awards (RSAs) to
select employees. The grant date for these awards is equal to the measurement
date and the awards are valued as of the measurement date and amortized over the
requisite vesting period. Generally, the current unreleased RSA awards vest 100
percent on the fourth anniversary of the grant date. Each full value award,
including RSAs, reduces the total shares available for grant under the Plan at
a rate of 1.5 shares per RSA granted. As of March 31, 2012, approximately 0.1
million
shares attributable to RSA awards were reserved for issuance under the
Plan. A summary of the activity for RSAs in fiscal year 2012, 2011, and 2010 is
presented below (in thousands, except per share amounts):
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Grant
Date
|
|
Aggregate
|
|
Number of
|
|
Fair
Value
|
|
Intrinsic
|
|
Shares
|
|
(per share)
|
|
value(1)
|
March 28,
2009
|
|
73
|
|
|
|
$
6.86
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
Vested
|
|
(11
|
)
|
|
|
6.98
|
|
|
55
|
|
Forfeited
|
|
(13
|
)
|
|
|
6.05
|
|
|
|
|
March 27,
2010
|
|
49
|
|
|
|
$
6.20
|
|
|
|
|
Granted
|
|
5
|
|
|
|
17.28
|
|
|
|
|
Vested
|
|
(7
|
)
|
|
|
7.35
|
|
|
134
|
|
Forfeited
|
|
(2
|
)
|
|
|
7.35
|
|
|
|
|
March 26,
2011
|
|
45
|
|
|
|
$
7.21
|
|
|
|
|
Granted
|
|
49
|
|
|
|
15.31
|
|
|
|
|
Vested
|
|
(54
|
)
|
|
|
14.57
|
|
|
826
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
March 31,
2012
|
|
40
|
|
|
|
$ 7.19
|
|
|
|
|
|
(1)
|
|
Represents the value
of Cirrus stock on the date that the restricted stock
vested.
|
Page 53 of 67
The weighted
average remaining recognition period for RSAs outstanding as of March 31, 2012
was 0.37 years. RSAs with a fair value of $637 thousand, $37 thousand, and $37
thousand became vested during fiscal years 2012, 2011, and 2010,
respectively.
Restricted Stock Units
Commencing in fiscal year 2011, the Company began granting restricted
stock units (RSUs) to select employees. These awards are valued as of the
grant date and amortized over the requisite vesting period. Generally, RSUs
vest 100 percent on the first to third anniversary of the grant date depending
on the vesting specifications. Each full value award, including RSUs, reduces
the total shares available for grant under the 2006 option plan at a rate of 1.5
shares per RSU granted. As of March 31, 2012, approximately 2.4
million
shares attributable to RSU awards were reserved for issuance under the
Plan, which includes the additional shares associated with this full value award
multiplier. A summary of the activity for RSUs in fiscal year 2012 and 2011 is
presented below (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
Weighted
Average
|
|
|
|
|
|
Weighted
|
|
Remaining
|
|
|
|
|
|
Average
|
|
Contractual Term
|
|
Shares
|
|
Fair Value
|
|
(years)
|
March 27, 2010
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
628
|
|
|
|
$16.41
|
|
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
March 26, 2011
|
|
620
|
|
|
|
$16.41
|
|
|
|
2.54
|
|
Granted
|
|
1,017
|
|
|
|
16.59
|
|
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
March 31, 2012
|
|
1,616
|
|
|
|
$16.52
|
|
|
|
1.94
|
|
Additional information with regards to
outstanding restricted stock units that are vesting or expected to vest as of
March 31, 2012, is as follows (in thousands, except year reference):
|
|
|
|
|
Weighted
Average
|
|
|
|
Weighted
|
|
Remaining
|
|
|
|
Average
|
|
Contractual
Term
|
|
Shares
|
|
Fair Value
|
|
(years)
|
Vested and expected
to vest
|
1,440
|
|
$16.52
|
|
1.94
|
RSUs outstanding that are expected to vest are presented net of
estimated future forfeitures, which are estimated as compensation costs are
recognized. No RSUs became vested during fiscal year 2012.
9. Commitments and
Contingencies
Facilities and Equipment Under
Operating Lease Agreements
With the exception of the Apex facility in Tucson, Arizona and our
corporate headquarters under construction, we lease our facilities and certain
equipment under operating lease agreements, some of which have renewal options.
Certain of these arrangements provide for lease payment increases based upon
future fair market rates. As of May 1, 2012, our principal leased facilities,
located in Austin, Texas, consisted of approximately 214,000 square feet of
office space. This leased space includes our headquarters and engineering
facility, which has 197,000 square feet, of which we have subleased
approximately 15,000 square feet. Our principal leased facilities in Austin,
Texas also include 17,000 square feet of leased space at our failure analysis
facility with lease terms that extend into calendar year 2013. Both the lease
and subleases at our current headquarters and engineering facility have terms
ending in August 2012. Additional leased space related to the
Page 54 of 67
new corporate headquarters consists of
approximately 30,000 square feet of office space in Austin, Texas. We expect the
five year lease term to commence on our anticipated arrival date beginning June
2012. The Company also has approximately 28,000 square feet of office space in
Tucson, Arizona with terms ending May 2015.
The aggregate
minimum future rental commitments under all operating leases, net of sublease
income, for the following fiscal years are (in thousands):
|
|
|
|
|
|
|
|
|
Net
Facilities
|
|
Equipment
|
|
Total
|
|
Facilities
|
|
Subleases
|
|
Commitments
|
|
Commitments
|
|
Commitments
|
2013
|
|
$3,652
|
|
|
|
$381
|
|
|
|
$3,271
|
|
|
|
$12
|
|
|
|
$3,283
|
|
2014
|
|
1,470
|
|
|
|
|
|
|
|
1,470
|
|
|
|
9
|
|
|
|
1,479
|
|
2015
|
|
993
|
|
|
|
|
|
|
|
993
|
|
|
|
4
|
|
|
|
997
|
|
2016
|
|
942
|
|
|
|
|
|
|
|
942
|
|
|
|
1
|
|
|
|
943
|
|
2017
|
|
972
|
|
|
|
|
|
|
|
972
|
|
|
|
|
|
|
|
972
|
|
Thereafter
|
|
163
|
|
|
|
|
|
|
|
163
|
|
|
|
|
|
|
|
163
|
|
Total minimum lease
payments
|
|
$8,192
|
|
|
|
$381
|
|
|
|
$7,811
|
|
|
|
$26
|
|
|
|
$7,837
|
|
Total rent expense was approximately $4.7 million, $4.6 million, and $4.4
million, for fiscal years 2012, 2011, and 2010, respectively. Sublease rental
income was $0.4 million, $1.1 million, and $1.2 million, for fiscal years 2012,
2011, and 2010, respectively.
Wafer, Assembly and Test Purchase
Commitments
We rely primarily on third-party foundries for our wafer manufacturing
needs. As of March 31, 2012, we had agreements with multiple foundries for the
manufacture of wafers. On December 22, 2011, the Company entered into a $10
million Capacity Investment and Loading Agreement with STATS ChipPAC Ltd
(Supplier Agreement) in order to secure assembly and test capacity for certain
products. We paid an initial $5 million payment on January 24, 2012, and the
remaining $5 million payment is due thirty days after certain capacity expansion
commitments have been achieved by STATS ChipPAC and is recorded on the
consolidated balance sheet under the caption
Supplier Agreement
. As part of the
agreement, we are eligible to receive rebates on our purchases up to the full
amount of the specified $10 million in the Supplier Agreement upon our meeting
certain purchase volume milestones. Based on our current projections, we expect
to receive the full amount of our $10 million payments back in rebates during
the term of the agreement. Other than the previously mentioned agreement, our
foundry agreements do not have volume purchase commitments or take or pay
clauses and provide for purchase commitments based on purchase orders.
Cancellation fees or other charges may apply and are generally dependent upon
whether wafers have been started or the stage of the manufacturing process at
which the notice of cancellation is given. As of March 31, 2012, we had foundry
commitments of $46.3 million.
In addition to our wafer supply arrangements, we contract with
third-party assembly vendors to package the wafer die into finished products.
Assembly vendors provide fixed-cost-per-unit pricing, as is common in the
semiconductor industry. We had non-cancelable assembly purchase orders with
numerous vendors totaling $1.0 million at March 31, 2012.
Test vendors provide fixed-cost-per-unit pricing, as is common in the
semiconductor industry. Our total non-cancelable commitment for outside test
services as of March 31, 2012 was $2.7 million.
Other open purchase orders as of March 31, 2012 amount to $0.9 million
and primarily relate to raw material costs incurred in our facility in Tucson,
Arizona, which continues to serve as the assembly and test facility for our Apex
products.
10. Legal Matters
From time to time, we are involved in legal proceedings concerning
matters arising in connection with the conduct of our business activities. We
regularly evaluate the status of legal proceedings in which we are involved, to
assess whether a loss is probable or there is a reasonable possibility that a
loss or additional loss may have been incurred and determine if accruals are
appropriate. We further evaluate each legal proceeding to assess whether an
estimate of possible loss or range of loss can be made, if accruals are not
appropriate.
Page 55 of 67
On September 1,
2011, HSM Portfolio LLC and Technology Properties Limited LLC (collectively, the
Plaintiffs) filed suit against Cirrus Logic and 17 other defendants in the
U.S. District Court, District of Delaware. The Plaintiffs allege that Cirrus
Logic infringed U.S. Patent No. 5,030,853. In their complaint, the Plaintiffs
indicated that they are seeking unspecified monetary damages, including up to
treble damages for willful infringement. On March 8, 2012, Cirrus Logic settled
the matter and paid the Plaintiffs $100 thousand to fully resolve the lawsuit.
The case was dismissed effective March 28, 2012.
In fiscal year 2011 the Company recorded $162 thousand in settlement for
certain litigation expenses settled during the year.
In fiscal year 2010, a combined net proceeds of $2.6 million from various
settled litigation was recorded.
11. Patent Agreement,
Net
On July 13, 2010, we entered into a patent purchase agreement for the
sale of certain Company owned patents. As a result of this agreement, on August
31, 2010, the Company received cash consideration of $4.0 million from the
purchaser. The proceeds were recorded as a recovery of costs previously incurred
and are reflected as a separate line item on the consolidated statement of
operations in operating expenses under the caption
Patent agreement, net.
On June 11, 2009, we entered into a patent purchase agreement for the sale of certain Company
owned patents and on August 26, 2009, the Company received cash consideration of $1.4 million
from the purchaser. The proceeds were recorded as a recovery of costs previously incurred and
are reflected as a separate line item on the consolidated statement of operations in operating
expenses under the caption
Patent agreement, net.
12. Stockholders Equity
Share Repurchase Program
On November 4, 2010, we announced that an $80 million share repurchase
program had been approved by our Board of Directors. As of March 31, 2012, we
have repurchased approximately 5.1 million shares at a cost of $79.5 million, or
an average price of $15.51 per share. Of this total, during the current fiscal
year we have repurchased 4.9 million shares at a cost of $76.8 million, or an
average cost of $15.63 per share.
In fiscal year 2011, the Company completed the repurchase of
approximately 1.8 million shares of the Companys common stock, at a total cost
of $22.8 million, or $12.94 per share. Of this amount, 1.5 million shares of the
Companys common stock were repurchased pursuant to the remaining portion of the
$20 million share repurchase program authorized by the Board of Directors in
January 2009. The remaining 0.3 million shares came from the $80 million share
repurchase program announced on November 4, 2010. As of March 31, 2012,
approximately $0.5 million remains available for share repurchases under this
$80 million share repurchase program.
All shares of our common stock that were repurchased under these share
repurchase programs were cancelled upon consummation of the daily repurchase
transactions.
Preferred Stock
We have 5.0 million shares of Preferred Stock authorized. As of March 31,
2012 we have not issued any of the authorized shares.
13. Accumulated Other Comprehensive
Loss
Our accumulated other comprehensive loss is comprised of foreign currency
translation adjustments and unrealized gains and losses on investments
classified as available-for-sale. The foreign currency translation adjustments
are not currently adjusted for income taxes because they relate to indefinite
investments in non-U.S. subsidiaries that have since changed from a foreign
functional currency to a U.S dollar functional currency.
Page 56 of 67
The following
table summarizes the changes in the components of accumulated other
comprehensive loss, net of tax (in thousands):
|
|
Foreign
|
|
Unrealized Gains
|
|
|
|
|
|
|
|
|
Currency
|
|
(Losses) on
Securities
|
|
Total
|
Balance, March 27,
2010
|
|
|
$
|
(770
|
)
|
|
|
|
$
|
121
|
|
|
|
|
$
|
(649
|
)
|
|
Current-period activity
|
|
|
|
|
|
|
|
|
|
(105
|
)
|
|
|
|
|
(105
|
)
|
|
Balance, March 26,
2011
|
|
|
|
(770
|
)
|
|
|
|
|
16
|
|
|
|
|
|
(754
|
)
|
|
Current-period activity
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
(8
|
)
|
|
Balance, March 31, 2012
|
|
|
$
|
(770
|
)
|
|
|
|
$
|
8
|
|
|
|
|
$
|
(762
|
)
|
|
14. Income Taxes
Income before income taxes consisted of (in thousands):
|
|
Year
Ended
|
|
|
March 31,
2012
|
|
March 26,
2011
|
|
March 27,
2010
|
United
States
|
|
|
$
|
79,425
|
|
|
|
$
|
83,569
|
|
|
|
$
|
24,289
|
|
Non-U.S.
|
|
|
|
558
|
|
|
|
|
645
|
|
|
|
|
2,394
|
|
|
|
|
$
|
79,983
|
|
|
|
$
|
84,214
|
|
|
|
$
|
26,683
|
|
The provision (benefit) for income taxes consists of (in
thousands):
|
|
Year Ended
|
|
|
March 31, 2012
|
|
March 26, 2011
|
|
March 27, 2010
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
$
|
1,322
|
|
|
|
|
$
|
163
|
|
|
|
|
$
|
(75
|
)
|
|
State
|
|
|
|
518
|
|
|
|
|
|
312
|
|
|
|
|
|
8
|
|
|
Non-U.S.
|
|
|
|
261
|
|
|
|
|
|
204
|
|
|
|
|
|
264
|
|
|
Total current tax provision
|
|
|
$
|
2,101
|
|
|
|
|
$
|
679
|
|
|
|
|
$
|
197
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
$
|
(10,102
|
)
|
|
|
|
$
|
(120,057
|
)
|
|
|
|
$
|
(11,787
|
)
|
|
Non-U.S.
|
|
|
|
1
|
|
|
|
|
|
89
|
|
|
|
|
|
(125
|
)
|
|
Total deferred tax benefit
|
|
|
|
(10,101
|
)
|
|
|
|
|
(119,968
|
)
|
|
|
|
|
(11,912
|
)
|
|
Total tax benefit
|
|
|
$
|
(8,000
|
)
|
|
|
|
$
|
(119,289
|
)
|
|
|
|
$
|
(11,715
|
)
|
|
The provision (benefit) for income taxes differs from the amount computed
by applying the statutory federal rate to pretax income as follows (in
percentages):
|
|
Year
Ended
|
|
|
March 31,
|
|
March 26,
|
|
March 27,
|
|
|
2012
|
|
2011
|
|
2010
|
Expected income tax
provision at the U.S. federal statutory rate
|
|
|
35.0
|
|
|
|
|
35.0
|
|
|
|
|
35.0
|
|
|
Valuation allowance changes affecting
the provision of income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
taxes
|
|
|
(46.7
|
)
|
|
|
|
(178.6
|
)
|
|
|
|
(80.5
|
)
|
|
Foreign taxes at
different rates
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
(2.7
|
)
|
|
Foreign earnings taxed in the
U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
Refundable R&D
credit
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
Stock compensation
|
|
|
1.0
|
|
|
|
|
(0.1
|
)
|
|
|
|
4.2
|
|
|
Nondeductible
expenses
|
|
|
0.1
|
|
|
|
|
1.1
|
|
|
|
|
0.4
|
|
|
Other
|
|
|
0.6
|
|
|
|
|
0.9
|
|
|
|
|
(0.2
|
)
|
|
Benefit for income taxes
|
|
|
(10.0
|
)
|
|
|
|
(141.6
|
)
|
|
|
|
(43.9
|
)
|
|
Page 57 of 67
Significant
components of our deferred tax assets and liabilities are (in
thousands):
|
|
Year
Ended
|
|
|
March 31,
|
|
March 26,
|
|
|
2012
|
|
2011
|
Deferred tax
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory valuation
|
|
|
$
|
3,240
|
|
|
|
|
$
|
4,494
|
|
|
Accrued expenses and
allowances
|
|
|
|
3,656
|
|
|
|
|
|
3,017
|
|
|
Net operating loss carryforwards
|
|
|
|
105,220
|
|
|
|
|
|
131,331
|
|
|
Research and development
tax credit carryforwards
|
|
|
|
36,032
|
|
|
|
|
|
37,464
|
|
|
State tax credit carryforwards
|
|
|
|
244
|
|
|
|
|
|
250
|
|
|
Capitalized research
and development
|
|
|
|
9,779
|
|
|
|
|
|
14,773
|
|
|
Depreciation and Amortization
|
|
|
|
|
|
|
|
|
|
159
|
|
|
Other
|
|
|
|
18,747
|
|
|
|
|
|
14,807
|
|
|
Total deferred tax assets
|
|
|
$
|
176,918
|
|
|
|
|
$
|
206,295
|
|
|
Valuation allowance for
deferred tax assets
|
|
|
|
(29,075
|
)
|
|
|
|
|
(68,380
|
)
|
|
Net deferred tax assets
|
|
|
$
|
147,843
|
|
|
|
|
$
|
137,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
$
|
287
|
|
|
|
|
$
|
|
|
|
Acquisition
intangibles
|
|
|
|
5,348
|
|
|
|
|
|
5,861
|
|
|
Total deferred tax liabilities
|
|
|
$
|
5,635
|
|
|
|
|
$
|
5,861
|
|
|
Total net deferred tax assets
|
|
|
$
|
142,208
|
|
|
|
|
$
|
132,054
|
|
|
These net deferred tax assets have been categorized on the Consolidated
Balance Sheets as follows:
|
|
March 31,
|
|
March 26,
|
|
|
2012
|
|
2011
|
Current deferred tax
assets
|
|
|
$
|
53,137
|
|
|
|
$
|
30,797
|
|
|
Long-term deferred tax assets
|
|
|
|
89,071
|
|
|
|
|
102,136
|
|
|
Long-term deferred
tax liabilities
|
|
|
|
|
|
|
|
|
(879
|
)
|
|
Total net deferred tax assets
|
|
|
$
|
142,208
|
|
|
|
$
|
132,054
|
|
|
The current and long-term deferred tax assets are disclosed separately
under their respective captions on the consolidated balance sheets, while the
long term deferred tax liabilities are aggregated under the caption
Other long-term liabilities
on the consolidated balance sheets.
The valuation allowance decreased by $39.3 million in fiscal year 2012
and $157.8 million in fiscal year 2011. In 2012 and 2011, the Company evaluated
the ability to realize its deferred tax assets by using a three year forecast to
determine the amount of net operating losses and other deferred tax assets that
would be utilized if we achieved the results set forth in our three-year
forecast. The forecasted income was more than sufficient to absorb the remaining
Federal net operating losses, research credits and most other Federal
deductions; therefore, the valuation allowance that had remained on these
deferred tax assets was released except for research credits that expire within
the next year. A valuation allowance was maintained on the Companys capital
loss carryforward because it will likely expire without being utilized. A
valuation allowance was also maintained on various state net operating losses
and credits due to the likelihood that they will expire or go unutilized because
the Company no longer has a significant apportionment in the jurisdiction in
which the attribute was created.
Page 58 of 67
At March 31,
2012, we had federal net operating loss carryforwards of $353.8 million. Of that
amount, $36.6 million related to companies we acquired during fiscal year 2002
and are, therefore, subject to certain limitations under Section 382 of the
Internal Revenue Code. Because the Company has elected the with and without
method for purposes of tracking its excess stock deductions, the amount of
Federal net operating loss included in deferred tax assets is $276 million,
which yields a tax effected deferred tax asset of $96.6 million. The Company had
$77.8 million of excess stock deductions which are not included in deferred tax
assets. The tax benefit from these deductions will increase additional paid-in
capital when they are deemed realized under the with and without method. We
had net operating losses in various states that total $104.8 million. The
federal net operating loss carryforwards expire in fiscal years 2019 through
2029. The state net operating loss carryforwards expire in fiscal years 2013
through 2029. We also have non-U.S. net operating losses of $2.1 million, which
do not expire.
There are federal research and development credit carryforwards of $21.4
million that expire in fiscal years 2013 through 2032. There are $14.6 million
of state research and development credits. Of that amount, $2.9 million will
expire in fiscal years 2022 through 2027. The remaining $11.7 million of state
research and development credits are not subject to expiration.
We have approximately $185 thousand of cumulative undistributed earnings
in certain non-U.S. subsidiaries. We have not recognized a deferred tax
liability on these undistributed earnings because the Company currently intends
to reinvest these earnings in operations outside the U.S. The unrecognized
deferred tax liability on these earnings is approximately $66
thousand.
We record unrecognized tax benefits for the estimated risk associated
with tax positions taken on tax returns. A reconciliation of the beginning and
ending amounts of unrecognized tax benefits is as follows (in
thousands):
Balance at March 26,
2011
|
|
$
|
0
|
Additions based on tax positions
related to the current year
|
|
|
|
Reductions for tax
positions of prior years
|
|
|
|
Settlements
|
|
|
|
Reductions related to
expirations of statutes of limitation
|
|
|
|
Balance at March 31,
2012
|
|
$
|
0
|
The Company does not believe that its unrecognized tax benefits will
significantly increase or decrease during the next 12 months.
We accrue interest and penalties related to unrecognized tax benefits as
a component of the provision for income taxes. We did not record any interest or
penalties during fiscal year 2012.
The Company and its subsidiaries are subject to U.S. federal income tax
as well as income tax in multiple state and foreign jurisdictions. Fiscal years
2009 through 2012 remain open to examination by the major taxing jurisdictions
to which we are subject.
15. Segment Information
We determine our operating segments in accordance with FASB guidelines.
Our Chief Executive Officer (CEO) has been identified as the chief operating
decision maker under these guidelines.
The Company operates and tracks its results in one reportable segment
based on the aggregation of activity from its two product lines. Our CEO
receives and uses enterprise-wide financial information to assess financial
performance and allocate resources, rather than detailed information at a
product line level. Additionally, our product lines have similar characteristics
and customers. They share operations support functions such as sales, public
relations, supply chain management, various research and development and
engineering support,
Page 59 of 67
in addition to the general and
administrative functions of human resources, legal, finance and information
technology. Therefore, there is no complete, discrete financial information
maintained for these product lines. Revenue from our product lines are as
follows (in thousands):
|
|
Year Ended
|
|
|
March
31,
|
|
March
26,
|
|
March
27,
|
|
|
2012
|
|
2011
|
|
2010
|
Audio
products
|
|
$
|
350,743
|
|
$
|
264,840
|
|
$
|
153,661
|
Energy products
|
|
|
76,100
|
|
|
104,731
|
|
|
67,328
|
Total
|
|
$
|
426,843
|
|
$
|
369,571
|
|
$
|
220,989
|
Geographic Area
The following
illustrates sales by geographic locations based on the sales office location (in
thousands):
|
|
Year Ended
|
|
|
March 31,
|
|
March 26,
|
|
March 27,
|
|
|
2012
|
|
2011
|
|
2010
|
United States
|
|
$
|
50,230
|
|
$
|
66,701
|
|
$
|
47,936
|
United Kingdom
|
|
|
23,927
|
|
|
27,398
|
|
|
17,156
|
China
|
|
|
294,143
|
|
|
205,775
|
|
|
103,992
|
Hong Kong
|
|
|
8,671
|
|
|
9,216
|
|
|
5,611
|
Japan
|
|
|
15,196
|
|
|
16,902
|
|
|
12,335
|
South Korea
|
|
|
9,781
|
|
|
12,413
|
|
|
10,134
|
Taiwan
|
|
|
10,662
|
|
|
13,073
|
|
|
10,585
|
Other Asia
|
|
|
13,063
|
|
|
16,012
|
|
|
12,381
|
Other non-U.S. countries
|
|
|
1,170
|
|
|
2,081
|
|
|
859
|
Total
consolidated sales
|
|
$
|
426,843
|
|
$
|
369,571
|
|
$
|
220,989
|
The following illustrates property, plant and equipment, net, by
geographic locations, based on physical location (in thousands):
Page 60 of 67
|
|
Year
Ended
|
|
|
March 31,
2012
|
|
March 26,
2011
|
United
States
|
|
|
$
|
66,530
|
|
|
|
$
|
33,977
|
|
United Kingdom
|
|
|
|
20
|
|
|
|
|
29
|
|
China
|
|
|
|
158
|
|
|
|
|
117
|
|
Hong Kong
|
|
|
|
3
|
|
|
|
|
3
|
|
Japan
|
|
|
|
167
|
|
|
|
|
377
|
|
South Korea
|
|
|
|
6
|
|
|
|
|
4
|
|
Taiwan
|
|
|
|
83
|
|
|
|
|
44
|
|
Other Asia
|
|
|
|
11
|
|
|
|
|
12
|
|
Total
consolidated property, plant and equipment, net
|
|
|
$
|
66,978
|
|
|
|
$
|
34,563
|
|
16. Quarterly Results
(Unaudited)
The following quarterly results have been derived from our audited annual
consolidated financial statements. In the opinion of management, this unaudited
quarterly information has been prepared on the same basis as the annual
consolidated financial statements and includes all adjustments, including normal
recurring adjustments, necessary for a fair presentation of this quarterly
information. This information should be read along with the financial statements
and related notes. The operating results for any quarter are not necessarily
indicative of results to be expected for any future period.
The unaudited
quarterly statement of operations data for each quarter of fiscal years 2012 and
2011 were as follows (in thousands, except per share data):
|
|
Fiscal Year 2012
|
|
|
1
st
|
|
2
nd
|
|
3
rd
|
|
4
th
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Net sales
|
|
$
|
92,242
|
|
$
|
101,602
|
|
$
|
122,368
|
|
$
|
110,631
|
Gross margin
|
|
|
47,709
|
|
|
54,355
|
|
|
66,030
|
|
|
62,347
|
Net income
|
|
|
9,178
|
|
|
11,247
|
|
|
16,731
|
|
|
50,827
|
Basic income per share
|
|
$
|
0.14
|
|
$
|
0.17
|
|
$
|
0.26
|
|
$
|
0.79
|
Diluted income per
share
|
|
|
0.13
|
|
|
0.17
|
|
|
0.25
|
|
|
0.75
|
|
|
|
Fiscal Year 2011
|
|
|
1
st
|
|
2
nd
|
|
3
rd
|
|
4
th
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
Net sales
|
|
$
|
81,915
|
|
$
|
100,598
|
|
$
|
95,625
|
|
$
|
91,433
|
Gross margin
|
|
|
46,735
|
|
|
56,780
|
|
|
52,462
|
|
|
46,018
|
Net income
|
|
|
17,602
|
|
|
30,874
|
|
|
24,621
|
|
|
130,406
|
Basic income per share
|
|
$
|
0.26
|
|
$
|
0.45
|
|
$
|
0.36
|
|
$
|
1.91
|
Diluted income per
share
|
|
|
0.25
|
|
|
0.42
|
|
|
0.34
|
|
|
1.80
|
|
(1)
|
|
The $39.5 million tax
benefit recorded in the fourth quarter of 2012 favorably impacted net
income, as a result of a $37.3 million release in valuation allowance on
deferred tax assets.
|
Page 61 of 67
|
(2)
|
|
Net income was
favorably impacted by a $117.0 million benefit to tax expense to decrease
the valuation allowance on our U.S. deferred tax assets, which was
partially offset by reduced gross margins attributable to a charge of
approximately $4.2 million due to a production issue with a new audio
device that entered high volume production in March
2011.
|
17. Subsequent Event
On April 19, 2012, the Company entered into a revolving credit agreement
(Credit Agreement) with Wells Fargo Bank, National Association, as
administrative agent and issuing lender, Barclays Bank, as syndication agent,
Wells Fargo Securities, LLC and Barclays Capital, as joint lead arrangers and
co-book managers. The aggregate borrowing limit under the unsecured revolving
credit facility is $100 million with a $15 million letter of credit sublimit and
is intended to provide the Company with short-term borrowings for working
capital and other general corporate purposes. The interest rate payable is, at
the Companys election, (i) a base rate plus the applicable margin, where the
base rate is determined by reference to the highest of 1) the prime rate
publicly announced by the administrative agent, 2) the Federal Funds Rate plus
0.50%, and 3) LIBOR for a one month period plus the difference between the
applicable margin for LIBOR rate loans and the applicable margin for base rate
loans, or (ii) the LIBOR rate plus the applicable margin that varies according
to the leverage ratio of the borrower. Certain representations and warranties
are required under the Credit Agreement, and the borrower must be in compliance
with specified financial covenants, including (i) the requirement that the
Company maintain a ratio of consolidated funded indebtedness to consolidated
EBITDA of not greater than 1.75 to 1.0, computed in accordance with the terms of
the Credit Agreement, and (ii) a minimum ratio of consolidated EBITDA to
consolidated interest expense of not less than 3.50 to 1.0.
Page 62 of 67
ITEM 9.
Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
Item 9A.
Controls and Procedures
Disclosure Controls and
Procedures
The Companys
management carried out an evaluation, under the supervision and with the
participation of the CEO and CFO, of the effectiveness of the design and
operation of the Companys disclosure controls and procedures (as defined in
Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of March 31,
2012. Based on that evaluation, the Companys CEO and CFO have concluded that
such disclosure controls and procedures were effective in alerting them in a
timely manner to material information relating to the Company required to be
included in its periodic reports filed with the SEC.
Managements Annual Report on Internal
Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined under Rule
13a-15(f). Under the supervision and with the participation of our management,
including our CEO and CFO, we assessed the effectiveness of our internal control
over financial reporting as of the end of the period covered by this report
based on the framework in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
Because of its inherent limitation, internal control over financial
reporting may not prevent or detect misstatements. In addition, projections of
any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions and that the
degree of compliance with the policies or procedures may deteriorate.
Based on its assessment of internal control over financial reporting,
management has concluded that our internal control over financial reporting was
effective as of March 31, 2012, to provide reasonable assurance regarding the
reliability of our financial reporting and the preparation of our financial
statements for external purposes in accordance with U.S. generally accepted
accounting principles.
Our independent registered public accounting firm, Ernst & Young LLP,
has issued an attestation report on managements assessment of our internal
control over financial reporting as of March 31, 2012, included in Item 8 of
this report.
Changes in Internal Control Over
Financial Reporting
There has been no change in the Companys internal control over financial
reporting during the quarter ended March 31, 2012, that has materially affected,
or is reasonably likely to materially affect, the Companys internal control
over financial reporting.
Page 63 of 67
PART III
ITEM 10.
Directors and Executive Officers of the
Registrant
The information set forth in the proxy statement to be delivered to
stockholders in connection with our Annual Meeting of Stockholders to be held on
July 26, 2012 (the Proxy Statement) under the headings
Corporate Governance
-
Board Meetings and Committees, Corporate
Governance Audit Committee, Proposals to be Voted on Proposal No. 1 -
Election of Directors, Summary of Executive Compensation, and Section 16(a)
Beneficial Ownership Reporting Compliance
is
incorporated herein by reference.
ITEM 11.
Executive Compensation
The information set forth in the Proxy Statement under the headings
Director Compensation
Arrangements
,
Compensation Discussion and Analysis,
Compensation Committee Report,
and
Proposals to be Voted on Proposal No. 3
Advisory Vote to Approve Named Executive Officer Compensation
is incorporated herein by reference.
ITEM 12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
The information
set forth in the Proxy Statement under the headings
Equity Compensation Plan Information
and
Security Ownership of Certain
Beneficial Owners and Management
is
incorporated herein by reference.
ITEM 13.
Certain Relationships and Related
Transactions
The information set forth in the Proxy Statement under the headings
Certain Relationships and Related
Transactions
and
Corporate Governance
is incorporated
herein by reference.
ITEM 14.
Principal Accountant Fees and Services
The information set forth in the Proxy Statement under the heading
Audit and Non-Audit Fees and
Services
is incorporated herein by
reference.
PART IV
ITEM 15.
Exhibit and Financial Statement Schedules
(a) The following documents are filed as
part of this Report:
1.
Consolidated Financial Statements
-
Reports of Ernst & Young LLP, Independent
Registered Public Accounting Firm.
-
Consolidated Balance Sheets as of March 31,
2012, and March 26, 2011.
-
Consolidated Statements of Operations for the
fiscal years ended March 31, 2012, March 26, 2011, and March 27,
2010.
-
Consolidated Statements of Cash Flows for the
fiscal years ended March 31, 2012, March 26, 2011, and March 27,
2010.
-
Consolidated Statements of Stockholders Equity
for the fiscal years ended March 31, 2012, March 26, 2011, and March 27,
2010.
-
Notes to Consolidated Financial
Statements.
Page 64 of 67
2.
Financial Statement Schedules
All schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements or notes thereto.
3.
Exhibits
The
following exhibits are filed as part of or incorporated by reference into this
Report:
3.1
|
|
Certificate of Incorporation of
Registrant, filed with the Delaware Secretary of State on August 26, 1998.
(1)
|
3.2
|
|
Amended and Restated Bylaws of
Registrant. (2)
|
10.1
+
|
|
1990 Directors Stock Option Plan, as
amended. (3)
|
10.2 +
|
|
Cirrus Logic, Inc. 1996 Stock Plan, as
amended and restated as of December 4, 2007. (4)
|
10.3 +
|
|
2002 Stock Option Plan, as amended.
(5)
|
10.4 +
|
|
Cirrus Logic, Inc. 2006 Stock Incentive
Plan. (6)
|
10.5 +
|
|
Form of Stock Option Agreement for
options granted under the Cirrus Logic, Inc. 2006 Stock Incentive Plan.
(14)
|
10.6 +
|
|
Form of Notice of Grant of Stock Option
for options granted under the Cirrus Logic, Inc. 2006 Stock Incentive
Plan. (6)
|
10.7 +
|
|
Form of Stock Option Agreement for
Outside Directors under the Cirrus Logic, Inc. 2006 Stock Incentive Plan.
(7)
|
10.8 +
|
|
Form of Restricted Stock Award
Agreement under the Cirrus Logic, Inc. 2006 Stock Incentive Plan.
(8)
|
10.9 +
|
|
Form of Restricted Stock Unit
Agreement for U.S. Employees under the Cirrus Logic, Inc. 2006 Stock
Incentive Plan. (14)
|
10.10 +
|
|
Form of Notice of Grant of
Restricted Stock Units granted under the Cirrus Logic, Inc. 2006 Stock
Incentive Plan. (14)
|
10.11 +
|
|
2007 Executive Severance and
Change of Control Plan, effective as of October 1, 2007. (9)
|
10.12 +
|
|
2007 Management and Key
Individual Contributor Incentive Plan, as amended on February 15, 2008.
(10)
|
10.13
|
|
Lease Agreement by and between
Desta Five Partnership, Ltd. and Registrant, dated November 10, 2000, for
192,000 square feet located at 2901 Via Fortuna, Austin, Texas.
(1)
|
10.14
|
|
Amendment No. 1 to Lease
Agreement by and between Desta Five Partnership, Ltd. and Registrant dated
November 10, 2000. (11)
|
10.15
|
|
Amendment No. 2 to Lease
Agreement by and between Desta Five Partnership, Ltd. and Registrant dated
November 10, 2000. (5)
|
10.16
|
|
Amendment No. 3 to Lease
Agreement by and between Desta Five Partnership, Ltd. and Registrant dated
November 10, 2000. (12)
|
10.17
|
|
The Revised Stipulation of
Settlement dated March 10, 2009 (13)
|
10.18
|
|
Purchase and Sale Agreement by
and between Fortis Communities-Austin, L.P. and Registrant dated March 24,
2010. (15)
|
10.19
|
|
First Amendment to Purchase and
Sale Agreement by and between Fortis Communities-Austin, L.P. and
Registrant dated May 14, 2010. (15)
|
10.20
|
|
Second Amendment to Purchase and
Sale Agreement by and between Fortis Communities-Austin, L.P. and
Registrant dated June 7, 2010. (16)
|
10.21
|
|
General Contractors Agreement by
Registrant dated January 25, 2011. (17)
|
10.22
|
|
Amendment to General Contractors
Agreement by Registrant dated January 12, 2012. (18)
|
10.23*
|
|
Amendment to General Contractors
Agreement by Registrant dated January 23, 2012.
|
10.24
|
|
Credit Agreement dated April 19,
2012 among the Company, Wells Fargo Bank, National Association, as
Administrative Agent and Issuing Lender, Barclays Bank, as Syndication
Agent, Wells Fargo Securities, LLC and Barclays Capital, as Joint Lead
Arrangers and Co-Book Managers, and the lenders referred to therein.
(19)
|
14
|
|
Code of Conduct.
(20)
|
23.1*
|
|
Consent of Ernst & Young
LLP, Independent Registered Public Accounting Firm.
|
24.1*
|
|
Power of Attorney (see signature
page).
|
31.1*
|
|
Certification of Chief Executive
Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
31.2*
|
|
Certification of Chief Financial
Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
32.1*#
|
|
Certification of Chief Executive
Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
32.2*#
|
|
Certification of Chief Financial
Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
101.INS*#
|
|
XBRL Instance
Document
|
101.SCH*#
|
|
XBRL Taxonomy Extension Schema
Document
|
101.CAL*#
|
|
XBRL Taxonomy Extension
Calculation Linkbase Document
|
Page 65 of 67
101.LAB*#
|
|
XBRL Taxonomy Extension Label
Linkbase Document
|
101.PRE*#
|
|
XBRL Taxonomy Extension
Presentation Linkbase Document
|
101.DEF*#
|
|
XBRL Taxonomy Extension
Definition Linkbase Document
|
+
|
Indicates a management contract
or compensatory plan or arrangement.
|
*
|
Filed with this Form
10-K.
|
#
|
Not considered to be filed for
the purposes of section 18 of the Securities Exchange Act of 1934 or
otherwise subject to the liabilities of that
section.
|
|
(1)
|
|
Incorporated by
reference from Registrants Report on Form 10-K for the fiscal year ended
March 31, 2001, filed with the SEC on June 22, 2001 (Registration No.
000-17795).
|
|
|
|
(2)
|
|
Incorporated by
reference from Registrants Report on Form 8-K filed with the SEC on May
26, 2011.
|
|
|
|
(3)
|
|
Incorporated by
reference from Registrants Registration Statement on Form S-8 filed with
the SEC on August 10, 2001 (Registration No. 333-67322).
|
|
|
|
(4)
|
|
Incorporated by
reference from Registrants Report on Form 10-Q filed with the SEC on
January 30, 2008.
|
|
|
|
|
|
(5)
|
|
Incorporated by
reference from Registrants Report on Form 10-K for the fiscal year ended
March 29, 2003, filed with the SEC on June 13, 2003 (Registration No.
000-17795).
|
|
|
|
(6)
|
|
Incorporated by
reference from Registrations Statement on Form S-8 filed with the SEC on
August 1, 2006 (Registration No. 000-17795).
|
|
|
|
(7)
|
|
Incorporated by
reference from Registrants Report on Form 8-K filed with the SEC on
August 1, 2007.
|
|
|
|
(8)
|
|
Incorporated by
reference from Registrants Report on Form 10-Q filed with the SEC on
November 5, 2007.
|
|
|
|
(9)
|
|
Incorporated by
reference from Registrants Report on Form 8-K filed with the SEC on
October 3, 2007.
|
|
|
|
(10)
|
|
Incorporated by
reference from Registrants Report on Form 10-K for the fiscal year ended
March 29, 2008, filed with the SEC on May 29, 2008 (Registration No.
000-17795).
|
|
|
|
(11)
|
|
Incorporated by
reference from Registrants Report on Form 10-K for the fiscal year ended
March 30, 2002, filed with the SEC on June 19, 2002 (Registration No.
000-17795).
|
|
|
|
(12)
|
|
Incorporated by
reference from Registrants Report on Form 10-K for the fiscal year ended
March 25, 2006, filed with the SEC on May 25, 2006 (Registration No.
000-17795).
|
|
|
|
(13)
|
|
Incorporated by
reference from Registrants Report on Form 8-K filed with the SEC on April
1, 2009.
|
|
|
|
(14)
|
|
Incorporated by
reference from Registrants Report on Form 8-K filed with the SEC on
October 7, 2010.
|
|
|
|
(15)
|
|
Incorporated by
reference from Registrants Report on Form 10-K for the fiscal year ended
March 27, 2010, filed with the SEC on June 1, 2010 (Registration No.
000-17795).
|
|
|
|
(16)
|
|
Incorporated by
reference from Registrants Report on Form 10-Q filed with the SEC on July
20, 2010.
|
|
|
|
(17)
|
|
Incorporated by
reference from Registrants Report on Form 10-Q filed with the SEC on
January 27, 2011.
|
|
|
|
(18)
|
|
Incorporated by
reference from Registrants Report on Form 10-Q filed with the SEC on
January 26, 2012.
|
|
|
|
(19)
|
|
Incorporated by
reference from Registrants Report on Form 8-K filed with the SEC on April
25, 2012.
|
|
|
|
(20)
|
|
Incorporated by
reference from Registrants Report on Form 10-K for the fiscal year ended
March 27, 2004, filed with the SEC on June 9, 2004 (Registration No.
000-17795).
|
Page 66 of 67
Signatures
Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned; thereunto duly authorized.
CIRRUS LOGIC,
INC.
|
|
By:
|
/
S
/ T
HURMAN
K. C
ASE
|
|
Thurman K. Case
|
|
Vice President, Chief Financial Officer
and
|
|
Chief Accounting Officer
|
|
May 30,
2012
|
KNOW BY THESE PRESENT, that each person whose signature appears below
constitutes and appoints Thurman K. Case, his attorney-in-fact, with the power
of substitution, for him in any and all capacities, to sign any amendments to
this report on Form 10-K and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of the attorney-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
following persons on behalf of the Registrant, in the capacities and on the
dates indicated have signed this report below:
Signature
|
|
Title
|
|
Date
|
/s/ J
ASON
P. R
HODE
|
|
President and Chief Executive
Officer
|
|
May 30, 2012
|
Jason P. Rhode
|
|
|
|
|
|
/s/ T
HURMAN
K. C
ASE
|
|
Vice President, Chief Financial Officer
and
|
|
May 30, 2012
|
Thurman K. Case
|
|
Chief Accounting Officer
|
|
|
|
/s/ J
OHN
C. C
ARTER
|
|
Director
|
|
May 30, 2012
|
John C. Carter
|
|
|
|
|
|
/s/ T
IMOTHY
R. D
EHNE
|
|
Director
|
|
May 30, 2012
|
Timothy R. Dehne
|
|
|
|
|
|
/s/ W
ILLIAM
D. S
HERMAN
|
|
Director
|
|
May 30, 2012
|
William D. Sherman
|
|
|
|
|
|
/s/ A
LAN
R. S
CHUELE
|
|
Director
|
|
May 30, 2012
|
Alan R. Schuele
|
|
|
|
|
|
/s/ R
OBERT
H. S
MITH
|
|
Director
|
|
May 30, 2012
|
Robert H. Smith
|
|
|
|
|
|
/s/ S
USAN
W
ANG
|
|
Director
|
|
May 30, 2012
|
Susan Wang
|
|
|
|
|
Page 67 of 67
Exhibit Index
The following
exhibits are filed or furnished as part of this Report:
Number
|
|
Description
|
|
10.23
|
|
Amendment to General Contractors Agreement by Registrant
dated January 23, 2012.
|
23.1
|
|
Consent of Ernst & Young LLP,
Independent Registered Public Accounting Firm.
|
24.1
|
|
Power of Attorney (see signature page).
|
31.1
|
|
Certification of Chief Executive
Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
31.2
|
|
Certification of Chief Financial Officer, pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
|
32.1
|
|
Certification of Chief Executive
Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
32.2
|
|
Certification of Chief Financial Officer, pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
|
101.INS
|
|
XBRL Instance Document
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation
Linkbase Document
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation
Linkbase Document
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase
Document
|
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