The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Summary of Significant Accounting Policies
Business
InvenSense,
Inc. (the Company) was incorporated in California in June 2003 and reincorporated in Delaware in January 2004. The Company designs, develops, markets and sells Micro-Electro-Mechanical Systems (MEMS) sensors, such as
accelerometers, gyroscopes and microphones for consumer electronics, and is dedicated to bringing the best-in-class size, performance and cost solutions to market. Targeting applications in smartphones and tablets, console and portable video gaming
devices, digital still and video cameras, smart TVs (including digital set-top boxes, televisions and multi-media HDDs), navigation devices, toys, and health and fitness accessories, the Company delivers leading solutions based on its advanced
multi-axis technology.
These condensed consolidated financial statements should be read in conjunction with the consolidated financial
statements and the notes thereto for the fiscal year ended March 30, 2014 included in the Companys Annual Report on Form 10-K filed on May 29, 2014 with the Securities and Exchange Commission (SEC). No material changes
have been made to the Companys significant accounting policies since the Companys Annual Report on Form 10-K for the fiscal year ended March 30, 2014.
Certain Significant Business Risks and Uncertainties
The Company participates in the high-technology industry and believes that adverse changes in any of the following areas could have a material
effect on the Companys future financial position, results of operations, or cash flows: reliance on a limited number of primary customers to support the Companys revenue generating activities; advances and trends in new technologies and
industry standards; market acceptance of the Companys products; development of sales channels; strategic relationships, including key component suppliers; litigation or claims against the Company based on intellectual property, patent,
product, regulatory, or other factors; and the Companys ability to attract and retain employees necessary to support its growth.
Basis of
Consolidation
The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting
principles, or GAAP, and include our accounts and the accounts of our wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The functional currency of each of the Companys subsidiaries is
the U.S. dollar. Foreign currency gains or losses are recorded as other income (expense), net, in the consolidated statements of income.
Fiscal Year
The Companys fiscal year is a 52 or 53 week period ending on the Sunday closest to March 31. The Companys most recent
fiscal year (Fiscal 2014) ended on March 30, 2014 (March 2014). The first fiscal quarter in each of the two most recent fiscal years ended on June 29, 2014 (three months ended June 29, 2014 or
June 2014) and June 30, 2013 (three months ended June 30, 2013 or June 2013), respectively, and each quarter period included 13 weeks.
Use of Estimates
The preparation of the
Companys Consolidated Financial Statements and related Notes in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and related Notes and the reported amounts of income and expenses during the reporting period. Significant
estimates included in the Consolidated Financial Statements and related Notes include income taxes, inventory valuation, stock-based compensation, loss contingencies, warranty reserves, valuation of acquired assets, and valuation of convertible
senior notes, including the related convertible notes hedges and warrants. These estimates are based upon information available as of the date of the consolidated financial statements, and actual results could differ from those estimates.
Concentration of Credit Risk
At June
2014, one customer accounted for 47% of total accounts receivable. At June 2013, five customers each accounted for 16%, 14%, 11%, 11% and 10% of total accounts receivable.
For the three months ended June 29, 2014, three customers each accounted for 30%, 12% and 10% of total net revenue. For the three months
ended June 30, 2013, three customers each accounted for 26%, 11% and 11% of total net revenue.
7
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Warranty
The Companys warranty agreements are contract and component specific and can be up to three years for selected components. The
Companys accrual for anticipated warranty costs has declined primarily due to a decline in the historical volume of product returned under the warranty program. The accrual also includes managements judgment regarding anticipated rates
of warranty claims and associated repair costs. The following table summarizes the activity related to product warranty liability during the three months ended June 29, 2014 and June 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 29, 2014
|
|
|
June 30, 2013
|
|
|
|
(in thousands)
|
|
Beginning balance
|
|
$
|
80
|
|
|
$
|
123
|
|
Provision for warranty
|
|
|
53
|
|
|
|
115
|
|
Accruals related to changes in estimate
|
|
|
(45
|
)
|
|
|
(94
|
)
|
Less: actual warranty costs
|
|
|
(13
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
75
|
|
|
$
|
136
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss) Per Share
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares outstanding during the
period, which excludes dilutive unvested restricted stock.
Diluted net income (loss) per share is computed by dividing net income (loss)
by the weighted average number of shares outstanding, including unvested restricted stock, certain warrants to purchase common stock and potential dilutive shares from the dilutive effect of outstanding stock options using the treasury stock method.
The following table presents the calculation of basic and diluted net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 29, 2014
|
|
|
June 30, 2013
|
|
|
|
(in thousands, except per share data)
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Basic and Diluted:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(4,832
|
)
|
|
$
|
10,322
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic shares:
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing basic net income (loss) per share
|
|
|
88,302
|
|
|
|
85,038
|
|
|
|
|
|
|
|
|
|
|
Diluted shares:
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing basic net income (loss) per share
|
|
|
88,302
|
|
|
|
85,038
|
|
Effect of potentially dilutive securities:
|
|
|
|
|
|
|
|
|
Stock options and unvested restricted stock
|
|
|
|
|
|
|
2,797
|
|
Common stock warrants
|
|
|
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing diluted net income (loss) per share
|
|
|
88,302
|
|
|
|
87,914
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.05
|
)
|
|
$
|
0.12
|
|
Diluted
|
|
$
|
(0.05
|
)
|
|
$
|
0.12
|
|
8
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following summarizes the potentially dilutive securities outstanding at the end of each
period that were excluded from the computation of diluted net income (loss) per share for the periods presented as their effect would have been antidilutive:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 29, 2014
|
|
|
June 30, 2013
|
|
|
|
(in thousands)
|
|
Employee stock options
|
|
|
8,606
|
|
|
|
4,906
|
|
Unvested restricted stock units and others
|
|
|
3,414
|
|
|
|
770
|
|
|
|
|
|
|
|
|
|
|
Total antidilutive securities
|
|
|
12,020
|
|
|
|
5,676
|
|
|
|
|
|
|
|
|
|
|
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers
(Topic 606). ASU No. 2014-09 provides
guidance that companies will recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the payment to which a company expects to be entitled in exchange for those goods or services. The Company will be
required to implement the new revenue recognition standard for the first quarter of fiscal year 2018. The Company is currently evaluating the impact on its consolidated financial statements.
2.
|
Cash Equivalents and Available-for-sale Investments
|
At June 2014, of the $36.4 million of the Companys cash and cash equivalents, $15.2 million was cash and $21.2 million
was cash equivalents invested in money market funds and commercial paper. At June 2014, $12.7 million of the $36.4 million of cash and cash equivalents were held by our foreign subsidiaries. If these funds are needed for our operations in the United
States, the Company would be required to accrue and pay U.S. taxes to repatriate these funds. However, the Companys intent is to indefinitely reinvest these funds outside of the United States, and the Companys current plans for the
foreseeable future do not demonstrate a need to repatriate them to fund U.S. operations. Additionally, as of June 2014, the Company had short-term available-for-sale investments of $110.0 million and long-term available-for-sale investments of $99.8
million totaling $209.8 million. Long-term investments as of June 2014 of $99.8 million had scheduled maturities between one and five years from the balance sheet date.
At March 2014, of the $26.0 million of the Companys cash and cash equivalents, $15.3 million was cash and $10.7 million was cash
equivalents invested in money market funds. At March 2014, $9.8 million of the $26.0 million of cash and cash equivalents were held by our foreign subsidiaries. If these funds are needed for our operations in the United States, the Company would be
required to accrue and pay U.S. taxes to repatriate these funds. However, the Companys intent is to indefinitely reinvest these funds outside of the United States, and the Companys current plans for the foreseeable future do not
demonstrate a need to repatriate them to fund U.S. operations. Additionally, as of March 2014, the Company had short-term available-for-sale investments of $91.3 million and long-term available-for-sale investments of $128.8 million totaling $220.1
million which is held in the US entity. Long-term investments as of March 2014 of $128.8 million had scheduled maturities between one and two years from the balance sheet date.
The Company applies the provisions of ASC 820-10,
Fair Value Measurements
. Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability (i.e., the exit price) 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 an asset or liability. ASC 820-10 requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements. The standard
describes a fair value hierarchy based on three levels of inputs that may be used to measure fair value. The inputs for the first two levels are considered observable and the last is unobservable and include the following:
Level 1Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or
liabilities;
Level 2Quoted prices in markets that are not active, or inputs which are observable, either directly or
indirectly, for substantially the full term of the asset or liability; or
Level 3Unobservable inputs in which there is little
or no market data, and as a result, prices or valuation techniques are employed that require inputs that are significant to the fair value measurement.
This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when
determining fair value. On a recurring basis, the Company measures certain financial assets and liabilities at fair value.
9
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The fair values of our money market funds were derived from quoted market prices as active
markets for these instruments exist. The Company chose not to elect the fair value option as prescribed by ASC 825-10-05 Fair Value Option for its financial assets and liabilities that had not been previously carried at fair value.
Therefore, financial assets and liabilities not carried at fair value, such as accounts payable, are still reported at their carrying values.
Fair value measurements at each reporting date were as follows:
June 2014:
Assets
measured at fair value on a recurring basis were presented in the Companys condensed consolidated balance sheet as of June 29, 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 2014
Balance
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets Level 1
|
|
|
Significant
Other
Observable
Inputs
Level 2
|
|
|
Significant
Other
Unobservable
Inputs
Level 3
|
|
|
|
(in thousands)
|
|
Money Market Funds
|
|
$
|
21,235
|
|
|
$
|
21,235
|
|
|
$
|
|
|
|
$
|
|
|
Corporate Notes and Bonds
|
|
|
194,463
|
|
|
|
|
|
|
|
194,463
|
|
|
|
|
|
Commercial Paper
|
|
|
8,995
|
|
|
|
|
|
|
|
8,995
|
|
|
|
|
|
Municipal Notes and Bonds
|
|
|
3,854
|
|
|
|
|
|
|
|
3,854
|
|
|
|
|
|
U.S. Agency Securities
|
|
|
2,500
|
|
|
|
|
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
231,047
|
|
|
$
|
21,235
|
|
|
$
|
209,812
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
21,235
|
|
|
$
|
21,235
|
|
|
$
|
|
|
|
$
|
|
|
Short-term investments
|
|
|
110,034
|
|
|
|
|
|
|
|
110,033
|
|
|
|
|
|
Long-term investments
|
|
|
99,778
|
|
|
|
|
|
|
|
99,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
231,047
|
|
|
$
|
21,235
|
|
|
$
|
209,812
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 2014
Amortized Cost
|
|
|
Gross
Unrealized
Gain
|
|
|
Gross
Unrealized
Loss
|
|
|
June 2014
Estimated FMV
|
|
Corporate Notes and Bonds
|
|
$
|
194,389
|
|
|
$
|
74
|
|
|
$
|
|
|
|
$
|
194,463
|
|
Commercial Paper
|
|
|
8,993
|
|
|
|
2
|
|
|
|
|
|
|
|
8,995
|
|
Municipal Notes and Bonds
|
|
|
3,849
|
|
|
|
5
|
|
|
|
|
|
|
|
3,854
|
|
U.S. Agency Securities
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Available-for-sale investments
|
|
$
|
209,731
|
|
|
$
|
81
|
|
|
$
|
|
|
|
$
|
209,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Aggregate Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
231,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair values of money market funds were derived from quoted market prices as active markets for these
instruments exist. The fair values of corporate notes and bonds, commercial paper, municipal notes and bonds and U.S. Agency Securities were derived from non-binding market consensus prices that are corroborated by observable market data.
There were no transfers of assets measured at fair value between Level 1 and Level 2 during the three months ended June 29, 2014.
10
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 2014:
Assets measured at fair value on a recurring basis were presented in the Companys consolidated balance sheet as of March 30, 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 2014
Balance
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets Level 1
|
|
|
Significant
Other
Observable
Inputs
Level 2
|
|
|
Significant
Other
Unobservable
Inputs
Level 3
|
|
|
|
(in thousands)
|
|
Money Market Funds
|
|
$
|
10,657
|
|
|
$
|
10,657
|
|
|
$
|
|
|
|
$
|
|
|
Corporate Notes and Bonds
|
|
|
204,683
|
|
|
|
|
|
|
|
204,683
|
|
|
|
|
|
Municipal Notes and Bonds
|
|
|
3,895
|
|
|
|
|
|
|
|
3,895
|
|
|
|
|
|
Commercial Paper
|
|
|
8,988
|
|
|
|
|
|
|
|
8,988
|
|
|
|
|
|
U.S. Agency Securities
|
|
|
2,496
|
|
|
|
|
|
|
|
2,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
230,719
|
|
|
$
|
10,657
|
|
|
$
|
220,062
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
10,657
|
|
|
$
|
10,657
|
|
|
$
|
|
|
|
$
|
|
|
Short-term investments
|
|
|
91,307
|
|
|
|
|
|
|
|
91,307
|
|
|
|
|
|
Long-term investments
|
|
|
128,755
|
|
|
|
|
|
|
|
128,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
230,719
|
|
|
$
|
10,657
|
|
|
$
|
220,062
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 2014
Amortized Cost
|
|
|
Gross
Unrealized
Gain
|
|
|
Gross
Unrealized
Loss
|
|
|
March 2014
Estimated FMV
|
|
|
|
(in thousands)
|
|
Corporate Notes and Bonds
|
|
$
|
204,747
|
|
|
$
|
|
|
|
$
|
(64
|
)
|
|
$
|
204,683
|
|
Municipal Notes and Bonds
|
|
|
3,888
|
|
|
|
7
|
|
|
|
|
|
|
|
3,895
|
|
Commercial Paper
|
|
|
8,986
|
|
|
|
2
|
|
|
|
|
|
|
|
8,988
|
|
U.S. Agency Securities
|
|
|
2,500
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
2,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Available-for-sale investments
|
|
$
|
220,121
|
|
|
$
|
9
|
|
|
$
|
(68
|
)
|
|
$
|
220,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Aggregate Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
230,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no transfers of assets measured at fair value between Level 1 and Level 2 during Fiscal 2014.
3. Balance Sheet Details
Inventories
Inventories at June 2014 and March 2014 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
June 2014
|
|
|
March 2014
|
|
|
|
(in thousands)
|
|
Work in progress
|
|
$
|
64,211
|
|
|
$
|
58,641
|
|
Finished goods
|
|
|
13,302
|
|
|
|
14,391
|
|
|
|
|
|
|
|
|
|
|
Total Inventories
|
|
$
|
77,513
|
|
|
$
|
73,032
|
|
|
|
|
|
|
|
|
|
|
11
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets at June 2014 and March 2014 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
June 2014
|
|
|
March 2014
|
|
|
|
(in thousands)
|
|
Prepaid expenses
|
|
$
|
3,325
|
|
|
$
|
3,495
|
|
Tax receivable
|
|
|
7,078
|
|
|
|
5,932
|
|
Other receivables
|
|
|
2,500
|
|
|
|
5,356
|
|
Deferred tax assets
|
|
|
2,439
|
|
|
|
2,487
|
|
Advance to vendors
|
|
|
719
|
|
|
|
1,026
|
|
Other current assets
|
|
|
1,712
|
|
|
|
1,291
|
|
|
|
|
|
|
|
|
|
|
Total prepaid expenses and other current assets
|
|
$
|
17,773
|
|
|
$
|
19,587
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment
Property and equipment at June 2014 and March 2014 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
June 2014
|
|
|
March 2014
|
|
|
|
(in thousands)
|
|
Production and lab equipment
|
|
$
|
28,479
|
|
|
$
|
25,890
|
|
Computer equipment and software
|
|
|
4,714
|
|
|
|
4,335
|
|
Equipment under construction
|
|
|
7,383
|
|
|
|
2,298
|
|
Leasehold improvements and furniture and fixtures
|
|
|
4,315
|
|
|
|
3,918
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
44,891
|
|
|
|
36,441
|
|
Accumulated depreciation
|
|
|
(13,105
|
)
|
|
|
(11,202
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipmentnet
|
|
$
|
31,786
|
|
|
$
|
25,239
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the three months ended June 29, 2014 and June 30, 2013 was $1.8 million and
$0.7 million, respectively. Equipment under construction consists primarily of production and lab equipment. Equipment under construction is not subject to depreciation until it is available for its intended use. All of the equipment under
construction is expected to be completed and placed in service by the end of fiscal 2015.
Accrued Liabilities
Accrued liabilities at June 2014 and March 2014 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
June 2014
|
|
|
March 2014
|
|
|
|
(in thousands)
|
|
Payroll-related expenses
|
|
$
|
4,612
|
|
|
$
|
4,207
|
|
Bonuses
|
|
|
1,645
|
|
|
|
3,019
|
|
Legal fees
|
|
|
1,622
|
|
|
|
2,527
|
|
Accrued contractual coupon interest payable on convertible senior notes
|
|
|
492
|
|
|
|
1,158
|
|
Deferred revenue
|
|
|
1,000
|
|
|
|
800
|
|
Income tax payable
|
|
|
130
|
|
|
|
117
|
|
Other accrued liabilities
|
|
|
4,062
|
|
|
|
3,157
|
|
|
|
|
|
|
|
|
|
|
Total accrued liabilities
|
|
$
|
13,563
|
|
|
$
|
14,985
|
|
|
|
|
|
|
|
|
|
|
12
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4.
|
Commitments and Contingencies
|
Operating Lease Obligations
The Company has non-cancelable operating leases for its facilities through fiscal year 2020.
Future minimum lease payments under operating leases as of June 2014 are as follows:
|
|
|
|
|
Fiscal Years Ending:
|
|
Amount
|
|
|
|
(in thousands)
|
|
2015 (remainder)
|
|
$
|
2,931
|
|
2016
|
|
|
4,854
|
|
2017
|
|
|
4,952
|
|
2018
|
|
|
4,834
|
|
2019
|
|
|
4,922
|
|
Beyond
|
|
|
5,143
|
|
|
|
|
|
|
Total
|
|
$
|
27,636
|
|
|
|
|
|
|
The Companys lease agreements provide for rental payments which have certain lease incentives and
graduated rental payments. As a result, the rent expense is recognized on a straight-line basis over the term of the lease. The Companys rental expense under operating leases was approximately $1.1 million and $0.6 million for the three months
ended June 29, 2014 and June 30, 2013, respectively.
Legal Proceedings
From time to time the Company is involved in litigation that the Company believes is of the type common to companies engaged in our line of
business, including intellectual property and employment issues. Regardless of the merit or resolution of any such litigation, complex intellectual property litigation is generally costly and can divert the efforts and attention of our management
and technical personnel.
5. Convertible Senior Notes
In November 2013, the Company issued $175.0 million aggregate principal amount of 1.75% Convertible Senior Notes due on
November 1, 2018 (the Notes), in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933 (the Securities Act). The Notes offered have not been registered under the
Securities Act, or applicable state securities laws or blue sky laws, and may not be offered or sold in the United States absent registration under the Securities Act and applicable state securities laws or available exemptions from the registration
requirements.
The Notes are senior unsecured obligation of the Company and rank equally in right of payment with all of the
Companys existing and future senior unsecured indebtedness and are junior to any of the Companys existing and future secured indebtedness. The Notes pay interest in cash semi-annually (May and November) at a rate of 1.75% per annum.
Net proceeds received by the Company, after issuance costs, were approximately $169.8 million.
13
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On or after August 1, 2018 until the maturity date, the Notes may be converted at the
option of the holders. Holders may convert the Notes at their option prior to August 1, 2018 only under the following circumstances:
1) During any calendar quarter commencing after the calendar quarter ending on March 31, 2014 (and only during such calendar quarter), if
the last reported sale price of the Companys common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is
greater than or equal to 130% of the conversion price on each applicable trading day;
2) During the five business day period after any
five consecutive trading day period in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and
the conversion rate on each such trading day; or
3) Upon the occurrence of specified corporate events, including if there is a
fundamental change.
Upon conversion, the Company will pay cash up to the aggregate principal amount of the Notes to be converted and pay
or deliver cash, shares of its own common stock or a combination of cash and shares of its own common stock, at the Companys election, in respect of the remainder, if any, of its conversion obligation in excess of the aggregate principal
amount of the notes being converted.
The conversion rate is initially 45.683 shares per $1,000 principal amount of the Notes (equivalent
to an initial conversion price of approximately $21.89 per share of common stock), subject to certain adjustments.
The Notes are not
redeemable by the Company prior to the maturity date. At the event of default or fundamental change, the principal amount of the notes plus accrued and unpaid interest may become due immediately at the Note holders option.
The Company used and plans to use the net proceeds of approximately $169.3 million from the offering of the Notes (after the issuance costs)
for general corporate purposes, including to replace cash used to purchase the MEMS Microphone business line of Analog Devices, Inc. (see Note 8), for the cost of the Note hedge transactions (see below) and for capital expenditures and working
capital. However, the Company has not designated with certainty all of the particular uses for the net proceeds from the Notes.
The
Company separately accounts for the liability and equity components of the Notes. The initial debt component of the Notes was valued at $135.7 million based on the contractual cash flows discounted at an appropriate comparable market
non-convertible debt borrowing rate at the date of issuance of 7.3%, with the equity component representing the residual amount of the proceeds of $39.3 million which was recorded as a debt discount. The issuance costs were allocated pro-rata
based on the relative initial carrying amounts of the debt and equity components, including the Note hedges and warrants transactions described below. As a result, $2.5 million of the issuance costs was allocated to the equity component of the
Notes, $3.0 million of issuance costs paid to the initial purchaser was accounted for as a debt discount and $0.25 million of the issuance costs was classified as other non-current assets. The debt discount and the issuance costs allocated to
the debt component are amortized as additional interest expense over the term of the Notes using the effective interest method. As of June 29, 2014 the remaining amortization period of the debt discount and the issuance costs is 4.3 years. The
effective interest rate of the Notes is 7.84% per annum (1.75% coupon rate plus 6.09% of non-cash accretion expense).
Convertible Notes Hedges
and Warrants
Concurrent with the issuance of the Notes on November 6 and 7, 2013, the Company purchased call options for its own
common stock to hedge the Notes (the Note Hedge) and sold call options for its own common stock (the Warrants). The Note Hedges and Warrants transactions are structured to reduce the potential future economic dilution
associated with the conversion of the Notes and are excluded from the computation of diluted earnings per share for each period presented, as the Companys average stock price during each period is less than the conversion price.
The Note Hedges
- On November 6 and 7, 2013, the Company purchased call options from a counterparty for an aggregate price of
approximately $39.1 million, which gives the Company the right to buy from the counterparty up to approximately 8.0 million shares of the Companys common stock at a price of $21.89 per share, subject to adjustments. The Note Hedge is
exercisable upon conversion of the Note for a number of shares equal to the product of 0.045683 and amount of the converted Note. Upon exercise of the Note Hedge the Company will receive from the counterparty cash, shares of Companys common
stock, or a combination thereof, equal to the amount by which the market price per share of the Companys common stock exceeds $21.89 during the applicable valuation period. By the Note Hedge terms the Company will receive cash and shares
in a combination that offsets share dilution caused by conversion of the Note.
14
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Warrants -
On November 6 and 7, 2013, the Company sold call options to the same
counterparty for approximately $25.6 million, which gives the counterparty the right to buy from the Company up to approximately 8.0 million shares of the Companys common stock at an exercise price of $28.66 per share, subject to
adjustments, on a series of days commencing on February 1, 2019 and ending May 13, 2019. Upon exercise of the Warrants, the Company has the option to deliver cash or shares of its common stock equal to the difference between the market price on
the exercise date and the strike price of the warrants. Upon exercise of the Warrants, the Company will pay to the Initial Purchaser cash, shares of Companys common stock, or a combination thereof (at the Companys choice), equal to the
amount by which the market price per share of the Companys common stock exceeds $28.66 during the applicable valuation period.
The
Note Hedges and Warrants above are classified in stockholders equity in the Companys consolidated balance sheets.
The following table
summarizes the principal amounts and related unamortized discount on the Notes (in thousands):
|
|
|
|
|
|
|
June 2014
|
|
Principal amount of the Notes
|
|
$
|
175,000
|
|
Unamortized discount on the Notes
|
|
|
37,613
|
|
|
|
|
|
|
Net carrying value
|
|
$
|
137,387
|
|
|
|
|
|
|
The following table presents the amount of interest expense recognized related to the Notes for the three months ended
June 29, 2014 (in thousands):
|
|
|
|
|
|
|
Amount
|
|
Contractual coupon interest expense
|
|
$
|
768
|
|
Accretion of debt discount
|
|
|
1,804
|
|
Amortization of debt issuance costs
|
|
|
12
|
|
|
|
|
|
|
Total interest expense related to the Notes
|
|
$
|
2,584
|
|
|
|
|
|
|
As of June 29, 2014, our aggregate future principal debt maturities are as follows (in thousands):
|
|
|
|
|
Fiscal Year
|
|
Amount
|
|
2015 2018
|
|
$
|
|
|
2019
|
|
|
175,000
|
|
|
|
|
|
|
Total
|
|
$
|
175,000
|
|
|
|
|
|
|
The convertible notes issued by the Company in November 2013 are shown in the accompanying consolidated
balance sheets at their original issuance value, net of unamortized discount, and are not marked to market each period. The approximate fair value of the convertible notes as of June 29, 2014 was $211.5 million. The fair value of the
convertible notes was determined using quoted market prices for similar securities, which, due to limited trading activity, are considered Level 2 in the fair value hierarchy.
6. Stockholders Equity
Stock Plans
In July
2011, the Companys Board of Directors and its stockholders approved the establishment of the 2011 Stock Incentive Plan (the 2011 Plan). The 2011 Plan provides for annual increases in the number of shares available for issuance
there under on the first business day of each fiscal year, beginning with the Companys fiscal year following the year of this offering, equal to four percent (4%) of the number of shares of the Companys common stock outstanding as
of such date, which resulted in an annual increase of 3.4 million shares for fiscal year 2014.
15
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Under the Companys 2004 Stock Incentive Plan and 2011 Stock Incentive Plan (the
Plans), the Board of Directors may grant either incentive stock options, nonqualified stock options, or stock awards to eligible persons, including employees, nonemployees, members of the Board of Directors, consultants and other
independent advisors who provide services to the Company. As of June 30, 2013, the Company has reserved for issuance under the Plans a total of 22.9 million shares (including additional shares subject to automatic increase provisions under
the 2011 Plan).
Incentive stock options may only be granted to employees and at an exercise price of no less than fair value on the date
of grant. Nonqualified stock options may be granted at an exercise price of no less than 100% of fair value on the date of grant. For owners of more than 10% of the Companys common stock, options may only be granted for an exercise price of
not less than 110% of fair value, and these options generally expire 10 years from the date of grant. Stock options may be exercisable immediately but subject to repurchase. Stock options vest over the period determined by the Board of
Directors, generally four years.
Stock option activities of the Company under the Plans are as follows (in thousands, except per share
amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
Available
for Grant
|
|
|
Options
Issued and
Outstanding
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Term
(In Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
BalanceMarch 30, 2014
|
|
|
12,595
|
|
|
|
8,276
|
|
|
$
|
10.37
|
|
|
|
7.87
|
|
|
$
|
102,072
|
|
|
|
|
|
|
|
Increase to stock option pool
|
|
|
3,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted (weighted-average fair value of $6.53 per share)
|
|
|
(949
|
)
|
|
|
949
|
|
|
$
|
18.01
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
|
|
|
|
(198
|
)
|
|
$
|
5.41
|
|
|
|
|
|
|
|
|
|
Options canceled
|
|
|
51
|
|
|
|
(51
|
)
|
|
$
|
11.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BalanceJune 29, 2014
|
|
|
15,230
|
|
|
|
8,976
|
|
|
$
|
11.28
|
|
|
|
7.79
|
|
|
$
|
95,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 29, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest
|
|
|
|
|
|
|
7,602
|
|
|
$
|
10.71
|
|
|
|
7.62
|
|
|
$
|
85,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable June 29, 2014
|
|
|
|
|
|
|
3,199
|
|
|
$
|
7.80
|
|
|
|
6.75
|
|
|
$
|
45,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Additional information regarding options outstanding as of June 2014 and March 2014 is as
follows (in thousands except per share amounts):
Valuation of Stock-Based Awards
The Company applies the provisions of ASC 718-10 CompensationStock Compensation which establishes the accounting for
stock-based awards based on the fair value of the award measured at grant date. Accordingly, stock-based compensation cost is recognized in the condensed consolidated statements of income as a component of both cost of revenues and operating
expenses over the requisite service period. ASC 718-10 requires tax benefits in excess of compensation cost to be reported as a financing cash flow rather than as a reduction of taxes paid. The determination of the fair value of stock-based payment
awards on the date of grant using the Black-Scholes option pricing model is affected by the volatilities of a peer group of companies based on industry, stage of life cycle, size and financial leverage, actual and projected employee stock option
exercise behaviors, risk-free interest rate and expected dividends. Variables to be determined include expected volatility, estimated term and risk-free interest rate.
The aggregate intrinsic value of the stock options exercised during the three months ended June 29, 2014 and June 30, 2013 was $3.0
million and $11.5 million respectively. The aggregate intrinsic value was calculated as the difference between the exercise price of the stock options and the estimated fair market value of the underlying common stock at the date of exercise.
The number of options expected to vest takes into account an estimate of expected forfeitures. The remaining unamortized stock-based
compensation expense, reduced for estimated forfeitures and related to non-vested options, was $17.1 million, and $18.6 million at June 2014 and June 2013 respectively, and, for both periods will be amortized over a weighted-average remaining period
of approximately 2.53 and 3.2 years, respectively. Total unrecognized expense will be adjusted for future changes in estimated forfeitures.
Weighted-Average Assumptions
Expected Term
Prior to the third quarter of fiscal year 2013, the Company use the simplified method described in Staff Accounting Bulletin Topic 14,
Share-Based Payment
, to estimate expected term. Beginning the third quarter of fiscal year 2013, the Company used historical experience to estimate expected term as it believes it had accumulated enough historical data on which to base this
estimate. The change to historical data did not result in a significant change in the expected term used in the Black-Sholes computation.
Expected
Volatility
The Company estimates volatility for option grants by evaluating the average historical volatility of peer group companies
for the period immediately preceding the option grant for a term that is approximately equal to the options expected term and by evaluating the average historical volatility of the Companys common stock since the Companys initial
public offering in November 2011.
Risk-Free Interest Rate
The Company bases the risk-free interest rate that it uses in the Black-Scholes option pricing model on U.S. Treasury zero-coupon issues with
remaining terms similar to the expected term on the options.
Expected Dividend
The Company does not anticipate paying any cash dividends in the foreseeable future and, therefore, uses an expected dividend yield of zero in
the Black-Scholes option pricing model.
17
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company used the following weighted-average assumptions in determining stock-based
compensation expense for options granted in the three months ended June 29, 2014 and June 30, 2013.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 29,
2014
|
|
|
June 30,
2013
|
|
Expected Term
|
|
|
4.46 years
|
|
|
|
4.67 years
|
|
Volatility
|
|
|
41.9
|
%
|
|
|
41.4
|
%
|
Risk-free interest rate
|
|
|
1.42
|
%
|
|
|
0.73
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Restricted Stock Units and Restricted Stock
Restricted stock unit and restricted stock activity of the Company under the Plans are as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
Restricted stock unit and restricted stock activity
|
|
Shares
|
|
|
Weighted average
grant date
fair value per share
|
|
|
|
(in thousands)
|
|
Unvested at March 30, 2014
|
|
|
3,325
|
|
|
$
|
16.63
|
|
Granted
|
|
|
440
|
|
|
|
18.61
|
|
Vested
|
|
|
(210
|
)
|
|
|
12.72
|
|
Forfeited
|
|
|
(37
|
)
|
|
|
17.26
|
|
|
|
|
|
|
|
|
|
|
Unvested at June 29, 2014
|
|
|
3,518
|
|
|
$
|
17.10
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units and restricted stock granted to employees are generally subject to the employees
continued service to the Company over that period. The fair value of restricted stock units and restricted stock is determined using the fair value of the Companys common stock on the date of the grant. Compensation expense is generally
recognized on a straight-line basis over the requisite service period of each grant adjusted for estimated forfeitures. At June 2014, there was approximately $37.4 million of total unrecognized compensation cost related to restricted stock units and
restricted stock, which the Company expects to recognize over a weighted-average period of 3.13 years. The weighted-average grant-date fair value per share of restricted stock units and restricted stock awarded in the three months ended
June 2014 was $18.61. The weighted-average grant-date fair value per share of restricted stock units and restricted stock awarded in the three months ended June 2013 was $12.77.
Common Stock
As of June 2014 and March
2014, common stock reserved for future issuance was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Common stock reserved for issuance
|
|
June 2014
|
|
|
March 2014
|
|
Stock Plans:
|
|
|
|
|
|
|
|
|
Outstanding stock options
|
|
|
8,976
|
|
|
|
8,276
|
|
Outstanding restricted stock units and restricted stock
|
|
|
3,518
|
|
|
|
3,325
|
|
Reserved for future equity incentive grants
|
|
|
11,939
|
|
|
|
9,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,433
|
|
|
|
21,298
|
|
Purchase Plan
|
|
|
339
|
|
|
|
400
|
|
Warrants to purchase common stock
|
|
|
8,000
|
|
|
|
7,995
|
|
|
|
|
|
|
|
|
|
|
Total common stock reserved for future issuances
|
|
|
32,772
|
|
|
|
29,693
|
|
|
|
|
|
|
|
|
|
|
18
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2013 Employee Stock Purchase Plan
Under the 2013 Employee Stock Purchase Plan, effective September 13, 2013, (the Purchase Plan), eligible employees may apply
accumulated payroll deductions, which may not exceed 10% of an employees compensation, to the purchase of shares of the Companys common stock at periodic intervals. The purchase price of stock under the Purchase Plan is equal to 85% of
the lower of (i) the fair market value of the Companys common stock on the first day of each offering period, or (ii) the fair market value of the Companys common stock on the purchase date (as defined in the Purchase Plan).
Each offering period consists of one purchase period of approximately six months duration.
An aggregate of 400,000 shares of common stock were reserved
for issuance to employees under the Purchase Plan. As of June 29, 2014, 61,000 shares had been purchased.
Stock-Based Compensation Expense
Total employee stock-based compensation cost for the Companys stock plans for the three months ended June 29, 2014 and
June 30, 2013 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 29,
2014
|
|
|
June 30,
2013
|
|
|
|
(in thousands)
|
|
Cost of revenue
|
|
$
|
657
|
|
|
$
|
237
|
|
Research and development
|
|
|
3,518
|
|
|
|
1,072
|
|
Selling, general and administrative
|
|
|
3,460
|
|
|
|
1,509
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
7,635
|
|
|
$
|
2,818
|
|
|
|
|
|
|
|
|
|
|
7. Income Taxes
In the three months ended June 29, 2014 and June 30, 2013, the Company recorded an income tax provision of $0.3
million and $1.8 million respectively. The Companys estimated 2015 effective tax rate differs from the U.S. statutory rate primarily due to profits earned in jurisdictions where the tax rate is lower than the U.S. tax rate partially
offset by the unfavorable effects of non-deductible stock-based compensation expense.
The Company files U.S. federal income tax returns
as well as income tax returns in California, Massachusetts and various foreign jurisdictions. The Company has not provided for U.S. federal income and foreign withholding taxes on undistributed earnings from non-U.S. operations as of June 2014
because such earnings are to be reinvested indefinitely.
The Companys tax years from 2003 and onwards could be subject to
examinations by tax authorities in one or more tax jurisdictions. The Company has recorded $9.8 million of uncertain tax positions within Long-term liabilities on the condensed consolidated balance sheet as at June 2014. The Company does
not expect any significant increases or decreases to its unrecognized tax benefits within the next twelve months. While management believes that the Company has adequately provided for all tax positions, amounts asserted by tax authorities could be
greater or less than the recorded position. Accordingly, the Companys provisions on federal, state and foreign tax-related matters to be recorded in the future may change as revised estimates are made or the underlying matters are settled or
otherwise resolved. In addition, the Company has been recently notified by the IRS that it will be under audit for the following fiscal periods: fiscal year 2011, fiscal year 2012, and fiscal year 2013.
19
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. Acquisition
On October 14, 2013, the Company entered into a definitive Master Asset Purchase and Sale Agreement with Analog
Devices, Inc. (ADI). The transaction closed on October 31, 2013. The Company acquired certain assets relating to ADIs MEMS microphone business for a purchase price of $100 million in cash, of which the Company is entitled to
certain contingent future expense reimbursements of approximately $2.2 million. The Company also agreed to a contingent cash payment of up to $70.0 million payable upon the achievement of certain revenue performance targets within one year of the
transaction close date. Due to a low probability of achieving the revenue targets, the fair value of the contingent consideration is estimated to be zero in the purchase price allocation described below. ADI licensed certain technology related to
the MEMS microphone business to the Company on a royalty-free, worldwide basis, and provides certain transition services to the Company following the closing.
The acquisition has been accounted for using the acquisition method of accounting in accordance with Accounting Standards Codification
(ASC) 805 - Business Combinations. Under the acquisition method of accounting, the total purchase consideration of the acquisition is allocated to the tangible assets and identifiable intangible assets and liabilities assumed based on
their relative fair values. The excess of the purchase consideration over the net tangible and identifiable intangible assets is recorded as goodwill, and was derived from expected benefits from future technology development, synergies and the
knowledgeable and experienced workforce who joined the Company after the acquisition. The Company incurred $2.1 million of acquisition related costs in fiscal 2014.
The strategic rationale for the acquisition was to accelerate the Companys audio roadmap and complement its current MEMS System on Chip
product offerings at existing mobile, gaming and wearable device customers, while gaining entry into new markets. The acquisition expands the Companys patent portfolio and existing tier one customer base, which includes major OEM brands
worldwide.
The purchase price allocation is based on estimates, assumptions, third party valuations and other studies of the value of the
acquired assets.
The following table summarizes the purchase price of the assets acquired and the liabilities assumed as of June 29,
2014, the completion of the acquisition.
|
|
|
|
|
|
|
Total Amount
|
|
Assets Acquired
|
|
(in thousands)
|
|
Inventories
|
|
$
|
5,107
|
|
Property and equipment, net
|
|
|
4,339
|
|
Intangible assets:
|
|
|
|
|
Developed Technology
|
|
|
28,520
|
|
In-Process Research & Development
|
|
|
7,330
|
|
Customer Relationships
|
|
|
1,560
|
|
Goodwill
|
|
|
50,952
|
|
|
|
|
|
|
Total assets acquired
|
|
|
97,808
|
|
|
|
|
|
|
Total purchase price (net of $2.2 million of contingent expense reimbursements)
|
|
$
|
97,808
|
|
|
|
|
|
|
20
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The fair value of intangible assets of $37.4 million has been allocated to the following
three asset categories: 1) developed technology, 2) in-process research & development and 3) customer relationships. Developed technology and customer relationships are amortized on a straight line basis over the estimated useful life of
the assets.
The following table represents the estimated useful lives of developed technology and customer relationships:
|
|
|
|
|
|
|
|
|
|
|
Fair Value
Amount
|
|
|
Estimated
Useful Life
|
|
|
|
(in thousands)
|
|
|
(in years)
|
|
Developed Technology
|
|
$
|
28,520
|
|
|
|
6
|
|
Customer Relationships
|
|
$
|
1,560
|
|
|
|
7
|
|
The fair values of the identifiable intangible assets: developed technology, in-process research &
development and customer relationships were determined using the following methodologies:
Developed Technology:
The value assigned
to the acquired developed technology was determined using the multi-period excess earnings method. The fair value of developed technology was capitalized as of the acquisition date and will be amortized using a straight-line method to cost of
revenues over the estimated remaining life of six years.
In-Process Research & Development:
The value assigned to the
acquired in-process research and development was determined using the multi-period excess earnings method. The fair value of in-process research & development was capitalized as of the acquisition date. In-process research and development
capitalized at acquisition is not amortized, and is assessed for impairment on a fair value basis each fiscal quarter until the point at which the project is completed or terminates. If successfully completed, acquired in-process research and
development will be amortized over its expected useful life.
Customer Relationships
: An intangible customer relationship asset was
recognized to the extent that the Company was expected to benefit from future revenues reasonably anticipated given the history and operating practices of Microphone Product Line. The value assigned to customer relationships was determined using the
incremental cash flow method. The fair value of customer relationships was capitalized as of the acquisition date and will be amortized using a straight-line method to sales and marketing expenses over the estimated remaining life of seven years.
The amounts of revenue and earnings of the Microphone Product Line since the acquisition date included in the consolidated statements of
operations for the current reporting periods have not been presented because the impact was not material to the Companys consolidated results of operations.
9. Goodwill and Intangible Assets
There were no changes in the carrying amount of goodwill since October 31, 2013, the closing date of the MEMS
microphone business acquisition except for a decrease of $0.1 million due to an adjustment in the fourth quarter of fiscal year 2014 to preliminary purchase price allocation of the acquired business. The adjustment was made to account for a $0.1
million increase to fixed assets, based on the fair market value of an asset. This adjustment resulted in a $0.1 million decrease in the fair value assigned to goodwill. Intangible assets subject to amortization consist primarily of developed
technology and customer relationships and are reported net of accumulated amortization. Developed technology and customer relationships are amortized on a straight line basis over the estimated useful life of the assets. In-process research and
development is assessed for impairment until the development is completed and products are available for sale. The Company expects to complete the in-process research and development projects at various dates during fiscal year 2015 at which time
amortization will commence.
21
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Amortization for acquired intangible assets for the three months ended June 29, 2014 was
approximately $1.2 million. The following table represents intangible assets and accumulated amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 2014
|
|
|
|
(in thousands)
|
|
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Developed Technology
|
|
$
|
28,520
|
|
|
$
|
3,168
|
|
|
$
|
25,352
|
|
Customer Relationships
|
|
|
1,560
|
|
|
|
149
|
|
|
|
1,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets subject to amortization
|
|
$
|
30,080
|
|
|
$
|
3,317
|
|
|
$
|
26,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated future amortization expense related to intangible assets at June 29, 2014, is as follows:
|
|
|
|
|
Fiscal Year
|
|
Estimated
Amortization
(in thousands)
|
|
2015 (remaining 9 months)
|
|
$
|
3,732
|
|
2016
|
|
|
4,976
|
|
2017
|
|
|
4,976
|
|
2018
|
|
|
4,976
|
|
2019
|
|
|
4,976
|
|
Thereafter
|
|
|
3,127
|
|
|
|
|
|
|
Total
|
|
$
|
26,763
|
|
|
|
|
|
|
10. Subsequent Events
On July 7, 2014, the Company entered into a Share Purchase Agreement with Trusted Positioning, Inc., a Canadian
corporation (TPI) and the shareholders of TPI pursuant to which the Company has agreed to acquire all the outstanding share capital of TPI in exchange for (A) shares of the Companys common stock with an aggregate value of $6
million, (B) $13 million in cash at closing, (C) $12 million in cash, which will be contingent upon the achievement of certain milestones, and (D) cash for any resulting fractional shares. The Company also agreed to grant restricted
stock awards and/or options to purchase shares of Company Stock (each a TPI Equity Award) to certain TPI employees with an aggregate value of $5 million at closing.
The maximum amount payable for TPI will be approximately $36 million, including the maximum contingent cash payments and all of the
shares of Company common stock issued at closing subject to the TPI Equity Awards and further subject to post-closing purchase price adjustments.
Further, On July 7, 2014, InvenSense International, Inc., a company formed under the laws of the Cayman Islands, and a wholly-owned
subsidiary of the Company (the Subsidiary), entered into a Share Purchase Agreement with certain members of management of Movea SA, a company formed under the laws of France (Movea), and shareholders representing at least 95%
of the outstanding capital stock of Movea, pursuant to which the Subsidiary has agreed to acquire at least 95% of the outstanding shares of Movea, with the remaining 5% purchased pursuant to a separate purchase agreement, in exchange for an
aggregate of up to (A) $61.5 million in cash at closing and (B) $13 million in cash, which will be contingent upon the achievement of certain milestones, and further subject to post-closing purchase price adjustments.
In addition, the Company has agreed to grant restricted stock units for shares of the Company common stock (each a Movea Equity
Award) to certain Movea employees, having an aggregate value of $3 million and bonuses of up to $600,000.
22
INVENSENSE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The maximum amount payable for Movea will be up to approximately $78 million, including the
maximum contingent cash payments, payments for the purchase of all outstanding stock, the Movea Equity Awards and the bonus amount. This transaction closed on July 22, 2014.
23