NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Nature of Business
.
Integrated Device Technology, Inc. (IDT or the Company) designs, develops, manufactures and markets a broad range of integrated circuits for the advanced communications, computing and consumer industries.
Basis of Presentation
.
The Company's fiscal year is the 52- or 53-week period ending on the Sunday closest to March 31
st
. In a 52-week year, each fiscal quarter consists of thirteen weeks. In a 53-week year, the additional week is usually added to the third quarter, making such quarter consist of fourteen weeks. The first and second quarters of fiscal 2013 and fiscal 2012 were thirteen week periods.
Reclassifications.
Certain prior period balances in the accompanying consolidated financial statements have been reclassified to conform to the current period presentation.
Principles of Consolidation
. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated.
Use of Estimates
. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Significant Accounting Policies.
For a description of significant accounting policies, see Note 1, Summary of Significant Accounting Policies to the consolidated financial statements included in the Company's annual report on Form 10-K for the fiscal year ended April 1, 2012. There have been no material changes to the Company's significant accounting policies since the filing of the annual report on Form 10-K.
Recent Accounting Pronouncements
.
In December 2011, the FASB issued guidance related to the enhanced disclosures that will enable the users of financial statements to evaluate the effect or potential effect of netting arrangements of an entity's financial position. The amendments require improved information about financial instruments and derivative instruments that are either offset or subject to enforceable master netting arrangements or similar agreement. The guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
In July 2012, the FASB simplified the guidance for testing for impairment of indefinite-lived intangible assets other than goodwill. The changes are intended to reduce compliance costs. The Company's indefinite-lived intangible assets are the in process research and development intangible assets. The revised guidance allows a qualitative approach for testing indefinite-lived intangible assets for impairment, similar to the recently issued impairment testing guidance for goodwill and allows the option to first assess qualitative factors (events and circumstances) that could have affected the significant inputs used in determining the fair value of the indefinite-lived intangible asset to determine whether it is more likely than not (meaning a likelihood of more than 50 percent) that the indefinite-lived intangible asset is impaired. An organization may choose to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to calculating its fair value. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012.
Early adoption is permitted. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
Note 2. Revision of Prior Period Financial Statements
During the third quarter of fiscal 2012, the Company identified errors primarily related to retention bonuses associated with its plan to close its Oregon manufacturing facility. In addition, the Company had corrected prior period errors in the first and second quarters of 2012 related to retention bonuses for certain key employees and accounts payable system related issues. The Company assessed the materiality of these errors individually and in the aggregate on prior periods’ financial statements in accordance with the SEC’s Staff Accounting Bulletin No. 99 (SAB 99), and concluded that the errors were not material to any of its prior annual or interim financial statements. Further although the Company also concluded that correcting the errors, on a cumulative basis, would not be material to the expected results of operations for the year ended April 1, 2012, the Company elected to revise its previously issued financial statements as permitted in SEC’s Staff Accounting Bulletin No. 108 (SAB 108) regarding immaterial revisions. The Company also elected to revise its previously issued consolidated financial statements the next time they are filed. As each subsequent filing is made in the future, the previous period consolidated financial statements affected by the errors will be revised. The Company has revised the consolidated statements of operations for the three and six months ended
October 2, 2011
included herein to reflect the correct balances. The revision had no impact on the Company’s total cash flows from operating, investing or financing activities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended,
|
|
For the Six Months Ended,
|
|
October 2, 2011
|
|
October 2, 2011
|
(in thousands, except per share amounts)
|
As
Reported (1)
|
Adjustments
|
As
Revised
|
|
As
Reported (1)
|
Adjustments
|
As
Revised
|
Consolidated Statement of Operations
|
|
|
|
|
|
|
|
Cost of revenues
|
$
|
64,015
|
|
$
|
670
|
|
$
|
64,685
|
|
|
$
|
131,584
|
|
$
|
2,950
|
|
$
|
134,534
|
|
Gross profit
|
74,303
|
|
(670
|
)
|
73,633
|
|
|
156,019
|
|
(2,950
|
)
|
153,069
|
|
Research and development
|
39,567
|
|
(383
|
)
|
39,184
|
|
|
79,234
|
|
(235
|
)
|
78,999
|
|
Selling, general and administrative
|
24,868
|
|
20
|
|
24,888
|
|
|
50,716
|
|
101
|
|
50,817
|
|
Total operating expenses
|
64,435
|
|
(363
|
)
|
64,072
|
|
|
129,950
|
|
(134
|
)
|
129,816
|
|
Operating income
|
9,868
|
|
(307
|
)
|
9,561
|
|
|
26,069
|
|
(2,816
|
)
|
23,253
|
|
Income from continuing operations
before income taxes
|
8,040
|
|
(307
|
)
|
7,733
|
|
|
24,285
|
|
(2,816
|
)
|
21,469
|
|
Provision (benefit) for income taxes
|
(367
|
)
|
—
|
|
(367
|
)
|
|
580
|
|
20
|
|
600
|
|
Net income from continuing operations
|
8,407
|
|
(307
|
)
|
8,100
|
|
|
23,705
|
|
(2,836
|
)
|
20,869
|
|
Net income
|
$
|
47,054
|
|
$
|
(307
|
)
|
$
|
46,747
|
|
|
$
|
54,737
|
|
$
|
(2,836
|
)
|
$
|
51,901
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share:
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.06
|
|
$
|
—
|
|
$
|
0.06
|
|
|
$
|
0.16
|
|
$
|
(0.02
|
)
|
$
|
0.14
|
|
Net income (loss)
|
$
|
0.33
|
|
$
|
(0.01
|
)
|
$
|
0.32
|
|
|
$
|
0.37
|
|
$
|
(0.02
|
)
|
$
|
0.35
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share:
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.06
|
|
$
|
—
|
|
$
|
0.06
|
|
|
$
|
0.16
|
|
$
|
(0.02
|
)
|
$
|
0.14
|
|
Net income (loss)
|
$
|
0.32
|
|
$
|
—
|
|
$
|
0.32
|
|
|
$
|
0.37
|
|
$
|
(0.02
|
)
|
$
|
0.35
|
|
|
|
|
|
|
|
|
|
1) Reflects previously reported amounts as adjusted for discontinued operations (see Note 5)
Note 3. Net Income (loss) Per Share
Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted-average number of common and dilutive potential common shares outstanding during the period. Potential common shares include employee stock options and restricted stock units. For purposes of computing diluted net income per share, weighted average potential common shares do not include potential common shares that are anti-dilutive under the treasury stock method.
The following table sets forth the computation of basic and diluted net income per share from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
(in thousands, except per share amounts)
|
September 30,
2012
|
|
October 2,
2011
|
|
September 30,
2012
|
|
October 2,
2011
|
Numerator (basic and diluted):
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
$
|
(683
|
)
|
|
$
|
8,100
|
|
|
$
|
(140
|
)
|
|
$
|
20,869
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic
|
143,519
|
|
|
144,682
|
|
|
143,055
|
|
|
146,249
|
|
Dilutive effect of employee stock options and restricted stock units
|
—
|
|
|
1,487
|
|
|
—
|
|
|
2,437
|
|
Weighted average common shares outstanding, diluted
|
143,519
|
|
|
146,169
|
|
|
143,055
|
|
|
148,686
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share from continuing operations
|
$
|
—
|
|
|
$
|
0.06
|
|
|
$
|
—
|
|
|
$
|
0.14
|
|
Diluted net income (loss) per share from continuing operations
|
—
|
|
|
0.06
|
|
|
—
|
|
|
0.14
|
|
Potential dilutive common shares of
17.6 million
and
14.6 million
pertaining to employee stock options and restricted stock units were excluded from the calculation of diluted earnings per share for the three months ended
September 30, 2012
and
October 2, 2011
, respectively, because the effect would have been anti-dilutive. Potential dilutive common shares of
17.7 million
and
11.4 million
pertaining to employee stock options and restricted stock units were excluded from the calculation of diluted earnings per share for the six months ended
September 30, 2012
and
October 2, 2011
, respectively, because the effect would have been anti-dilutive.
Note 4. Business Combinations
Acquisition of NXP B.V.'s Data Converter Business
On July 19, 2012, the Company completed an acquisition of certain assets related to technology and products developed for communications analog mixed-signal market applications from NXP B.V. The Company believes the acquisition will enhance its efforts to increase silicon content in wireless infrastructure markets. The Company believes that with this acquisition it can offer its customers a one-stop shop for wireless base stations, including radio frequency (RF) components, analog-to-digital converters (ADCs), digital-to-analog converters (DACs), Serial RapidIO® switches and bridges, high-performance timing devices, data compression IP, and power management ICs and it will help the Company increase its dollar content in the base station by offering all the key components in the signal chain.
The Company acquired the communications analog mixed-signal assets for an aggregate cash purchase price of approximately
$31.2 million
, less a
$4.0 million
credit from NXP B.V for certain accrued liabilities assumed by the Company from NXP B.V resulting in a net aggregate purchase price of
$27.2 million
. The Company incurred approximately
$1.8 million
and
$3.9 million
acquisition related costs, which were included in selling, general and administrative expenses in the Consolidated Statements of Operations for three months and six months ended
September 30, 2012
, respectively.
The assets acquired and liabilities assumed were recognized in the following manner based on their fair values as at July 19, 2012:
|
|
|
|
|
(in thousands)
|
Fair Value
|
Inventories
|
$
|
252
|
|
Property, plant and equipment, net
|
1,125
|
|
Funded pension assets *
|
666
|
|
Accrued pension liabilities*
|
(666
|
)
|
Other long term liabilities
|
(435
|
)
|
Intangible assets (other than goodwill)
|
12,500
|
|
Goodwill
|
13,720
|
|
Total purchase price
|
$
|
27,162
|
|
* See Note 16 for information regarding pension plans adopted.
A summary of the allocation of intangible assets (other than goodwill) is as follows:
|
|
|
|
|
(in thousands)
|
Fair Value
|
Existing technologies
|
$
|
7,500
|
|
Customer relationships
|
2,700
|
|
In-process research and development
|
1,900
|
|
Non-compete agreements
|
300
|
|
Backlog
|
100
|
|
Total
|
$
|
12,500
|
|
The purchase price in excess of the fair value of the assets and liabilities assumed was recognized as goodwill.
Identifiable Tangible Assets and Liabilities:
Assets and liabilities were reviewed and adjusted, if required, to their estimated fair value.
Inventories – The value allocated to inventories reflects the estimated fair value of the acquired inventory based on the expected sales price of the inventory, less reasonable selling margin, discounted for inventory holding period costs.
Funded pension assets and liabilities - The costs of pension benefits and related liabilities for the employees that were transferred to the Company as a result of the acquisition, were determined based on actuarial calculations.
Intangible Assets:
Existing technologies consist of NXP's data converter products that have reached technological feasibility and in-process research and development ("IPR&D") consists of projects that have not reached technological feasibility . The Company valued the existing technologies and in-process research and development ("IPR&D") utilizing a multi period excess earnings method ("Excess Earnings Method"), which uses the discounted future earnings specifically attributed to this intangible asset, that is, in excess of returns for other assets that contributed to those earnings. The Company utilized discount factors of
26%
for the existing technologies and is amortizing the intangible assets over
5
years on a straight-line basis. A discount factor of
31%
was utilized for IPR&D. The Company estimates that this IPR&D will be completed within the next
27 months
. The Company valued one year of contractual backlog also using the Excess Earnings Method and a discount rate of
18.7%
.
Customer relationship and non-competition agreement values have been estimated utilizing a with and without method ("With and Without Method"), which uses projected cash flows with and without the intangible asset in place. Cash flow differentials are then discounted to present value to arrive at an estimate of fair value for the asset. The Company utilized discount factors of
28.7%
for estimating the value of these intangible assets and is amortizing them over
3
years on a straight-line basis.
The financial results of the NXP. B.V data converter business have been included in the Company’s Condensed Consolidated Statements of Operations from July 19, 2012, the closing date of the acquisition.
Pro Forma Financial Information (unaudited)
The following unaudited pro forma financial information presents the combined results of operations of the Company and NXP B.V data converter business as if the acquisition had occurred as of the beginning of fiscal 2012. The unaudited pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal 2012. The unaudited pro forma financial information presented below for the three months period combines the historical NXP B.V data converter business financial information for the period July 2, 2012 to July 19, 2012 to the IDT financial information for the three months ended September 30, 2012 and combines historical IDT and NXP B.V data converter business results for the three months ended October 2, 2011. The unaudited pro forma financial information presented below for the six months period combines the historical NXP B.V data converter business financial information for the period April 2, 2012 to July 19, 2012 to the IDT financial information for the six months ended September 30, 2012 and combines historical IDT and NXP B.V data converter business results for the six months ended October 2, 2011. The proforma financial information includes the business combination effect of the amortization charges from acquired intangible assets, the amortization of fair market value inventory write-up and acquisition costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
(Unaudited in thousands, except per share data)
|
September 30, 2012
|
|
October 2, 2011
|
|
September 30,
2012
|
|
October 2,
2011
|
Revenues
|
133,449
|
|
|
138,734
|
|
|
263,963
|
|
|
288,605
|
|
Net income (loss)
|
346
|
|
|
1,163
|
|
|
(4,361
|
)
|
|
6,465
|
|
Basic net income per share- continuing operations
|
—
|
|
|
0.01
|
|
|
(0.03
|
)
|
|
0.04
|
|
Diluted net income per share - continuing operations
|
—
|
|
|
0.01
|
|
|
(0.03
|
)
|
|
0.04
|
|
Acquisition of Fox Enterprises, Inc.
On April 30, 2012, the Company completed the acquisition of Fox Enterprises, Inc. (Fox), a leading supplier of frequency control products including crystals and crystal oscillators, in an all-cash transaction for approximately
$28.9 million
, which included
$25.7 million
in cash paid at closing and
$3.2 million
was recorded as a liability representing the fair value of contingent cash consideration of up to
$4.0 million
based upon the achievement of future financial milestones, which would be payable after 12 months from the acquisition date . The Company believes that the combination of Fox's product portfolio with the Company's CrystalFree™ oscillators make the Company the industry's one-stop shop for frequency control products. In addition, the Company expects this acquisition will help accelerate the adoption of CrystalFree™ by enabling customers to purchase pMEMS and CMOS solid-state oscillators alongside traditional quartz-based components through our established sales channels.
The Company allocated the purchase price to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess purchase price over those fair values was recorded as goodwill. The fair values assigned to tangible and intangible assets acquired are based on management estimates and assumptions.
The Company incurred approximately
$0.2 million
of acquisition-related costs in the first quarter of fiscal 2013 and these costs are included in selling, general and administrative expenses on the Condensed Consolidated Statements of Operations.
The aggregate purchase price was allocated as follows:
|
|
|
|
|
(in thousands)
|
Fair Value
|
Cash
|
$
|
1,080
|
|
Accounts receivable
|
4,053
|
|
Inventories
|
2,600
|
|
Prepaid expenses and other current assets
|
363
|
|
Property, plant and equipment, net
|
656
|
|
Accounts payable and accrued expenses
|
(3,765
|
)
|
Other long term assets
|
1,190
|
|
Other long term liabilities
|
(1,516
|
)
|
Long term deferred tax liability
|
(4,345
|
)
|
Intangible assets (other than goodwill)
|
12,300
|
|
Goodwill
|
16,305
|
|
Total purchase price
|
$
|
28,921
|
|
A summary of the allocation of intangible assets (other than goodwill) is as follows:
|
|
|
|
|
(in thousands)
|
Fair Value
|
Existing technologies
|
$
|
7,900
|
|
Customer relationships
|
2,000
|
|
Trade names and trademarks
|
1,500
|
|
In process research and development
|
900
|
|
Total
|
$
|
12,300
|
|
Identifiable Tangible Assets and Liabilities
Assets and liabilities were reviewed and adjusted, if required, to their estimated fair value.
Inventories – The value allocated to inventories reflects the estimated fair value of the acquired inventory based on the expected sales price of the inventory, less reasonable selling margin.
Intangible Assets:
The Company valued the existing technologies utilizing a discounted cash flow (“DCF”) model, which uses forecasts of future revenues and expenses related to the intangible assets. The Company utilized discount factors of
15%
for the existing technologies and is amortizing the intangible assets over
5
years on a straight-line basis.
Customer relationship values have been estimated utilizing a DCF model, which uses forecasts of future revenues and expenses related to the intangible asset. The Company utilized discount factors of
15%
-
20%
for this intangible asset and is amortizing this intangible asset over
4
years on a straight-line basis.
Trade names and trademarks values have been estimated utilizing a DCF model, which uses forecasts of future revenues and expenses related to the intangible asset. The Company utilized a discount factor of
20%
for this intangible asset and is amortizing this intangible asset over
3
years on a straight-line basis.
In-process research and development (IPR&D):
The Company utilized the DCF method to value the IPR&D, using a discount factor of
21%
and will amortize this intangible asset once the projects are complete. The Company estimates that this IPR&D will be completed within the next
12 months
.
The financial results of Fox Enterprises have been included in the Company’s Condensed Consolidated Statements of Operations from April 30, 2012, the closing date of the acquisition. Pro forma earnings information has not been presented because the effect of the acquisition is not material to the Company’s historical financial statements.
Acquisition of Alvand Technologies, Inc.
On April 16, 2012, the Company completed the acquisition of Alvand Technologies Inc., a leading analog integrated circuits company specializing in data converters, for total compensation of approximately
$23.3 million
, of which
$20.5 million
was paid in cash at closing and
$2.8 million
was recorded as a liability representing the fair value of contingent cash consideration of up to
$4.0 million
based upon the achievement of future product development milestones, which would be payable after 12 months from the acquisition date. The Company believes that Alvand Technologies provides critical IP needed for its next-generation roadmap.
The Company allocated the purchase price to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess purchase price over those fair values was recorded as goodwill. The fair values assigned to tangible and intangible assets acquired are based on management estimates and assumptions.
The Company incurred approximately
$0.1 million
of acquisition-related costs in the first quarter of fiscal 2013, which were included in SG&A expenses on the Consolidated Statements of Operations.
The aggregate purchase price was allocated as follows:
|
|
|
|
|
(in thousands)
|
Fair Value
|
Cash
|
$
|
147
|
|
Accounts receivable
|
211
|
|
Prepaid expenses
|
124
|
|
Property, plant and equipment, net
|
15
|
|
Accounts payable and other current liabilities
|
(707
|
)
|
Backlog
|
1,500
|
|
Non-competition agreements
|
2,300
|
|
Goodwill
|
19,712
|
|
Total purchase price
|
$
|
23,302
|
|
Amortizable Intangible Assets
Backlog consists of existing contracts. The Company valued the one-year of contractual backlog by calculating the present value of the projected cash flows that are expected to be generated by the backlog utilizing a discount factor of
15%
. The Company will amortize this intangible asset over
1
year on a straight line basis.
The Company valued non-competition agreements estimating cash flows with and without non-competition agreements. The projected cash flows were discounted using a discount factor of
22%
. The Company is amortizing this intangible asset over
3
years on a straight-line basis.
The financial results of Alvand Technologies have been included in the Company’s Condensed Consolidated Statements of Operations from April 16, 2012, the closing date of the acquisition. Pro forma earnings information has not been presented because the effect of the acquisition is not material to the Company’s historical financial statements.
Note 5. Discontinued Operations and Assets Held For Sale
On September 26, 2011, the Company completed the transfer of certain assets related to IDT’s Hollywood Quality Video (HQV) and Frame Rate Conversion (FRC) video processing product lines to Qualcomm pursuant to an Asset Purchase Agreement. The sale of these HQV and FRC video processing assets is intended to allow the Company to intensify focus on its analog-intensive mixed-signal, timing, and interface solutions. Upon the closing of the transaction, Qualcomm paid the Company
$58.7 million
in cash consideration, of which
$6.0 million
will be withheld in an escrow account for a period of two years and is included in the Company’s balance sheet as other current assets. In the second quarter of fiscal 2012, the Company recorded a gain of
$45.9 million
related to this divestiture. The Company’s HQV and FRC product lines represented a significant portion of the Company’s video business assets. As of the end of the first quarter of fiscal 2013, the remaining video business assets classified as held for sale consisted of
$1.0 million
in fixed assets and
$0.7 million
in intangible assets.
On August 1, 2012, the Company completed the transfer of the remaining assets of its video business to Synaptics for
$5.0 million
in cash pursuant to an Asset Purchase Agreement. In connection with the divestiture,
47
employees were transferred to Synaptics. In the second quarter of fiscal 2013, the Company recorded a gain of
$0.9 million
related to this divestiture. The following table summarizes the components of the gain (in thousands):
|
|
|
|
|
Cash proceeds from sale
|
$
|
5,000
|
|
Less book value of assets sold and direct costs related to the sale:
|
|
|
Fixed assets
|
(1,963
|
)
|
Goodwill
|
(700
|
)
|
Inventories
|
(1,288
|
)
|
Transaction and other costs
|
(163
|
)
|
Gain on divestiture
|
$
|
886
|
|
Prior to second quarter of fiscal 2012, the video business was part of the Company’s Computing and Consumer reportable segment. For financial statement purposes, the results of operations for the video business are presented in the Company's condensed consolidated financial statements as discontinued operations.
The results from discontinued operations for the three months ended
September 30, 2012
and
October 2, 2011
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
September 30, 2012
|
|
October 2, 2011
|
|
September 30, 2012
|
|
October 2, 2011
|
Revenues
|
$
|
1,451
|
|
|
$
|
2,902
|
|
|
$
|
2,429
|
|
|
$
|
5,103
|
|
Cost of revenue
|
1,112
|
|
|
4,038
|
|
|
3,006
|
|
|
6,564
|
|
Operating expenses
|
612
|
|
|
6,216
|
|
|
4,554
|
|
|
13,535
|
|
Gain on divestiture
|
886
|
|
|
45,939
|
|
|
886
|
|
|
45,939
|
|
Provision (benefit) for income taxes
|
3
|
|
|
(60
|
)
|
|
3
|
|
|
(89
|
)
|
Net income (loss) from discontinued operations
|
$
|
610
|
|
|
$
|
38,647
|
|
|
$
|
(4,248
|
)
|
|
$
|
31,032
|
|
Note 6. Fair Value Measurement
The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of
September 30, 2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at Reporting Date Using:
|
(in thousands)
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
Total Balance
|
Cash Equivalents and Short-Term investments:
|
|
|
|
|
|
|
|
US government treasuries and agencies securities
|
$
|
145,836
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
145,836
|
|
Money market funds
|
61,841
|
|
|
—
|
|
|
—
|
|
|
61,841
|
|
Corporate bonds
|
—
|
|
|
13,696
|
|
|
—
|
|
|
13,696
|
|
International government bonds
|
—
|
|
|
4,605
|
|
|
—
|
|
|
4,605
|
|
Corporate commercial paper
|
—
|
|
|
1,000
|
|
|
—
|
|
|
1,000
|
|
Bank deposits
|
—
|
|
|
11,441
|
|
|
—
|
|
|
11,441
|
|
Total assets measured at fair value
|
$
|
207,677
|
|
|
$
|
30,742
|
|
|
$
|
—
|
|
|
$
|
238,419
|
|
Liabilities:
|
|
|
|
|
|
|
|
Fair value of contingent consideration
|
—
|
|
|
—
|
|
|
6,000
|
|
|
6,000
|
|
Total liabilities measured at fair value
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,000
|
|
|
$
|
6,000
|
|
The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of
April 1, 2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at Reporting Date Using
|
(in thousands)
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
Total
|
Cash Equivalents and Short-Term investments:
|
|
|
|
|
|
|
|
US government treasuries and agencies securities
|
$
|
156,315
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
156,315
|
|
Money market funds
|
104,596
|
|
|
—
|
|
|
—
|
|
|
104,596
|
|
Corporate bonds
|
—
|
|
|
21,538
|
|
|
—
|
|
|
21,538
|
|
International government bonds
|
—
|
|
|
4,648
|
|
|
—
|
|
|
4,648
|
|
Corporate commercial paper
|
—
|
|
|
3,148
|
|
|
—
|
|
|
3,148
|
|
Bank deposits
|
—
|
|
|
11,633
|
|
|
—
|
|
|
11,633
|
|
Municipal bonds
|
—
|
|
|
653
|
|
|
—
|
|
|
653
|
|
Total assets measured at fair value
|
$
|
260,911
|
|
|
$
|
41,620
|
|
|
$
|
—
|
|
|
$
|
302,531
|
|
U.S. government treasuries and U.S. government agency securities as of
September 30, 2012
and
April 1, 2012
do not include any U.S. government guaranteed bank issued paper. Corporate bonds include bank-issued securities that are guaranteed by the Federal Deposit Insurance Corporation (FDIC).
The securities in Level 1 are highly liquid and actively traded in exchange markets or over-the-counter markets. Level 2 fixed income securities are priced using quoted market prices for similar instruments, non-binding market prices that are corroborated by observable market data.
In connection with the acquisition of Fox Enterprises and Alvand Technologies (See "Note 4- Business Combinations"), a liability was recognized for the Company’s estimate of the fair value of contingent consideration on the acquisition date based on probability-based forecasted revenue. This liability was remeasured at fair value as of
September 30, 2012
. This fair value measurement is based on significant inputs not observed in the market and thus represents a Level 3 measurement. This fair value measurement is valued based on unobservable inputs that are supported by little or no market activity and reflect the Company’s own assumptions concerning future revenue of the acquired business in measuring fair value.
The following table summarizes the change in the fair value of the contingent consideration measured using significant unobservable inputs (Level 3) for the
six
months ended
September 30, 2012
:
|
|
|
|
|
(
in thousands
)
|
Estimated Fair Value
|
Balance as of April 1, 2012
|
$
|
—
|
|
Additions
|
6,000
|
|
Deletions
|
—
|
|
Balance as of September 30, 2012
|
$
|
6,000
|
|
All of the Company’s available-for-sale 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. The Company did not record any impairment charges related to its available-for-sale investments in six months ended
September 30, 2012
and
October 2, 2011
.
Note 7. Investments
Available-for-Sale Securities
Available-for-sale investments at
September 30, 2012
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Estimated Fair
Value
|
U.S. government treasuries and agencies securities
|
$
|
145,816
|
|
|
$
|
19
|
|
|
$
|
—
|
|
|
$
|
145,835
|
|
Money market funds
|
62,100
|
|
|
|
|
|
|
|
|
62,100
|
|
Corporate bonds
|
13,678
|
|
|
18
|
|
|
—
|
|
|
13,696
|
|
International government bonds
|
4,606
|
|
|
|
|
|
(1
|
)
|
|
4,605
|
|
Corporate commercial paper
|
1,000
|
|
|
|
|
|
|
|
|
1,000
|
|
Bank deposits
|
11,183
|
|
|
|
|
|
|
|
|
11,183
|
|
Total available-for-sale investments
|
238,383
|
|
|
37
|
|
|
(1
|
)
|
|
238,419
|
|
Less amounts classified as cash equivalents
|
(67,497
|
)
|
|
—
|
|
|
—
|
|
|
(67,497
|
)
|
Short-term investments
|
$
|
170,886
|
|
|
$
|
37
|
|
|
$
|
(1
|
)
|
|
$
|
170,922
|
|
Available-for-sale investments at
April 1, 2012
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Estimated Fair
Value
|
U.S. government treasuries and agencies securities
|
$
|
156,331
|
|
|
$
|
8
|
|
|
$
|
(24
|
)
|
|
$
|
156,315
|
|
Money market funds
|
104,596
|
|
|
—
|
|
|
—
|
|
|
104,596
|
|
Corporate bonds
|
21,485
|
|
|
59
|
|
|
(6
|
)
|
|
21,538
|
|
International government bonds
|
4,650
|
|
|
1
|
|
|
(3
|
)
|
|
4,648
|
|
Corporate commercial paper
|
3,148
|
|
|
—
|
|
|
—
|
|
|
3,148
|
|
Bank deposits
|
11,633
|
|
|
—
|
|
|
—
|
|
|
11,633
|
|
Municipal bonds
|
652
|
|
|
1
|
|
|
|
|
|
653
|
|
Total available-for-sale investments
|
302,495
|
|
|
69
|
|
|
(33
|
)
|
|
302,531
|
|
Less amounts classified as cash equivalents
|
(111,996
|
)
|
|
—
|
|
|
—
|
|
|
(111,996
|
)
|
Short-term investments
|
$
|
190,499
|
|
|
$
|
69
|
|
|
$
|
(33
|
)
|
|
$
|
190,535
|
|
The cost and estimated fair value of available-for-sale securities at
September 30, 2012
, by contractual maturity, were as follows:
|
|
|
|
|
|
|
|
|
(
in thousands
)
|
Amortized
Cost
|
|
Estimated Fair
Value
|
Due in 1 year or less
|
$
|
237,732
|
|
|
$
|
237,769
|
|
Due in 1-2 years
|
650
|
|
|
650
|
|
Total investments in available-for-sale securities
|
$
|
238,382
|
|
|
$
|
238,419
|
|
The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses as of
September 30, 2012
, aggregated by length of time that individual securities have been in a continuous loss position.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
12 Months or Greater
|
|
Total
|
(in thousands)
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
Corporate bonds
|
$
|
552
|
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
552
|
|
|
$
|
(1
|
)
|
U.S. government treasuries and agencies securities
|
1,350
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,350
|
|
|
—
|
|
International government bonds
|
4,606
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,606
|
|
|
—
|
|
Total
|
$
|
6,508
|
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,508
|
|
|
$
|
(1
|
)
|
The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses, as of
April 1, 2012
, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
12 Months or Greater
|
|
Total
|
(in thousands)
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
Corporate bonds
|
$
|
4,213
|
|
|
$
|
(7
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,213
|
|
|
$
|
(7
|
)
|
U.S. government treasuries and agencies securities
|
114,056
|
|
|
(24
|
)
|
|
—
|
|
|
—
|
|
|
114,056
|
|
|
(24
|
)
|
International government bonds
|
2,550
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
2,550
|
|
|
(2
|
)
|
Total
|
$
|
120,819
|
|
|
$
|
(33
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
120,819
|
|
|
$
|
(33
|
)
|
Currently, a significant portion of the Company’s available-for-sale investments that it holds are high grade instruments. As of
September 30, 2012
, the unrealized losses on the Company’s available-for-sale investments represented an insignificant amount in relation to its total available-for-sale portfolio. Substantially all of the Company’s unrealized losses on its available-for-sale marketable debt instruments is primarily driven by declines in interest rates or as a result of a decrease in the market liquidity for debt instruments. Because the Company has the ability to hold these investments until a recovery of fair value, which may be maturity, the Company did not consider these investments to be other-than-temporarily impaired at
September 30, 2012
and
April 1, 2012
.
Non-Marketable Equity Securities
During the three months ended
September 30, 2012
, in association with the acquisition of Fox Enterprises, the Company acquired a non-significant stake in a privately held company. The fair value of this non-marketable private equity investment was
$0.6 million
as of
September 30, 2012
.
The Company accounts for its equity investments in privately held companies under the cost method. These investments are subject to periodic impairment review and measured and recorded at fair value when they are deemed to be other-than-temporarily impaired. In determining whether a decline in value of its investments have occurred and is other than temporary, an assessment was made by considering available evidence, including the general market conditions, the investee’s financial condition, near-term prospects, market comparables and subsequent rounds of financing. The valuation also takes into account the investee’s capital structure, liquidation preferences for its capital and other economic variables. The valuation methodology for determining the decline in value of non-marketable equity securities is based on inputs that require management judgment.
The aggregate carrying value of the Company’s non-marketable equity securities was approximately
$2.3 million
and
$1.7 million
as of
September 30, 2012
and
April 1, 2012
, respectively and was classified within other assets on the Company’s Consolidated Balance Sheets. The Company did not recognize any impairment loss in the three and
six
months ended
September 30, 2012
and
October 2, 2011
.
Note 8. Stock-Based Employee Compensation
Compensation Expense
The following table summarizes stock-based compensation expense by category appearing in the Company’s Consolidated Statement of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
(in thousands)
|
September 30,
2012
|
|
October 2,
2011
|
|
September 30,
2012
|
|
October 2,
2011
|
Cost of revenue
|
$
|
252
|
|
|
$
|
453
|
|
|
$
|
555
|
|
|
$
|
879
|
|
Research and development
|
1,295
|
|
|
2,320
|
|
|
2,838
|
|
|
4,319
|
|
Selling, general and administrative
|
1,336
|
|
|
1,509
|
|
|
2,613
|
|
|
2,856
|
|
Discontinued operations
|
367
|
|
|
(253
|
)
|
|
526
|
|
|
95
|
|
Total stock-based compensation expense
|
$
|
3,250
|
|
|
$
|
4,029
|
|
|
$
|
6,532
|
|
|
$
|
8,149
|
|
Amount of stock-based compensation expense that was capitalized during the periods presented above was immaterial.
During the three and six months ended
September 30, 2012
,
413,946
and
947,187
shares of common stock were issued under the Company's Employee Stock Purchase Plan and options to purchase
214,965
and
282,626
shares of common stock were exercised under the Company's Stock Incentive Plan, respectively. The number of restricted stock units issued during the three and six months ended
September 30, 2012
was
88,406
and
730,214
, respectively.
As of
September 30, 2012
, the unrecognized compensation cost related to nonvested stock options, net of estimated forfeitures, was
$6.7 million
and will be recognized over a weighted-average period of
1.4
years.
As of
September 30, 2012
, the unrecognized compensation cost related to restricted stock units granted under the Company’s equity incentive plans was approximately
$7.9 million
, net of estimated forfeitures, and is expected to be recognized over a weighted-average period of
1.8
years.
Note 9. Stockholders' Equity
In the six months ended
September 30, 2012
, the Company did not repurchase any shares. In fiscal
2012
, the Company repurchased approximately
10.4 million
shares at an average price of
$6.49
per share for a total purchase price of
$67.5 million
under the authorized share repurchase program. As of
September 30, 2012
, approximately
$79.8 million
was available for future purchase under the share repurchase program. Share repurchases were recorded as treasury stock and resulted in a reduction of stockholders’ equity.
Note 10. Balance Sheet Detail
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30,
2012
|
|
April 1,
2012
|
Inventories, net
|
|
|
|
Raw materials
|
$
|
7,041
|
|
|
$
|
6,457
|
|
Work-in-process
|
31,185
|
|
|
38,843
|
|
Finished goods
|
23,257
|
|
|
26,480
|
|
Total inventories, net
|
$
|
61,483
|
|
|
$
|
71,780
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
|
|
|
Land
|
$
|
11,882
|
|
|
$
|
11,665
|
|
Machinery and equipment
|
295,269
|
|
|
290,028
|
|
Building and leasehold improvements
|
47,614
|
|
|
44,724
|
|
Total property, plant and equipment, gross
|
354,765
|
|
|
346,417
|
|
Less: accumulated depreciation
|
(278,624
|
)
|
|
(276,433
|
)
|
Total property, plant and equipment, net
|
$
|
76,141
|
|
|
$
|
69,984
|
|
|
|
|
|
|
|
|
|
|
Other accrued liabilities
|
|
|
|
Contingent consideration
|
4,500
|
|
|
—
|
|
Other
|
15,534
|
|
|
13,443
|
|
Total other accrued liabilities
|
$
|
20,034
|
|
|
$
|
13,443
|
|
|
|
|
|
|
|
|
|
|
Other long-term obligations
|
|
|
|
Deferred compensation related liabilities
|
$
|
17,651
|
|
|
$
|
14,869
|
|
Contingent consideration
|
1,500
|
|
|
—
|
|
Other
|
976
|
|
|
1,625
|
|
Total other long-term liabilities
|
$
|
20,127
|
|
|
$
|
16,494
|
|
Note 11. Deferred Income on Shipments to Distributors
Included in the caption “
Deferred income on shipments to distributors”
on the Consolidated Balance Sheets are amounts related to shipments to certain distributors for which revenue is not recognized until our product has been sold by the distributor to an end customer
.
The components of deferred income on shipments to distributors as of
September 30, 2012
and
April 1, 2012
are as follows:
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
(in thousands)
|
September 30,
2012
|
|
April 1,
2012
|
Gross deferred revenue
|
$
|
18,009
|
|
|
$
|
17,883
|
|
Gross deferred costs
|
(3,056
|
)
|
|
(3,620
|
)
|
Deferred income on shipments to distributors
|
$
|
14,953
|
|
|
$
|
14,263
|
|
The gross deferred revenue represents the gross value of shipments to distributors at the list price billed to the distributor less any price protection credits provided to them in connection with reductions in list price while the products remain in their inventory. The amount ultimately recognized as revenue will be lower than this amount as a result of ship from stock pricing credits which are issued in connection with the sell through of our products to end customers. Historically, this amount represents on an average approximately
27%
of the list price billed to the customer. The gross deferred costs represent the standard costs (which approximate actual costs) of products the Company sells to the distributors. Although we monitor the levels and quality of inventory in the distribution channel, our experience is that products returned from these distributors may be sold to a different distributor or in a different region of the world. As such, inventory write-downs for products in the distribution channel have not been significant.
Note 12. Comprehensive Income
The components of accumulated other comprehensive income, net of tax, were as follows:
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30,
2012
|
|
April 1,
2012
|
Cumulative translation adjustments
|
$
|
2,053
|
|
|
$
|
1,328
|
|
Unrealized gain on available-for-sale investments
|
35
|
|
|
35
|
|
Total accumulated other comprehensive income
|
$
|
2,088
|
|
|
$
|
1,363
|
|
Note 13. Goodwill and Intangible Assets, Net
Goodwill activity for
six
months ended
September 30, 2012
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segment
|
(in thousands)
|
Communications
|
|
Computing and Consumer
|
|
Total
|
Balance as of April 1, 2012
|
$
|
74,673
|
|
|
$
|
21,419
|
|
|
$
|
96,092
|
|
Dispositions (1)
|
(700
|
)
|
|
—
|
|
|
(700
|
)
|
Additions (2)
|
49,737
|
|
|
—
|
|
|
49,737
|
|
Balance as of September 30, 2012
|
$
|
123,710
|
|
|
$
|
21,419
|
|
|
$
|
145,129
|
|
|
|
(1)
|
Represents goodwill of the divested Video processing business. See Note 5 for further details.
|
|
|
(2)
|
During the six months ended September 30, 2012, the Company acquired intangibles from Fox Enterprises, Alvand Technologies and NXP B.V.'s data converter business. See Note 4 for further details.
|
Intangible asset balances as of
September 30, 2012
and
April 1, 2012
are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
(in thousands)
|
Gross Assets
|
|
Accumulated
Amortization
|
|
Net Assets
|
Purchased intangible assets:
|
|
|
|
|
|
Existing technology
|
$
|
240,033
|
|
|
$
|
(197,245
|
)
|
|
$
|
42,788
|
|
Trademarks
|
4,411
|
|
|
(1,560
|
)
|
|
2,851
|
|
Customer relationships
|
131,930
|
|
|
(126,339
|
)
|
|
5,591
|
|
Other
|
4,200
|
|
|
(1,082
|
)
|
|
3,118
|
|
Total amortizable purchased intangible assets
|
380,574
|
|
|
(326,226
|
)
|
|
54,348
|
|
IPR&D
|
4,333
|
|
|
—
|
|
|
4,333
|
|
Total purchased intangible assets
|
$
|
384,907
|
|
|
$
|
(326,226
|
)
|
|
$
|
58,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1, 2012
|
(in thousands)
|
Gross Assets
|
|
Accumulated
Amortization
|
|
Net Assets
|
Purchased intangible assets:
|
|
|
|
|
|
Existing technology
|
$
|
223,733
|
|
|
$
|
(192,105
|
)
|
|
$
|
31,628
|
|
Trademarks
|
2,911
|
|
|
(1,144
|
)
|
|
1,767
|
|
Customer relationships
|
127,231
|
|
|
(122,511
|
)
|
|
4,720
|
|
Total amortizable purchased intangible assets
|
353,875
|
|
|
(315,760
|
)
|
|
38,115
|
|
IPR&D
|
2,433
|
|
|
—
|
|
|
2,433
|
|
Total purchased intangible assets
|
$
|
356,308
|
|
|
$
|
(315,760
|
)
|
|
$
|
40,548
|
|
IPR&D is initially capitalized at fair value as an intangible asset with an indefinite life and assessed for impairment thereafter. The Company estimates that current IPR&D will be completed within the next 12 months. When the IPR&D project is complete, it is reclassified as an amortizable purchased intangible asset and is amortized over its estimated useful life. If an IPR&D project is abandoned, the Company will record a charge for the carrying value of the related intangible asset to its Consolidated Statements of Operations in the period it is abandoned.
Amortization expense for the three months ended
September 30, 2012
and
October 2, 2011
was
$5.6 million
and
$3.9 million
, respectively. Amortization expense for the
six
months ended
September 30, 2012
and
October 2, 2011
was
$10.5 million
and
$8.1 million
, respectively.
The intangible assets are being amortized over estimated useful lives of twelve months to seven years.
Based on the intangible assets recorded at
September 30, 2012
, and assuming no subsequent additions to or impairment of the underlying assets, the remaining estimated amortization expense is expected to be as follows (in thousands):
|
|
|
|
|
Fiscal Year
|
Amount
|
2013 (Remaining 6 months)
|
$
|
9,162
|
|
2014
|
16,816
|
|
2015
|
13,086
|
|
2016
|
8,071
|
|
2017 and thereafter
|
7,213
|
|
Total
|
$
|
54,348
|
|
Note 14. Restructuring
The following table shows the provision of the restructuring charges and the liability remaining as of
September 30, 2012
:
|
|
|
|
|
(in thousands)
|
Amount
|
Balance as of April 1, 2012
|
$
|
5,198
|
|
Provision
|
3,222
|
|
Cash payments
|
(6,696
|
)
|
Balance as of September 30, 2012
|
$
|
1,724
|
|
In connection with the Company’s plans to fully divest its remaining video processing product lines, during fiscal 2012, the Company recorded
$3.6 million
in restructuring expenses for employee retention costs. During the first and second quarter of fiscal 2013, the Company recorded an additional
$0.8 million
and
$0.2 million
for employee retention costs under this plan, respectively. These charges were recorded within discontinued operations. The Company paid
$4.6 million
in the second quarter of fiscal
2013
and completed this restructuring action.
During the second quarter of fiscal 2013, the Company recorded restructuring charges of
$2.2 million
for reduction in workforce. The Company reduced its headcount by approximately
51
employees with reductions affecting all functional areas and various
locations. As of
September 30, 2012
, the total accrued balance for employee severance costs related to this restructuring action was
$1.4 million
. The Company expects to complete this restructuring action in the third quarter of fiscal
2013
.
During the first quarter of fiscal 2012, the Company paid
$1.0 million
in employee retention costs and completed the restructuring plan to exit wafer production operations at its Oregon fabrication facility.
During the six months ended
September 30, 2012
, the Company made lease payments of
$0.1 million
in connection with the exited facilities in Singapore and Salinas, California. As of
September 30, 2012
, the remaining accrued lease liabilities were
$0.4 million
. The Company expects to pay off these lease obligations through the third quarter of fiscal 2014.
Note 15. Commitments and Contingencies
Warranty
The Company maintains an accrual for obligations it incurs under its standard product warranty program and customer, part, or process specific matters. The Company’s standard warranty period is one year, however in certain instances the warranty period may be extended to as long as two years. Management estimates the fair value of the Company’s warranty liability based on actual past warranty claims experience, its policies regarding customer warranty returns and other estimates about the timing and disposition of product returned under the standard program. Customer, part, or process specific accruals are estimated using a specific identification method. Historical profit and loss impact related to warranty returns activity has been minimal. The total warranty accrual was
$0.1 million
as of
September 30, 2012
and
April 1, 2012
, respectively.
Litigation
In January 2012, Maxim I Properties, a general partnership that had purchased a certain parcel of real property (the Property) in 2003, filed a complaint in the Northern District of California naming approximately 30 defendants, including the Company, alleging various environmental violations of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), the Hazardous Substance Account Act (HSAA), the Resource Conservation and Recovery Act (RCRA), and other public and private nuisance claims (the Complaint). The Complaint alleges with regard to the Company that IDT “…generated, transported, and/or arranged for the transport and/or disposal of hazardous waste to the Property.” The Complaint further alleges that the Defendants are liable for the costs of investigation and remediation of the Property due to the release of hazardous substances, and that Defendants violated their duty to prevent the release of such hazardous substances. In March 2012, the Company was served with and filed an answer to the Complaint, denying the various allegations in the Complaint, and in April 2012, the Company filed an amended answer to the Complaint, including a counterclaim against the Plaintiff. On August 15, 2012, the plaintiff voluntarily dismissed its Complaint against the Company without prejudice. Moyer Products, Inc., another defendant, has cross-claimed against Defendants, including the Company, and thus the Company remains a defendant in this action. In September 2012, the Department of Toxic Substances Control (DTSC) notified the Company that it identified the Company as “a generator of hazardous waste” that was sent to the Property. DTSC proposed that the Company, along with many other parties, enter into a corrective action consent agreement to conduct the Property investigation and cleanup. The Company plans to engage in discussions with the DTSC regarding its proposal, and will continue to vigorously defend itself against the allegations in the Complaint and evaluate settlement options with Moyer Products, when Moyer Products is available to discuss such options. Because the case is at an early stage and no specific monetary demands have been made, it is not possible for us to estimate the range of potential losses.
On May 14, 2012, a putative class action lawsuit captioned Cox v. Guzy, et al., C.A. No. 7529, was filed in the Delaware Court of Chancery (the Cox Complaint). The Cox Complaint names as defendants the members of the PLX Board of Directors, as well as PLX, IDT, Pinewood Acquisition Corp. (Pinewood) and Pinewood Merger Sub, LLC (Pinewood LLC), both of which are wholly-owned subsidiaries of IDT. The plaintiff alleges that PLX's directors breached their fiduciary duties to PLX stockholders in connection with the Offer and the Merger, and were aided and abetted by PLX, IDT, Pinewood and Pinewood LLC. The Cox Complaint alleges that the Offer and the Merger involve an unfair price and an inadequate sales process, unreasonable deal protection devices, and that defendants entered into the Offer and the Merger to benefit themselves personally. The Cox Complaint seeks injunctive relief, including to enjoin the Offer and the Merger, an award of damages, attorneys' and other fees and costs, and other relief. On May 29, 2012, plaintiff filed a Motion for Expedited Proceedings. On June 7, 2012, defendants filed oppositions to plaintiff's Motion for Expedited Proceedings. At the hearing, on June 8, 2012, the Court denied plaintiff's Motion for Expedited Proceedings. On June 19, 2012, the plaintiff voluntarily dismissed the putative class action lawsuit without prejudice.
The Company is also party to various other legal proceedings and claims arising in the normal course of business. As of
September 30, 2012
, the Company has not recorded any accrual for contingent liabilities associated with the legal proceedings described above based on the belief that liabilities, while possible, are not probable. Further, probable ranges of losses in these matters cannot be reasonably estimated at this time. Generally, litigation is subject to inherent uncertainties, and no assurance can be given that the Company will prevail in any particular lawsuit. Accordingly, pending lawsuits, as well as potential future litigation with other companies, could result in substantial costs and diversion of resources and could have a material adverse effect on the Company’s financial condition, results of operations or cash flows.
Note 16. Employee Benefit Plans
E
ffective November 1, 2000, the Company established an unfunded deferred compensation plan to provide benefits to executive officers and other key employees. Under the plan, participants can defer any portion of their salary and bonus compensation into the plan and may choose from a portfolio of funds from which earnings are measured. Participant balances are always
100%
vested. As of
September 30, 2012
and
April 1, 2012
, obligations under the plan totaled approximately
$15.4 million
, respectively. Additionally, the Company has set aside assets in a separate trust that is invested in corporate owned life insurance intended to substantially fund the liability under the plan. As of
September 30, 2012
and
April 1, 2012
, the deferred compensation plan assets were approximately
$16.3 million
and
$14.0 million
, respectively.
During the first quarter of fiscal 2013, the Company assumed an unfunded deferred compensation plan associated with the acquisition of Fox Enterprises. Under this plan, participants on retirement are entitled to receive a fixed amount from the Corporation on a monthly basis. The Company has purchased life insurance policies with the intention of funding the liability under this plan. As of
September 30, 2012
, the deferred compensation plan assets and liability under this plan were approximately
$0.6 million
and
$1.5 million
, respectively.
During the second quarter of fiscal 2013, as a result of completion of acquisition of NXP B.V, the Company acquired certain assets and liabilities from NXP B.V related to defined-benefit pension plans, defined-contribution plans, multi-employer plans and certain post-employment benefit plans as explained below, for its employees mainly in France and Netherlands. The costs of pension benefits and related liabilities for the employees that were transferred to the Company as a result of the acquisition, were determined based on actuarial calculations.
Multi-employer plan
The Company's employees in the Netherlands participate in a mandatory multi-employer plan, implemented for the employees of the Metal and Electrical Engineering Industry. As this affiliation is a legal requirement for the Metal and Electrical Engineering Industry it has no expiration date. The pension fund rules state that the only obligation for affiliated companies will be to pay the annual plan contributions. Affiliated companies will also have no entitlements to any possible surpluses in the pension fund. Contributions to multi-employer pension plans are recognized as an expense in the statements of operations as incurred. During the second quarter of fiscal 2013, the Company made
$0.1 million
of contribution under this plan. The total expected contribution under the plan for fiscal 2013 is approximately
$0.4 million
.
Defined-benefit plan
The benefits provided by defined-benefit plans are based on employees' years of service and compensation levels. Contributions are made by the Company, as necessary, to provide assets sufficient to meet the benefits payable to defined-benefit pension plan participants. These contributions are determined based upon various factors, including funded status, legal and tax considerations as well as local customs. Some of these defined-benefit pension plans are funded with plan assets that have been segregated and restricted in a trust, foundation or insurance company to provide for the pension benefits to which the Company has committed itself. The projected defined-benefit obligation will be calculated at year-end by qualified actuaries using the projected unit credit method. Actuarial gains and losses arise mainly from changes in actuarial assumptions and differences between actuarial assumptions and what has actually occurred will be recognized in the statement of operations, over the expected average remaining service periods of the employees only to the extent that their net cumulative amount exceeds
10%
of the greater of the present value of the obligation or of the fair value of plan assets at the end of the previous year. Events which invoke a curtailment or a settlement of a benefit plan will be recognized in our statement of operations.
As of
September 30, 2012
, the total plan assets and liability under all pension plans were approximately
$0.7 million
each.
The Company also assumed obligations for post employment benefits liability of
$0.2 million
from NXP B.V under the Jubilee plan ("Jubilee"). These are in the nature of one time payouts in relation to the number of service years of the employee. The amount
of the obligation per employee has been determined by actuarial calculation indicating the degree of likelihood that the individual employee will actually complete the required number of service years to be entitled to his jubilee payment.
Note 17. Income Taxes
During the three months ended September 30, 2012, the Company recorded an immaterial amount of income tax benefit and an income tax benefit of
$4.0 million
in the
six
months ended
September 30, 2012
. The Company recorded an income tax benefit of
$0.4 million
and an income tax provision of
$0.6 million
in the three and
six
months ended
October 2, 2011
, respectively. The income tax benefit recorded in the six months ended
September 30, 2012
was primarily due to the recognition of a deferred tax asset offset by the recognition of a deferred tax liability due to the acquisition of Fox Enterprises. The increase in the deferred tax liability was a part of the purchase accounting step-up adjustment that was recorded against goodwill while the increase in the deferred tax asset was recorded as a tax benefit.
The provision for income taxes for the six months ended
October 2, 2011
reflects tax on foreign earnings and federal and state tax on U.S. earnings.
As of
September 30, 2012
, the Company could be subject to examination in the U.S. federal tax jurisdiction for the fiscal years 2009, and 2010. The Company is not currently under examination by the Internal Revenue Service, but if the Company was audited, based on currently available information, the Company believes that an audit by the Internal Revenue Service would not have a material adverse effect on its financial position, cash flows or results of operations.
As of
September 30, 2012
, the Company was subject to examination in various state and foreign jurisdictions for tax years 2006 forward, none of which were individually material.
Note 18. Segment Information
The Chief Operating Decision Maker is the Company’s President and Chief Executive Officer.
Our reportable segments include the following:
|
|
•
|
Communications segment: includes clock and timing solutions, Serial RapidIO
®
switching solutions, flow-control management devices, FIFOs, integrated communications processors, high-speed SRAM, digital logic and telecommunications.
|
|
|
•
|
Computing and Consumer segment: includes clock generation and distribution products, PCI Express switching and bridging solutions, high-performance server memory interfaces, multi-port products and PC audio products.
|
The tables below provide information about these segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by segment
|
Three Months Ended
|
|
Six Months Ended
|
(in thousands)
|
September 30,
2012
|
|
October 2,
2011
|
|
September 30,
2012
|
|
October 2,
2011
|
Communications
|
$
|
69,293
|
|
|
$
|
66,613
|
|
|
$
|
132,363
|
|
|
$
|
136,535
|
|
Computing and Consumer
|
64,108
|
|
|
71,705
|
|
|
131,199
|
|
|
151,068
|
|
Total revenues
|
$
|
133,401
|
|
|
$
|
138,318
|
|
|
$
|
263,562
|
|
|
$
|
287,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) by segment from continuing operations
|
Three Months Ended
|
|
Six Months Ended
|
(in thousands)
|
September 30,
2012
|
|
October 2,
2011
|
|
September 30,
2012
|
|
October 2,
2011
|
Communications
|
$
|
19,559
|
|
|
$
|
25,096
|
|
|
$
|
37,045
|
|
|
$
|
52,462
|
|
Computing and Consumer
|
(3,220
|
)
|
|
(7,195
|
)
|
|
(8,033
|
)
|
|
(9,528
|
)
|
Unallocated expenses:
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
(5,573
|
)
|
|
(3,861
|
)
|
|
(10,464
|
)
|
|
(7,805
|
)
|
Inventory fair market value adjustment
|
(100
|
)
|
|
—
|
|
|
(458
|
)
|
|
—
|
|
Fabrication production transfer costs
|
—
|
|
|
(816
|
)
|
|
—
|
|
|
(2,660
|
)
|
Assets impairment
|
59
|
|
|
92
|
|
|
118
|
|
|
182
|
|
Amortization of stock-based compensation
|
(3,617
|
)
|
|
(4,281
|
)
|
|
(6,739
|
)
|
|
(8,053
|
)
|
Severance, retention and facility closure costs
|
(2,271
|
)
|
|
(811
|
)
|
|
(2,999
|
)
|
|
(2,627
|
)
|
Acquisition-related costs and other
|
(4,830
|
)
|
|
—
|
|
|
(11,466
|
)
|
|
—
|
|
Consulting expenses related to stockholder activities
|
(38
|
)
|
|
—
|
|
|
(2,614
|
)
|
|
—
|
|
Deferred compensation plan expense (benefit)
|
(3
|
)
|
|
1,337
|
|
|
(181
|
)
|
|
1,282
|
|
Proceeds from life insurance policies
|
—
|
|
|
—
|
|
|
2,313
|
|
|
—
|
|
Interest income and other, net
|
(682
|
)
|
|
(1,828
|
)
|
|
(681
|
)
|
|
(1,784
|
)
|
Income from continuing operations, before income taxes
|
$
|
(716
|
)
|
|
$
|
7,733
|
|
|
$
|
(4,159
|
)
|
|
$
|
21,469
|
|
The Company does not allocate goodwill and intangible assets impairment charge, severance and retention costs, acquisition-related costs, stock-based compensation, interest income and other, and interest expense to its segments. In addition, the Company does not allocate assets to its segments. The Company excludes these items consistent with the manner in which it internally evaluates its results of operations.
Revenues from unaffiliated customers by geographic area, based on the customers' shipment locations, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
(in thousands)
|
September 30,
2012
|
|
October 2,
2011
|
|
September 30,
2012
|
|
October 2,
2011
|
Asia Pacific
|
$
|
85,979
|
|
|
$
|
91,203
|
|
|
$
|
171,849
|
|
|
$
|
193,766
|
|
Americas (1)
|
20,199
|
|
|
18,112
|
|
|
40,101
|
|
|
37,765
|
|
Japan
|
10,911
|
|
|
11,913
|
|
|
22,371
|
|
|
23,046
|
|
Europe
|
16,312
|
|
|
17,090
|
|
|
29,241
|
|
|
33,026
|
|
Total revenues
|
$
|
133,401
|
|
|
$
|
138,318
|
|
|
$
|
263,562
|
|
|
$
|
287,603
|
|
|
|
(1)
|
The revenues from the customers in the U.S. were
$18.1 million
and
$17.1 million
in the three months ended
September 30, 2012
and
October 2, 2011
, respectively. The revenues from the customers in the U.S. were
$36.5 million
and
$36.0 million
in the
six
months ended
September 30, 2012
and
October 2, 2011
, respectively.
|
The Company utilizes global and regional distributors around the world, who buy product directly from the Company on behalf of their customers. Two family of distributors, Uniquest and Maxtek and its affiliates represented approximately
11%
and
16%
of the Company’s revenues for the
six
months period ended
September 30, 2012
, respectively.
One
family of distributors, Maxtek, and its affiliates represented approximately
17%
of the Company’s revenues for the
six
months period ended
October 2, 2011
.
At
September 30, 2012
,
three
distributors represented approximately
18%
,
14%
and
10.0%
of the Company’s gross accounts receivable. At
April 1, 2012
,
three
distributors represented approximately
19%
,
16%
and
12%
of the Company’s gross accounts receivable.
The Company’s significant operations outside of the United States include a test facility in Malaysia, design centers in Canada and China, and sales subsidiaries in Japan, Asia Pacific and Europe. The Company's net property, plant and equipment are summarized below by geographic area:
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30,
2012
|
|
April 1,
2012
|
United States
|
$
|
46,825
|
|
|
$
|
50,741
|
|
Malaysia
|
20,210
|
|
|
13,658
|
|
All other countries
|
9,106
|
|
|
5,585
|
|
Total property, plant and equipment, net
|
$
|
76,141
|
|
|
$
|
69,984
|
|
Note 19. Derivative Financial Instruments
As a result of its international operations, sales and purchase transactions, the Company is subject to risks associated with fluctuating currency exchange rates. The Company may use derivative financial instruments to hedge these risks when instruments are available and cost effective, in an attempt to minimize the impact of currency exchange rate movements on its operating results and on the cost of capital equipment purchases. The Company also has foreign exchange facilities used for hedging arrangements with banks that allow the Company to enter into foreign exchange contracts totaling approximately
$20.0 million
, all of which was available at
September 30, 2012
. The Company does not enter into derivative financial instruments for speculative or trading purposes.
During the first quarter of fiscal 2013 the Company entered into a foreign exchange contract of
$3.4 million
to limit the foreign exchange rate risk associated with a receivable denominated in Japanese Yen. This forward exchange contract was settled in the second quarter of fiscal 2013 and an immaterial amount of gain was recognized in the second quarter of fiscal 2013. As of
September 30, 2012
and
April 1, 2012
, the Company did not have any outstanding foreign currency contracts that qualified for hedge accounting.
Note 20. Credit Facility
The Company has the right to sell to Bank of America up to
1,431
shares of Class A preferred shares of one of its wholly owned subsidiaries (the Subsidiary), in one or more transactions prior to December 13, 2012, for an aggregate purchase price of
$135 million
in cash under the repurchase agreement entered into with Bank of America in June 2011. As of
September 30, 2012
, the Company has not sold any preferred stock to Bank of America under this repurchase agreement.
Note 21. Subsequent Events
Proposed Acquisition
On April 30, 2012, the Company entered into an Agreement and Plan of Merger with PLX Technology, Inc (PLX). The Merger Agreement provides that, on and subject to the terms of the Merger Agreement, the Company will commence an exchange offer to purchase all of the outstanding shares of PLX common stock,
$0.001
par value, in exchange for consideration, per share of PLX common stock, comprised of (i)
$3.50
in cash plus (ii)
0.525
of a share of IDT common stock, without interest and less any applicable withholding taxes. The Company expects the proposed acquisition to expand the Company's core serial switching and interface business. The Company and PLX have complementary product sets, technologies and customer bases.
On May 22, 2012, the Company commenced the exchange offer to purchase the outstanding shares of PLX common stock. The exchange offer was scheduled to expire at the end of the day on July 12, 2012. On July 11, 2012, the Company extended the expiration date of its exchange offer for all outstanding shares of common stock of PLX to August 9, 2012 since the applicable waiting period for regulatory review has not yet been expired or been terminated. The expiration date was further extended (most recently on October 3, 2012) and the exchange offer is now set to expire at the end of the day November 9, 2012 unless further extended.
The Company has filed a registration statement with the Securities and Exchange Commission (the “SEC”) on Form S-4 relating to the shares to be issued to the stockholders of PLX in the Offer and the Merger.
The Company has incurred approximately
$3.1 million
and
$7.2 million
acquisition related costs, which were included in selling general and administrative expenses on the Condensed Consolidated Statements of Operations for the three and
six
months ended
September 30, 2012
, respectively.