ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with “Item 6. Selected Financial Data” and “Item 8. Financial Statements and Supplementary Data,” included elsewhere in this Annual Report on Form 10-K.
The information in this Annual Report contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking. Forward-looking statements are based upon current expectations that involve a number of risks and uncertainties. These risks and uncertainties include, but are not limited to: operating results; new product introductions and sales; competitive conditions; capital expenditures and resources; manufacturing capacity utilization; customer demand and inventory levels; intellectual property issues; and the risk factors set forth in the section “Risk Factors” in Part I, Item 1A, of this Annual Report on Form 10-K. As a result of these risks and uncertainties, actual results and timing of events could differ significantly from those anticipated in the forward-looking statements. We undertake no obligation to publicly release any revisions to the forward-looking statements for future events or new information after the date of this Annual Report on Form 10-K.
Critical Accounting Policies
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of such statements requires us to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period and the reported amounts of assets and liabilities as of the date of the financial statements. Our estimates and assumptions are based on historical experience and other factors that we consider to be appropriate in the circumstances. However, actual future results may vary from our estimates and assumptions.
We believe that the following accounting policies are "critical," as defined by the SEC, in that they are both highly important to the portrayal of our financial condition and results, and they require difficult management judgments, estimates and assumptions about matters that are inherently uncertain.
Revenue Recognition.
Our revenue results from semiconductors sold through three channels: direct sales to original equipment manufacturers (OEMs) and electronic manufacturing service providers (EMSs), consignment sales to OEMs and EMSs, and sales through distributors. We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and our ability to collect is reasonably assured. For direct sales, we recognize revenue in accordance with the applicable shipping terms. Revenue related to the sale of consignment inventory is not recognized until the product is pulled from inventory stock by the customer.
Distributors who serve our customers worldwide and distributors serving our customers in the U.S. and Europe, have rights to price protection, ship from stock pricing credits and stock rotation. We defer revenue and related cost of revenues on sales to these distributors until the product is sold through by the distributor to an end-customer. Subsequent to shipment to the distributor, we may reduce product pricing through price protection based on market conditions, competitive considerations and other factors. Price protection is granted to distributors on the inventory that they have on hand at the date the price protection is offered. We also grant certain credits to our distributors on specifically identified portions of the distributors’ business to allow them to earn a competitive gross margin on the sale of our products to their end-customers. As a result of our inability to estimate these credits, we have determined that
the sales price to these distributors is not fixed or determinable until the final sale to the end-customer.
In the APAC region and Japan, we have distributors for which revenue is recognized upon shipment, with reserves recorded for the estimated return and pricing adjustment exposures. The determination of the amount of reserves to be recorded for stock rotation rights requires that we make estimates as to the amount of product which will be returned by customers within their limited contractual rights. We utilize historical return rates to estimate the exposure in accordance with authoritative guidance for Revenue Recognition When Right of Return Exists
.
In addition, from time to time, we offer pricing adjustments to distributors for product purchased in a given quarter that remains in their inventory. These amounts are estimated by management based on discussions with customers, assessment of market trends, as well as historical experience.
Income Taxes.
We account for income taxes under an asset and liability approach that requires the expected future tax consequences of temporary differences between book and tax bases of assets and liabilities be recognized as deferred tax assets and liabilities. Generally accepted accounting principles require us to evaluate the ability to realize the value of our net deferred tax assets on an ongoing basis. A valuation allowance is recorded to reduce the net deferred tax assets to an amount that will more likely than not be realized. Accordingly, we consider various tax planning strategies, forecasts of future taxable income and our most recent operating results in assessing the need for a valuation allowance. In consideration of the ability to realize the value of net deferred tax assets, recent results must be given substantially more weight than any projections of future profitability. Since the fourth quarter of fiscal 2003, we have determined that, under applicable accounting principles, it is more likely than not that we will not realize the value of our net deferred tax assets. Our assumptions regarding the ultimate realization of these assets remained
unchanged in fiscal 2014 and accordingly, we continue to maintain a valuation allowance to reduce our deferred tax assets to an amount that is more likely than not to be realized.
We recognize the tax liabilities for uncertain income tax positions taken on our income tax return based on the two-step process prescribed under U.S. GAAP. The first step is to determine whether it is more likely than not that each income tax position would be sustained upon audit. The second step is to estimate and measure the tax benefit as the amount that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority. Estimating these amounts requires us to determine the probability of various possible outcomes. We evaluate these uncertain tax positions on a quarterly basis. This evaluation is based on the consideration of several factors including changes in facts or circumstances, changes in applicable tax law, settlement of issues under audit, and new exposures. If we later determine that the exposure is lower or that the liability is not sufficient to cover our revised expectations, we adjust the liability and effect a related change in our tax provision during the period in which we make such determination.
Inventories.
Inventories are recorded at the lower of standard cost (which approximates actual cost on a first-in, first-out basis) or market value. We record provisions for obsolete and excess inventory based on our forecasts of demand over specific future time horizons. We also record provisions to value our inventory at the lower of cost or market value, which rely on forecasts of average selling prices (ASPs) in future periods. Actual market conditions, demand and pricing levels in the volatile semiconductor markets that we serve may vary from our forecasts, potentially impacting our inventory reserves and resulting in material impacts to our gross margin.
Valuation of Long-Lived Assets and Goodwill.
We own and operate our own manufacturing testing facilities (see Part I of this Form 10-K), and have also acquired certain businesses and product portfolios in recent years. As a result, we have property, plant and equipment, goodwill and other intangible assets. We evaluate these items for impairment on an annual basis, or sooner, if events or changes in circumstances indicate that carrying values may not be recoverable. Triggering events for impairment reviews may include adverse industry or economic trends, significant restructuring actions, significantly lowered projections of profitability, or a sustained decline in our market capitalization. Evaluations of possible impairment and if applicable, adjustments to carrying values, require us to estimate among other factors, future cash flows, useful lives and fair values of our reporting units and assets. Actual results may vary from our expectations.
We review goodwill for impairment annually and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions and determination of appropriate market comparables. We utilize a discounted cash flow analysis to estimate the fair value of our reporting units. Actual future results may differ from those estimates. In addition, we make certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each of our reporting units. For the annual impairment testing in fiscal
2014
, there was no evidence of any impairments.
Stock-based Compensation.
In accordance with FASB guidance on share-based payments, we measure and recognize compensation expense for all stock-based payments awards, including employee stock options, restricted stock units and rights to purchase shares under employee stock purchase plans, based on their estimated fair value and recognize the costs in the financial statements over the employees’ requisite service period.
The fair value of employee restricted stock units is equal to the market value of our common stock on the date the award is granted. We estimate the fair value of employee stock options and the right to purchase shares under the employee stock purchase plan using the Black-Scholes valuation model. Option-pricing models require the input of highly subjective assumptions, including the expected term of options and the expected price volatility of the stock underlying such options. In addition, we are required to estimate the number of stock-based awards that will be forfeited due to employee turnover and true up these forfeiture rates when actual results are different from our estimates. We attribute the value of stock-based compensation to expense using an accelerated method. Finally, we capitalize into inventory a portion of the periodic stock-based compensation expense that relates to employees working in manufacturing activities.
We update the expected term of stock option grants annually based on our analysis of the stock option exercise behavior over a period of time. The interest rate is based on the average U.S. Treasury interest rate over the expected term during the applicable quarter. We believe that the implied volatility of our common stock is an important consideration of overall market conditions and a good indicator of the expected volatility of our common stock. However, due to the limited volume of options freely traded over the counter, we believe that implied volatility, by itself, is not representative of the expected volatility of our common stock and therefore we use a volatility factor to estimate the fair value of our stock-based awards which reflects a blend of historical volatility of our common stock and implied volatility of call options and dealer quotes on call options, generally having a term of less than twelve months. We have not paid, nor do we have current plans to pay dividends on our common stock in the foreseeable future.
Recent developments
Termination of Proposed Acquisition of PLX Technology, Inc. (PLX)
On April 30, 2012, we had entered into an Agreement and Plan of Merger with PLX Technology, Inc. (PLX) for the acquisition of PLX by us (the Agreement). On December 19, 2012, the United States Federal Trade Commission (FTC) filed an administrative complaint challenging our proposed acquisition of PLX. In response to the FTC’s determination to challenge the proposed acquisition of PLX by us, effective December 19, 2012, we mutually agreed with PLX to terminate the Agreement. Also on December 19, 2012, we withdrew our related exchange offer (the Offer) to acquire all of the issued and outstanding shares of common stock, $0.001 par value, of PLX and instructed Computershare, the exchange agent for the Offer, to promptly return all previously tendered shares.
Associated with the proposed acquisition of PLX, during the fiscal year ended March 31, 2013, we incurred approximately $10.7 million in acquisition related costs, respectively, which were included in selling, general and administrative (SG&A) expenses in the Consolidated Statements of Operations.
Credit Facility Termination
In connection with the termination of the proposed PLX acquisition, our management determined that it was in our best interest to allow the Master Repurchase Agreement with Bank of America, N.A. to lapse undrawn. Associated with the lapse of this credit facility, we expensed $2.5 million in unamortized financing costs to SG&A expense in fiscal 2013.
Acquisition of NXP B.V.'s Data Converter Business
On July 19, 2012, we completed an acquisition of certain assets related to technology and products developed for communications analog mixed-signal market applications from NXP B.V. We 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 from NXP B.V. resulting in a net aggregate purchase price of $27.2 million. We incurred approximately $3.9 million in acquisition related costs, which has been included in loss from discontinued operations for the year ended March 31, 2013.
Acquisition of Fox Enterprises, Inc.
On April 30, 2012, we 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 which 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. In June 2013, we settled the contingent consideration and paid Fox $3.3 million. We believe that the combination of Fox's product portfolio with our CrystalFree™ oscillators makes us the industry's one-stop shop for frequency control products. In addition, we expect 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.
Acquisition of Alvand Technologies, Inc.
On April 16, 2012, we completed the acquisition of Alvand Technologies Inc., a leading analog integrated circuits company specializing in data converters, for total purchase consideration 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 to be completed within 36 months following the acquisition date. Payments will be made on a proportionate basis upon the completion of each milestone. As of March 31, 2013, the fair value of the contingent consideration was re-measured based on a revised product development forecast for the business and increased $0.5 million to $3.3 million. As of March 30, 2014, the fair value of the contingent consideration was again re-measured based on a revised product development forecast for the business and increased $0.6 million to $3.9 million. The change in the fair value of the contingent consideration has been recorded in loss from discontinued operations.
Discontinued Operations
High-Speed Converter (“HSC”) Business.
In the third quarter of fiscal 2014, we initiated a project to divest our HSC business. Our management believes that this divestiture will allow us to strengthen our focus on our analog-intensive mixed-signal, timing and synchronization, and interface and connectivity solutions. We envision fully divesting our HSC business within the next twelve months and have classified these assets as held for sale. As of March 30, 2014, the HSC business long-lived assets classified as held for sale was $9.5 million and consisted of $2.9 million in fixed assets and $6.6 million in intangible assets. In addition, associated with the HSC business, we recorded a $2.2 million goodwill impairment loss and a $2.6 million intangible asset impairment loss during the third quarter of fiscal 2014. The impairment losses were included in loss from discontinued operations. The fair value of the HSC business was based on the estimated sales price less estimated costs of disposal.
The HSC business was included in our Communications reportable segment. For financial statements purposes, the results of operations for the HSC business have been segregated from those of the continuing operations and are presented in our consolidated financial statements as discontinued operations.
Video Business.
On September 26, 2011, we 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 was intended to allow us to intensify focus on our analog-intensive mixed-signal, timing, and interface and solutions. Upon the closing of the transaction, Qualcomm paid us
$58.7 million
in cash consideration, of which
$6.0 million
was withheld in an escrow account for a period of two years during fiscal 2014 this amount was received in full. Our HQV and FRC product lines represented a significant portion of our video business assets. In the second quarter of fiscal 2012, we recorded a gain of
$45.9 million
related to this divestiture.
On August 1, 2012, we completed the transfer of the remaining assets of our 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, we recorded a gain of
$0.9 million
related to this divestiture.
Divestitures
Sale of Certain Assets of Audio Business.
On December 13, 2013, we completed the sale of certain assets of our Audio business to Stravelis, Inc. for $0.2 million in cash and up to a maximum potential of $1.0 million additional consideration contingent upon future revenues. The fair value of the contingent consideration was estimated to be zero based on the estimated probability of attainment of future revenue targets. In addition, we recorded a $0.3 million liability for services to be provided at no charge by us for the first year following the acquisition date. We recorded a loss of $3.7 million on divestiture related to this transaction in fiscal 2014. Prior to the divestiture, the Audio business was part of a larger cash-flow generating product group and did not, on its own, represent a separate operation of the Company and, therefore, this sale did not qualify as discontinued operations.
Sale of Certain Assets of PCI Express ("PCIe") Enterprise Flash Controller Business.
On July 12, 2013, we completed the sale of certain assets of our PCIe enterprise flash controller business to PMC-Sierra, Inc., for $96.1 million in cash. We recorded a gain of $82.3 million on divestiture related to this transaction in the second quarter of fiscal 2014. Prior to the divestiture, the Enterprise Flash Controller business was part of a larger cash-flow generating product group and did not, on its own, represent a separate operation of our company and, therefore, this sale did not qualify as discontinued operations.
Sale of Smart Meter Business.
On March 7, 2013, we completed the sale of our smart metering business and related assets to Atmel Corporation for
$10.3 million
in cash, of which $1.0 million was withheld in an escrow until received in the fourth quarter of fiscal 2014. In the fourth quarter of fiscal 2013, we recorded a gain of $8.0 million related to this divestiture. Prior to the divestiture, the smart meter business was part of a larger cash-flow generating product group and did not, on its own, represent a separate operation of the Company and, therefore, this sale did not qualify as discontinued operations.
Overview
The following table and discussion provide an overview of our operating results from continuing operations for fiscal
2014
,
2013
and
2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year End
|
(in thousands, except for percentage)
|
March 30,
2014
|
|
|
March 31,
2013
|
|
|
April 1,
2012
|
Revenues
|
$
|
484,779
|
|
|
|
$
|
484,452
|
|
|
|
$
|
526,696
|
|
Gross profit
|
$
|
272,902
|
|
|
|
$
|
269,724
|
|
|
|
$
|
280,506
|
|
As a % of revenues
|
56.3
|
%
|
|
|
55.7
|
%
|
|
|
53.3
|
%
|
Operating expense
|
$
|
241,947
|
|
|
|
$
|
277,119
|
|
|
|
$
|
259,026
|
|
As a % of revenues
|
49.9
|
%
|
|
|
57.2
|
%
|
|
|
49.2
|
%
|
Operating income (loss)
|
$
|
30,955
|
|
|
|
$
|
(7,395
|
)
|
|
|
$
|
21,480
|
|
As a % of revenues
|
6.4
|
%
|
|
|
(1.5
|
)%
|
|
|
4.1
|
%
|
Net income from continuing operations
|
$
|
111,313
|
|
|
|
$
|
2,711
|
|
|
|
$
|
37,953
|
|
As a % of revenues
|
23.0
|
%
|
|
|
0.6
|
%
|
|
|
7.2
|
%
|
Our revenues in fiscal
2014
were
$484.8 million
as compared to
$484.5 million
in fiscal
2013
. During fiscal
2014
we experienced increased demand for our products in the Communications market segment which was offset in part by decreased demand for products in the Computing and Consumer market segment. Gross profit as a percentage of net revenues was
56.3%
in fiscal
2014
as compared to
55.7%
in fiscal
2013
. The fiscal
2014
increase in gross profit percentage was primarily due to improved mix of
higher margin products as compared to fiscal
2013
. Our operating expenses decreased by
$35.2 million
, or
(12.7)%
, to
$241.9 million
in fiscal
2014
as compared to
$277.1 million
in fiscal
2013
, primarily due to divestitures and the implementation of other expense reduction actions. Our operating income increased from a
$7.4 million
loss in fiscal
2013
to an operating income of
$31.0 million
in fiscal
2014
primarily due to improved gross profit percentage combined with a decrease in operating expenses. Net income from continuing operations in fiscal
2014
was
$111.3 million
and included a
$78.6 million
net gain from the divestitures of the PCI Express enterprise flash controller business and Audio business. This compares to fiscal
2013
net income from continuing operations of
$2.7 million
which included a
$8.0 million
gain on the divestiture of the Smart Meter business. We ended fiscal
2014
with cash and cash equivalents and short-term investments of
$453.8 million
. We generated
$75.6 million
in cash from operations in fiscal
2014
, received
$46.1 million
in proceeds from employee stock transactions and received
$96.3 million
in proceeds from divestitures. These proceeds were offset by
$44.0 million
used for repurchases of common stock and
$17.4 million
for the purchases of property, plant and equipment.
Results of Operations, Continuing Operations
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by segment:
|
Fiscal Year Ended
|
(in thousands)
|
March 30,
2014
|
|
March 31,
2013
|
|
April 1,
2012
|
Communications
|
$
|
292,435
|
|
|
$
|
258,184
|
|
|
$
|
248,370
|
|
Computing and Consumer
|
192,344
|
|
|
226,268
|
|
|
278,326
|
|
Total revenues
|
$
|
484,779
|
|
|
$
|
484,452
|
|
|
$
|
526,696
|
|
|
|
|
|
|
|
|
|
|
|
Product groups representing greater than 10% of net revenues:
|
Fiscal Year Ended
|
As a percentage of net revenues
|
March 30,
2014
|
|
March 31,
2013
|
|
April 1,
2012
|
Communications:
|
|
|
|
|
|
Communications timing products
|
24
|
%
|
|
24
|
%
|
|
18
|
%
|
Serial RapidIO solutions
|
16
|
%
|
|
*
|
|
|
*
|
|
All others less than 10% individually
|
20
|
%
|
|
29
|
%
|
|
29
|
%
|
Total communications
|
60
|
%
|
|
53
|
%
|
|
47
|
%
|
|
|
|
|
|
|
Computing and Consumer:
|
|
|
|
|
|
Consumer and computing timing products
|
18
|
%
|
|
19
|
%
|
|
23
|
%
|
Memory interface products
|
15
|
%
|
|
16
|
%
|
|
15
|
%
|
All others less than 10% individually
|
7
|
%
|
|
12
|
%
|
|
15
|
%
|
Total computing and consumer
|
40
|
%
|
|
47
|
%
|
|
53
|
%
|
|
|
|
|
|
|
Total
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
* Represents less than 10% of net revenues
Communications Segment
Revenues in our Communications segment increased
$34.3 million
, or
13%
, to
$292.4 million
in fiscal
2014
as compared to
$258.2 million
in fiscal
2013
. This increase was driven primarily by a $36.4 million increase in shipments of our Rapid I/O switching solutions products combined with a $3.5 million increase in Radio Frequency product revenues, offset in part by lower revenue from legacy products.
In fiscal
2013
, revenues in our Communications segment increased
$9.8 million
, or
4.0%
, to
$258.2 million
. This increase was driven primarily from a $20.0 million increase in communications timing products which included a $20.0 million increase from the acquisition of Fox which was completed in the first quarter of fiscal 2013 combined with a $14.4 million increase in flow-control management devices as we experienced increased demand driven by customers in the communications wireless
base station market. These increases were offset in part by a general demand decrease for most other products within this market segment, which declined in-line with market conditions.
Computing and Consumer Segment
Revenues in our Computing and Consumer segment decreased
$33.9 million
, or
15%
, to
$192.3 million
in fiscal
2014
as compared to
$226.3 million
in fiscal
2013
as a result of reduced demand. In general, demand for most products within this market segment declined as compared to fiscal
2013
.
In fiscal
2013
, revenues in our Computing and Consumer segment decreased
$52.1 million
, or
19%
, as compared to fiscal
2012
as a result of reduced demand. In general, demand for most products within this market segment declined in-line with market conditions.
Revenues by Region
Revenues in APAC (excluding Japan), Americas, Japan and Europe accounted for
64%
,
15%
,
8%
and
13%
, respectively, of consolidated revenues in fiscal
2014
compared to
64%
,
16%
,
8%
and
12%
, respectively, of our consolidated revenues in fiscal
2013
. Revenues in APAC, Americas, Japan and Europe accounted for
66%
,
15%
,
8%
and
11%
, respectively, of consolidated revenues in fiscal
2012
. The APAC region continues to be our largest region, as many of our customers utilize manufacturers in that region.
Deferred Income on Shipments to Distributions
Included in the Balance Sheet caption “
Deferred income on shipments to distributors”
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 as of
March 30, 2014
and
March 31, 2013
are as follows:
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 30, 2014
|
|
March 31, 2013
|
Gross deferred revenue
|
$
|
17,261
|
|
|
$
|
17,581
|
|
Gross deferred costs
|
(3,255
|
)
|
|
(3,042
|
)
|
Deferred income on shipments to distributors
|
$
|
14,006
|
|
|
$
|
14,539
|
|
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. Based on our history, the amount ultimately recognized as revenue is generally less than the gross deferred revenue as a result of ship from stock pricing credits, which are issued in connection with the sell through of the product to an end customer. As the amount of price adjustments subsequent to shipment is dependent on the overall market conditions, the levels of these adjustments can fluctuate significantly from period to period. Historically, price adjustments have represented an average of approximately
37%
of the list price billed to the customer. As these credits are issued, there is no impact to working capital as this reduces both accounts receivable and deferred revenue. Gross deferred costs represent the standard costs (which approximate actual costs) of products we sell to the distributors.
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
March 30,
2014
|
|
March 31,
2013
|
|
April 1,
2012
|
Gross Profit (in thousands)
|
$
|
272,902
|
|
|
$
|
269,724
|
|
|
$
|
280,506
|
|
Gross Profit Percentage
|
56.3
|
%
|
|
55.7
|
%
|
|
53.3
|
%
|
Gross profit increased
$3.2 million
, in fiscal
2014
as compared to fiscal
2013
primarily due to an increased gross profit percentage of revenues. Gross profit as a percentage of revenues increased
0.6%
in fiscal
2014
as compared to fiscal
2013
, primarily due to an increased product shipment mix of communications products, which in general have a higher gross profit percentage than our consumer and computer products. In addition, fiscal
2014
gross profit percentage was favorably impacted as compared to fiscal
2013
by a reduction in manufacturing costs, which was offset in part by increased amortization of acquired intangible assets. Associated with the decision to discontinue certain products attained through the acquisitions of Mobius Microsystems and IKOR, we revised the estimated remaining useful life of the related acquired intangible assets to zero, resulting in additional accelerated amortization charged to cost of revenues in the fourth quarter of fiscal 2014. As of
March 30, 2014
, the balance of net buffer stock inventory which was built in anticipation of the transition of wafer fabrication activities totaled approximately $1.0 million.
In fiscal
2013
, gross profit decreased
$10.8 million
, or
4%
, compared to fiscal
2012
primarily due to lower revenue levels. Gross profit percentage increased
2.4%
in fiscal
2013
compared to fiscal
2012
. Our gross profit percentage in fiscal
2013
was favorably impacted, as compared to fiscal
2012
, by an increased product shipment mix of communications products. In addition, fiscal
2013
gross profit percentage was favorably impacted, as compared to fiscal
2012
, by the reduction of $4.6 million in expenses associated with the transfer of fabrication production to third-party foundries which was completed in the fourth quarter of fiscal
2012
. As of March 31, 2013, the balance of inventory buffer stock which was built in anticipation of the transition of wafer fabrication activities totaled approximately $4.8 million.
Operating Expenses
The following table presents our operating expenses for fiscal years
2014
,
2013
and
2012
, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 30, 2014
|
|
March 31, 2013
|
|
April 1, 2012
|
(in thousands, except for percentages)
|
|
Dollar Amount
|
|
% of Net
Revenues
|
|
Dollar Amount
|
|
% of Net
Revenues
|
|
Dollar Amount
|
|
% of Net
Revenues
|
Research and development
|
|
$
|
140,799
|
|
|
29
|
%
|
|
$
|
159,471
|
|
|
33
|
%
|
|
$
|
158,749
|
|
|
30
|
%
|
Selling, general and administrative
|
|
$
|
101,148
|
|
|
21
|
%
|
|
$
|
117,648
|
|
|
24
|
%
|
|
$
|
100,277
|
|
|
19
|
%
|
Research and Development (R&D)
R&D expense decreased by
$18.7 million
, or
12%
, to
$140.8 million
in fiscal
2014
compared to fiscal
2013
. The decrease was primarily driven by reduced headcount costs resulting from the divestitures of our PCIe enterprise flash controller business and our Audio business combined with other headcount reduction actions taken in fiscal
2014
and
2013
. Significant decreases included $16.2 million in decreased R&D labor and benefits, a $4.9 million decrease in R&D materials and outside services, a $2.6 million decrease in engineering design tool license costs, a $0.8 million decrease in facilities costs and a $0.8 million reduction in other R&D expenses. These decreases were offset in part by a $4.2 million increase in accrued employee bonus expense and a $2.4 million impairment charge associated with the decision to discontinue further development required to complete the Mobius Microsystems acquired in-process research and development.
R&D expense increased
$0.7 million
, or
0.5%
, to
$159.5 million
in fiscal
2013
compared to fiscal
2012
. The increase was primarily due to a $4.9 million increase in engineering design tool license costs, a $1.1 million increase in depreciation and a $0.7 million increase in rent expense. These increases were offset in part by a $2.7 million decrease in labor and benefits costs, a $1.9 million decrease in R&D materials and outside services and a $1.3 million decrease in accrued employee bonus expense.
Selling, General and Administrative
(SG&A)
SG&A expenses decreased
$16.5 million
, or
14%
, to
$101.1 million
in fiscal
2014
compared to fiscal
2013
. Significant decreases included a $3.4 million decrease in SG&A labor and benefits, primarily driven by reduced headcount costs resulting from the divestitures of our PCIe enterprise flash controller business and our Audio business combined with other headcount reduction actions taken in fiscal
2014
and
2013
, combined with a $13.0 million decrease in acquisition related legal and consulting costs due to a reduction in acquisition related activities as compared to fiscal
2013
, and an additional $2.5 million expense reduction for the amortization of capitalized financing costs which was recognized in fiscal
2013
related to the termination of a credit facility. These expense reductions were offset in part by a $2.4 million increase in accrued employee bonus expense.
SG&A expenses increased
$17.4 million
, or
17%
, to
$117.6 million
in fiscal
2013
compared to fiscal
2012
. The increase was primarily the result of an $8.1 million increase in acquisition related legal and consulting costs, a $4.6 million increase in employee compensation and benefits associated with increased SG&A headcount, a $2.5 million expense for the amortization of capitalized financing costs, $1.6 million in expenses related to stockholder activities and a $0.6 million increase in all other SG&A expenses.
Other-Than-Temporary Impairment Loss on Investment
We account for our 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 our investments has occurred and is other than temporary, an assessment is 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. In fiscal
2013
, we determined that the value of certain non-marketable private equity investments were impaired and we recorded
$1.7 million
in other-than-temporary impairment losses during the period. In fiscal 2012, we determined that the value certain non-marketable
private equity investments were impaired and we recorded $3.4 million in other-than-temporary impairment losses during the period. The were no impairments recorded for fiscal 2014.
Restructuring Charges
As part of an effort to streamline operations with changing market conditions and to create a more efficient organization, we have undertaken restructuring actions to reduce our workforce and consolidate facilities. Our restructuring expenses consisted primarily of: (i) severance and termination benefit costs related to the reduction of our workforce; and (ii) lease termination costs and costs associated with permanently vacating certain facilities.
During fiscal 2014, we recorded restructuring charges of $5.5 million and reduced our headcount by 117 employees in multiple reduction in workforce actions. During fiscal 2014, we paid $4.9 million related to these actions. As of March 30, 2014, the total accrued balance for employee severance costs related to these restructuring actions was $0.6 million. We expect to complete these restructuring actions by the second quarter of fiscal 2015.
During fiscal 2013, we recorded restructuring charges of $4.3 million for multiple reduction in workforce actions. We reduced our total headcount by approximately 132 employees with reductions affecting all functional areas and various locations. During fiscal 2013, we paid $3.2 million in severance costs associated with these actions. During the first quarter of fiscal 2014, we paid $1.1 million in severance costs and completed these actions.
In connection with the divestiture of our smart metering business, during fiscal 2013, we recorded $0.4 million in restructuring expenses for employee severance costs. During fiscal 2014, we paid $0.4 million and completed this action.
In connection with the divestiture of our video processing product lines, during fiscal 2012, we recorded $3.6 million in restructuring expenses for employee retention costs. These costs have been classified within discontinued operations. During fiscal 2013, we recorded an additional $1.1 million in employee retention costs under this plan. These charges were recorded within discontinued operations. We paid $4.7 million in fiscal 2013 and completed this restructuring action.
In connection with the transition of the manufacture of our products to Taiwan Semiconductor Manufacturing Limited (TSMC), we accrued restructuring expenses of $4.8 million for severance payments and other benefits associated with this restructuring action in fiscal 2010. During fiscal 2012, we decreased this accrual by $3.1 million based on the actual number of employees that were offered employment with the acquirer of the wafer fabrication facility. During fiscal 2012, we recorded prior period adjustments of $4.1 million for employee retention costs related to fiscal 2010 and fiscal 2011 and an additional $2.5 million for employee retention costs was recorded in fiscal 2012. During fiscal 2013, we paid $1.0 million in employee retention costs and completed the restructuring action to exit wafer production operations at our Oregon fabrication facility.
Gain (loss) on Divestitures (not accounted as discontinued operations)
Sale of Certain Assets of Audio Business
On December 13, 2013, we completed the sale of certain assets of our Audio business to Stravelis, Inc. for $0.2 million in cash and up to a maximum potential of $1.0 million additional consideration contingent upon future revenues. The fair value of the contingent consideration was estimated to be zero based on the estimated probability of attainment of future revenue targets. In additional, we recorded a $0.3 million liability for services to be provided at no charge by us for the first year following the acquisition date. We recorded a loss of $3.7 million on divestiture related to this transaction in fiscal 2014. Prior to the divestiture, this business was part of a larger cash-flow generating product group and did not, on its own, represent a separate operation of the Company and, therefore, this sale did not qualify as discontinued operations.
Sale of PCI Express Enterprise Flash Controller Business
On July 12, 2013, we completed the sale of certain assets of our PCI Express ("PCIe") enterprise flash controller business to PMC-Sierra, Inc.(“PMC”) for $96.1 million in cash. We recorded a gain of $82.3 million on divestiture related to this transaction in the second quarter of fiscal 2014. Prior to the divestiture, this business was part of a larger cash-flow generating product group and did not, on its own, represent a separate operation of the Company and, therefore, this sale did not qualify as discontinued operations.
Sale of Smart Meter Business
On March 7, 2013, we completed the sale of our smart metering business and related assets to Atmel Corporation for
$10.3 million
in cash, of which $1.0 million will be withheld in an escrow account for a period of 1 year. In the fourth quarter of fiscal 2013, we recorded a gain of $8.0 million related to this divestiture. Prior to the divestiture, the smart meter business was part of a larger cash-flow generating product group and did not, on its own, represent a separate operation of the Company and, therefore, this sale did not qualify as discontinued operations.
Wafer fabrication facility
On January 31, 2012, we completed the sale of our wafer fabrication facility located in Hillsboro, Oregon and related assets and specific liabilities to Jireh Semiconductor Incorporated, an Oregon corporation and wholly-owned subsidiary of Alpha and Omega Semiconductor Limited (AOS) for
$26.3 million
in cash, of which
$5.0 million
was received as a purchase option deposit in fiscal 2011. As discussed above, in fiscal 2012, we recorded gain on divestiture of $20.7 million on the sale of our wafer fabrication facility in Oregon.
Interest Income and Other, Net
The components of interest income and other, net are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
(in thousands)
|
March 30, 2014
|
|
March 31, 2013
|
|
April 1, 2012
|
Interest income
|
$
|
1,348
|
|
|
$
|
447
|
|
|
$
|
459
|
|
Interest expense
|
(21
|
)
|
|
(1,479
|
)
|
|
(1,319
|
)
|
Other income (expense), net
|
1,380
|
|
|
2,740
|
|
|
(258
|
)
|
Interest income (expense) and other, net
|
$
|
2,707
|
|
|
$
|
1,708
|
|
|
$
|
(1,118
|
)
|
Interest income is derived from earnings on our cash and short term investments. Interest expense is primarily due to charges associated with the credit facility with Bank of America which was established in fiscal 2012 and was terminated in fiscal 2013. Other income (expense), net primarily consists of gains or losses in the value of deferred compensation plan assets, foreign currency gains or losses and other non-operating gains or losses. Other income in fiscal 2013 also included $2.0 million of death benefit proceeds received in fiscal 2013 under life insurance policies purchased with the intention of funding deferred compensation plan liabilities.
Income Tax Expense (Benefit)
We recorded an income tax expense of $1.0 million in fiscal 2014, an income tax benefit of $2.0 million in fiscal 2013 and an income tax expense of $0.2 million in fiscal 2012. The income tax expense in fiscal 2014 was primarily due to foreign income tax expense. The income tax benefit in fiscal 2013 was primarily due to release of valuation allowance on the acquired Fox deferred tax liability, and was offset by foreign income tax expenses. The income tax provision in fiscal 2012 was primarily due to foreign tax expenses.
As of March 30, 2014, we continued to maintain a valuation allowance against our net U.S. and foreign deferred tax assets, as we could not conclude that it is more likely than not that we will be able to realize our U.S. and foreign deferred tax assets in the foreseeable future. We will continue to evaluate the release of the valuation allowance on a quarterly basis.
As of March 30, 2014, the Company was subject to examination in the U.S. federal tax jurisdiction for the fiscal years 2011, 2012 and 2013. In fiscal 2013, the Internal Revenue Service (IRS) commenced an audit of the Company’s federal corporate tax returns for fiscal years 2011 and 2012, which is still ongoing. Although the final outcome is uncertain, based on currently available information, the Company believes that the ultimate outcome will not have a material adverse effect on its financial position, cash flows or results of operations.
Liquidity and Capital Resources
Our cash and cash equivalents and short-term investments were
$453.8 million
at
March 30, 2014
, an increase of
$156.6 million
compared to
March 31, 2013
. We had no outstanding debt at March 30, 2014 or March 31, 2013.
Cash Flows from Operating Activities
Net cash provided by operating activities totaled
$75.6 million
in fiscal
2014
compared to
$44.1 million
in fiscal
2013
and
$33.8 million
in fiscal
2012
. Cash provided by operating activities in fiscal 2014 consisted of our net income of $88.4 million, as adjusted to exclude net gain on divestitures of $78.6 million and to add back depreciation, amortization, gain on divestitures, stock compensation and other non-cash items totaling $66.2 million; and $0.3 million in cash used by changes in working capital requirements primarily related to increases and decreases in assets and liabilities. In fiscal 2014, excluding the effects of acquisitions, significant proceeds from changes in working capital requirements included a decrease of $4.3 million in prepaid and other assets and a $2.9 million decrease in inventory. Net use of cash for changes in working capital requirements included a $6.8 million increase in accounts receivable, primarily due to increased shipments in the fourth quarter of fiscal 2014 as compared to the same period in fiscal 2013, and $0.7 million net used for all other working capital requirements.
In fiscal 2013, net cash provided by operating activities consisted of our net loss of $20.2 million, as adjusted to add back depreciation, amortization, gain on divestitures, stock compensation and other non-cash items totaling $43.8 million; and $20.4 million in cash provided by changes in working capital requirements primarily related to increases and decreases in assets and liabilities. In fiscal 2013, excluding the effects of acquisitions, proceeds from changes in working capital requirements included a decrease of $15.9 million in prepaid and other assets (primarily due to a $7.7 million reduction in prepaid design tool licenses combined with the receipt of $2.6 million in escrow funds from the wafer fab sale, a $2.9 million reduction in capitalized financing costs and a $2.7 million reduction in all other prepaid and other assets), a $15.5 million decrease in inventory primarily due to shipments exceeding inventory build and a $2.5 million decrease in accounts receivable due to reduced shipment levels. Uses of cash for changes in working capital requirements included a $6.9 million decrease in accrued compensation, which was primarily due to the payout of severance and retention bonus payouts associated with business divestitures, a $3.2 million decrease in accounts payable due to reduced outside subcontract manufacturing activities and a $3.4 million decrease in all other accrued liabilities.
In fiscal 2012, net cash provided by operating activities consisted of our net income of $58.4 million, as adjusted to exclude net gain on divestitures of $66.6 million and depreciation, amortization and other non-cash items totaling $54.4 million, and cash used for working capital requirements primarily related to decreases in accounts payable, other accrued liabilities and accrued compensation partially offset by a decrease in accounts receivable. A decrease in accounts payable of $12.2 million was primarily attributable to reduced inventory subcontract activities in the fourth quarter of fiscal 2012 combined with the timing of payments. A decrease in other accrued liabilities of $13.2 million was primarily due to decreases in accrued severance costs, supplier obligations and miscellaneous payables. Accrued compensation decreased by $5.8 million primarily due to mid-year payouts made in the third quarter of fiscal 2012 and reduced incentive bonus accruals for fiscal 2012 as compared to fiscal 2011. A decrease in accounts receivable of $21.2 million was primarily the result of a decrease in sales.
Cash Flows from Investing Activities
Net cash used for investing activities in fiscal
2014
was
$112.1 million
compared to net cash used for investing activities of
$65.8 million
in fiscal
2013
and net cash provided by investing activities of
$47.5 million
in fiscal
2012
. Net cash used for investing activities in fiscal 2014 was primarily due to $197.0 million used for the net purchase of short-term investments and $17.4 million of expenditures to purchase capital equipment which was offset in part by $96.3 million received from the sale of our PCI Express enterprise flash controller business to PMC-Sierra Inc. and the sale of certain assets of our Audio business to Stravelis, Inc. combined with $6.0 million receipt of escrow proceeds associated with the sale of our Video Business to Qualcomm in fiscal 2012.
In fiscal 2013, net cash used for investing activities was $65.8 million compared to net cash provided by investing activities of $47.5 million in fiscal 2012 and net cash used for investing activities of $0.4 million in fiscal 2011. Net cash used by investing activities in fiscal 2013 was primarily due to $68.3 million paid for the acquisitions of Fox, Alvand Technologies and NXP B.V. data converter business, $7.8 million paid to escrow in association with these acquisitions, $27.9 million of expenditures to purchase capital equipment partially offset by net proceeds of $24.0 million from the net sale of short-term investments and $14.2 million of proceeds from sale of video processing business and smart meter business.
In fiscal 2012, net cash provided by investing activities primarily consisted of $70.2 million of proceeds from divestitures, net proceeds of $4.0 million from the sale of short-term investments and the receipt of $2.6 million on the sale of a non-marketable security partially offset by $22.4 million of expenditures to purchase capital equipment, $5.0 million paid for the purchase of intangible assets and $2.0 million paid for the acquisition of Nethra Imaging business.
Cash Flows from Financing Activities
Net cash used for financing activities was
$3.1 million
in fiscal
2014
as compared to net cash provided by financing activities of
$17.4 million
in fiscal
2013
and net cash used for financing activities of
$50.6 million
used in fiscal 2012.
Cash used by financing activities in fiscal 2014, was primarily due to repurchases of $44.0 million of IDT common stock combined with $5.1 million payout of the contingent consideration associated with the acquisitions of Fox Enterprises, Inc. and Alvand Technologies, Inc., partially offset by proceeds of $46.1 million from the exercise of employee stock options and the issuance of stock under our employee stock purchase plan.
In fiscal 2013, cash provided by financing activities was primarily due to proceeds of $17.4 million from the exercise of employee stock options and the issuance of stock under our employee stock purchase plan.
In fiscal 2012, cash used for financing activities was primarily due to repurchases of approximately $67.5 million of our common stock, partially offset by proceeds of $16.3 million from the exercise of employee stock options and the issuance of stock under our employee stock purchase plan.
We anticipate capital expenditures of approximately $15 million to $25 million during fiscal 2015 to be financed through cash generated from operations and existing cash and investments.
Cash equivalents are highly liquid investments with original maturities of three months or less at the time of purchase. We maintain the cash and cash equivalents with reputable major financial institutions. Deposits with these banks may exceed the Federal Deposit Insurance Corporation (FDIC) insurance limits or similar limits in foreign jurisdictions. These deposits typically may be redeemed upon demand and, therefore, bear minimal risk. In addition, a significant portion of cash equivalents is concentrated in money market funds which are invested primarily in U.S. government treasuries. While we monitor daily the cash balances in our operating accounts and adjust the balances as appropriate, these balances could be affected if one or more of the financial institutions with which we deposit fails or is subject to other adverse conditions in the financial markets. As of
March 30, 2014
, we had not experienced any loss or lack of access to our invested cash or cash equivalents in our operating accounts. However, we can provide no assurances that access to our invested cash and cash equivalents will not be affected by adverse conditions in the financial markets. See Item 1A-“Risk Factors: Global economic conditions may adversely affect our business and results of operations.”
In addition, as much of our revenues are generated outside the U.S., a significant portion of our cash and investment portfolio accumulates in the foreign countries in which we operate. At
March 30, 2014
, we had cash, cash equivalents and investments of approximately
$318.0 million
invested overseas in accounts belonging to various IDT foreign operating entities. While these amounts are primarily invested in U.S. dollars, a portion is held in foreign currencies, and all offshore balances are exposed to local political, banking, currency control and other risks. In addition, these amounts may be subject to tax and other transfer restrictions.
All of our short-term investments which are classified as 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. This determination requires significant judgment. For publicly traded investments, impairment is determined based upon the specific facts and circumstances present at the time, including a review of the closing price over the length of time, general market conditions and our intent and ability to hold the investment for a period of time sufficient to allow for recovery. Although we believe the portfolio continues to be comprised of sound investments due to high credit ratings and government guarantees of the underlying investments, a further decline in the capital and financial markets would adversely impact the market values of its investments and their liquidity. We continually monitor the credit risk in our portfolio and future developments in the credit markets and make appropriate changes to our investment policy as deemed necessary. We did not record any other-than-temporary impairment charges related to our short-term investments in fiscal 2014 and fiscal 2013.
Contractual Obligations and Commercial Commitments
The following table summarizes our contractual arrangements at
March 30, 2014
and the expected timing and effects of these commitments on our liquidity and cash flow in future periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
Less Than
|
|
1-2
|
|
3-4
|
|
5 Years and
|
(in thousands)
|
Total
|
|
1 Year
|
|
Years
|
|
Years
|
|
Thereafter
|
Operating leases
|
$
|
17,206
|
|
|
$
|
3,926
|
|
|
$
|
6,686
|
|
|
$
|
5,162
|
|
|
$
|
1,432
|
|
Other supplier obligations (1)
|
4,195
|
|
|
3,691
|
|
|
504
|
|
|
—
|
|
|
—
|
|
|
|
(1)
|
Other supplier obligations represent payments due under various software design tool and technology license agreements.
|
As of
March 30, 2014
, our unrecognized tax benefits were $27.5 million, of which $0.3 million are classified as long-term liabilities and $27.2 million which are netted against deferred tax assets. In addition, we have
$13.8 million
of amounts payable related to obligations under our deferred compensation plan, which are classified as long-term liabilities. At this time, we are unable to make a reasonably reliable estimate of the timing of payments, if any, in individual years due to uncertainties in the timing or outcomes of either actual or anticipated tax audits and the timing of employee departures. As a result, these amounts are not included in the table above.
Purchase orders or contracts for the purchase of raw materials and other goods and services are not included in the table above. We are not able to determine the aggregate amount of such purchase orders that represent binding contractual obligations, as purchase orders often represent authorizations to purchase rather than binding agreements. Our purchase orders are based on our current manufacturing needs and are fulfilled by our vendors within short time horizons. We also enter into contracts for outsourced services, which generally contain clauses allowing for cancellation prior to services being performed without significant penalty. In addition, the table above excludes leases in which amounts have been accrued for impairment charges.
We believe that existing cash and investment balances, together with cash flows from operations, will be sufficient to meet our working capital and capital expenditure needs through at least fiscal 2015. We may choose to investigate other financing alternatives; however, we cannot be certain that additional financing will be available on satisfactory terms.
Off-Balance Sheet Arrangements
As of
March 30, 2014
, we did not have any off-balance sheet arrangements, as defined under SEC Regulation S-K Item 303(a)(4)(ii), other than the items discussed in "Note 15 – Commitments and Contingencies – Commitments” in Part II, Item 8 of this Annual Report on Form 10-K.
Recent Accounting Pronouncements
For further information, please see “Note 1 – Summary of Significant Accounting Policies” in Part II, Item 8 of this Annual Report on Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
|
|
|
Consolidated Financial Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Statement Schedule:
|
|
|
|
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Integrated Device Technology, Inc.:
In our opinion, the consolidated financial statements listed in the accompanying index appearing under item 15(a)(1), present fairly, in all material respects, the financial position of Integrated Device Technology, Inc. and its subsidiaries at March 30, 2014 and March 31, 2013, and the results of their operations and their cash flows for each of the three years in the period ended March 30, 2014 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index under item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 30, 2014, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s 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 company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) 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 (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s 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.
/s/ PricewaterhouseCoopers LLP
San Jose, CA
May 28, 2014
INTEGRATED DEVICE TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
(in thousands
)
|
March 30, 2014
|
|
March 31, 2013
|
Assets
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
91,211
|
|
|
$
|
130,837
|
|
Short-term investments
|
362,604
|
|
|
166,333
|
|
Accounts receivable, net of allowances of $3,134 and $2,787
|
68,904
|
|
|
62,083
|
|
Inventories
|
49,622
|
|
|
56,555
|
|
Income tax receivable
|
195
|
|
|
192
|
|
Prepayments and other current assets
|
12,839
|
|
|
24,505
|
|
Total current assets
|
585,375
|
|
|
440,505
|
|
Property, plant and equipment, net
|
69,827
|
|
|
74,988
|
|
Goodwill
|
135,644
|
|
|
144,924
|
|
Acquisition-related intangible assets, net
|
18,741
|
|
|
48,602
|
|
Deferred non-current tax assets
|
762
|
|
|
671
|
|
Other assets
|
20,611
|
|
|
18,889
|
|
Total assets
|
$
|
830,960
|
|
|
$
|
728,579
|
|
Liabilities and stockholders' equity
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Accounts payable
|
$
|
25,442
|
|
|
$
|
23,244
|
|
Accrued compensation and related expenses
|
24,343
|
|
|
21,090
|
|
Deferred income on shipments to distributors
|
14,006
|
|
|
14,539
|
|
Deferred tax liabilities
|
1,346
|
|
|
1,000
|
|
Other accrued liabilities
|
11,525
|
|
|
14,652
|
|
Total current liabilities
|
76,662
|
|
|
74,525
|
|
Deferred tax liabilities
|
1,494
|
|
|
1,552
|
|
Long-term income tax payable
|
266
|
|
|
454
|
|
Other long-term liabilities
|
18,683
|
|
|
22,022
|
|
Total liabilities
|
97,105
|
|
|
98,553
|
|
Commitments and contingencies (Note 15)
|
—
|
|
|
—
|
|
Stockholders' equity:
|
|
|
|
|
|
Preferred stock: $.001 par value: 10,000 shares authorized; no shares issued
|
—
|
|
|
—
|
|
Common stock: $.001 par value: 350,000 shares authorized; 149,996 and 146,253 shares outstanding at March 30, 2014 and March 31, 2013, respectively
|
150
|
|
|
146
|
|
Additional paid-in capital
|
2,467,341
|
|
|
2,407,998
|
|
Treasury stock at cost: 94,556 shares and 90,426 shares at March 30, 2014 and March 31, 2013, respectively
|
(1,021,301
|
)
|
|
(977,296
|
)
|
Accumulated deficit
|
(713,944
|
)
|
|
(802,308
|
)
|
Accumulated other comprehensive income
|
1,609
|
|
|
1,486
|
|
Total stockholders' equity
|
733,855
|
|
|
630,026
|
|
Total liabilities and stockholders' equity
|
$
|
830,960
|
|
|
$
|
728,579
|
|
The accompanying notes are an integral part of these consolidated financial statements.
INTEGRATED DEVICE TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
(In thousands, except per share data)
|
March 30,
2014
|
|
March 31,
2013
|
|
April 1,
2012
|
Revenues
|
$
|
484,779
|
|
|
$
|
484,452
|
|
|
$
|
526,696
|
|
Cost of revenues
|
211,877
|
|
|
214,728
|
|
|
246,190
|
|
Gross profit
|
272,902
|
|
|
269,724
|
|
|
280,506
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
140,799
|
|
|
159,471
|
|
|
158,749
|
|
Selling, general and administrative
|
101,148
|
|
|
117,648
|
|
|
100,277
|
|
Total operating expenses
|
241,947
|
|
|
277,119
|
|
|
259,026
|
|
Operating income (loss)
|
30,955
|
|
|
(7,395
|
)
|
|
21,480
|
|
Gain on divestitures, net
|
78,632
|
|
|
7,986
|
|
|
20,656
|
|
Other-than-temporary impairment loss on investments
|
—
|
|
|
(1,708
|
)
|
|
(2,797
|
)
|
Interest income (expense) and other, net
|
2,707
|
|
|
1,708
|
|
|
(1,118
|
)
|
Income before income taxes from continuing operations
|
112,294
|
|
|
591
|
|
|
38,221
|
|
Income tax expense (benefit)
|
981
|
|
|
(2,120
|
)
|
|
268
|
|
Net income from continuing operations
|
111,313
|
|
|
2,711
|
|
|
37,953
|
|
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
Gain from divestiture
|
—
|
|
|
886
|
|
|
45,939
|
|
Loss from discontinued operations before income taxes
|
(22,938
|
)
|
|
(23,653
|
)
|
|
(25,521
|
)
|
Income tax expense (benefit)
|
11
|
|
|
116
|
|
|
(89
|
)
|
Net income (loss) from discontinued operations
|
(22,949
|
)
|
|
(22,883
|
)
|
|
20,507
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
88,364
|
|
|
$
|
(20,172
|
)
|
|
$
|
58,460
|
|
|
|
|
|
|
|
Basic net income per share – continuing operations
|
$
|
0.74
|
|
|
$
|
0.02
|
|
|
$
|
0.26
|
|
Basic net income (loss) per share – discontinued operations
|
$
|
(0.15
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
0.15
|
|
Basic net income (loss) per share
|
$
|
0.59
|
|
|
$
|
(0.14
|
)
|
|
$
|
0.41
|
|
|
|
|
|
|
|
Diluted net income per share – continuing operations
|
$
|
0.73
|
|
|
$
|
0.02
|
|
|
$
|
0.26
|
|
Diluted net income (loss) per share – discontinued operations
|
$
|
(0.15
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
0.14
|
|
Diluted net income (loss) per share
|
$
|
0.58
|
|
|
$
|
(0.14
|
)
|
|
$
|
0.40
|
|
|
|
|
|
|
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
Basic
|
149,480
|
|
|
144,014
|
|
|
143,958
|
|
Diluted
|
153,369
|
|
|
145,678
|
|
|
145,848
|
|
The accompanying notes are an integral part of these consolidated financial statements.
INTEGRATED DEVICE TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
(in thousands)
|
March 30,
2014
|
|
March 31,
2013
|
|
April 1,
2012
|
Net income (loss)
|
$
|
88,364
|
|
|
$
|
(20,172
|
)
|
|
$
|
58,460
|
|
Other comprehensive income (loss), net of taxes:
|
|
|
|
|
|
Currency translation adjustments, net of tax
|
(66
|
)
|
|
235
|
|
|
(383
|
)
|
Change in net unrealized gain (loss) on investments, net of tax
|
194
|
|
|
(35
|
)
|
|
(61
|
)
|
Actuarial loss on post-employment and post-retirement benefit plans, net of tax
|
(5
|
)
|
|
(77
|
)
|
|
—
|
|
Total other comprehensive income (loss)
|
123
|
|
|
123
|
|
|
(444
|
)
|
Comprehensive income (loss)
|
$
|
88,487
|
|
|
$
|
(20,049
|
)
|
|
$
|
58,016
|
|
The accompanying notes are an integral part of these consolidated financial statements.
INTEGRATED DEVICE TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
(in thousands)
|
March 30,
2014
|
|
March 31,
2013
|
|
April 1,
2012
|
Cash flows provided by operating activities:
|
|
|
|
|
|
Net income (loss)
|
$
|
88,364
|
|
|
$
|
(20,172
|
)
|
|
$
|
58,460
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
Depreciation
|
20,872
|
|
|
20,089
|
|
|
18,818
|
|
Amortization of intangible assets
|
24,793
|
|
|
20,546
|
|
|
16,489
|
|
Goodwill and acquisition-related intangible asset impairment
|
7,230
|
|
|
—
|
|
|
—
|
|
Asset impairment
|
—
|
|
|
584
|
|
|
—
|
|
Gain from divestitures
|
(78,632
|
)
|
|
(8,872
|
)
|
|
(66,595
|
)
|
Stock-based compensation expense, net of amounts capitalized in inventory
|
13,352
|
|
|
13,272
|
|
|
16,795
|
|
Other-than-temporary impairment loss on investments
|
—
|
|
|
1,708
|
|
|
2,797
|
|
Deferred tax provision
|
(8
|
)
|
|
(3,492
|
)
|
|
90
|
|
Tax benefit from share-based payment arrangements
|
—
|
|
|
—
|
|
|
(562
|
)
|
Changes in assets and liabilities (net of amounts acquired):
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
(6,821
|
)
|
|
2,483
|
|
|
21,189
|
|
Inventories
|
2,935
|
|
|
15,510
|
|
|
(4,802
|
)
|
Prepayments and other assets
|
4,348
|
|
|
15,921
|
|
|
(637
|
)
|
Accounts payable
|
(144
|
)
|
|
(3,163
|
)
|
|
(12,154
|
)
|
Accrued compensation and related expenses
|
1,847
|
|
|
(6,933
|
)
|
|
(5,767
|
)
|
Deferred income on shipments to distributors
|
(533
|
)
|
|
(245
|
)
|
|
1,410
|
|
Income taxes payable and receivable
|
(888
|
)
|
|
929
|
|
|
1,439
|
|
Other accrued liabilities and long-term liabilities
|
(1,086
|
)
|
|
(4,091
|
)
|
|
(13,193
|
)
|
Net cash provided by operating activities
|
75,629
|
|
|
44,074
|
|
|
33,777
|
|
Cash flows provided by (used for) investing activities:
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired
|
—
|
|
|
(68,341
|
)
|
|
(1,957
|
)
|
Cash in escrow related to acquisitions
|
6,000
|
|
|
(7,816
|
)
|
|
—
|
|
Proceeds from divestitures
|
96,299
|
|
|
14,237
|
|
|
70,242
|
|
Purchases of property, plant and equipment, net
|
(17,448
|
)
|
|
(27,854
|
)
|
|
(22,396
|
)
|
Purchase of intangible assets
|
—
|
|
|
—
|
|
|
(5,000
|
)
|
Proceeds from sale of non-marketable security
|
—
|
|
|
—
|
|
|
2,619
|
|
Purchases of short-term investments
|
(463,283
|
)
|
|
(207,576
|
)
|
|
(492,672
|
)
|
Proceeds from sales of short-term investments
|
231,890
|
|
|
59,850
|
|
|
295,908
|
|
Proceeds from maturities of short-term investments
|
34,422
|
|
|
171,709
|
|
|
200,743
|
|
Net cash provided by (used for) investing activities
|
(112,120
|
)
|
|
(65,791
|
)
|
|
47,487
|
|
Cash flows provided by (used for) financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
46,066
|
|
|
17,395
|
|
|
16,288
|
|
Repurchase of common stock
|
(44,005
|
)
|
|
—
|
|
|
(67,472
|
)
|
Payment of acquisition related contingent consideration
|
(5,130
|
)
|
|
—
|
|
|
—
|
|
Excess tax benefit from share-based payment arrangements
|
—
|
|
|
—
|
|
|
562
|
|
Net cash provided by (used for) financing activities
|
(3,069
|
)
|
|
17,395
|
|
|
(50,622
|
)
|
Effect of exchange rates on cash and cash equivalents
|
(66
|
)
|
|
235
|
|
|
(398
|
)
|
Net increase (decrease) in cash and cash equivalents
|
(39,626
|
)
|
|
(4,087
|
)
|
|
30,244
|
|
Cash and cash equivalents at beginning of period
|
130,837
|
|
|
134,924
|
|
|
104,680
|
|
Cash and cash equivalents at end of period
|
$
|
91,211
|
|
|
$
|
130,837
|
|
|
$
|
134,924
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
Interest
|
$
|
22
|
|
|
$
|
1,374
|
|
|
$
|
1,184
|
|
Income taxes, net of refunds
|
$
|
1,848
|
|
|
$
|
(84
|
)
|
|
$
|
(197
|
)
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment included in accounts payable
|
$
|
223
|
|
|
$
|
523
|
|
|
$
|
2,489
|
|
The accompanying notes are an integral part of these consolidated financial statements.
INTEGRATED DEVICE TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock and Additional Paid-In Capital
|
|
Treasury
Stock
|
|
Retained
Earnings (Accumulated Deficit)
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Total
Stockholders'
Equity
|
(in thousands)
|
Shares
|
|
Dollars
|
|
|
|
|
|
|
|
|
Balance, April 3, 2011
|
148,352
|
|
|
$
|
2,343,874
|
|
|
$
|
(909,824
|
)
|
|
$
|
(840,596
|
)
|
|
$
|
1,807
|
|
|
$
|
595,261
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
58,460
|
|
|
—
|
|
|
58,460
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(444
|
)
|
|
(444
|
)
|
Issuance of common stock
|
4,231
|
|
|
16,288
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16,288
|
|
Repurchase of common stock
|
(10,389
|
)
|
|
—
|
|
|
(67,472
|
)
|
|
—
|
|
|
—
|
|
|
(67,472
|
)
|
Excess tax benefit from stock option
|
—
|
|
|
562
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
562
|
|
Stock-based compensation expense
|
—
|
|
|
16,733
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16,733
|
|
Balance, April 1, 2012
|
142,194
|
|
|
2,377,457
|
|
|
(977,296
|
)
|
|
(782,136
|
)
|
|
1,363
|
|
|
619,388
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(20,172
|
)
|
|
—
|
|
|
(20,172
|
)
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
123
|
|
|
123
|
|
Issuance of common stock
|
4,059
|
|
|
17,395
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17,395
|
|
Stock-based compensation expense
|
—
|
|
|
13,292
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,292
|
|
Balance, March 31, 2013
|
146,253
|
|
|
2,408,144
|
|
|
(977,296
|
)
|
|
(802,308
|
)
|
|
1,486
|
|
|
630,026
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
88,364
|
|
|
—
|
|
|
88,364
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
123
|
|
|
123
|
|
Issuance of common stock
|
7,873
|
|
|
46,066
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
46,066
|
|
Repurchase of common stock
|
(4,130
|
)
|
|
—
|
|
|
(44,005
|
)
|
|
—
|
|
|
—
|
|
|
(44,005
|
)
|
Stock-based compensation expense
|
—
|
|
|
13,281
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,281
|
|
Balance, March 30, 2014
|
149,996
|
|
|
$
|
2,467,491
|
|
|
$
|
(1,021,301
|
)
|
|
$
|
(713,944
|
)
|
|
$
|
1,609
|
|
|
$
|
733,855
|
|
The accompanying notes are an integral part of these consolidated financial statements.
INTEGRATED DEVICE TECHNOLOGY, INC.
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 nearest to March 31. Fiscal
2014
included
52
weeks and ended on
March 30, 2014
. Fiscal
2013
included
52
weeks and ended on
March 31, 2013
and fiscal
2012
included
52
weeks and ended on
April 1, 2012
.
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.
Cash and Cash Equivalents
.
Cash equivalents are highly liquid investments with remaining maturities of
three
months or less at the time of purchase.
Investments
Available-for-Sale Investments
.
Investments designated as available-for-sale include marketable debt and equity securities. Available-for-sale investments are classified as short-term, as these investments generally consist of highly marketable securities that are intended to be available to meet near-term cash requirements. Marketable securities classified as available-for-sale are reported at market value, with net unrealized gains or losses recorded in accumulated other comprehensive income (loss), a separate component of stockholders' equity, until realized. Realized gains and losses on investments are computed based upon specific identification, are included in interest income and other, net and have not been significant for all periods presented.
Non-Marketable Equity Securities
.
Non-marketable equity securities are accounted for at historical cost or, if the Company has significant influence over the investee, using the equity method of accounting.
Other-Than-Temporary Impairment
.
All of the Company’s available-for-sale investments and non-marketable equity securities 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. For publicly traded investments, impairment is determined based upon the specific facts and circumstances present at the time, including a review of the closing price over the previous six months, general market conditions and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for recovery. For non-marketable equity securities, the impairment analysis requires the identification of events or circumstances that would likely have a significant adverse effect on the fair value of the investment, including revenue and earnings trends, overall business prospects and general market conditions in the investees’ industry or geographic area. Investments identified as having an indicator of impairment are subject to further analysis to determine if the investment is other-than-temporarily impaired, in which case the investment is written down to its impaired value.
Inventories
.
Inventories are recorded at the lower of standard cost (which approximates actual cost on a first-in, first-out basis) or market value. Inventory held at consignment locations is included in finished goods inventory as the Company retains full title and rights to the product. Inventory valuation includes provisions for excess and obsolete inventory based on management’s forecasts of demand over specific future time horizons and reserves to value the Company's inventory at the lower of cost or market which rely on forecasts of average selling prices (ASPs) in future periods.
Property, Plant and Equipment
.
Property, plant and equipment are stated at cost. Property, plant and equipment acquired in conjunction with mergers or acquisitions are stated at estimated fair value at the time of acquisition. For financial reporting purposes, depreciation is computed using the straight-line method over estimated useful lives of the assets. Estimated useful lives for major asset categories are as follows: machinery and equipment,
3
to
5
years; and buildings and improvements,
10
to
30 years
. Leasehold improvements are amortized over the shorter of the estimated useful lives of the assets or the remaining term of the lease.
Long-Lived Assets and Goodwill
.
The carrying values of long-lived assets, including purchased intangibles are evaluated whenever events or circumstances indicate that the carrying values may not be recoverable. If estimated undiscounted cash flows are not sufficient to recover the carrying values, the affected assets are considered impaired and are written down to their estimated fair value, which is generally determined on the basis of discounted cash flows or outside appraisals.
The Company tests for impairment of goodwill and other indefinite-lived assets on an annual basis, or more frequently if indicators of impairment are present. These tests are performed at the reporting unit level using a two-step, fair-value based approach. The
first step, used to determine if impairment possibly exists, is to compare the carrying amount of a reporting unit, including goodwill, to its fair value. If the carrying amount of the reporting unit exceeds the fair value, the second step is to measure the amount of impairment loss by comparing the implied fair value of reporting unit goodwill with the carrying amount of that goodwill.
Income Taxes
. The Company accounts for income taxes under an asset and liability approach that requires the expected future tax consequences of temporary differences between book and tax bases of assets and liabilities be recognized as deferred tax assets and liabilities. Generally accepted accounting principles require the Company to evaluate its ability to realize the value of its net deferred tax assets on an ongoing basis. A valuation allowance is recorded to reduce the net deferred tax assets to an amount that will more likely than not be realized. Accordingly, the Company considers various tax planning strategies, forecasts of future taxable income and its most recent operating results in assessing the need for a valuation allowance. In the consideration of the ability to realize the value of net deferred tax assets, recent results must be given substantially more weight than any projections of future profitability. Since the fourth quarter of fiscal 2003, the Company determined that, under applicable accounting principles, it could not conclude that it was more likely than not that the Company would realize the value of its net deferred tax assets. The Company’s assumptions regarding the ultimate realization of these assets remained unchanged in fiscal 2014 and accordingly, the Company continues to record a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized.
The Company recognizes the tax liability for uncertain income tax positions on the income tax return based on the two-step process. The first step is to determine whether it is more likely than not that each income tax position would be sustained upon audit. The second step is to estimate and measure the tax benefit as the amount that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority. Estimating these amounts requires the Company to determine the probability of various possible outcomes. The Company evaluates these uncertain tax positions on a quarterly basis. This evaluation is based on the consideration of several factors including changes in facts or circumstances, changes in applicable tax law, settlement of issues under audit, and new exposures. If the Company later determines that the exposure is lower or that the liability is not sufficient to cover its revised expectations, the Company adjusts the liability and effect a related change in its tax provision during the period in which the Company makes such determination.
Revenue Recognition
.
The Company’s revenue results from semiconductor products sold through
three
channels: direct sales to original equipment manufacturers (OEMs) and electronic manufacturing service providers (EMSs), consignment sales to OEMs and EMSs, and sales through distributors. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and its ability to collect is reasonably assured.
Distributors who serve our customers worldwide and distributors who serve our customers in the U.S. and Europe regions, who have stock rotation, price protection and ship from stock pricing adjustment rights, the Company defers revenue and related cost of revenues on sales to these distributors until the product is sold through by the distributor to an end-customer. Subsequent to shipment to the distributor, the Company may reduce product pricing through price protection based on market conditions, competitive considerations and other factors. Price protection is granted to distributors on the inventory that they have on hand at the date the price protection is offered. The Company also grants certain credits to its distributors on specifically identified portions of the distributors’ business to allow them to earn a competitive gross margin on the sale of the Company’s products to their end customers. As a result of its inability to estimate these credits, the Company has determined that
the sales price to these distributors is not fixed or determinable until the final sale to the end-customer.
In the Asia Pacific region excluding Japan (APAC), the Company has distributors for which revenue is recognized upon shipment, with reserves recorded for the estimated return and pricing adjustment exposures. The determination of the amount of reserves to be recorded for stock rotation rights requires the Company to make estimates as to the amount of product which will be returned by customers within their limited contractual rights. The Company utilizes historical return rates to estimate the exposure
.
In addition, on occasion, the Company can offer pricing adjustments to distributors for product purchased in a given quarter that remains in their inventory. These amounts are estimated by management based on discussions with customers, assessment of market trends, as well as historical practice.
Shipping and Handling Costs
.
The Company includes shipping and handling costs billed to customers in revenues. The Company’s shipping and handling costs are included in cost of revenues.
Stock-based Compensation
.
The fair value of employee restricted stock units is equal to the market value of the Company’s common stock on the date the award is granted. For performance-based restricted stock units, the Company is required to assess the probability of achieving certain financial objectives at the end of each reporting period. Based on the assessment of this probability, which requires subjective judgment, the Company records stock-based compensation expense before the performance criteria are actually fully achieved, which may then be reversed in future periods if the Company determines that it is no longer probable that the objectives will be achieved. The expected cost of each award is reflected over the performance period and is reduced for estimated forfeitures.
The Company estimates the fair value of employee stock options and the right to purchase shares under the employee stock purchase plan using the Black-Scholes valuation model, consistent with the FASB’s authoritative guidance for share-based payments. Option-pricing models require the input of highly subjective assumptions, including the expected term of options and the expected price volatility of the stock underlying such options. In addition, the Company is required to estimate the number of stock-based awards that will be forfeited due to employee turnover and true up these forfeiture rates when actual results are different from the Company's estimates. The Company attributes the value of stock-based compensation to expense on an accelerated method. Finally, the Company capitalizes into inventory a portion of the periodic stock-based compensation expense that relates to employees working in manufacturing activities.
The Company updates the expected term of stock option grants annually based on its analysis of the stock option exercise behavior over a period of time. The interest rate used in the Black-Scholes valuation model to value the stock option is based on the average U.S. Treasury interest rate over the expected term during the applicable quarter. The Company believes that the implied volatility of its common stock is an important consideration of overall market conditions and a good indicator of the expected volatility of its common stock. However, due to the limited volume of options freely traded over the counter, the Company believes that implied volatility, by itself, is not representative of the expected volatility of its common stock. Therefore, the Company's volatility factor used to estimate the fair value of its stock-based awards reflects a blend of historical volatility of its common stock and implied volatility of call options and dealer quotes on call options, generally having a term of less than twelve months. The Company has not paid, nor does it have current plans to pay dividends on its common stock in the foreseeable future.
Comprehensive Income (Loss)
.
Comprehensive income (loss) is comprised of net income and unrealized gains and losses on available-for-sale securities and foreign exchange contracts and changes in pension liabilities. Accumulated other comprehensive income (loss), as presented on the accompanying balance sheets, consists of net unrealized gains and losses on available-for-sale securities and foreign currency translation adjustments, and changes in pension liabilities, net of tax.
Pensions and Other Post-retirement Plans
.
The Company, through its actuaries, utilizes assumptions when estimating the liabilities for pension and other employee benefit plans. These assumptions, where applicable, include the discount rates used to determine the actuarial present value of projected benefit obligations, the rate of increase in future compensation levels, the long-term rate of return on assets and the growth in health care costs. The cost of these benefits is recognized in the Consolidated Financial Statements over an employee’s term of service with the Company, and the accrued benefits are reported as other long-term liabilities on the Consolidated Balance Sheets.
Translation of Foreign Currencies
.
For subsidiaries in which the functional currency is the local currency, gains and losses resulting from translation of foreign currency financial statements into U.S. dollars are recorded as a component of accumulated other comprehensive income. For subsidiaries where the functional currency is the U.S. dollar, gains and losses resulting from the process of remeasuring foreign currency financial statements into U.S. dollars are included in interest income and other, net and have not been significant for all periods presented.
Certain Risk and Concentrations
.
The Company's most significant potential exposure to credit concentration risk includes debt-security investments, foreign exchange contracts and trade accounts receivable. The Company’s investment policy addresses sector and industry concentrations, credit ratings and maturity dates. The Company invests its excess cash primarily in highly-rated money market and short-term debt instruments, diversifies its investments and, by policy, invests only in highly-rated securities to minimize credit risk.
The Company sells integrated circuits to OEMs, distributors and EMSs primarily in the U.S., Europe, Japan and APAC. The Company monitors the financial condition of its major customers, including performing credit evaluations of those accounts which management considers to be high risk, and generally does not require collateral from its customers. When deemed necessary, the Company may limit the credit extended to certain customers. The Company’s relationship with the customer, and the customer’s past and current payment experience, are also factored into the evaluation in instances in which limited financial information is available. The Company maintains an allowance for doubtful accounts for probable credit losses, including reserves based upon a percentage of total receivables. When the Company becomes aware that a specific customer may default on its financial obligation, a specific amount, which takes into account the level of risk and the customer’s outstanding accounts receivable balance, is reserved. These reserved amounts are classified within selling, general and administrative expenses. Write-offs of accounts receivable balances were not significant in each of the three fiscal years presented.
Sales through a distributor, Avnet, represented approximately
12%
,
10%
and
11%
of the Company’s revenues in fiscal
2014
,
2013
and
2012
, respectively. Sales through another distributor, Maxtek and its affiliates, represented approximately
13%
and
15%
of the Company’s revenues in fiscal
2013
and
2012
, respectively, and sales through another distributor, Uniquest, represented approximately
10%
, of the Company's revenues in both fiscal
2013
and
2012
. As of
March 30, 2014
,
two
distributors represented
15%
, and
14%
, of the Company’s gross accounts receivable. At
March 31, 2013
,
four
distributors represented
15%
,
15%
,
12%
and
11%
of the Company’s gross accounts receivable.
For foreign exchange contracts, the Company manages its potential credit exposure primarily by restricting transactions with only high-credit quality counterparties.
The semiconductor industry is characterized by rapid technological change, competitive pricing pressures, and cyclical market patterns. The Company's results of operations are affected by a wide variety of factors, including general economic conditions, both at home and abroad; economic conditions specific to the semiconductor industry; demand for the Company's products; the timely introduction of new products; implementation of new manufacturing technologies; manufacturing capacity; the availability and cost of materials and supplies; competition; the ability to safeguard patents and intellectual property in a rapidly evolving market; and reliance on assembly and manufacturing foundries, independent distributors and sales representatives. As a result, the Company may experience substantial period-to-period fluctuations in future operating results due to the factors mentioned above or other factors.
Product Warranty
. The Company maintains a reserve for obligations it incurs under its product warranty program. The standard warranty period offered is
one
year, though in certain instances the warranty period may be extended to as long as
two
years. Management estimates the fair value of its 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 program.
Recent Accounting Pronouncements
.
Accounting Pronouncements Recently Adopted
In July 2012, the Financial Accounting Standards Board (“FASB”) issued an amendment to its guidance regarding the testing of indefinite-lived intangible assets for impairment. This amended guidance allows an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with the guidance on the impairment of intangible assets other than goodwill. This amended guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The adoption of this guidance had no impact on the Company’s consolidated financial statements.
Accounting Pronouncements Not Yet Effective for Fiscal 2014
In February 2013, the FASB issued guidance for the recognition, measurement and disclosure of certain obligations resulting from joint and several liability arrangements for which the total amount is fixed. Such obligations may include debt arrangements, legal settlements and other contractual arrangements. The guidance is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2013, which is the first quarter of fiscal 2015 for the Company, and should be applied retrospectively to all prior periods presented for those obligations within the scope which existed as of the beginning of the fiscal year of adoption. Early adoption is permitted. The Company is currently evaluating the new guidance.
In March 2013, the FASB issued guidance on the accounting for the cumulative translation adjustment upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. The guidance is effective prospectively for fiscal years and interim periods within those fiscal years beginning after December 15, 2013, which is the first quarter of fiscal 2015 for the Company. Early adoption is permitted. The Company is currently evaluating the new guidance.
In July 2013, the FASB issued new accounting guidance on the presentation of unrecognized tax benefits. The new guidance requires an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows: to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use the deferred tax asset for such purpose, then the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2013, with early adoption permitted. The Company has historically accounted for its unrecognized tax benefits in accordance with this guidance and as such, adoption of this guidance has no impact on its financial position, cash flows or results of operations.
Note 2. Net Income Per Share From Continuing Operations
Basic net income 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
(in thousands, except per share amounts)
|
March 30,
2014
|
|
March 31,
2013
|
|
April 1,
2012
|
Numerator (basic and diluted):
|
|
|
|
|
|
Net income from continuing operations
|
$
|
111,313
|
|
|
$
|
2,711
|
|
|
$
|
37,953
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
Weighted average common shares outstanding, basic
|
149,480
|
|
|
144,014
|
|
|
143,958
|
|
Dilutive effect of employee stock options and restricted stock units
|
3,889
|
|
|
1,664
|
|
|
1,890
|
|
Weighted average common shares outstanding, diluted
|
153,369
|
|
|
145,678
|
|
|
145,848
|
|
|
|
|
|
|
|
Basic net income per share from continuing operations
|
$
|
0.74
|
|
|
$
|
0.02
|
|
|
$
|
0.26
|
|
Diluted net income per share from continuing operations
|
$
|
0.73
|
|
|
$
|
0.02
|
|
|
$
|
0.26
|
|
Potential dilutive common shares of
1.5 million
,
12.0 million
and
11.1 million
pertaining to employee stock options, restricted stock and performance stock units were excluded from the calculation of diluted earnings per share for the fiscal years ended
March 30, 2014
,
March 31, 2013
and
April 1, 2012
, respectively, because the effect would have been anti-dilutive.
Note 3. Business Combinations
Termination of Proposed Acquisition of PLX Technology, Inc. (PLX)
On April 30, 2012, IDT and PLX had entered into an Agreement and Plan of Merger with PLX Technology, Inc. (PLX) for the acquisition of PLX by IDT (the Agreement). On December 19, 2012, the United States Federal Trade Commission (FTC) filed an administrative complaint challenging IDT’s proposed acquisition of PLX. In response to the FTC’s determination to challenge the proposed acquisition of PLX by IDT, effective December 19, 2012, IDT and PLX mutually agreed to terminate the Agreement. Also on December 19, 2012, IDT withdrew its related exchange offer (the Offer) to acquire all of the issued and outstanding shares of common stock,
$0.001
par value, of PLX and instructed Computershare, the exchange agent for the Offer, to promptly return all previously tendered shares.
Associated with the proposed acquisition of PLX, during the fiscal year ended
March 31, 2013
, the Company incurred approximately
$10.7 million
in acquisition related costs which were included in selling, general and administrative expense on the Consolidated Statements of Operations.
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. 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
$3.9 million
in acquisition related costs, which were included in loss from discontinued operations on the Consolidated Statements of Operations for the fiscal year ended
March 31, 2013
.
The assets acquired and liabilities assumed were recognized in the following manner based on their fair values as of 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
|
|
Goodwill:
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.
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) which consists of projects that have not reached technological feasibility. The Company valued the existing technologies and IPR&D utilizing a multi-period excess earnings method (Excess Earnings Method), which uses the discounted future earnings specifically attributed to these intangible assets, 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. A discount factor of
31%
was utilized for IPR&D. The Company valued the backlog using the Excess Earnings Method and a discount rate of
19%
.
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
29%
for estimating the value of these intangible assets.
Discontinued operation:
The financial results of the acquired NXP's data converter products have been included in the Company's HSC business since the closing of the acquisition. In the third quarter of fiscal 2014, the Company initiated a plan to divest its HSC business. The HSC business was included in the Company’s Communications reportable segment. For financial statements purposes, the results of operations for the HSC business have been segregated from those of the continuing operations and are presented in the Company's consolidated financial statements as discontinued operations (see Note 4).
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
which 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
1 year
from the acquisition date. In June 2013, the Company settled the contingent consideration and paid Fox
$3.3 million
.
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 were based on management estimates and assumptions.
The Company incurred approximately
$0.2 million
of acquisition-related costs in fiscal
2013
and these costs were included in selling, general and administrative expenses in the 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
|
|
Other long-term assets
|
1,190
|
|
Accounts payable and accrued expenses
|
(3,765
|
)
|
Other long-term liabilities
|
(1,516
|
)
|
Long-term deferred tax liability
|
(4,549
|
)
|
Intangible assets (other than goodwill)
|
12,300
|
|
Goodwill
|
16,509
|
|
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%
. This IPR&D was completed and began amortization in fiscal
2013
.
The financial results of Fox have been included in the Company’s 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 purchase consideration 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 to be completed within
3 years
following the acquisition date. Payments will be made on a proportionate basis upon the completion of each milestone. As of
March 31, 2013
, the fair value of the contingent consideration was re-measured based on a revised product development forecast for the business and increased
$0.5 million
to
$3.3 million
. As of
March 30, 2014
, the fair value of the contingent consideration was again re-measured based on a revised product development forecast for the business and increased
$0.6 million
. The change in the fair value of the contingent consideration was recorded in selling, general and administrative expense. During the fiscal year
2014
the Company paid
$1.8 million
in contingent consideration and the remaining estimated fair value of the unpaid contingent consideration for Alvand Technologies as of
March 30, 2014
was
$2.1 million
.
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 were based on management estimates and assumptions.
The Company incurred approximately
$0.1 million
of acquisition-related costs in fiscal
2013
, which are included loss from discontinued operations in 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
|
|
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 amortized 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%
.
Discontinued operation:
The financial results of Alvand Technologies have been included in the Company’s HSC business since the closing of the acquisition. In the third quarter of fiscal 2014, the Company initiated a plan to divest its HSC business. The HSC business was included in the Company’s Communications reportable segment. For financial statements purposes, the results of operations for the HSC business have been segregated from those of the continuing operations and are presented in the Company's consolidated financial statements as discontinued operations (see Note 4).
Note 4. Discontinued Operations
High-Speed Converter (“HSC”) Business
In the third quarter of fiscal 2014, the Company initiated a project to divest its HSC business. The Company believes that this divestiture will allow it to strengthen its focus on its analog-intensive mixed-signal, timing and synchronization, and interface and connectivity solutions. The Company envisions fully divesting its HSC business within the
twelve
months from the initiation date of the plan and has classified these assets as held for sale and accordingly these assets are no longer being depreciated or amortized. At
March 30, 2014
, the HSC business long-lived assets classified as held for sale were
$9.5 million
and consisted of
$2.9 million
in fixed assets and
$6.6 million
in intangible assets. The fair value of the HSC business was based on the estimated sales price less estimated disposal costs.
The HSC business was included in the Company’s Communications reportable segment. For financial statements purposes, the results of operations for the HSC business have been segregated from those of the continuing operations and are presented in the Company's consolidated financial statements as discontinued operations.
The results of the HSC business discontinued operations for the fiscal years
2014
,
2013
and
2012
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Twelve Months Ended,
|
|
March 30, 2014
|
|
March 31, 2013
|
|
April 1, 2012
|
Revenues
|
$
|
3,466
|
|
|
$
|
2,784
|
|
|
$
|
—
|
|
Cost of revenue
|
2,935
|
|
|
2,908
|
|
|
—
|
|
Goodwill and long-lived assets impairment
|
4,797
|
|
|
—
|
|
|
—
|
|
Operating expenses
|
18,622
|
|
|
18,398
|
|
|
630
|
|
Other income (expenses)
|
(50
|
)
|
|
—
|
|
|
—
|
|
Income tax expense
|
11
|
|
|
113
|
|
|
—
|
|
Net loss from discontinued operations
|
$
|
(22,949
|
)
|
|
$
|
(18,635
|
)
|
|
$
|
(630
|
)
|
Video Business
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 was intended to allow the Company to intensify focus on its analog-intensive mixed-signal, timing, and interface and solutions. Upon the closing of the transaction, Qualcomm paid the Company
$58.7 million
in cash consideration, of which
$6.0 million
was held in an escrow account for a period of
two
years and during fiscal 2014 this amount was received in full. The Company’s HQV and FRC product lines represented a significant portion of the Company’s video business assets. In the second quarter of fiscal 2012, the Company recorded a gain of
$45.9 million
related to this divestiture. The following table summarizes the components of the gain (in thousands):
|
|
|
|
|
|
Amount
|
Cash proceeds from sale (including amounts held in escrow)
|
$
|
58,744
|
|
Less book value of assets sold and direct costs related to the sale:
|
|
Fixed assets
|
(434
|
)
|
Goodwill
|
(8,568
|
)
|
Intangible assets
|
(1,818
|
)
|
License
|
(525
|
)
|
Transaction and other costs
|
(1,460
|
)
|
Gain on divestiture
|
$
|
45,939
|
|
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):
|
|
|
|
|
|
Amount
|
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 consolidated financial statements as discontinued operations.
The results of discontinued operations for the fiscal years
2013
and
2012
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended
|
|
|
|
March 31, 2013
|
|
April 1, 2012
|
Revenues
|
|
|
$
|
2,429
|
|
|
$
|
9,620
|
|
Cost of revenue
|
|
|
3,006
|
|
|
11,271
|
|
Operating expenses
|
|
|
4,554
|
|
|
23,240
|
|
Gain on divestiture
|
|
|
886
|
|
|
45,939
|
|
Income tax expense (benefit)
|
|
|
3
|
|
|
(89
|
)
|
Net income (loss) from discontinued operations
|
|
|
$
|
(4,248
|
)
|
|
$
|
21,137
|
|
Note 5. Other Divestitures (not accounted for as discontinued operations)
Sale of Certain Assets of Audio Business
On
December 13, 2013
, Integrated Device Technology, Inc. and Integrated Device Technology (Malaysia) Sdn. Bhd., a wholly-owned subsidiary of IDT (collectively “IDT”), completed the sale of certain assets of its Audio business to Stravelis, Inc. for
$0.2 million
in cash and up to a maximum of
$1.0 million
additional consideration contingent upon future revenues. The Company estimates the fair value of the contingent consideration to be
zero
based on the estimated probability of attainment of future revenue targets. In addition, the Company recorded a
$0.3 million
liability for services to be provided at no charge by IDT for the first year following the acquisition date. The Company recorded a loss of
$3.7 million
on divestiture related to this transaction in the third quarter of fiscal 2014.
The following table summarizes the components of the loss on divestiture (in thousands):
|
|
|
|
|
|
|
|
Amount
|
Cash proceeds from sale
|
|
$
|
200
|
|
Maximum contingent consideration
|
|
1,000
|
|
Total consideration
|
|
$
|
1,200
|
|
|
|
|
Fair value adjustment to contingent consideration
|
|
$
|
(1,000
|
)
|
Fair value adjustment to transitional services agreement
|
|
(300
|
)
|
Fixed assets
|
|
(135
|
)
|
Inventories
|
|
(3,051
|
)
|
Other assets
|
|
(304
|
)
|
Transaction and other costs
|
|
(126
|
)
|
Loss on divestiture
|
|
$
|
(3,716
|
)
|
Prior to the divestiture, this business was part of a larger cash-flow generating product group and did not, on its own, represent a separate operation of the Company and, therefore, this sale did not qualify as discontinued operations.
Sale of Certain Assets of PCI Express ("PCIe") Enterprise Flash Controller Business
On
July 12, 2013
, Integrated Device Technology, Inc. and Integrated Device Technology (Malaysia) Sdn. Bhd., a wholly-owned subsidiary of IDT (collectively “IDT”), completed the sale of certain assets of its PCI Express ("PCIe") enterprise flash controller business to PMC-Sierra, Inc.(“PMC”), for
$96.1 million
in cash.
The Company recorded a gain of
$82.3 million
on divestiture related to this transaction in the second quarter of fiscal 2014.
The following table summarizes the components of the gain on divestiture (in thousands):
|
|
|
|
|
|
|
|
Amount
|
|
Cash proceeds from sale
|
|
$
|
96,099
|
|
Less book value of assets sold and direct costs related to the sale:
|
|
|
Fixed assets
|
|
(1,312
|
)
|
Inventories
|
|
(876
|
)
|
Goodwill allocation
|
|
(7,323
|
)
|
Transaction and other costs
|
|
(4,239
|
)
|
Gain on divestiture
|
|
$
|
82,349
|
|
P
ursuant to the terms of the Asset Purchase Agreement (the "Purchase Agreement") by and among IDT and PMC, dated May 29, 2013, IDT sold (i) substantially all of the assets that were used by IDT and its subsidiaries in the business of designing, developing, manufacturing, testing, marketing, supporting, maintaining, distributing, provisioning and selling non-volatile memory (flash) controllers and (ii) all technology and intellectual property rights owned by IDT or any of its subsidiaries and used exclusively in, or developed exclusively for use in, (a) switching circuits having the primary function of flexible routing of data from/to multiple switch interface ports, where all switch interface ports conform to the PCIe protocol, or (b) circuits having the primary function of executing all of the capturing, re-timing, re-generating and re-transmitting PCIe signals to help extend the physical reach of the signals in a system (the “Disposition”).
In connection with the closing of the Disposition, a license agreement was entered into by IDT and a subsidiary of PMC simultaneously with the Purchase Agreement, whereby IDT will license certain intellectual property rights and technology to PMC, and PMC will license back to IDT certain of the intellectual property rights and technology acquired by PMC in the Disposition.
In connection with the closing of the Disposition, IDT and PMC also entered into (a) a transition services agreement and (b) a five year supply agreement, whereby IDT will supply wafers for certain products to PMC.
Prior to the divestiture, the operating results for IDTs PCIe flash controller business were included in the Company's Computing and Consumer reportable segment. The PCIe enterprise flash controller business was part of a larger cash-flow generating product group and did not, on its own, represent a separate operation of the Company and, therefore, this sale did not qualify as discontinued operations for reporting purposes.
Sale of Smart Meter Business
On
March 7, 2013
, the Company completed the sale of its smart metering business and related assets to Atmel Corporation for
$10.3 million
in cash, of which
$1.0 million
was held in an escrow account for a period of
one
year and was received in full in fiscal 2014. In the fourth quarter of fiscal 2013, the Company recorded a gain of
$8.0 million
related to this divestiture. Prior to the divestiture, the smart meter business was part of a larger cash-flow generating product group and did not, on its own, represent a separate operation of the Company and, therefore, this sale did not qualify as discontinued operations. The following table summarizes the components of the gain on divestiture (in thousands):
|
|
|
|
|
|
Amount
|
Cash proceeds from sale
|
$
|
10,264
|
|
Less book value of assets sold and direct costs related to the sale:
|
|
Fixed assets
|
(22
|
)
|
Inventories
|
(1,299
|
)
|
Transaction and other costs
|
(957
|
)
|
Gain on divestiture
|
$
|
7,986
|
|
Wafer fabrication facility
On
January 31, 2012
, the Company completed the sale of a wafer fabrication facility located in Hillsboro, Oregon and related assets and specific liabilities to Jireh Semiconductor Incorporated, an Oregon corporation and wholly-owned subsidiary of Alpha and Omega Semiconductor Limited (AOS) for
$26.3 million
in cash, of which
$5.0 million
was received as a purchase option deposit in fiscal 2011. The following table summarizes the components of the gain on divestiture (in thousands):
|
|
|
|
|
|
Amount
|
Cash proceeds from sale
|
$
|
26,330
|
|
Assets sold:
|
|
|
Fixed assets, net
|
(3,131
|
)
|
Other assets
|
(1,362
|
)
|
Liabilities transferred
|
476
|
|
Transaction and other costs
|
(1,657
|
)
|
Gain on divestiture
|
$
|
20,656
|
|
Note 6. Fair Value Measurement
Fair value measurement is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing assets or liabilities. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact.
Fair Value Hierarchy
The three levels of inputs that may be used to measure fair value are as follows:
Level 1: Quoted market prices for identical assets or liabilities in active markets at the measure date.
Level 2: Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument’s valuation.
The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of
March 30, 2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
U.S. government treasuries and agencies securities
|
$
|
112,253
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
112,253
|
|
Money market funds
|
53,430
|
|
|
—
|
|
|
—
|
|
|
53,430
|
|
Asset-backed securities
|
—
|
|
|
22,332
|
|
|
—
|
|
|
22,332
|
|
Corporate bonds
|
—
|
|
|
199,806
|
|
|
—
|
|
|
199,806
|
|
International government bonds
|
—
|
|
|
3,014
|
|
|
—
|
|
|
3,014
|
|
Corporate commercial paper
|
—
|
|
|
6,246
|
|
|
—
|
|
|
6,246
|
|
Bank deposits
|
—
|
|
|
18,538
|
|
|
—
|
|
|
18,538
|
|
Repurchase agreements
|
—
|
|
|
46
|
|
|
—
|
|
|
46
|
|
Municipal bonds
|
—
|
|
|
9,210
|
|
|
—
|
|
|
9,210
|
|
Total assets measured at fair value
|
$
|
165,683
|
|
|
$
|
259,192
|
|
|
$
|
—
|
|
|
$
|
424,875
|
|
Liabilities:
|
|
|
|
|
|
|
|
Fair value of contingent consideration
|
—
|
|
|
—
|
|
|
2,140
|
|
|
2,140
|
|
Total liabilities measured at fair value
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,140
|
|
|
$
|
2,140
|
|
The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of
March 31, 2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
U.S. government treasuries and agencies securities
|
$
|
87,379
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
87,379
|
|
Money market funds
|
79,083
|
|
|
—
|
|
|
—
|
|
|
79,083
|
|
Asset-backed securities
|
|
|
9,855
|
|
|
|
|
9,855
|
|
Corporate bonds
|
—
|
|
|
58,716
|
|
|
—
|
|
|
58,716
|
|
International government bonds
|
—
|
|
|
3,066
|
|
|
|
|
3,066
|
|
Bank deposits
|
—
|
|
|
16,583
|
|
|
—
|
|
|
16,583
|
|
Municipal bonds
|
—
|
|
|
2,094
|
|
|
—
|
|
|
2,094
|
|
Total assets measured at fair value
|
$
|
166,462
|
|
|
$
|
90,314
|
|
|
$
|
—
|
|
|
$
|
256,776
|
|
Liabilities:
|
|
|
|
|
|
|
|
Fair value of contingent consideration
|
—
|
|
|
—
|
|
|
6,695
|
|
|
6,695
|
|
Total liabilities measured at fair value
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,695
|
|
|
$
|
6,695
|
|
U.S. government treasuries and U.S. government agency securities as of
March 30, 2014
and
March 31, 2013
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 acquisitions of Fox Enterprises and Alvand Technologies (See "Note 3 - Business Combinations"), liabilities were recognized for the Company’s estimate of the fair value of contingent consideration on the acquisition dates based on probability-based forecasted revenues, gross profits and attainment of product development milestones. These fair value measurements are based on significant inputs not observed in the market and thus represent a Level 3 measurement, which reflect the Company’s own assumptions concerning future revenues, gross profit and product development milestones of the acquired businesses in measuring fair value. During the fiscal year
2014
, the Company settled the contingent consideration with Fox and paid
$3.3 million
to the former shareholders of Fox. Also during the fiscal year
2014
the Company paid
$1.8 million
in contingent consideration for Alvand Technologies. The remaining estimated fair value of the contingent consideration for Alvand Technologies as of
March 30, 2014
was
$2.1 million
.
The following table summarizes the change in the fair value of liabilities measured using significant unobservable inputs (Level 3) for fiscal
2014
:
|
|
|
|
|
(
in thousands
)
|
Estimated Fair Value
|
Balance as of March 31, 2013
|
$
|
6,695
|
|
Changes of fair value during the year
|
575
|
|
Payment made during the year
|
(5,130
|
)
|
Balance as of March 30, 2014
|
$
|
2,140
|
|
Cash equivalents are highly liquid investments with original maturities of
three
months or less at the time of purchase. The Company maintains its cash and cash equivalents with reputable major financial institutions. Deposits with these banks may exceed the FDIC insurance limits or similar limits in foreign jurisdictions. These deposits typically may be redeemed upon demand and, therefore, bear minimal risk. While the Company monitors daily the cash balances in its operating accounts and adjusts the balances as appropriate, these balances could be affected if one or more of the financial institutions with which the Company deposits fails or is subject to other adverse conditions in the financial markets. As of
March 30, 2014
, the Company has not experienced any losses in its operating accounts.
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. This determination requires significant judgment. For publicly traded investments, impairment is determined based upon the specific facts and circumstances present at the time, including a review of the closing price over the length of time, general market conditions and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for recovery. Although the Company believes its portfolio continues to be comprised of sound investments due to high credit ratings and government guarantees of the underlying investments, a further decline in the capital and financial markets would adversely impact the market values of its investments and their liquidity. The Company continually monitors the credit risk in its portfolio and future developments in the credit markets and makes appropriate changes to its investment policy as deemed necessary. The Company did not record any impairment charges related to its available-for-sale investments in fiscal
2014
and
2013
.
Note 7. Investments
Available-for-Sale Securities
Available-for-sale investments at
March 30, 2014
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Estimated Fair
Value
|
U.S. government treasuries and agencies securities
|
$
|
112,268
|
|
|
$
|
76
|
|
|
$
|
(91
|
)
|
|
$
|
112,253
|
|
Money market funds
|
53,430
|
|
|
—
|
|
|
—
|
|
|
53,430
|
|
Asset-backed securities
|
22,330
|
|
|
11
|
|
|
(9
|
)
|
|
22,332
|
|
Corporate bonds
|
199,598
|
|
|
335
|
|
|
(127
|
)
|
|
199,806
|
|
International government bonds
|
3,023
|
|
|
—
|
|
|
(9
|
)
|
|
3,014
|
|
Corporate commercial paper
|
6,246
|
|
|
—
|
|
|
—
|
|
|
6,246
|
|
Bank deposits
|
18,538
|
|
|
—
|
|
|
—
|
|
|
18,538
|
|
Repurchase agreements
|
46
|
|
|
—
|
|
|
—
|
|
|
46
|
|
Municipal bonds
|
9,196
|
|
|
32
|
|
|
(18
|
)
|
|
9,210
|
|
Total available-for-sale investments
|
424,675
|
|
|
454
|
|
|
(254
|
)
|
|
424,875
|
|
Less amounts classified as cash equivalents
|
(62,271
|
)
|
|
—
|
|
|
—
|
|
|
(62,271
|
)
|
Short-term investments
|
$
|
362,404
|
|
|
$
|
454
|
|
|
$
|
(254
|
)
|
|
$
|
362,604
|
|
Available-for-sale investments at
March 31, 2013
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Estimated Fair
Value
|
U.S. government treasuries and agencies securities
|
$
|
87,356
|
|
|
$
|
24
|
|
|
$
|
(1
|
)
|
|
$
|
87,379
|
|
Money market funds
|
79,083
|
|
|
—
|
|
|
—
|
|
|
79,083
|
|
Asset-backed securities
|
9,860
|
|
|
2
|
|
|
(7
|
)
|
|
9,855
|
|
Corporate bonds
|
58,733
|
|
|
33
|
|
|
(50
|
)
|
|
58,716
|
|
International government bonds
|
3,069
|
|
|
1
|
|
|
(4
|
)
|
|
3,066
|
|
Bank deposits
|
16,583
|
|
|
—
|
|
|
—
|
|
|
16,583
|
|
Municipal bonds
|
2,089
|
|
|
5
|
|
|
—
|
|
|
2,094
|
|
Total available-for-sale investments
|
256,773
|
|
|
65
|
|
|
(62
|
)
|
|
256,776
|
|
Less amounts classified as cash equivalents
|
(90,443
|
)
|
|
—
|
|
|
—
|
|
|
(90,443
|
)
|
Short-term investments
|
$
|
166,330
|
|
|
$
|
65
|
|
|
$
|
(62
|
)
|
|
$
|
166,333
|
|
The cost and estimated fair value of available-for-sale debt securities at
March 30, 2014
, by contractual maturity, were as follows:
|
|
|
|
|
|
|
|
|
(
in thousands
)
|
Amortized
Cost
|
|
Estimated Fair
Value
|
Due in 1 year or less
|
$
|
173,850
|
|
|
$
|
173,891
|
|
Due in 1-2 years
|
101,275
|
|
|
101,378
|
|
Due in 2-5 years
|
149,550
|
|
|
149,606
|
|
Total investments in available-for-sale debt securities
|
$
|
424,675
|
|
|
$
|
424,875
|
|
The cost and estimated fair value of available-for-sale debt securities at
March 31, 2013
, by contractual maturity, were as follows:
|
|
|
|
|
|
|
|
|
(
in thousands
)
|
Amortized
Cost
|
|
Estimated Fair
Value
|
Due in 1 year or less
|
$
|
186,747
|
|
|
$
|
186,771
|
|
Due in 1-2 years
|
25,053
|
|
|
25,038
|
|
Due in 2-5 years
|
44,973
|
|
|
44,967
|
|
Total investments in available-for-sale debt securities
|
$
|
256,773
|
|
|
$
|
256,776
|
|
The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses as of
March 30, 2014
, aggregated by investment category and 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
|
$
|
52,783
|
|
|
$
|
(127
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
52,783
|
|
|
$
|
(127
|
)
|
Asset-backed securities
|
11,156
|
|
|
(9
|
)
|
|
—
|
|
|
—
|
|
|
11,156
|
|
|
(9
|
)
|
U.S. government treasuries and agencies securities
|
36,403
|
|
|
(91
|
)
|
|
—
|
|
|
—
|
|
|
36,403
|
|
|
(91
|
)
|
Municipal bonds
|
$
|
4,000
|
|
|
$
|
(18
|
)
|
|
—
|
|
|
—
|
|
|
4,000
|
|
|
(18
|
)
|
International government bonds
|
3,014
|
|
|
(9
|
)
|
|
—
|
|
|
—
|
|
|
3,014
|
|
|
(9
|
)
|
Total
|
$
|
107,356
|
|
|
$
|
(254
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
107,356
|
|
|
$
|
(254
|
)
|
The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses, as of
March 31, 2013
, 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
|
$
|
32,009
|
|
|
$
|
(50
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
32,009
|
|
|
$
|
(50
|
)
|
Asset-backed securities
|
6,473
|
|
|
(7
|
)
|
|
|
|
|
|
6,473
|
|
|
(7
|
)
|
U.S. government treasuries and agencies securities
|
3,324
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
3,324
|
|
|
(1
|
)
|
International government bonds
|
1,007
|
|
|
(4
|
)
|
|
—
|
|
|
—
|
|
|
1,007
|
|
|
(4
|
)
|
Total
|
$
|
42,813
|
|
|
$
|
(62
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
42,813
|
|
|
$
|
(62
|
)
|
Currently, a significant portion of the Company’s available-for-sale investments that it holds are high grade instruments. As of
March 30, 2014
, 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 can be attributed to fair value fluctuations in an unstable credit environment that resulted in 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
March 30, 2014
or
March 31, 2013
.
Non-Marketable Equity Securities
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 investment has 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's judgment.
During fiscal
2013
, the Company determined that the carrying values of
two
of its non-marketable private equity investments were impaired and recorded a
$1.7 million
other-than-temporary impairment loss during the period. During fiscal
2012
the Company determined that the carrying values of
two
of its non-marketable private equity investments were impaired and recorded a
$3.4 million
other-than-temporary impairment loss during the period. Also during fiscal
2012
, the Company sold a non-marketable equity security for
$2.6 million
and recorded a gain on sale of
$0.6 million
in the period. The aggregate carrying value of the Company’s non-marketable equity securities was
zero
as of
March 30, 2014
and
March 31, 2013
, respectively. The Company did not recognize any impairment loss in fiscal
2014
.
Note 8. Stock-Based Employee Compensation
Equity Incentive Programs
The Company currently issues awards under three equity-based plans in order to provide additional incentive and retention to directors and employees who are considered to be essential to the long-range success of the Company. These plans are further described below.
2004 Equity Plan (2004 Plan)
In September 2004, the Company’s stockholders approved the 2004 Plan. On July 21, 2010, the Board of Directors of the Company approved an amendment to the Company’s 2004 Plan to increase the number of shares of common stock reserved for issuance thereunder from
28,500,000
shares to
36,800,000
shares (an increase of
8,300,000
shares), provided, however, that the aggregate number of common shares available for issuance under the 2004 Plan is reduced by
1.74
shares for each common share delivered in settlement of any full value award, which are awards other than stock options and stock appreciation rights, that are granted under the 2004 Plan on or after September 23, 2010. On September 23, 2010, the stockholders of the Company approved the proposed amendment described above, which also includes certain other changes to the 2004 Plan, including an extension of the term of the 2004 Plan. Options granted by the Company under the 2004 Plan generally expire
seven
years from the date of grant and generally vest over a
four
-year period from the date of grant, with one-quarter of the shares of common stock vesting on the
one-year
anniversary of the grant date and the remaining shares vesting monthly for the
36
months thereafter. The exercise price of the options granted by the Company under the 2004 Plan shall not be less than
100%
of the fair market value for a common share subject to such option on the date the option is granted. Full value awards made under the 2004 Plan shall become vested over a period of not less than
3 years
(or, if vesting is performance-based, over a period of not less than
one
year) following the date such award is made; provided, however, that full value awards that result in the issuance of an aggregate of up to
5%
of common stock available under the 2004 Plan may be granted to any one or more participants without respect to such minimum vesting provisions. As of
March 30, 2014
, there were
14.6 million
shares available for future grant under the 2004 Plan.
Compensation Expense
The following table summarizes stock-based compensation expense by line items appearing in the Company’s Consolidated Statement of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
(in thousands)
|
March 30,
2014
|
|
March 31,
2013
|
|
April 1,
2012
|
Cost of revenue
|
$
|
1,189
|
|
|
$
|
1,113
|
|
|
$
|
1,784
|
|
Research and development
|
5,601
|
|
|
6,692
|
|
|
8,566
|
|
Selling, general and administrative
|
5,887
|
|
|
5,250
|
|
|
5,983
|
|
Discontinued operations
|
675
|
|
|
217
|
|
|
400
|
|
Total stock-based compensation expense
|
$
|
13,352
|
|
|
$
|
13,272
|
|
|
$
|
16,733
|
|
The amount of stock-based compensation expense that was capitalized during the periods presented above was immaterial. Stock-based compensation expense recognized in the Consolidated Statements of Operations is based on awards ultimately expected to vest. The authoritative guidance for stock-based compensation requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company attributes the value of stock-based compensation to expense on an accelerated method.
Valuation Assumptions
The Company uses the Black-Scholes option-pricing model as its method of valuation for stock-based awards. The Company’s determination of the fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price, as well as assumptions regarding a number of subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, as well as the expected term of the awards.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
March 30,
2014
|
|
March 31,
2013
|
|
April 1,
2012
|
Stock option plans:
|
|
|
|
|
|
Expected term
|
4.60 years
|
|
|
4.64 years
|
|
|
4.31 years
|
|
Risk-free interest rate
|
0.95
|
%
|
|
0.73
|
%
|
|
1.33
|
%
|
Volatility
|
40.1
|
%
|
|
45.0
|
%
|
|
43.5
|
%
|
Dividend yield
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
Weighted-average grant-date fair value
|
$
|
2.99
|
|
|
$
|
2.18
|
|
|
$
|
2.86
|
|
ESPP:
|
|
|
|
|
|
|
|
|
Expected term
|
0.25 years
|
|
|
0.25 years
|
|
|
0.25 years
|
|
Risk-free interest rate
|
0.06
|
%
|
|
0.08
|
%
|
|
0.03
|
%
|
Volatility
|
35.5
|
%
|
|
35.0
|
%
|
|
47.7
|
%
|
Dividend yield
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
Weighted-average grant-date fair value
|
$
|
1.89
|
|
|
$
|
1.42
|
|
|
$
|
1.53
|
|
The following is a summary of the Company's stock option activity and related weighted average exercise prices for each category:
|
|
|
|
|
|
|
|
|
Fiscal 2014
|
(shares in thousands)
|
Shares
|
|
Price
|
Beginning stock options outstanding
|
12,817
|
|
|
$
|
7.12
|
|
Granted
|
1,946
|
|
|
8.67
|
|
Exercised (1)
|
(5,766
|
)
|
|
6.48
|
|
Canceled
|
(3,395
|
)
|
|
8.95
|
|
Ending stock options outstanding
|
5,602
|
|
|
$
|
7.21
|
|
Ending stock options exercisable
|
3,210
|
|
|
$
|
6.99
|
|
|
|
(1)
|
Upon exercise, the Company issues new shares of common stock.
|
The following is a summary of information about stock options outstanding at
March 30, 2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
Range of Exercise
Prices
|
|
Number
Outstanding (in thousands)
|
|
Weighted-Average
Remaining
Contractual Life
(in years)
|
|
Weighted-Average
Exercise Price
|
|
Number
Exercisable (in thousands)
|
|
Weighted-Average
Exercise Price
|
4.84 - 5.33
|
|
653
|
|
3.50
|
|
$5.18
|
|
449
|
|
$5.13
|
5.40-5.75
|
|
654
|
|
3.58
|
|
5.71
|
|
542
|
|
5.72
|
5.77 - 5.77
|
|
969
|
|
5.10
|
|
5.77
|
|
348
|
|
5.77
|
5.79-6.00
|
|
752
|
|
2.08
|
|
5.93
|
|
707
|
|
5.93
|
6.04-7.24
|
|
358
|
|
3.93
|
|
6.75
|
|
233
|
|
6.69
|
7.67-7.67
|
|
626
|
|
6.13
|
|
7.67
|
|
—
|
|
—
|
7.81-8.22
|
|
106
|
|
2.47
|
|
8.02
|
|
87
|
|
8.06
|
8.49-8.49
|
|
809
|
|
4.06
|
|
8.49
|
|
518
|
|
8.49
|
8.69-12.51
|
|
583
|
|
4.84
|
|
11.82
|
|
233
|
|
11.86
|
14.15-16.26
|
|
92
|
|
0.13
|
|
15.01
|
|
93
|
|
15.01
|
|
|
5,602
|
|
4.06
|
|
$7.21
|
|
3,210
|
|
$6.99
|
As of
March 30, 2014
, the weighted-average remaining contractual life of stock options outstanding was
4.06 years
and the aggregate intrinsic value was
$26.9 million
. The weighted-average remaining contractual life of stock options exercisable was
3.03
years and the aggregate intrinsic value was
$16.3 million
. Unrecognized compensation cost related to non-vested stock options, net of estimated forfeitures, was
$2.3 million
and will be recognized over a weighted-average period of
1.15 years
.
As of
March 30, 2014
, stock options vested and expected to vest totaled approximately
5.1 million
with a weighted-average exercise price of
$7.15
and a weighted-average remaining contractual life of
3.91
years. The aggregate intrinsic value as of
March 30, 2014
was approximately
$25.0 million
.
Restricted Stock Units
Restricted stock units granted by the Company under the 2004 Plan generally vest over at least a
three
year period from the grant date with one-third of restricted stock units vesting on each one-year anniversary. As of
March 30, 2014
,
2.9 million
restricted stock unit awards were outstanding under the 2004 Plan.
The following table summarizes the Company’s restricted stock unit activity and related weighted-average exercise prices for each category:
|
|
|
|
|
|
|
|
|
Fiscal 2014
|
(shares in thousands)
|
Shares
|
|
Weighted-
Average
Grant Date
Fair Value
Per Share
|
Beginning RSUs outstanding
|
2,591
|
|
|
$
|
6.26
|
|
Granted
|
2,123
|
|
|
8.17
|
|
Released
|
(901
|
)
|
|
6.26
|
|
Forfeited
|
(889
|
)
|
|
6.98
|
|
Ending RSUs outstanding
|
2,924
|
|
|
$
|
7.43
|
|
As of
March 30, 2014
, restricted stock units expected to vest totaled approximately
2.4 million
with a weighted-average remaining contract life of
1.24
years. The aggregate intrinsic value was approximately
$29.0 million
.
Performance-Based Stock Units
In fiscal 2013, the Compensation Committee (the Committee) of the Board of Directors of IDT approved the Company’s Executive Retention Plan (the Retention Plan), in which each of the President and Chief Executive Officer’s direct reports are eligible to participate. The Retention Plan provides for the grant of performance-based stock units under the 2004 Plan which vest and convert into between zero and one and a half shares of the Company's common stock based on the level of achievement of pre-established
performance goals during a specified performance period. The initial performance period under the Retention Plan is the Company’s fiscal year 2014 for which performance goals related to the Company’s annual non-GAAP operating margin and revenue growth relative to a peer group of companies, weighted 60% and 40%, respectively, were established by the Committee. Any shares of Company common stock earned by performance stock unit holders will vest and be issued in two equal installments, the first on the date the Committee determines the achievement of the performance goals and the second on the first anniversary of such determination. Management evaluates, on a quarterly basis, the likelihood of the Company meeting its performance metrics in determining stock-based compensation expense for the Retention Plan.
In addition, the Committee approved the Company's Key Talent Incentive Plan (Incentive Plan). The Incentive Plan provides for the grant of performance-based stock units under the 2004 Plan which vest and convert into one share of the Company's common stock based on the level of achievement of pre-established performance goals during a specified performance period. The initial performance period under the Incentive Plan is the Company's fourth quarter of fiscal 2013 through the fourth quarter of fiscal 2016 for which performance goals relate to cumulative revenue targets for a specific product group. Any shares of Company common stock earned by performance stock unit holders will vest and be issued quarterly based on the achievement of the performance goals. Management evaluates, on a quarterly basis, the likelihood of the Company meeting its performance metrics in determining stock-based compensation expense for the Incentive Plan.
The following table summarizes the Company’s performance stock unit activity and related weighted-average exercise prices for each category:
|
|
|
|
|
|
|
|
|
Fiscal 2014
|
(shares in thousands)
|
Shares
|
|
Weighted-
Average
Grant Date
Fair Value
Per Share
|
Beginning PSUs outstanding
|
744
|
|
|
$
|
7.50
|
|
Granted
|
491
|
|
|
8.46
|
|
Released
|
—
|
|
|
—
|
|
Forfeited
|
(431
|
)
|
|
8.04
|
|
Ending PSUs outstanding
|
804
|
|
|
$
|
7.79
|
|
As of
March 30, 2014
, performance stock units expected to vest totaled approximately
0.6 million
with a weighted-average remaining contract life of
1.20
years. The aggregate intrinsic value was approximately
$7.6 million
.
2009 Employee Stock Purchase Plan (2009 ESPP)
On
June 18, 2009
, the Board approved implementation of the 2009 Employee Stock Purchase Plan (2009 ESPP) and authorized the reservation and issuance of up to
9,000,000
shares of the Company’s common stock, subject to stockholder approval. On September 17, 2009, the Company’s stockholders approved the plan at the 2009 Annual Meeting of Stockholders. The 2009 ESPP is intended to be implemented in successive quarterly purchase periods commencing on the first day of each fiscal quarter of the Company. In order to maintain its qualified status under Section 423 of the Internal Revenue Code, the 2009 ESPP imposes certain restrictions, including the limitation that no employee is permitted to participate in the 2009 ESPP if the rights of such employee to purchase common stock of the Company under the 2009 ESPP and all similar purchase plans of the Company or its subsidiaries would accrue at a rate which exceeds
$25,000
of the fair market value of such stock (determined at the time the right is granted) for each calendar year. At the 2012 annual meeting of stockholders on September 13, 2012, the Company's stockholders approved an additional 5,000,000 shares. On July 12, 2013, the Company filed an a registration statement on Form S-8 with the SEC to add the additional shares to the 2009 ESPP. The number of shares of common stock reserved for issuance thereunder increased from 9,000,000 shares to 14,000,000 shares.
Activity under the Company’s ESPP is summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share amounts)
|
Fiscal 2014
|
|
Fiscal 2013
|
|
Fiscal 2012
|
Number of shares issued
|
1,206
|
|
|
1,679
|
|
|
2,351
|
|
Average issuance price
|
$
|
7.23
|
|
|
$
|
5.13
|
|
|
$
|
4.83
|
|
Number of shares available at year-end
|
5,019
|
|
|
1,226
|
|
|
2,905
|
|
Note 9. Stockholders' Equity
Stock Repurchase Program
.
On
July 21, 2010
, the Company’s Board of Directors approved a share repurchase plan to repurchase up to
$225 million
of its common stock. 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 this program. In fiscal 2013, the Company made no repurchases under the program. On October 22, 2013, the Company's Board approved a new share repurchase authorization for
$150 million
. In fiscal 2014, the Company repurchased
4.1 million
shares for
$44.0 million
.
As of
March 30, 2014
, approximately
$106 million
was available for future purchase under this new share repurchase program. Share repurchases were recorded as treasury stock and resulted in a reduction of stockholders’ equity. The program is intended to reduce the number of outstanding shares of Common Stock to offset dilution from employee equity grants and increase stockholder value.
Note 10. Balance Sheet Detail
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 30,
2014
|
|
March 31,
2013
|
Inventories, net
|
|
|
|
Raw materials
|
$
|
7,745
|
|
|
$
|
7,008
|
|
Work-in-process
|
18,436
|
|
|
24,123
|
|
Finished goods
|
23,441
|
|
|
25,424
|
|
Total inventories, net
|
$
|
49,622
|
|
|
$
|
56,555
|
|
Property, plant and equipment, net
|
|
|
|
|
|
Land
|
$
|
11,724
|
|
|
$
|
11,832
|
|
Machinery and equipment
|
289,393
|
|
|
296,174
|
|
Building and leasehold improvements
|
48,558
|
|
|
48,991
|
|
Total property, plant and equipment, gross
|
349,675
|
|
|
356,997
|
|
Less: accumulated depreciation *
|
(279,848
|
)
|
|
(282,009
|
)
|
Total property, plant and equipment, net **
|
$
|
69,827
|
|
|
$
|
74,988
|
|
Other current liabilities
|
|
|
|
|
|
Short-term portion of supplier obligations ***
|
$
|
762
|
|
|
$
|
407
|
|
Other ****
|
10,763
|
|
|
14,245
|
|
Total other current liabilities
|
$
|
11,525
|
|
|
$
|
14,652
|
|
|
|
|
|
|
|
|
|
|
Other long-term obligations
|
|
|
|
Deferred compensation related liabilities
|
$
|
13,786
|
|
|
$
|
14,615
|
|
Other
|
4,897
|
|
|
7,407
|
|
Total other long-term liabilities
|
$
|
18,683
|
|
|
$
|
22,022
|
|
* Depreciation expense was
$20.9 million
,
$20.1 million
and
$18.8 million
for fiscal 2014, fiscal 2013 and fiscal 2012, respectively.
** The Company envisions fully divesting its HSC business and has classified these assets as held for sale. As of March 30, 2014, the HSC business had of
$2.9 million
in fixed assets classified as held for sale.
*** Supplier obligations represent payments due under various software design tool and technology license agreements.
**** Other current liabilities consist primarily of acquisition related accrued contingent liabilities, accrued royalties and outside commissions, accrued severance costs and other accrued unbilled expenses.
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 the Company's product has been sold by the distributor to an end customer
.
The components of deferred income on shipments to distributors as of
March 30, 2014
and
March 31, 2013
were as follows:
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
(in thousands)
|
March 30,
2014
|
|
March 31,
2013
|
Gross deferred revenue
|
$
|
17,261
|
|
|
$
|
17,581
|
|
Gross deferred costs
|
(3,255
|
)
|
|
(3,042
|
)
|
Deferred income on shipments to distributors
|
$
|
14,006
|
|
|
$
|
14,539
|
|
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 the Company's products to end customers. Historically, this amount represents on average approximately
37%
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 the Company monitors the levels and quality of inventory in the distribution channel, the Company's 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. Accumulated Other Comprehensive Income
Changes in the balance of accumulated other comprehensive income, net of taxes, by component consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Cumulative translation adjustments
|
|
Unrealized gain on available-for-sale investments
|
|
Pension adjustments
|
|
Total
|
Balance, March 31, 2013
|
$
|
1,563
|
|
|
$
|
—
|
|
|
$
|
(77
|
)
|
|
$
|
1,486
|
|
Other comprehensive income (loss) before reclassifications
|
(66
|
)
|
|
291
|
|
|
1
|
|
|
226
|
|
Amounts reclassified out of AOCI
|
—
|
|
|
(97
|
)
|
|
(6
|
)
|
|
(103
|
)
|
Net current-period other comprehensive income (loss)
|
(66
|
)
|
|
194
|
|
|
(5
|
)
|
|
123
|
|
Balance as of March 30, 2014
|
$
|
1,497
|
|
|
$
|
194
|
|
|
$
|
(82
|
)
|
|
$
|
1,609
|
|
Comprehensive income components consisted of:
|
|
|
|
|
|
|
|
(in thousands)
|
|
March 30,
2014
|
|
Location
|
Unrealized holding gains (losses) on available-for-sale investments
|
|
$
|
(97
|
)
|
|
interest and other, net
|
Amortization of pension benefits prior service credits
|
|
(6
|
)
|
|
operating expense
|
Total amounts reclassified out of accumulated other comprehensive income (loss)
|
|
$
|
(103
|
)
|
|
|
Note 13. Goodwill and Intangible Assets, Net
Goodwill activity for fiscal
2014
and fiscal
2013
was follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segment
|
(in thousands)
|
Communications
|
|
Computing and Consumer
|
|
Total
|
Balance as of April 1, 2012
|
$
|
74,673
|
|
|
$
|
21,419
|
|
|
$
|
96,092
|
|
Dispositions
|
—
|
|
|
(700
|
)
|
|
(700
|
)
|
Additions
|
49,532
|
|
|
—
|
|
|
49,532
|
|
Balance as of March 31, 2013
|
124,205
|
|
|
20,719
|
|
|
144,924
|
|
Impairment losses
|
(2,161
|
)
|
|
—
|
|
|
(2,161
|
)
|
Dispositions
|
—
|
|
|
(7,323
|
)
|
|
(7,323
|
)
|
Additions
|
204
|
|
|
—
|
|
|
204
|
|
Balance as of March 30, 2014
|
$
|
122,248
|
|
|
$
|
13,396
|
|
|
$
|
135,644
|
|
In the third quarter of the fiscal year ended March 30, 2014, the Company recorded a
$2.1 million
goodwill impairment loss associated with its HSC business which was classified as a discontinued operation. The impairment loss was included in loss from discontinued operations.
In the second quarter of the fiscal year ended March 30, 2014, the Company allocated
$7.3 million
in goodwill to the sale of certain assets of IDT's PCI Express enterprise flash controller business which was completed on July 12, 2013.
In the second quarter of the fiscal year ended March 31, 2013, the Company allocated
$0.7 million
in goodwill to the sale of the video processing business which was completed on August 1, 2012.
During the fiscal year ended March 31, 2013, the Company acquired
$49.5 million
in goodwill associated with the acquisitions of Fox Enterprises, Alvand Technologies and NXP B.V.'s data converter business (see Note 3). Goodwill was allocated based on the relative fair value method.
Goodwill balances as of March 30, 2014 and March 31, 2013 are net of
$922.5 million
and
$920.4 million
, respectively, in accumulated impairment losses.
Intangible asset balances as of
March 30, 2014
and
March 31, 2013
are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 30, 2014
|
(in thousands)
|
Gross Assets
|
|
Accumulated
Amortization
|
|
Net Assets (1)
|
Purchased intangible assets:
|
|
|
|
|
|
Existing technology
|
$
|
217,923
|
|
|
$
|
(203,888
|
)
|
|
$
|
14,035
|
|
Trademarks
|
4,411
|
|
|
(2,934
|
)
|
|
1,477
|
|
Customer relationships
|
131,093
|
|
|
(128,681
|
)
|
|
2,412
|
|
Non-compete agreements
|
2,275
|
|
|
(1,458
|
)
|
|
817
|
|
Total purchased intangible assets
|
$
|
355,702
|
|
|
$
|
(336,961
|
)
|
|
$
|
18,741
|
|
(1) Includes
$6.6 million
in HSC assets held for sale.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2013
|
(in thousands)
|
Gross Assets
|
|
Accumulated
Amortization
|
|
Net Assets
|
Purchased intangible assets:
|
|
|
|
|
|
Existing technology
|
$
|
241,197
|
|
|
$
|
(203,129
|
)
|
|
$
|
38,068
|
|
Trademarks
|
4,411
|
|
|
(2,018
|
)
|
|
2,393
|
|
Customer relationships
|
131,931
|
|
|
(128,107
|
)
|
|
$
|
3,824
|
|
Backlog
|
1,600
|
|
|
(1,509
|
)
|
|
91
|
|
Non-compete agreements
|
2,600
|
|
|
(807
|
)
|
|
1,793
|
|
Total amortizable purchased intangible assets
|
381,739
|
|
|
(335,570
|
)
|
|
46,169
|
|
IPR&D *
|
2,433
|
|
|
—
|
|
|
2,433
|
|
Total purchased intangible assets
|
$
|
384,172
|
|
|
$
|
(335,570
|
)
|
|
$
|
48,602
|
|
* IPR&D is initially capitalized at fair value as an intangible asset with an indefinite life and assessed for impairment thereafter. 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 identified intangibles is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
(in thousands)
|
March 30, 2014
|
|
March 31, 2013
|
|
April 1, 2012
|
Existing technology
|
$
|
19,730
|
|
|
$
|
14,131
|
|
|
$
|
12,527
|
|
Trademarks
|
3,405
|
|
|
874
|
|
|
452
|
|
Customer relationships
|
916
|
|
|
3,225
|
|
|
3,510
|
|
Backlog
|
91
|
|
|
1,509
|
|
|
—
|
|
Non-compete agreements
|
651
|
|
|
807
|
|
|
—
|
|
Total
|
$
|
24,793
|
|
|
$
|
20,546
|
|
|
$
|
16,489
|
|
The intangible assets are being amortized over estimated useful lives of
six
months to
seven
years.
During the fourth quarter of the fiscal year ended in March 30, 2014, the Company initiated actions to discontinue production and sale of products using technology attained through the acquisitions of Mobius Microsystems in fiscal 2010 and IKOR in fiscal 2011. In connection with the decision to discontinue these products, the Company revised the estimated remaining useful life of the related acquired intangible assets, resulting in an additional
$8.7 million
in accelerated amortization which was charged to cost of revenues in the fourth quarter of fiscal 2014. In addition, the Company recorded a
$2.4 million
impairment charge to research and development expense associated with the decision to discontinue further development required to complete the Mobius Microsystems acquired in-process research and development.
Based on the intangible assets recorded at
March 30, 2014
, excluding held for sale intangible assets which are no longer amortized, 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
|
2015
|
$
|
6,572
|
|
2016
|
3,083
|
|
2017
|
2,185
|
|
2018
|
256
|
|
2019 and thereafter
|
10
|
|
Total
|
$
|
12,106
|
|
Note 14. Restructuring
The following table shows the provision of the restructuring charges and the liability remaining as of
March 30, 2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Cost of Revenues
|
|
Operating Expenses
|
|
Total
|
Balance as of April 3, 2011
|
$
|
9,187
|
|
|
$
|
815
|
|
|
$
|
10,002
|
|
Provision
|
(1,425
|
)
|
|
4,515
|
|
|
3,090
|
|
Cash payments
|
(6,156
|
)
|
|
(1,738
|
)
|
|
(7,894
|
)
|
Balance as of April 1, 2012
|
1,606
|
|
|
3,592
|
|
|
5,198
|
|
Provision
|
557
|
|
|
5,277
|
|
|
5,834
|
|
Cash payments
|
(2,137
|
)
|
|
(7,233
|
)
|
|
(9,370
|
)
|
Balance as of March 31, 2013
|
26
|
|
|
1,636
|
|
|
1,662
|
|
Provision
|
—
|
|
|
5,538
|
|
|
5,538
|
|
Cash payments
|
(26
|
)
|
|
(6,536
|
)
|
|
(6,562
|
)
|
Balance as of March 30, 2014
|
$
|
—
|
|
|
$
|
638
|
|
|
$
|
638
|
|
Restructuring Actions
As part of an effort to streamline operations with changing market conditions and to create a more efficient organization, the Company has undertaken restructuring actions to reduce its workforce and consolidate facilities. The Company’s restructuring expenses were primarily of: (i) severance and termination benefit costs related to the reduction of its workforce; and (ii) lease termination costs and costs associated with permanently vacating certain facilities.
During fiscal 2014, the Company recorded restructuring charges of
$5.5 million
and reduced headcount by
117
employees for multiple reduction in workforce actions. During fiscal 2014, the Company paid
$4.9 million
related to these actions. As of March 30, 2014, the total accrued balance for employee severance costs related to these restructuring actions was
$0.6 million
. The Company expects to complete these restructuring actions by the second quarter of fiscal 2015.
During fiscal 2013, the Company recorded restructuring charges of
$4.3 million
for multiple reduction in workforce actions. The Company reduced its total headcount by approximately
132
employees with reductions affecting all functional areas and various locations. During fiscal 2013, the Company paid
$3.2 million
in severance costs associated with these actions. During the first quarter of fiscal 2014, the Company paid
$1.1 million
in severance costs and completed these actions.
In connection with the Company's divestiture of its smart metering business, during fiscal 2013, the Company recorded
$0.4 million
in restructuring expenses for employee severance costs. During fiscal 2014, the Company paid
$0.4 million
and completed this action.
In connection with the Company's divestiture of its video processing product lines, during fiscal 2012, the Company recorded
$3.6 million
in restructuring expenses for employee retention costs. These costs have been classified within discontinued operations. During fiscal 2013, the Company recorded an additional
$1.1 million
employee retention costs under this plan. These charges were recorded within discontinued operations. The Company paid
$4.7 million
in fiscal 2013 and completed this restructuring action.
In connection with the Company's transition of the manufacture of products to Taiwan Semiconductor Manufacturing Limited (TSMC), the Company accrued restructuring expenses of
$4.8 million
for severance payments and other benefits associated with this restructuring action in fiscal
2010
. During fiscal
2012
, the Company decreased this accrual by
$3.1 million
based on the actual number of employees that were offered employment with the acquirer of the wafer fabrication facility. During fiscal 2012, the Company recorded prior period adjustments of
$4.1 million
for employee retention costs related to fiscal 2010 and fiscal 2011 and an additional
$2.5 million
for employee retention costs was recorded in fiscal 2012. During fiscal 2013, the Company paid
$1.0 million
in employee retention costs and completed the restructuring action to exit wafer production operations at its Oregon fabrication facility.
In connection with discontinuing manufacturing operations at its Singapore facility, the Company exited its leased facility in Singapore in fiscal
2011
. As a result, the Company recorded lease impairment charges of approximately
$0.5 million
in fiscal
2011
, which represented the future rental payments under the agreements, reduced by an estimate of sublease incomes and discounted to present value using an interest rate applicable to the Company. These charges were recorded as cost of goods sold. Since the initial restructuring, the Company has made lease payments of
$0.5 million
, completing the final payment of the facility lease charges during fiscal
2013
.
In connection with the divestitures of Silicon Logic Engineering business in the third quarter of fiscal
2010
, the Company exited certain leased facilities. As a result, the Company recorded lease impairment charges of approximately
$0.9 million
, which represented the future rental payments under the agreements, reduced by an estimate of sublease incomes and discounted to present value using an interest rate applicable to the Company. These charges were recorded as selling, general and administrative expense. The Company completed the restructuring plan in fiscal 2012.
During the second quarter of fiscal 2006, the Company completed the consolidation of its Northern California workforce into its San Jose headquarters and exited a leased facility in Salinas, California. The Company recorded lease impairment charges of approximately
$2.1 million
, of which
$0.6 million
was recorded as cost of revenues, and
$0.9 million
was recorded as research and development expense and
$0.6 million
was recorded as selling, general and administrative expense. Since the initial restructuring, the Company has made lease payments of
$2.1 million
, completing the final
$0.2 million
payment of the facility lease charges during fiscal 2014.
Note 15. Commitments and Contingencies
Guarantees
As of
March 30, 2014
, the Company’s financial guarantees consisted of guarantees and standby letters of credit, which are primarily related to the Company’s electrical utilities in Malaysia, utilization of non-country nationals in Malaysia, consumption tax in Japan and value-added tax obligations in Holland, office rental in Italy and a workers’ compensation plan in the United States. The maximum amount of potential future payments under these arrangements is approximately
$2.2 million
.
Commitments
Although the Company owns its corporate headquarters in San Jose, California, the Company leases various administrative facilities under operating leases which expire at various dates through fiscal 2019.
As of
March 30, 2014
, aggregate future minimum commitments for the next five fiscal years and thereafter under all operating leases, excluding leases in which amounts have been accrued for impairment charges, were as follows (in thousands):
|
|
|
|
|
Fiscal Year
|
Amount
|
2015
|
$
|
3,926
|
|
2016
|
3,691
|
|
2017
|
2,995
|
|
2018
|
2,804
|
|
2019 and thereafter
|
3,790
|
|
Total
|
$
|
17,206
|
|
Rent expense for the fiscal years ended
March 30, 2014
,
March 31, 2013
and
April 1, 2012
totaled approximately
$4.6 million
,
$4.7 million
and
$3.7 million
, respectively. Other supplier obligations including payments due under various software design tool and technology license agreements totaled
$4.2 million
and
$10.3 million
as of
March 30, 2014
and
March 31, 2013
, respectively.
Indemnification
During the normal course of business, the Company makes certain indemnifications and commitments under which it may be required to make payments in relation to certain transactions. In addition to indemnifications related to non-infringement of patents and intellectual property, other indemnifications include indemnification of the Company’s directors and officers in connection with legal proceedings, indemnification of various lessors in connection with facility leases for certain claims arising from such facility or lease, and indemnification of other parties to certain acquisition agreements. The duration of these indemnifications and commitments varies, and in certain cases, is indefinite. The Company believes that substantially all of its indemnities and commitments provide for limitations on the maximum potential future payments the Company could be obligated to make. However, the Company is unable to estimate the maximum amount of liability related to its indemnities and commitments because such liabilities are contingent upon the occurrence of events which are not reasonably determinable. The Company believes that any liability for these indemnities and commitments would not be material to its accompanying consolidated financial statements.
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
$0.3 million
and
$0.2 million
as of
March 30, 2014
and
March 31, 2013
, 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 federal Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and Resource Conservation and Recovery Act (RCRA), the California Hazardous Substance Account Act (HSAA), and other common law 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. 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 counter-claimed against Maxim and cross-claimed against Defendants, including the Company, and thus the Company remains a defendant in this action. In September 2012, the California Department of Toxic Substances Control (DTSC) notified the Company that it identified the Company, along with more than 50 other entities, and included the Company as a respondent to DTSC's Enforcement Order, as “a generator of hazardous waste” that was sent to the Property. In April 2013, the Company, along with the other “respondent” parties, entered into a Corrective Action Consent Agreement (CACA) to conduct the Property investigation and corrective action selection. The CACA supersedes the Enforcement Order. In February 2013, the court stayed the Maxim/Moyer litigation pending the Property investigation under the CACA and DTSC's corrective action selection. The Company will continue to vigorously defend itself against the allegations in the Complaint and evaluate settlement options with Moyer upon
completion of the Property investigation and corrective action selection. 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 potential loss or range of potential losses.
The Company is also party to various other legal proceedings and claims arising in the normal course of business. As of
March 30, 2014
, the Company has not recorded any accrual for contingent liabilities associated with its legal proceedings based on the belief that liabilities, while possible, are not probable. Further, probable losses or ranges of possible 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
401(k) Plan
The Company sponsors a 401(k) retirement matching plan for qualified domestic employees. The Company recorded expenses of approximately
$2.1 million
,
$2.6 million
and
$2.9 million
in matching contributions under the plan in fiscal
2014
,
2013
, and
2012
, respectively.
Deferred Compensation Plans
Effective 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
March 30, 2014
and
March 31, 2013
, obligations under the plan totaled approximately
$13.8 million
and
$14.6 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
March 30, 2014
and
March 31, 2013
, the deferred compensation plan assets were approximately
$16.1 million
and
$17.0 million
, respectively. The Company incurred costs for this plan for insurance, administration and other support of
$0.3 million
in each of fiscal
2014
,
2013
and
2012
.
During the first quarter of fiscal 2013, the Company assumed a deferred compensation plan associated with the acquisition of Fox. Under this plan, participants in retirement are entitled to receive a fixed amount from the Company on a monthly basis. The Company has purchased life insurance policies with the intention of funding the liability under this plan. As of
March 30, 2014
and
March 31, 2013
, the deferred compensation plan assets were approximately
$0.7 million
. As of
March 30, 2014
and
March 31, 2013
the liabilities under this plan were approximately
$1.6 million
.
International Employee Benefit Plans
The Company sponsors defined-benefit pension plans, defined-contribution plans, multi-employer plans and other post-employment benefit plans covering employees in certain of the Company's international locations. As of
March 30, 2014
and
March 31, 2013
, the net liability for all of these international benefit plans totaled
$1.4 million
.
Pension plan benefits are based primarily on participants’ compensation and years of service credited as specified under the terms of each country’s plan. The funding policy is consistent with the local requirements of each country. The Company does not have defined-benefit pension plans for the its United States-based employees. The projected obligations of international employee defined-benefit pension plans and related offsetting plan assets were determined based on actuarial calculations. As of
March 30, 2014
, the net accumulated liability for these defined-benefit plans totaled
$0.9 million
, with unrecognized actuarial losses of
$0.2 million
and unrecognized prior service gains of
$0.1 million
. The net period expense was insignificant during fiscal 2014, 2013 and 2012. Distributions made from plans during fiscal 2014, 2013 and 2012 were insignificant. The Company includes accrued net defined-benefit plan obligations in other long-term liabilities on the Company's Consolidated Balance Sheet.
Note 17. Income Taxes
The components of income (loss) before income taxes and the income tax expense (benefit) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
(in thousands)
|
March 30, 2014
|
|
March 31, 2013
|
|
April 1, 2012
|
Income (loss) before income taxes:
|
|
|
|
|
|
United States
|
$
|
9,491
|
|
|
$
|
(21,206
|
)
|
|
$
|
(6,126
|
)
|
Foreign
|
79,865
|
|
|
(970
|
)
|
|
64,765
|
|
Income (loss) before income taxes
|
$
|
89,356
|
|
|
$
|
(22,176
|
)
|
|
$
|
58,639
|
|
Income tax expense (benefit):
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
United States
|
$
|
(118
|
)
|
|
$
|
(49
|
)
|
|
$
|
(321
|
)
|
State
|
35
|
|
|
128
|
|
|
(118
|
)
|
Foreign
|
878
|
|
|
1,417
|
|
|
545
|
|
|
795
|
|
|
1,496
|
|
|
106
|
|
Deferred:
|
|
|
|
|
|
|
|
|
United States
|
240
|
|
|
(3,159
|
)
|
|
33
|
|
State
|
14
|
|
|
(341
|
)
|
|
1
|
|
Foreign
|
(57
|
)
|
|
—
|
|
|
39
|
|
|
197
|
|
|
(3,500
|
)
|
|
73
|
|
Income tax expense (benefit)
|
$
|
992
|
|
|
$
|
(2,004
|
)
|
|
$
|
179
|
|
In fiscal years
2014
,
2013
and
2012
, approximately
zero
,
zero
and
$0.6 million
, respectively, of U.S. income tax benefits related to the exercise of certain employee stock options decreased income taxes payable and were credited to additional paid-in capital.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred tax assets and liabilities were as follows:
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 30, 2014
|
|
March 31, 2013
|
Deferred tax assets:
|
|
|
|
Deferred income on shipments to distributors
|
$
|
2,666
|
|
|
$
|
2,576
|
|
Non-deductible accruals and reserves
|
10,233
|
|
|
9,778
|
|
Inventory related and other expenses
|
1,761
|
|
|
1,427
|
|
Net operating losses and credit carryforwards
|
114,858
|
|
|
97,337
|
|
Depreciation and amortization
|
13,725
|
|
|
24,864
|
|
Stock options
|
1,713
|
|
|
4,193
|
|
Other
|
315
|
|
|
369
|
|
Total deferred tax assets
|
145,271
|
|
|
140,544
|
|
Deferred tax liabilities:
|
|
|
|
|
|
Purchased intangibles
|
(558
|
)
|
|
(4,158
|
)
|
U.S. tax on earnings of foreign subsidiaries not indefinitely reinvested
|
—
|
|
|
—
|
|
Other
|
(3,087
|
)
|
|
(3,633
|
)
|
Total deferred tax liabilities
|
(3,645
|
)
|
|
(7,791
|
)
|
Valuation allowance
|
(143,704
|
)
|
|
(134,633
|
)
|
Net deferred tax liabilities
|
$
|
(2,078
|
)
|
|
$
|
(1,880
|
)
|
The Company maintains a valuation allowance against its deferred tax assets because management is not able to conclude that it is more likely than not that these deferred tax assets will be realized. The Company reached this decision based on judgment, which included consideration of historical losses and projections of future profits. The Company will continue to monitor the need for the valuation allowance on a quarterly basis and may, with further evidence, determine that the valuation allowance is no longer required. The valuation allowance is based on the Company’s analysis that it is more likely than not that certain deferred tax assets will be realized in the foreseeable future. The net deferred tax liability of
$2.1 million
relates primarily to unremitted Singapore investment earnings sourced outside Singapore.
The valuation allowance for deferred tax assets increased by
$9.1 million
and
$3.0 million
in fiscal
2014
and fiscal
2013
, respectively.
As of
March 30, 2014
, the Company had federal and state net operating loss (NOL) carryforwards, net of ASC 740-10 unrecognized tax benefits, of approximately
$53.0 million
and
$104.8 million
, respectively, which include excess tax benefits related to stock option exercises. The Company has approximately
$17.2 million
of net tax benefits related to excess stock compensation benefits, which are not recorded as deferred tax assets. These excess stock compensation benefits will be credited to additional paid-in capital when recognized. The federal NOL carryforwards will expire in various fiscal years through 2033, if not utilized. The state NOL carryforwards will expire in various fiscal years through 2033, if not utilized. The utilization of NOLs created by acquired companies is subject to annual limitations under Section 382 of the Internal Revenue Code. However, the Company does not expect that such annual limitation will impair the realization of these NOLs.
As of
March 30, 2014
, the Company had approximately
$54.4 million
of federal research and development tax credit carryforwards, and
$16.8 million
of foreign tax credit carryforwards. The federal research and development tax credit carryforwards will expire in fiscal years 2014 through 2033, if not utilized, and the foreign tax credit carryforwards will expire in fiscal years 2014 to 2023, if not utilized. The Company also had, as of
March 30, 2014
, approximately
$78.0 million
of state income tax credit carryforwards, of which
$4.7 million
will expire in various fiscal years through
2028
, if not utilized.
Reconciliation between the statutory U.S. income tax rate of
35%
and the effective rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
(in thousands)
|
March 30,
2014
|
|
March 31,
2013
|
|
April 1,
2012
|
Provision (benefit) at 35% U.S. statutory rate
|
$
|
31,275
|
|
|
$
|
(7,761
|
)
|
|
$
|
20,756
|
|
State tax, net of federal benefit
|
32
|
|
|
(119
|
)
|
|
85
|
|
Effect of foreign operations
|
(24,878
|
)
|
|
2,097
|
|
|
(22,059
|
)
|
Repatriation of foreign earnings
|
5,623
|
|
|
1,505
|
|
|
1,048
|
|
Net operating losses and tax credits (benefited) not benefited
|
(11,285
|
)
|
|
(2,640
|
)
|
|
(1,201
|
)
|
Stock-based compensation
|
(689
|
)
|
|
2,640
|
|
|
4,198
|
|
Liquidation of U.S. subsidiary
|
—
|
|
|
—
|
|
|
(1,218
|
)
|
Other
|
914
|
|
|
2,274
|
|
|
(1,430
|
)
|
Income tax expense (benefit)
|
$
|
992
|
|
|
$
|
(2,004
|
)
|
|
$
|
179
|
|
The Company benefits from tax incentives granted by local tax authorities in certain foreign jurisdictions. All non-passive income earned in its Malaysia subsidiary is not subject to tax. The Company was granted a tax holiday in Malaysia during fiscal
2009
. The tax holiday was contingent upon the Company continuing to meet specified investment criteria in fixed assets, and to operate as an APAC regional headquarters center. In the fourth quarter of fiscal
2011
, the Company agreed with the Malaysia Industrial Development Board to cancel this tax holiday and enter into a new tax holiday which is a full tax exemption on statutory income for a period of
10
years commencing April 4, 2011. This new tax holiday is subject to the Company meeting certain financial targets, investment, headcounts and activities in Malaysia. The impact of these tax holidays decreased foreign taxes by
$2.0 million
,
$4.1 million
and
$0.2 million
for fiscal
2014
,
2013
and
2012
, respectively. The benefit of the tax holidays on net income per share (diluted) was less than
$0.01
,
$0.03
, and less than
$0.01
for fiscal
2014
,
2013
and
2012
, respectively.
The Company intends to reinvest certain of its foreign earnings indefinitely. Accordingly, no U.S. income taxes have been provided for approximately
$772.7 million
of undistributed earnings of foreign subsidiaries. It is not practicable for the Company to determine the tax impact of remitting these earnings.
The following tables summarize the activities of gross unrecognized tax benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
(in thousands)
|
March 30, 2014
|
|
March 31, 2013
|
|
April 1, 2012
|
Beginning balance
|
$
|
31,066
|
|
|
$
|
29,718
|
|
|
$
|
28,471
|
|
Increases related to prior year tax positions
|
90
|
|
|
532
|
|
|
443
|
|
Decreases related to prior year tax positions
|
(301
|
)
|
|
(296
|
)
|
|
—
|
|
Increases related to current year tax positions
|
1,498
|
|
|
1,427
|
|
|
937
|
|
Decreases related to the lapsing of statute of limitations
|
(116
|
)
|
|
(315
|
)
|
|
(133
|
)
|
Ending balance
|
$
|
32,237
|
|
|
$
|
31,066
|
|
|
$
|
29,718
|
|
The amount of unrecognized tax benefits that would favorably impact the effective tax rate were approximately
$0.2 million
and
$0.3 million
as of
March 30, 2014
and
March 31, 2013
, respectively. As of
March 30, 2014
, approximately
$27.2 million
of unrecognized tax benefits would be offset by a change in valuation allowance. The Company recognizes potential interest and penalties related to the income tax on the unrecognized tax benefits as a component of income tax expense and accrued approximately
zero
and
$0.1 million
for these items in fiscal
2014
and fiscal
2013
, respectively.
As of
March 30, 2014
, the Company was subject to examination in the U.S. federal tax jurisdiction for the fiscal years 2011, 2012, and 2013. In fiscal 2013, the Internal Revenue Service (IRS) commenced an audit of the Company's federal corporate tax returns for fiscal years 2011, 2012 and 2013. Although the final outcome is uncertain, based on currently available information, the Company believes that the ultimate outcome will not have a material adverse effect on its financial position, cash flows or results of operations.
As of
March 30, 2014
, the Company was subject to examination in various state and foreign jurisdictions for tax years 2007 forward, none of which were individually material.
During the twelve months beginning
March 30, 2014
, the Company does not expect its unrecognized tax benefits will materially change from
March 30, 2014
balances. However, the Company notes that the resolution and/or closure of open audits are highly uncertain.
Note 18. Segment Information
The Chief Operating Decision Maker is the Company’s President and Chief Executive Officer.
The Company's reportable segments include the following:
|
|
•
|
Communications segment: includes clock and timing solutions, flow-control management devices including Serial RapidIO
®
switching solutions, multi-port products, telecommunications products, high-speed static random access memory, first in and first out, digital logic, radio frequency, and MEMS Oscillator solutions.
|
|
|
•
|
Computing and Consumer segment: includes clock generation and distribution products, high-performance server memory interfaces, PCI Express switching solutions, power management solutions, signal integrity products, and PC audio.
|
The tables below provide information about these segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by segment
|
Fiscal Year Ended
|
(in thousands)
|
March 30,
2014
|
|
March 31,
2013
|
|
April 1,
2012
|
Communications
|
$
|
292,435
|
|
|
$
|
258,184
|
|
|
$
|
248,370
|
|
Computing and Consumer
|
192,344
|
|
|
226,268
|
|
|
278,326
|
|
Total revenues
|
$
|
484,779
|
|
|
$
|
484,452
|
|
|
$
|
526,696
|
|
Sales through a distributor, Avnet, represented approximately
12%
,
10%
and
11%
of the Company’s revenues in fiscal
2014
,
2013
and
2012
, respectively. Sales through another distributor, Maxtek and its affiliates, represented approximately
13%
and
15%
of the Company’s revenues in fiscal
2013
and
2012
, respectively, and sales through another distributor, Uniquest, represented approximately
10%
, of the Company's revenues in fiscal
2013
and
2012
. Each of these distributors serve customers within both of the Company's reportable segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) by segment from continuing operations
|
Fiscal Year Ended
|
(in thousands)
|
March 30,
2014
|
|
March 31,
2013
|
|
April 1,
2012
|
Communications
|
$
|
103,457
|
|
|
$
|
78,995
|
|
|
$
|
82,178
|
|
Computing and Consumer
|
(22,658
|
)
|
|
(30,972
|
)
|
|
(21,247
|
)
|
Unallocated expenses:
|
|
|
|
|
|
Amortization of intangible assets
|
(21,964
|
)
|
|
(16,339
|
)
|
|
(16,355
|
)
|
Inventory fair market value adjustment
|
—
|
|
|
(358
|
)
|
|
—
|
|
Impairment of acquired in-process R&D
|
(2,433
|
)
|
|
—
|
|
|
—
|
|
Gain on divestitures
|
78,632
|
|
|
7,986
|
|
|
20,656
|
|
Fabrication production transfer costs
|
—
|
|
|
—
|
|
|
(4,572
|
)
|
Asset impairments and other
|
(4,113
|
)
|
|
(6,096
|
)
|
|
315
|
|
Amortization of stock-based compensation
|
(12,677
|
)
|
|
(13,054
|
)
|
|
(16,333
|
)
|
Severance, retention and facility closure costs
|
(6,590
|
)
|
|
(5,584
|
)
|
|
(2,151
|
)
|
Acquisition-related costs and other
|
(802
|
)
|
|
(11,238
|
)
|
|
(168
|
)
|
Consulting expenses related to stockholder activities
|
—
|
|
|
(1,614
|
)
|
|
—
|
|
Deferred compensation plan expense (benefit)
|
51
|
|
|
(194
|
)
|
|
(74
|
)
|
Life insurance proceeds received
|
—
|
|
|
2,313
|
|
|
—
|
|
Other-than-temporary loss on investments
|
—
|
|
|
(1,708
|
)
|
|
(2,797
|
)
|
Interest income and other, net
|
1,391
|
|
|
(1,546
|
)
|
|
(1,231
|
)
|
Income from continuing operations, before income taxes
|
$
|
112,294
|
|
|
$
|
591
|
|
|
$
|
38,221
|
|
The Company does not allocate goodwill and intangible assets impairment charge, IPR&D, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
(in thousands)
|
March 30,
2014
|
|
March 31,
2013
|
|
April 1,
2012
|
APAC
|
$
|
309,121
|
|
|
$
|
308,409
|
|
|
$
|
350,105
|
|
Americas (1)
|
71,305
|
|
|
76,876
|
|
|
76,711
|
|
Japan
|
40,829
|
|
|
40,281
|
|
|
41,586
|
|
Europe
|
63,524
|
|
|
58,886
|
|
|
58,294
|
|
Total revenues
|
$
|
484,779
|
|
|
$
|
484,452
|
|
|
$
|
526,696
|
|
|
|
(1)
|
Revenues from the customers in the U.S. were
$63.1 million
,
$69.6 million
and
$70.4 million
in fiscal
2014
,
2013
and
2012
, respectively.
|
The Company’s significant operations outside of the United States include test facility in Malaysia, design centers in the U.S., Canada and China, and sales subsidiaries in Japan, APAC and Europe. The Company's net property, plant and equipment are summarized below by geographic area:
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 30,
2014
|
|
March 31,
2013
|
United States
|
$
|
40,561
|
|
|
$
|
44,651
|
|
Canada
|
4,660
|
|
|
5,188
|
|
Malaysia
|
20,972
|
|
|
21,379
|
|
All other countries
|
3,634
|
|
|
3,770
|
|
Total property, plant and equipment, net
|
$
|
69,827
|
|
|
$
|
74,988
|
|
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.
As of
March 30, 2014
and
March 31, 2013
, the Company did not have any outstanding foreign currency contracts that were designated as hedges of forecasted cash flows or capital equipment purchases. The Company does not enter into derivative financial instruments for speculative or trading purposes. 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
March 30, 2014
.
Note 20. Credit Facility
On June 13, 2011, the Company entered into a Master Repurchase Agreement (the Repurchase Agreement) with Bank of America, N.A. (Bank of America), pursuant to which the Company had the right, subject to the terms and conditions of the Repurchase Agreement, 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 June 13, 2012, for an aggregate purchase price of
$135 million
in cash. Pursuant to the Repurchase Agreement, to the extent it sells any such shares to Bank of America, the Company will be obligated to repurchase from Bank of America and Bank of America will be obligated to resell to the Company, those preferred shares for the aggregate purchase price paid by Bank of America. On May 17, 2012, the Company entered into an amendment to the Repurchase Agreement which, among other things, extended the availability of the transactions under the Repurchase Agreement until December 13, 2012. On December 4, 2012, the Company entered into another amendment to the Repurchase Agreement which, among other things, extended the availability of the transactions under the Repurchase Agreement until February 14, 2013.
Related to the termination of the planned acquisition of PLX, the Company's management determined that it would be in the best interest of IDT to allow the Repurchase Agreement and the related IDT Agreement with Bank of America to lapse undrawn. As a result, the Repurchase Agreement was allowed to lapse undrawn on February 14, 2013. The related IDT Agreement expired as of the same date. Associated with the Repurchase Agreement, the Company had approximately
$2.5 million
in remaining unamortized financing costs which were originally recorded as other current assets. The Company recognized these remaining financing costs in the fourth quarter of fiscal 2013 as selling, general and administrative expense.
SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)
QUARTERLY RESULTS OF OPERATIONS
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 30, 2014
|
|
First
Quarter
|
|
Second
Quarter (1)
|
|
Third
Quarter (2)
|
|
Fourth
Quarter (3)
|
Revenues
|
$
|
117,464
|
|
|
$
|
124,047
|
|
|
$
|
124,628
|
|
|
$
|
118,640
|
|
Gross profit
|
66,122
|
|
|
70,761
|
|
|
74,939
|
|
|
61,080
|
|
Net income from continuing operations
|
1,501
|
|
|
87,411
|
|
|
17,339
|
|
|
5,062
|
|
Net loss from discontinued operations
|
(3,765
|
)
|
|
(3,760
|
)
|
|
(10,391
|
)
|
|
(5,033
|
)
|
Net income (loss)
|
(2,264
|
)
|
|
83,651
|
|
|
6,948
|
|
|
29
|
|
|
|
|
|
|
|
|
|
Basic net income per share – continuing operations
|
$
|
0.01
|
|
|
$
|
0.58
|
|
|
$
|
0.11
|
|
|
$
|
0.03
|
|
Basic net loss per share – discontinued operations
|
$
|
(0.03
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.03
|
)
|
Basic net income (loss) per share
|
$
|
(0.02
|
)
|
|
$
|
0.56
|
|
|
$
|
0.05
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Diluted net income per share – continuing operations
|
$
|
0.01
|
|
|
$
|
0.57
|
|
|
$
|
0.11
|
|
|
$
|
0.03
|
|
Diluted net loss per share – discontinued operations
|
$
|
(0.03
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.03
|
)
|
Diluted net income (loss) per share
|
$
|
(0.02
|
)
|
|
$
|
0.54
|
|
|
$
|
0.04
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, 2013
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter (4)
|
Revenues
|
$
|
129,955
|
|
|
$
|
132,441
|
|
|
$
|
114,277
|
|
|
$
|
107,779
|
|
Gross profit
|
72,668
|
|
|
74,459
|
|
|
63,074
|
|
|
59,523
|
|
Net income (loss) from continuing operations
|
3,630
|
|
|
4,656
|
|
|
(106
|
)
|
|
(5,469
|
)
|
Net loss from discontinued operations
|
(7,945
|
)
|
|
(4,729
|
)
|
|
(5,051
|
)
|
|
(5,158
|
)
|
Net loss
|
(4,315
|
)
|
|
(73
|
)
|
|
(5,157
|
)
|
|
(10,627
|
)
|
|
|
|
|
|
|
|
|
Basic net income loss per share – continuing operations
|
$
|
0.03
|
|
|
$
|
0.03
|
|
|
$
|
—
|
|
|
$
|
(0.04
|
)
|
Basic net loss per share – discontinued operations
|
$
|
(0.06
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.03
|
)
|
Basic net loss per share
|
$
|
(0.03
|
)
|
|
$
|
—
|
|
|
$
|
(0.04
|
)
|
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share – continuing operations
|
$
|
0.03
|
|
|
$
|
0.03
|
|
|
$
|
—
|
|
|
$
|
(0.04
|
)
|
Diluted net loss per share – discontinued operations
|
$
|
(0.06
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.03
|
)
|
Diluted net loss per share
|
$
|
(0.03
|
)
|
|
$
|
—
|
|
|
$
|
(0.04
|
)
|
|
$
|
(0.07
|
)
|
(1) In the second quarter of fiscal 2014, the Company recorded a gain of
$82.3 million
in net income from continuing operations related to the divestiture of its PCI Express enterprise flash controller business to PMC-Sierra, Inc.
(2) In the third quarter of fiscal 2014, the Company recorded a loss of
$3.4 million
in net loss from continuing operations related to the divestiture of certain assets of its Audio business to Stravelis, Inc.
(3) In the fourth quarter of fiscal 2014, associated with the decision to discontinue production and sale of products using technology attained through the acquisitions of Mobius Microsystems in fiscal 2010 and IKOR in fiscal 2011, the Company recorded an additional
$8.7 million
in accelerated amortization of intangible assets which was charged to cost of revenues. In addition, the Company recorded a
$2.4 million
impairment of IPR&D to research and development expense, associated with the decision to discontinue further development required to complete the Mobius Microsystems acquired IPR&D.
(4) In the fourth quarter of fiscal 2013, the Company recorded a gain of
$8.0 million
in net income from continuing operations related to the divestiture of its smart meter business.