NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
1.
Basis of Presentation
The consolidated condensed financial statements have been prepared by Cirrus Logic, Inc. (
“Cirrus Logic,”
“we,” “us,” “our,” or the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (“Commission”). The accompanying unaudited consolidated condensed financial statements do not include complete footnotes and financial presentations. As a result, these financial statements should be read along with the audited consolidated financial statements and notes thereto for the year ended March
30
, 20
1
3
, included in
our
Annual Report
on Form
10-K filed with the Commission on
May 29
, 20
1
3
.
In our opinion, the financial statements reflect all adjustments, including normal recurring adjustments, necessary for a fair presentation of the financial position, operating results and cash flows for those periods presented. The preparation of financial statements in conformity with United States
(“U.S.”)
generally accepted accounting principles
(“GAAP”)
requires management to make estimates and assumptions that affect reported assets, liabilities, revenues and expenses, as well as disclosure of contingent assets and liabilities. Actual results could differ from those estimates and assumptions. Moreover, the results of operations for the interim
periods presented are not necessarily indicative of the results that may be expected for the entire year.
2
.
Marketable Securit
ies
The Company’s investments that have original maturities greater than
90
days have been classified as available-for-sale securities in accordance with
U.S. GAAP. Ma
rketable securities are categorized on the consolidated
condensed
balance sheet as
short- and long-term
marketable securities, as appropriate
.
The following table is a summary of available-for-sale securities at
June 29
, 201
3
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Fair Value
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
(Net Carrying
|
As of June 29, 2013
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Amount)
|
Corporate debt securities
|
$
|
122,901
|
|
$
|
1
|
|
$
|
(219)
|
|
$
|
122,683
|
U.S. Treasury securities
|
|
40,337
|
|
|
5
|
|
|
(3)
|
|
|
40,339
|
Agency discount notes
|
|
1,022
|
|
|
-
|
|
|
-
|
|
|
1,022
|
Commercial paper
|
|
40,876
|
|
|
29
|
|
|
(1)
|
|
|
40,904
|
Total securities
|
$
|
205,136
|
|
$
|
35
|
|
$
|
(223)
|
|
$
|
204,948
|
The Company’s specifically identified gross unrealized losses of $
223
thousand relates to
58
different securities with total amortized cost of approximately $
141.5
million at
June 29
, 201
3
. Because the Company does not intend to sell the investments at a loss and the Company will not be required to sell the investments before recovery of its amortized cost basis, it did not consider the investment in these securities to be other-than
-temporarily impaired at June 29
, 201
3
. Further, the securities with gross unrealized losses had been in a continuous unrealized loss position for less than 12 months as of June
29
, 201
3
.
The following table is a summary of available-for-sale securities at March 3
0
, 201
3
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
Gross
|
|
Gross
|
|
Fair Value
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
(Net Carrying
|
As of March 30, 2013
|
Cost
|
|
Gains
|
|
Losses
|
|
Amount)
|
Corporate debt securities
|
$
|
94,798
|
|
$
|
2
|
|
$
|
(133)
|
|
$
|
94,667
|
U.S. Treasury securities
|
|
34,380
|
|
|
4
|
|
|
(3)
|
|
|
34,381
|
Agency discount notes
|
|
1,027
|
|
|
-
|
|
|
-
|
|
|
1,027
|
Commercial paper
|
|
40,089
|
|
|
9
|
|
|
(28)
|
|
|
40,070
|
Total securities
|
$
|
170,294
|
|
$
|
15
|
|
$
|
(164)
|
|
$
|
170,145
|
The Company’s specifically identifi
ed gross unrealized losses of $
164
thousand relates to
43
different securities with total amortized cost of approximately $
124.1
million at March
3
0
, 201
3
.
Because the Company does not intend to sell the investments at a loss and the Company will not be required to sell the investments before recovery of its amortized cost basis, it did not consider the investment in these securities to be other-than
-
temporarily impaired at March 30
, 201
3
.
Further, the securities with gross unrealized losses had been in a continuous unrealized loss position for less than 12 months as of
March 30
, 201
3
.
The cost and estimated fair value of available-for-sale investments by contractual maturities were as follows
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 29, 2013
|
|
|
March 30, 2013
|
|
|
|
Amortized
|
|
|
Estimated
|
|
|
Amortized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Fair Value
|
Within 1 year
|
|
$
|
165,625
|
|
$
|
165,540
|
|
$
|
105,290
|
|
$
|
105,235
|
After 1 year
|
|
|
39,511
|
|
|
39,408
|
|
|
65,004
|
|
|
64,910
|
Total
|
|
$
|
205,136
|
|
$
|
204,948
|
|
$
|
170,294
|
|
$
|
170,145
|
3
.
F
air Value of Financial Instruments
The Company has determined that the only assets and liabilities in the Company’s financial statements that are required to be measured at fair value on a recurring basis are the Company’s cash equivalents and 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 Company’s investment portfolio assets consist of
corporate debt securities,
money market funds,
U.S. Treasury securities, obligations of
certain
U.S. government-sponsored enterprises
, and
commercial paper,
and are reflected on our consolidated condensed balance sheet under the headings cash and cash equivalents, marketable securities, and long-term marketable securities. The Company determines the fair value of its investment portfolio assets by obtaining non-binding market prices from its third-party portfolio managers on the last day of the quarter,
whose sources may use quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs) in determining fair
value.
As of June
29
, 201
3
, t
he Company classif
ied its investment portfolio assets as
Level 1
or Level 2
inputs.
The Company has no Level 3 assets.
T
here were no transfers between
L
evel 1,
L
evel 2, or
L
evel 3 measurements for the three month period ending
June 29, 2013
.
The fair value of our financial assets at
June
29
, 201
3
,
was determined using the following inputs (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
in Active
|
|
Significant
|
|
|
|
|
|
Markets for
|
|
Other
|
|
Significant
|
|
|
|
Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
$
|
60,210
|
|
$
|
-
|
|
$
|
-
|
|
$
|
60,210
|
Commercial paper
|
|
-
|
|
|
500
|
|
|
-
|
|
|
500
|
|
$
|
60,210
|
|
$
|
500
|
|
$
|
-
|
|
$
|
60,710
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
$
|
-
|
|
$
|
122,683
|
|
$
|
-
|
|
$
|
122,683
|
U.S. Treasury securities
|
|
40,339
|
|
|
-
|
|
|
-
|
|
|
40,339
|
Agency discount notes
|
|
-
|
|
|
1,022
|
|
|
-
|
|
|
1,022
|
Commercial paper
|
|
-
|
|
|
40,904
|
|
|
-
|
|
|
40,904
|
|
$
|
40,339
|
|
$
|
164,609
|
|
$
|
-
|
|
$
|
204,948
|
The fair value of our financial assets at March 3
0
, 201
3
,
was determined using the following inputs (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
in Active
|
|
Significant
|
|
|
|
|
|
Markets for
|
|
Other
|
|
Significant
|
|
|
|
Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
$
|
54,762
|
|
$
|
-
|
|
$
|
-
|
|
$
|
54,762
|
Commercial paper
|
|
-
|
|
|
1,500
|
|
|
-
|
|
|
1,500
|
|
$
|
54,762
|
|
$
|
1,500
|
|
$
|
-
|
|
$
|
56,262
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
$
|
-
|
|
$
|
94,667
|
|
$
|
-
|
|
$
|
94,667
|
U.S. Treasury securities
|
|
34,381
|
|
|
-
|
|
|
-
|
|
|
34,381
|
Agency discount notes
|
|
-
|
|
|
1,027
|
|
|
-
|
|
|
1,027
|
Commercial paper
|
|
-
|
|
|
40,070
|
|
|
-
|
|
|
40,070
|
|
$
|
34,381
|
|
$
|
135,764
|
|
$
|
-
|
|
$
|
170,145
|
4
.
A
ccounts Receivable, net
The following are the components of accounts receivable
, net
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 29,
|
|
March 30,
|
|
2013
|
|
2013
|
Gross accounts receivable
|
$
|
63,963
|
|
$
|
69,590
|
Allowance for doubtful accounts
|
|
(321)
|
|
|
(301)
|
Accounts receivable, net
|
$
|
63,642
|
|
$
|
69,289
|
5
.
Invent
ories
Inventories are comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 29,
|
|
March 30,
|
|
2013
|
|
2013
|
Work in process
|
$
|
52,390
|
|
$
|
34,169
|
Finished goods
|
|
58,234
|
|
|
85,131
|
|
$
|
110,624
|
|
$
|
119,300
|
6.
Restructuring Costs
In the third quarter of fiscal year 2013, the Company committed to a plan to close its Tucson, Arizona design center and move those operations to the Company’s headquarters in Austin, Texas. As a result, the Company incurred a one-time charge for relocation, severance-related items and facility-related costs to operating expenses totaling $3.5 million in the third quarter of fiscal year 2013. In the current quarter, the Company reported a credit of $0.4 million related to this activity. This information is presented as a separate line item on the consolidated condensed statement of comprehensive income in operating expenses under the caption “
Restructuring and other, net
.”
Of the net $3.1 million expense incurred, approximately $2.3 million has been completed, and consisted of severance and relocation-related costs of approximately $1.1 million, an asset impairment charge of approximately $1.0 million, and facility-related costs of approximately $0.2 million. Payments will be made through calendar year 2015. As of June 29, 2013, we have a remaining restructuring accrual of $0.8 million, included in “
Other accrued liabilities”
on the consolidated condensed balance sheet.
7
.
Income Taxes
Our provision for income taxes is based on estimated effective tax rates derived from an estimate of annual consolidated earnings before taxes, adjusted for nondeductible expenses, other permanent items and any applicable credits. Our income tax expense is primarily a non-cash charge due to the utilization of U.S. net operating losses.
The following table presents the provision for income taxes and the effective tax rates (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
June 29,
|
|
|
June 30,
|
|
|
2013
|
|
|
2012
|
Income before income taxes
|
$
|
31,646
|
|
$
|
10,575
|
Provision for income taxes
|
$
|
11,004
|
|
$
|
3,648
|
Effective tax rate
|
|
34.8%
|
|
|
34.5%
|
Our income tax expense for the first quarter of fiscal year 2014 was
slightly below
the federal statutory rate primarily due
to the effect of the federal research and development credit which was extended through December 31, 2013 by the American Taxpayer Relief Act of 2012, enacted on January 2, 2013
. Our income tax expense for the first quarter of fiscal year 2013 was slightly
below
the federal
statutory rate primarily due to the effect of permanent differences that are deductible for tax purposes
.
We had no unrecognized tax benefits as of June 29, 2013.
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.
As of June 29, 2013, the balance of accrued interest and penalties was zero.
We did not record any interest or penalties during the three months ended June 29, 2013 and
June 30, 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 20
10
through 20
1
3
remain open to examination by the major taxing jurisdictions to which we are subject.
8
.
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 shared
outstanding.
These potentially dilutive items consist primarily of outstanding stock o
ptions and restricted stock award
s.
The following table details the calculation of basic and diluted earnings per share for the three months ended June 29, 2013 and June 30, 2013 (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
June 29,
2013
|
|
June 30,
2012
|
Numerator:
|
|
|
|
|
|
Net income
|
$
|
20,642
|
|
$
|
6,927
|
Denominator:
|
|
|
|
|
|
Weighted average shares outstanding
|
|
63,363
|
|
|
64,470
|
Effect of dilutive securities
|
|
2,825
|
|
|
4,059
|
Weighted average diluted shares
|
|
66,188
|
|
|
68,529
|
Basic earnings per share
|
$
|
0.33
|
|
$
|
0.11
|
Diluted earnings per share
|
$
|
0.31
|
|
$
|
0.10
|
The weighted
outstanding
options
excluded from
our diluted calculation for the
three months
ended
June 29, 2013 and
June 30
, 201
2
, were
1,068
,000,
and
64
,000,
respectively,
as
the
exercise
price
exceeded the average market price during the period
.
9
.
Legal Matters
From time to time, we are involved in legal proceedings concerning matters arising in connection with the conduct of our business activities. We regularly evaluate the status of legal proceedings in which we are involved
in order
to assess whether a loss is probable or there is a reasonable possibility that a loss or additional loss may have been incurred and determine if accruals are appropriate. We further evaluate each legal proceeding to assess whether an estimate of possible loss or range of loss can be made, if accruals are not appropriate.
We intend to vigorously defend ourselves against the allegations made in the legal cases described below.
On June 4, 2012, U.S. Ethernet Innovations, LLC (the “Plaintiff”) filed suit against Cirrus Logic and two other defendants in the U.S. District Court, Eastern District of Texas. The Plaintiff alleges that Cirrus Logic infringed four U.S. patents relating to Ethernet technology. In its complaint, the Plaintiff indicated that it is seeking unspecified monetary damages, including up to treble damages for willful infringement. We answered the complaint on June 29, 2012 denying the allegations of infringement and seeking a declaratory judgment that the patents in suit were invalid and not infringed. The
parties entered into a settlement agreement on May 30, 2013. In exchange for a full release of claims as it relates to the asserted patent, we paid the Plaintiff
$0.7 million
. This amount
is recorded as a separate line item on the consolidated condensed statements of comprehensive income.
For the case
s
described below, management is unable to provide a meaningful estimate of the possible loss or range of possible loss because, among other reasons, (i) the proceedings are in various stages; (ii)
damages have not been sought
or specified
; (iii) damages are unsupported and/or exaggerated; (iv) there is uncertainty as to the outcome of pending appeals or motions; (v) there are significant factual issues to be resolved; and/or (vi) there are novel legal issues or unsettled legal theories to be presented or a large number of parties. For these cases, however, management does not believe, based on currently available information, that the outcomes of these proceedings will have a material adverse effect on our financial condition. However, the ultimate resolutions of these various proceedings and matters are inherently difficult to predict; as such, our operating results could be materially affected by the unfavorable resolution of one or more of these proceedings or matters for any particular period, depending, in part, upon the operating results for such period.
On February 4, 2013, a purported shareholder filed a class action complaint in the United States District Court for the Southern District of New York against the Company and two of the Company’s executives (the “Securities Case”).
Koplyay v. Cirrus Logic, Inc., et al
Civil Action No. 13-CV-0790. The complaint alleges that the defendants violated the federal securities laws by making materially false and misleading statements regarding our business results between July 31, 2012, and October 31, 2012, and seeks unspecified damages along with plaintiff’s costs and expenses, including attorneys’ fees. A second complaint was filed on April 13, 2013, by a different purported shareholder, in the same
C
ourt, setting forth substantially the same allegations. On April 19, 2013, the
C
ourt appointed the plaintiff and counsel in the first class action complaint as the lead plaintiff and lead counsel.
The lead plaintiff filed an amended complaint on May 1, 2013, including substantially the same allegations as the original complaint.
On May 24, 2013, the Company filed a motion to dismiss the amended complaint for failure to state a claim. The parties completed th
e
briefing
on that motion
on June 16, 2013, and the Company expects a ruling on its motion shortly.
On April 13, 2013, another purported shareholder filed a shareholder derivative complaint against several of our current officers and directors in the District Court of Travis County, Texas, 53
rd
Judicial District (the “Derivative Case”).
Graham, derivatively on behalf of Cirrus Logic, Inc. v. Rhode, et al.,
Cause No. D-1-GN-13-001285. In this complaint, the plaintiff makes allegations similar to those presented in the Securities Case, but the plaintiff asserts various state law causes of action, including claims of breach of fiduciary duty and unjust enrichment. The Company is named solely as a nominal defendant against whom no recovery is sought.
On May 16, 2013, the Court granted the parties’ joint motion to temporarily defer prosecution of this case until certain events occur in the Securities Case described above.
1
0
.
Stockholders’ Equity
The Company issued
0.1
million and
0.2 million shares of common stock for the three month periods ending
June 29, 2013 and
June 30, 2012, respectively, in connection with stock
issuances
during the
respective
periods.
1
1
.
Segment Information
We determine our operating segments in accordance with
Financial Accounting Standards Board
guidelines.
Our Chief Executive Officer (“CEO”)
has been identified as the chief operating decision maker
under these guidelines
.
The Company operates and tracks its results in one reportable segment
, but reports revenue performance in
two product lines
, which currently are audio and energy
.
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 complete, discrete financial information maintained for these product lines.
Revenue from our product lines are as follows (in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
June 29,
|
|
June 30,
|
|
2013
|
|
2012
|
Audio Products
|
$
|
143,666
|
|
$
|
80,747
|
Energy Products
|
|
11,459
|
|
|
18,259
|
|
$
|
155,125
|
|
$
|
99,006
|