CIRRUS LOGIC, INC. - Annual Report: 2010 (Form 10-K)
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
FORM 10-K
þ ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended March 27,
2010
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from
to
Commission File Number 0-17795
CIRRUS LOGIC, INC.
DELAWARE | 2901 Via Fortuna, Austin, TX 78746 | 77-0024818 | ||
(State of incorporation) | (512) 851-4000 | (I.R.S. ID) |
Securities registered pursuant to Section 12(b) of the
Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, $0.001 Par Value
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. YES o NO þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. YES o NO þ
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. YES þ NO o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405) during the preceding 12 months (or
for such shorter period that the registrant was required to
submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405) is not contained herein, and will not be
contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check One):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o |
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). YES o NO þ
The aggregate market value of the registrants voting and
non-voting common equity held by non-affiliates was
approximately $307 million based upon the closing price
reported on the NASDAQ Global Select Market as of
September 25, 2009. Stock held by directors, officers and
stockholders owning 5 percent or more of the outstanding
common stock were excluded as they may be deemed affiliates.
This determination of affiliate status is not a conclusive
determination for any other purpose.
As of May 26, 2010, the number of outstanding shares of the
registrants Common Stock, $0.001 par value, was
67,167,486.
DOCUMENTS
INCORPORATED BY REFERENCE
Certain information contained in the registrants proxy
statement for its annual meeting of stockholders to be held
July 23, 2010 is incorporated by reference in Part III
of this Annual Report on
Form 10-K.
Page 1 of 72
CIRRUS
LOGIC, INC.
FORM 10-K
For The
Fiscal Year Ended March 27, 2010
INDEX
3 | ||||||||
8 | ||||||||
18 | ||||||||
18 | ||||||||
19 | ||||||||
20 | ||||||||
PART II | ||||||||
Market for Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
|
20 | |||||||
22 | ||||||||
22 | ||||||||
34 | ||||||||
36 | ||||||||
68 | ||||||||
68 | ||||||||
PART III | ||||||||
68 | ||||||||
68 | ||||||||
69 | ||||||||
69 | ||||||||
69 | ||||||||
PART IV | ||||||||
69 | ||||||||
71 | ||||||||
Financial Certifications
|
||||||||
EX-10.16 | ||||||||
EX-10.17 | ||||||||
EX-23.1 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-32.2 |
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Table of Contents
PART I
ITEM 1. | Business |
Cirrus Logic, Inc. (Cirrus Logic,
Cirrus, We, Us,
Our, or the Company) develops
high-precision, analog and mixed-signal integrated circuits
(ICs) for a broad range of audio and energy markets.
Building on our diverse analog mixed-signal patent portfolio,
Cirrus Logic delivers highly optimized products for consumer and
commercial audio, automotive entertainment, and targeted
industrial and energy-related applications. We develop ICs,
board-level modules and hybrids for high-power amplifier
applications branded as the Apex Precision
Powertm
(Apex) line of products, and provide complete system
reference designs based on our technology that enable our
customers to bring products to market in a timely and
cost-effective manner.
We were incorporated in California in 1984, became a public
company in 1989 and were reincorporated in the State of Delaware
in February 1999. Our primary facility housing engineering,
sales and marketing, and administrative functions is located in
Austin, Texas. In addition, we have an administrative and
assembly facility in Tucson, Arizona, as well as sales locations
throughout the United States. We also serve customers from
international sales offices in Europe and Asia, including the
Peoples Republic of China, Hong Kong, South Korea, Japan,
Singapore, Taiwan and the United Kingdom. Our common stock,
which has been publicly traded since 1989, is listed on the
NASDAQ Global Select Market under the symbol CRUS.
We maintain a Web site with the address www.cirrus.com.
We are not including the information contained on our Web site
as a part of, or incorporating it by reference into, this Annual
Report on
Form 10-K.
We make available free of charge through our Web site our Annual
Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q
and Current Reports on
Form 8-K,
and amendments to these reports, as soon as reasonably
practicable after we electronically file such material with, or
furnish such material to, the Securities and Exchange Commission
(the SEC). To receive a free copy of this
Form 10-K,
please forward your written request to Cirrus Logic, Inc., Attn:
Investor Relations, 2901 Via Fortuna, Austin, Texas 78746, or
via email at InvestorRelations@cirrus.com. In addition,
the SEC maintains a website at
http://www.sec.gov
that contains reports, proxy and information statements filed
electronically with the SEC by Cirrus Logic.
Background
of the Semiconductor Industry
In general, the semiconductor industry produces three types of
products: analog, digital and mixed-signal. Analog
semiconductors process a continuous range of signals that can
represent functions such as temperature, speed, pressure and
sound. Digital semiconductors process information represented by
discrete values, for example, 0s and 1s. Mixed-signal
semiconductors combine analog and digital circuits in a single
product. The design of the analog component of a mixed-signal IC
is particularly complex and difficult, and requires experienced
engineers to optimize speed, power and resolution within
standard manufacturing processes.
The convergence and sophistication of our customers
products, such as portable audio applications, home
entertainment and automotive audio devices is made possible in
part by advances in semiconductor technology. Semiconductor
companies are attempting to differentiate their products based
on offering new features and functionality to consumers, while
at the same time shrinking product sizes, reducing power
consumption, and lowering overall system costs.
Due to the extremely high costs involved in developing and
operating a wafer fabrication facility, many semiconductor
companies, including Cirrus, rely on third party foundries to
manufacture their ICs. We believe that our fabless
manufacturing model significantly reduces our capital
requirements and allows us to focus our resources on design,
development, and marketing of our ICs.
Segments
We determine our operating segments in accordance with Financial
Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) Topic 280,
Segment Reporting. Our Chief Executive
Officer (CEO) has been identified as the chief
operating decision maker as defined by FASB ASC Topic 280.
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Our CEO receives and uses enterprise-wide financial information
to assess financial performance and allocate resources, rather
than detailed information at a product line level. Additionally,
our product lines have similar characteristics and customers.
They share operations support functions such as sales, public
relations, supply chain management, various research and
development and engineering support, in addition to the general
and administrative functions of human resources, legal, finance
and information technology. Therefore, there is no complete,
discrete financial information maintained for these product
lines. Commencing with fiscal year 2009, we report revenue in
two product categories: audio products and energy products. The
energy product category had previously been referred to as
industrial, but has been revised to reflect our
focus on integrated circuits designed for a variety of energy
exploration, measurement and control applications. See
Note 15, Segment Information, of the
Notes to Consolidated Financial Statements contained in
Item 8 for further details including revenues by product
line, revenues by geographic locations, and for property, plant
and equipment, net, by geographic locations.
Markets
and Products
The following provides a detailed discussion regarding our audio
and energy product lines:
Audio Products: High-precision analog
and mixed-signal components, as well as audio digital signal
processor (DSP) products for consumer, professional
and automotive entertainment markets.
Energy Products: High-precision analog
and mixed-signal components for energy-related applications,
such as energy measurement, energy exploration and energy
control systems. Energy products also include ICs, board-level
modules and hybrids for high-power pulse width modulation
(PWM) and power amplifier applications.
AUDIO
PRODUCTS
We are a recognized leader in analog and mixed-signal audio
converter and audio DSP products that enable todays new
consumer, professional and automotive entertainment
applications. Our products include
analog-to-digital
converters (ADCs),
digital-to-analog
converters (DACs), chips that integrate ADCs and
DACs into a single IC (codecs), digital interface
ICs, volume controls and digital amplifiers, as well as audio
DSPs for consumer electronics applications such as audio/video
receivers (AVRs) and digital TVs, and
CobraNet®
ICs and modules for networked audio applications. Our broad
portfolio of approximately 250 active proprietary products
includes the following publicly available product, which has
been added in the past fiscal year:
§ | The CS3511 is a stereo 10-watt analog-input Class-D audio amplifier IC ideal for consumer audio applications such as active media speakers, docking stations, hybrid radios, flat-panel displays and mini-shelf home stereo systems. The CS3511 uses an advanced Delta Sigma modulator with a patented architecture and unique technologies to achieve ultra-low distortion and significantly reduced electromagnetic interference (EMI) compared to other stereo 10-watt Class-D amplifier ICs. |
Our products are used in a wide array of consumer applications,
including AVRs, DVD and Blu-ray Disc players, complete home
theater systems, set-top boxes, portable media players, smart
phones, gaming devices, sound cards and digital televisions.
Applications for products within professional markets include
digital mixing consoles, multitrack digital recorders and
effects processors. Applications for products within automotive
markets include amplifiers, satellite radio systems, telematics
and multi-speaker car-audio systems. In networked digital audio
applications, our proprietary CobraNet controller ICs and
modules enable delivery of uncompressed digital audio over
Ethernet networks, co-existing with standard Ethernet network
data traffic.
ENERGY
PRODUCTS
We provide high-precision analog and mixed-signal ICs for
targeted energy control, energy measurement and energy
exploration applications, as well as ICs, board-level modules,
and hybrids from the Apex Precision Power brand of products for
high-power PWM and power amplifier applications. We have more
than 450 active proprietary products which include ADCs,
DACs, linear amplifiers, PWM amplifiers and successive
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approximation register (SAR) converters, and
amplifier ICs. Our products are used in a wide array of
high-precision, energy measurement applications including motor
control, consumer utility, power measurement, energy
exploration, and high-power systems. New additions to our
proprietary product portfolio in the past fiscal year include:
§ | The SA303-IHZ and SA53-IHZ, within the companys Apex Precision Power product line, are high-current pulse width modulated (PWM) ICs for driving three-phase brush and brushless DC motors. As follow-on products to the 2008 launch of its award-winning SA3XX and SA5X series of single-packaged solutions, these new ICs offer a lower per unit cost of up to 40 percent for industrial motor applications such as fans, pumps and robotics operating on supplies up to 60 V and requiring output current in the 3 A range (10 A PEAK). | |
§ | The CS5374 is a fourth-generation IC that targets energy exploration applications that provides excellent noise and distortion performance of 127 dB signal-to-noise rate and 118 dB THD (total harmonic distortion) delivering the high-precision performance needed for marine streamers used to detect potential sources of energy deep within the ocean floor. | |
§ | The PA107DP and MP103FC high-voltage, high-speed power amplifiers, part of the companys Apex Precision Power product line, deliver new levels of performance for the piezoelectric driver market. Both devices are operational with voltage supplies of up to 200 V. The PA107DP is an attractive option for driving piezos used in medical imaging and ultrasound applications, as well as programmable power supplies for the ATE market. |
In fiscal year 2011, the company plans to introduce its first
power factor correction (PFC) controller chips,
which are used in such applications as power supplies and
lighting ballasts. The PFC controllers are designed to bring new
features and performance enabled through its digital
EXL
Coretm
technology to a market that has been traditionally
dominated by analog products. The EXL Core technology will be a
key component of the companys long-term product roadmap in
energy products to help customers develop smarter, greener
energy products.
Customers,
Marketing, and Sales
We offer approximately 700 products to more than 3,000
end-customers worldwide through both direct and indirect sales
channels. Our major customers are among the worlds leading
electronics manufacturers. We target both large existing and
emerging growth consumer electronic and energy markets that
derive value from our expertise in advanced analog and
mixed-signal design processing, systems-level integrated circuit
engineering and embedded software development. We derive our
sales both domestically and from a variety of locations across
the world, including the Peoples Republic of China, the
European Union, Hong Kong, Japan, South Korea, Taiwan, and the
United Kingdom. Our domestic sales force includes a network of
regional direct sales offices located in California,
Massachusetts, Ohio, Nevada, Illinois, North Carolina, and
Texas. International sales offices and staff are located in
France, Germany, Hong Kong, Shanghai and Shenzhen in the
Peoples Republic of China, Singapore, South Korea, Taiwan,
Japan and the United Kingdom. We supplement our direct sales
force with external sales representatives and distributors. Our
technical support staff is located in Texas and Arizona. Our
worldwide sales force provides geographically specific support
to our customers and specialized selling of product lines with
unique customer bases. See Note 15, Segment
Information, of the Notes to Consolidated Financial
Statements contained in Item 8 for further detail and for
additional disclosure regarding revenues by geographic
locations, and for property, plant and equipment, net, by
geographic locations.
Since the components we produce are largely proprietary and
generally not available from second sources, we consider our end
customer to be the entity specifying the use of our component in
their design. These end customers may then purchase our products
directly from us, from an external sales representative or
distributor, or through a third party manufacturer contracted to
produce their product. For fiscal years 2010 and 2009, our ten
largest customers represented approximately 54 percent and
36 percent of our sales. We had one end customer, Apple
Inc., that purchased through multiple contract manufacturers and
represented approximately 36 percent and 16 percent of
the Companys total sales for fiscal years 2010 and 2009,
respectively. Further,
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we had one distributor, Avnet Inc., that represented
26 percent, 33 percent, and 27 percent of our
sales for fiscal years 2010, 2009, and 2008 respectively. No
other customer or distributor represented more than
10 percent of net sales in fiscal years 2010, 2009, or 2008.
Manufacturing
As a fabless semiconductor company, we contract with third
parties for wafer fabrication and nearly all of our assembly and
test operations. The company owns a 54,000 square foot
facility in Tucson, Arizona, which serves as the assembly and
test facility for its Apex product line. With the exception of
these Apex products, our outsourced manufacturing strategy
allows us to concentrate on our design strengths, minimize fixed
costs and capital expenditures while giving us access to
advanced manufacturing facilities, and provide the flexibility
to source multiple leading-edge technologies through strategic
relationships. After wafer fabrication by the foundry,
third-party assembly vendors package the wafer die. The finished
products are then tested before shipment to our customers. We
use multiple wafer foundries, assembly sources and test houses
in the production of our inventory. While we do have some
redundancy of fabrication processes by using multiple outside
foundries, any interruption of supply by one or more of these
foundries could materially impact us. As a result, we maintain
some amount of business interruption insurance to help reduce
the risk of wafer supply interruption, but we are not fully
insured against such risk. Our supply chain management
organization is responsible for the management of all aspects of
the manufacturing, assembly, and testing of our products,
including process and package development, test program
development, and production testing of products in accordance
with our ISO-certified quality management system.
Although our products are made from basic materials (principally
silicon, metals and plastics), all of which are available from a
number of suppliers, capacity at wafer foundries sometimes
becomes constrained. The limited availability of certain
materials may impact our suppliers ability to meet our
demand needs or impact the price we are charged. The prices of
certain other basic materials, such as metals, gases and
chemicals used in the production of circuits can increase as
demand grows for these basic commodities. In most cases, we do
not procure these materials ourselves; nevertheless, we are
reliant on such materials for producing our products because our
outside foundry and package and test subcontractors must procure
them. To help mitigate risks associated with constrained
capacity, we use multiple foundries.
Patents,
Licenses and Trademarks
We rely on trade secret, patent, copyright and trademark laws to
protect our intellectual property, products, and technology. We
intend to continue this practice in the future. As of
March 27, 2010, we held 1,090 U.S. patents, 112
U.S. pending patent applications and various corresponding
international patents and applications. Our U.S. patents
expire in calendar years 2010 through 2028.
We have maintained U.S. federal trademark registrations for
CIRRUS LOGIC with accompanied design, CIRRUS, CRYSTAL and APEX
MICROTECHNOLOGY, as well as for our Cirrus Logic logo design.
These U.S. registrations may be renewed as long as the
marks continue to be used in interstate commerce. We have also
filed or obtained foreign registration for these marks in other
countries or jurisdictions where we conduct, or anticipate
conducting, international business.
To complement our own research and development efforts, we have
also licensed and expect to continue to license, a variety of
intellectual property and technologies important to our business
from third parties.
Research
and Development
We concentrate our research and development efforts on the
design and development of new products for each of our principal
markets. We also fund certain advanced-process technology
development, as well as other emerging product opportunities.
Expenditures for research and development in fiscal years 2010,
2009 and 2008 were $51.4 million, $44.3 million and
$48.5 million, respectively. These amounts include
amortization of acquired intangibles of $1.6 million,
$1.5 million, and $1.4 million, in fiscal years 2010,
2009, and 2008, respectively. Our future success is highly
dependent upon our ability to develop complex new products, to
transfer new products to volume production, to introduce them
into the marketplace in a timely fashion, and
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to have them selected for design into products of systems
manufacturers. Our future success may also depend on assisting
our customers with integration of our components into their new
products, including providing support from the concept stage
through design, launch and production ramp.
Competition
Markets for our products are highly competitive and we expect
that competition will continue to increase. Our ability to
compete effectively and to expand our business will depend on
our ability to continue to recruit key engineering talent, to
execute on new product developments, to persuade customers to
design-in these new products into their applications, and to
provide lower-cost versions of existing products. We compete
with other semiconductor suppliers that offer standard
semiconductors, application-specific standard product and fully
customized ICs, including embedded software, chip and
board-level products.
While no single company competes with us in all of our product
lines, we face significant competition in all markets where our
products are available. We expect to face additional competition
from new entrants in our markets, which may include both large
domestic and international IC manufacturers and smaller,
emerging companies.
The principal competitive factors in our markets include: time
to market; quality of hardware/software design and end-market
systems expertise; price; product benefits that are
characterized by performance, features, quality and
compatibility with standards; access to advanced process and
packaging technologies at competitive prices; and sales and
technical support, which includes assisting our customers with
integration of our components into their new products and
providing support from the concept stage through design, launch
and production ramp.
Product life cycles may vary greatly by product category. For
example, many consumer electronic devices have shorter design-in
cycles; therefore, our competitors have increasingly frequent
opportunities to achieve design wins in next-generation systems.
Conversely, this also provides us frequent opportunities to
displace competitors in products that have previously not
utilized our design. The industrial and automotive markets
typically have longer life cycles, which provide continued
revenue streams over long periods of time.
Backlog
Sales are made primarily pursuant to standard short-term
purchase orders for delivery of standard products. The quantity
actually ordered by the customer, as well as the shipment
schedules, are frequently revised, without significant penalty,
to reflect changes in the customers needs. The majority of
our backlog is typically requested for delivery within six
months. In markets where the end system life cycles are
relatively short, customers typically request delivery in six to
ten weeks. A backlog analysis at any given time gives little
indication of our future business except on a short-term basis,
principally within the next 60 days.
We utilize backlog as an indicator to assist us in production
planning. However, backlog is influenced by several factors
including market demand, pricing, and customer order patterns in
reaction to product lead times. Quantities actually purchased by
customers, as well as prices, are subject to variations between
booking and delivery because of changes in customer needs or
industry conditions. As a result, we believe that our backlog at
any given time is an incomplete indicator of future sales.
Employees
As of March 27, 2010, we had 505 full-time employees,
of whom 49 percent were engaged in research and product
development activities, 35 percent in sales, marketing,
general and administrative activities, and 16 percent in
manufacturing-related activities. Our future success depends, in
part, on our ability to continue to attract, retain and motivate
highly qualified technical, marketing, engineering, and
administrative personnel.
We have never had a work stoppage and none of our employees are
represented by collective bargaining agreements. We consider our
employee relations to be good.
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Forward
Looking Statements
This Annual Report on
Form 10-K
and certain information incorporated herein by reference contain
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, Section 27A of
the Securities the Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended. All
statements included or incorporated by reference in this Annual
Report on
Form 10-K,
other than statements that are purely historical, are
forward-looking statements. In some cases, forward-looking
statements are identified by words such as expect,
anticipate, target, project,
believe, goals, estimates,
and intend. Variations of these types of words and
similar expressions are intended to identify these
forward-looking statements. Any statements that refer to our
plans, expectations, strategies or other characterizations of
future events or circumstances are forward-looking statements.
Readers are cautioned that these forward-looking statements are
predictions and are subject to risks, uncertainties, and
assumptions that are difficult to predict. Therefore, actual
results may differ materially and adversely from those expressed
in any forward-looking statements. Among the important factors
that could cause actual results to differ materially from those
indicated by our forward-looking statements are those discussed
in Item 1A Risk Factors and elsewhere in
this report, as well as in the documents filed by us with the
SEC, specifically the most recent reports on
Form 10-Q
and 8-K,
each as it may be amended from time to time.
We caution you not to place undue reliance on these
forward-looking statements, which speak only as of the date of
this report, and we undertake no obligation to update this
information to reflect events or circumstances after the filing
of this report with the SEC, except as required by law. All
forward-looking statements, expressed or implied, included in
this
Form 10-K
and attributable to Cirrus are expressly qualified in their
entirety by this cautionary statement. This cautionary statement
should also be considered in connection with any subsequent
written or oral forward-looking statements that we may make or
persons acting on our behalf may issue. We undertake no
obligation to revise or update publicly any forward-looking
statement for any reason.
Item 1A. | Risk Factors |
Our business faces significant risks. The risk factors set forth
below may not be the only risks that we face. Additional risks
that we are not aware of yet or that currently are not
significant may adversely affect our business operations. You
should read the following cautionary statements in conjunction
with the factors discussed elsewhere in this and other Cirrus
Logics filings with the SEC. These cautionary statements
are intended to highlight certain factors that may affect the
financial condition and results of operations of Cirrus Logic
and are not meant to be an exhaustive discussion of risks that
apply to companies such as ours.
We
depend on a limited number of customers for a substantial
portion of our sales, and the loss of, or a significant
reduction in orders from, any key customer could significantly
reduce our sales.
While we generate sales from a broad base of customers
worldwide, the loss of any of our key customers, or a
significant reduction in sales to any one of them, would
significantly reduce our sales and adversely affect our
business. For the twelve month period ending March 27,
2010, our ten largest customers represented approximately
54 percent of our revenues. For the twelve month period
ending March 27, 2010, we had one end customer, Apple Inc.,
that purchased through multiple contract manufacturers and
represented approximately 36 percent of the Companys
total sales. For the twelve month period ending March 27,
2010, we had one distributor, Avnet Inc., that represented
26 percent of our sales.
We may not be able to maintain or increase sales to certain of
our key customers for a variety of reasons, including the
following:
§ | most of our customers can stop incorporating our products into their own products with limited notice to us and suffer little or no penalty; | |
§ | our agreements with our customers typically do not require them to purchase a minimum quantity of our products; |
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§ | many of our customers have pre-existing or concurrent relationships with our current or potential competitors that may affect the customers decisions to purchase our products; | |
§ | our customers face intense competition from other manufacturers that do not use our products; and | |
§ | our customers regularly evaluate alternative sources of supply in order to diversify their supplier base, which increases their negotiating leverage with us and their ability to obtain components from alternative sources. |
These relationships often require us to develop new products
that may involve significant technological challenges. Our
customers frequently place considerable pressure on us to meet
their tight development schedules. Accordingly, we may have to
devote a substantial amount of resources to strategic
relationships, which could detract from or delay our completion
of other important development projects or the development of
next generation products and technologies. Delays in development
could impair our relationships with strategic customers and
negatively impact sales of the products under development.
We
have historically experienced fluctuations in our operating
results and expect these fluctuations to continue in future
periods, which may result in volatility in our stock
price.
Our quarterly and annual operating results are affected by a
wide variety of factors that could materially and adversely
affect our net sales, gross margin, and operating results. If
our operating results fall below expectations of market analysts
or investors, the market price of our common stock could
decrease significantly. We are subject to business cycles and it
is difficult to predict the timing, length, or volatility of
these cycles. These business cycles may create pressure on our
sales, gross margin,
and/or
operating results.
Factors that could cause fluctuations and materially and
adversely affect our net sales, gross margin and operating
results include, but are not limited to:
§ | the volume and timing of orders received; | |
§ | changes in the mix of our products sold; | |
§ | market acceptance of our products and the products of our customers; | |
§ | excess or obsolete inventory; | |
§ | competitive pricing pressures; | |
§ | our ability to introduce new products on a timely basis; | |
§ | the timing and extent of our research and development expenses; | |
§ | the failure to anticipate changing customer product requirements; | |
§ | disruption in the supply of wafers, assembly, or test services; | |
§ | reduction of manufacturing yields; | |
§ | certain production and other risks associated with using independent manufacturers, assembly houses, and testers; and | |
§ | product obsolescence, price erosion, competitive developments, and other competitive factors. |
We may
be adversely impacted by current global economic conditions. As
a result, our financial results and the market price of our
common shares may decline.
Current global economic conditions could make it difficult for
our customers, our suppliers, and us to accurately forecast and
plan future business activities, and could cause global
businesses to defer or reduce spending on our products. During
challenging economic times our customers and distributors may
face issues gaining timely access to sufficient credit, which
could impact their ability to make timely payments to us. If
that were to occur, we may be required to increase our allowance
for doubtful accounts and our days sales outstanding would
increase.
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We cannot predict the timing, strength, or duration of any
economic slowdown or subsequent economic recovery. If the
economy or markets in which we operate were to deteriorate, our
business, financial condition, and results of operations will
likely be materially
and/or
adversely affected.
Our
results may be affected by the fluctuation in sales in the
consumer entertainment market.
Because we sell products in the consumer entertainment market,
we are likely to be affected by seasonality in the sales of our
products. Further, a decline in consumer confidence and consumer
spending relating to economic conditions, terrorist attacks,
armed conflicts, oil prices, global health conditions,
and/or the
political stability of countries that we operate in or sell into
could have a material adverse effect on our business.
Because
we do not have long-term agreements with our customers and our
standard terms and conditions of sale provide that a buyer may
cancel or reschedule orders on short notice without incurring
significant penalties, our sales and operating results in any
quarter are difficult to forecast and are significantly
dependent upon customer orders received and fulfilled in that
quarter.
In general, we do not have long-term purchase agreements with
customers. Our customers generally place purchase orders for
deliveries no more than three months in advance. These purchase
orders generally have limited cancellation or rescheduling
penalty provisions. Therefore, cancellations, reductions, or
delays of orders from any significant customer could have a
material adverse effect on our business, financial condition,
and results of operations.
A significant portion of our sales and earnings in any quarter
depends upon customer orders for our products that we receive
and fulfill in that quarter. Because our expense levels are
based in part on our expectations as to future revenue and to a
large extent are fixed in the short term, we likely will be
unable to adjust spending on a timely basis to compensate for
any unexpected shortfall in sales. Accordingly, any significant
shortfall of sales in relation to our expectations could hurt
our operating results.
Our
dependence on third-party manufacturing and supply relationships
increases the risk that we will not have an adequate supply of
products to meet demand or that our cost of materials will be
higher than expected.
We depend upon third parties to manufacture, assemble, package
or test certain of our products. As a result, we are subject to
risks associated with these third parties, including:
§ | reduced control over delivery schedules and quality; | |
§ | inadequate manufacturing yields and excessive costs; | |
§ | difficulties selecting and integrating new subcontractors; | |
§ | limited warranties on products supplied to us; | |
§ | potential increases in prices; and | |
§ | potential misappropriation of our intellectual property. |
Our outside foundries generally manufacture our products on a
purchase order basis, and we have few long-term supply
arrangements with these suppliers. We have less control over
delivery schedules, manufacturing yields and costs than
competitors with their own fabrication facilities. A
manufacturing disruption experienced by one or more of our
outside foundries or a disruption of our relationship with an
outside foundry, including discontinuance of our products by
that foundry, would negatively impact the production of certain
of our products for a substantial period of time.
Difficulties associated with adapting our technology and product
design to the proprietary process technology and design rules of
outside foundries can lead to reduced yields of our products.
The process technology of an outside foundry is typically
proprietary to the manufacturer. Since low yields may result
from either design or process technology failures, yield
problems may not be effectively determined or resolved
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until an actual product exists that can be analyzed and tested
to identify process sensitivities relating to the design rules
that are used. As a result, yield problems may not be identified
until well into the production process, and resolution of yield
problems may require cooperation between us and our
manufacturer. This risk could be compounded by the offshore
location of certain of our manufacturers, increasing the effort
and time required to identify, communicate and resolve
manufacturing yield problems. Manufacturing defects that we do
not discover during the manufacturing or testing process may
lead to costly product recalls. These risks may lead to
increased costs or delayed product delivery, which would harm
our profitability and customer relationships.
If the foundries or subcontractors we use to manufacture our
products discontinue the manufacturing processes needed to meet
our demands, or fail to upgrade their technologies needed to
manufacture our products, we may be unable to deliver products
to our customers, which could materially adversely affect our
operating results. The transition to the next generation of
manufacturing technologies at one or more of our outside
foundries could be unsuccessful or delayed.
Our requirements typically represent a very small portion of the
total production of the third-party foundries. As a result, we
are subject to the risk that a producer will cease production of
an older or lower-volume process that it uses to produce our
parts. We cannot assure you that our external foundries will
continue to devote resources to the production of parts for our
products or continue to advance the process design technologies
on which the manufacturing of our products are based. Each of
these events could increase our costs, lower our gross margin,
cause us to hold more inventories or materially impact our
ability to deliver our products on time. As our volumes decrease
with any third-party foundry, the likelihood of unfavorable
pricing increases.
Shifts
in industry-wide capacity and our practice of purchasing our
products based on sales forecasts may result in significant
fluctuations in our quarterly and annual operating
results.
We rely on independent foundries and assembly and test houses to
manufacture, or provide components for, our products. Our
reliance on these third party suppliers involves certain risks
and uncertainties. For example, shifts in industry-wide capacity
from shortages to oversupply, or from oversupply to shortages,
may result in significant fluctuations in our quarterly and
annual operating results. We may order wafers and build
inventory in advance of receiving purchase orders. Because our
industry is highly cyclical and is subject to significant
downturns resulting from excess capacity, overproduction,
reduced demand, order cancellations, or technological
obsolescence, there is a risk that we will forecast inaccurately
and produce excess inventories of particular products. In
addition, if we experience supply constraints or manufacturing
problems at a particular supplier, we could be required to
switch suppliers or qualify additional suppliers. Switching
and/or
qualifying additional suppliers could be an expensive process
and take as long as six to twelve months to complete, which
could result in material adverse fluctuations to our operating
results.
In addition, we generally order our products through
non-cancelable purchase orders from third-party foundries based
on our sales forecasts, and our customers can generally cancel
or reschedule orders they place with us without significant
penalties. If we do not receive orders as anticipated by our
forecasts, or our customers cancel orders that are placed, we
may experience increased inventory levels.
Due to the product manufacturing cycle characteristic of IC
manufacturing and the inherent imprecision in the accuracy of
our customers forecasts, product inventories may not
always correspond to product demand, leading to shortages or
surpluses of certain products. As a result of such inventory
imbalances, future inventory write-downs and charges to gross
margin may occur due to lower of cost or market accounting,
excess inventory, and inventory obsolescence.
Our
products may be subject to average selling prices that decline
over short time periods. If we are unable to increase our
volumes, introduce new or enhanced products with higher selling
prices, or reduce our costs, our business and operating results
could be harmed.
Historically in the semiconductor industry, average selling
prices of products have decreased over time. If the average
selling price of any of our products decline and we are unable
to increase our unit volumes,
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introduce new or enhanced products with higher margins,
and/or
reduce manufacturing costs to offset anticipated decreases in
the prices of our existing products, our operating results may
be adversely affected. In addition, because of procurement lead
times, we are limited in our ability to reduce total costs
quickly in response to any sales shortfalls. Because of these
factors, we may experience material adverse fluctuations in our
future operating results on a quarterly or annual basis.
Our
failure to develop and timely introduce new products that gain
market acceptance could harm our operating
results.
Our success depends upon our ability to develop new products for
new and existing markets, to introduce these products in a
timely and cost-effective manner, and to have these products
gain market acceptance. New product introductions involve
significant risks. For example, delays in new product
introductions or
less-than-anticipated
market acceptance of our new products are possible and would
have an adverse effect on our sales and earnings. The
development of new products is highly complex and, from
time-to-time,
we have experienced delays in developing and introducing these
new products. Successful product development and introduction
depend on a number of factors including, but not limited to:
§ | proper new product definition; | |
§ | timely completion of design and testing of new products; | |
§ | assisting our customers with integration of our components into their new products, including providing support from the concept stage through design, launch and production ramp; | |
§ | successfully developing and implementing the software necessary to integrate our products into our customers products; | |
§ | achievement of acceptable manufacturing yields; | |
§ | availability of wafer fabrication, assembly, and test capacity; | |
§ | market acceptance of our products and the products of our customers; and | |
§ | obtaining and retaining industry certification requirements. |
Both revenues and margins may be materially affected if new
product introductions are delayed, or if our products are not
designed into successive generations of new or existing
customers products. We may not be able to meet these
challenges, or adjust to changing market conditions as quickly
and cost-effectively as necessary to compete successfully. Our
failure to develop and introduce new products successfully could
harm our business and operating results.
Successful product design and development is dependent on our
ability to attract, retain and motivate qualified design
engineers, of which there is a limited number. Due to the
complexity and variety of analog and high-precision analog and
mixed-signal circuits, the limited number of qualified
integrated circuit designers and the limited effectiveness of
computer-aided design systems in the design of analog and
mixed-signal ICs, we cannot provide assurances that we will be
able to successfully develop and introduce new products on a
timely basis.
Our
products are complex and could contain defects, which could
result in material costs to us.
Product development in the markets we serve is becoming more
focused on the integration of multiple functions on individual
devices. There is a general trend towards increasingly complex
products. The greater integration of functions and complexity of
operations of our products increases the risk that our customers
or end users could discover latent defects or subtle faults
after volumes of product have been shipped. This could result
in, but are not limited to:
§ | damage to our reputation; | |
§ | a material recall and replacement costs for product warranty and support; |
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§ | payments to our customer related to the recall claims as a result of various industry or business practices, or in order to maintain good customer relationships; | |
§ | an adverse impact to our customer relationships by the occurrence of significant defects; | |
§ | a delay in recognition or loss of revenues, loss of market share, or failure to achieve market acceptance; and | |
§ | a diversion of the attention of our engineering personnel from our product development efforts. |
In addition, any defects or other problems with our products
could result in financial or other damages to our customers who
could seek damages from us for their losses. A product liability
claim brought against us, even if unsuccessful, would likely be
time consuming and costly to defend. In particular, the sale of
systems and components that are incorporated into certain
applications for the automotive industry involves a high degree
of risk that such claims may be made.
While we believe that we are reasonably insured against these
risks and have contractually limited our financial exposure, we
cannot provide assurances that we will be able to obtain
sufficient insurance, in terms of amounts or scope, to provide
us with adequate coverage against all potential liability.
We
have significant international sales, and risks associated with
these sales could harm our operating results.
Export sales, principally to Asia, include sales to U.S-based
customers with manufacturing plants overseas and represented
79 percent, 68 percent, and 62 percent of our net
sales in fiscal years 2010, 2009, and 2008, respectively. We
expect export sales to continue to represent a significant
portion of product sales. This reliance on international sales
subjects us to the risks of conducting business internationally,
including risks associated with political and economic
instability, global health conditions, currency controls,
exchange rate fluctuations and changes in import/export
regulations, tariff and freight rates, as well as the risks of
natural disaster, especially in Asia. For example, the financial
instability in a given region may have an adverse impact on the
financial position of end users in the region, which could
affect future orders and harm our results of operations. Our
international sales operations involve a number of other risks
including, but not limited to:
§ | unexpected changes in government regulatory requirements; | |
§ | changes to countries banking and credit requirements; | |
§ | changes in diplomatic and trade relationships; | |
§ | delays resulting from difficulty in obtaining export licenses for technology; | |
§ | tariffs and other barriers and restrictions; | |
§ | competition with non-U.S. companies or other domestic companies entering the non-U.S. markets in which we operate; | |
§ | longer sales and payment cycles; | |
§ | problems in collecting accounts receivable; | |
§ | political instability; and | |
§ | the burdens of complying with a variety of non-U.S. laws. |
In addition, our competitive position may be affected by the
exchange rate of the U.S. dollar against other currencies.
Consequently, increases in the value of the dollar would
increase the price in local currencies of our products in
non-U.S. markets
and make our products relatively more expensive. Alternatively,
decreases in the value of the dollar will increase the relative
cost of our and our vendors operations that are based
overseas. We cannot provide assurances that regulatory,
political and other factors will not adversely affect our
operations in the future or require us to modify our current
business practices.
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We are
subject to the export control regulations of the U.S. Department
of State and the Department of Commerce. A violation of these
export control regulations could have a material adverse effect
on our business or our results of operations, cash flows, or
financial position.
The nature of our international business, and in particular, the
manufacture and sale of certain products from our Apex Precision
Power Product line, subjects us to the export control
regulations of the U.S. Department of State and the
Department of Commerce. If these export control regulations are
violated, it could result in monetary penalties and denial of
export privileges. The government is very strict with respect to
compliance and has served notice generally that failure to
comply with these regulations may subject guilty parties to
fines and/or
imprisonment. Although we are not aware of any material
violation of any export control regulations, a failure to comply
with any of the above mentioned regulations could have a
material adverse effect on our business.
Our
international operations subject our business to additional
political and economic risks that could have an adverse impact
on our business.
In addition to export sales constituting a large portion of our
net sales, we maintain international operations, sales, and
technical support personnel. International expansion has
required, and will continue to require, significant management
attention and resources. There are risks inherent in expanding
our presence into
non-U.S. regions,
including, but not limited to:
§ | difficulties in staffing and managing non-U.S. operations; | |
§ | failure of non-U.S. laws to adequately protect our U.S. intellectual property, patent, trademarks, copyrights know-how and other proprietary rights; | |
§ | global health conditions and potential natural disasters; | |
§ | political and economic instability in international regions; | |
§ | international currency controls and exchange rate fluctuations; | |
§ | additional vulnerability from terrorist groups targeting American interests abroad; and | |
§ | legal uncertainty regarding liability and compliance with non-U.S. laws and regulatory requirements. |
Because
we depend on subcontractors internationally to perform key
manufacturing functions for us, we are subject to political and
economic risks that could disrupt the fabrication, assembly,
packaging, or testing of our products.
We depend on third-party subcontractors, primarily in Asia, for
the fabrication, assembly, packaging, and testing of most of our
products. International operations and sales may be subject to
political and economic risks, including changes in current tax
laws, political instability, global health conditions, currency
controls, exchange rate fluctuations, and changes in
import/export regulations, tariff and freight rates, as well as
the risks of natural disaster. Although we seek to reduce our
dependence on any one subcontractor, this concentration of
subcontractors and manufacturing operations subjects us to the
risks of conducting business internationally, including
associated political and economic conditions. If we experience
manufacturing problems at a particular location, or a supplier
is unable to continue operating due to financial difficulties or
other reasons, we would be required to transfer manufacturing to
a backup supplier. Converting or transferring manufacturing from
a primary supplier to a backup fabrication facility could be
expensive and could take as long as six to twelve months. As a
result, delays in our production or shipping by the parties to
whom we outsource these functions could reduce our sales, damage
our customer relationships, and damage our reputation in the
marketplace, any of which could harm our business, results of
operations, and financial condition.
Our
failure to manage our distribution channel relationships could
adversely affect our business.
The future of our business, as well as the future growth of our
business, will depend in part on our ability to manage our
relationships with current and future distributors and external
sales representatives and to
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develop additional channels for the distribution and sale of our
products. The inability to successfully manage these
relationships could adversely affect our business.
Strong
competition in the semiconductor market may harm our
business.
The IC industry is intensely competitive and is frequently
characterized by rapid technological change, price erosion,
technological obsolescence, and a push towards IC component
integration. Because of shortened product life cycles and even
shorter design-in cycles in a number of the markets that we
serve, our competitors have increasingly frequent opportunities
to achieve design wins in next-generation systems. In the event
that competitors succeed in supplanting our products, our market
share may not be sustainable and our net sales, gross margin and
operating results would be adversely affected. Additionally,
further component integration could eliminate the need for our
products.
We compete in a number of fragmented markets. Our principal
competitors in these markets include AKM Semiconductor, Analog
Devices, Austriamicrosystems, Freescale Semiconductor, Infineon
Technologies, Linear Technologies, Maxim, NXP Semiconductor, ON
Semiconductor, Realtek, ST Micro, Teridian Semiconductor, Texas
Instruments/Burr Brown, and Wolfson Microelectronics. Many of
these competitors have greater financial, engineering,
manufacturing, marketing, technical, distribution, and other
resources; broader product lines; broader intellectual property
portfolios; and longer relationships with customers. We also
expect intensified competition from emerging companies and from
customers who develop their own IC products. In addition, some
of our current and future competitors maintain their own
fabrication facilities, which could benefit them in connection
with cost, capacity, and technical issues.
Increased competition could adversely affect our business. We
cannot provide assurances that we will be able to compete
successfully in the future or that competitive pressures will
not adversely affect our financial condition and results of
operations. Competitive pressures could reduce market acceptance
of our products and result in price reductions and increases in
expenses that could adversely affect our business and our
financial condition.
We may
be unable to protect our intellectual property
rights.
Our success depends in part on our ability to obtain patents and
to preserve our other intellectual property rights covering our
products. We seek patent protection for those inventions and
technologies for which we believe such protection is suitable
and is likely to provide a competitive advantage to us. We also
rely on trade secrets, proprietary technology, non-disclosure
and other contractual terms, and technical measures to protect
our technology and manufacturing knowledge. We work actively to
foster continuing technological innovation to maintain and
protect our competitive position. We cannot provide assurances
that steps taken by us to protect our intellectual property will
be adequate, that our competitors will not independently develop
or patent equivalent or superior technologies or will not be
able to design around our patents, or that our intellectual
property will not be misappropriated. In addition, the laws of
some
non-U.S. countries
may not protect our intellectual property as well as the laws of
the United States.
Any of these events could materially and adversely affect our
business, operating results, and financial condition. Policing
infringement of our technology is difficult, and litigation may
be necessary in the future to enforce our intellectual property
rights. Any such litigation could be expensive, take significant
time, and divert managements attention from other business
concerns.
Potential
intellectual property claims and litigation could subject us to
significant liability for damages and could invalidate our
proprietary rights.
The IC industry is characterized by frequent litigation
regarding patent and other intellectual property rights. We may
find it necessary to initiate a lawsuit to assert our patent or
other intellectual property rights. These legal proceedings
could be expensive, take significant time, and divert
managements attention from other business concerns. We
cannot provide assurances that we will ultimately be successful
in any lawsuit, nor can we provide assurances that any patent
owned by us will not be invalidated, circumvented, or
challenged. We cannot provide assurances that rights granted
under our patents will provide competitive
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advantages to us, or that any of our pending or future patent
applications will be issued with the scope of the claims sought
by us, if at all.
As is typical in the IC industry, we and our customers have,
from time to time, received and may in the future receive,
communications from third parties asserting patents, mask work
rights, or copyrights. In the event third parties were to make a
valid intellectual property claim and a license was not
available on commercially reasonable terms, our operating
results could be harmed. Litigation, which could result in
substantial cost to us and diversion of our management,
technical and financial resources, may also be necessary to
defend us against claimed infringement of the rights of others.
An unfavorable outcome in any such suit could have an adverse
effect on our future operations
and/or
liquidity.
If we
fail to attract, hire and retain qualified personnel, we may not
be able to develop, market, or sell our products or successfully
manage our business.
Competition for highly qualified personnel in our industry is
intense. The number of technology companies in the geographic
areas in which we operate is greater than it has been
historically and we expect competition for qualified personnel
to intensify. For example,
start-up
companies generally offer larger equity grants to attract
individuals from more established companies. There are only a
limited number of people in the job market with the requisite
skills. Our Human Resources organization focuses significant
efforts on attracting and retaining individuals in key
technology positions. The loss of the services of key personnel
or our inability to hire new personnel with the requisite skills
could restrict our ability to develop new products or enhance
existing products in a timely manner, sell products to our
customers, or manage our business effectively.
We may
acquire other companies or technologies, which may create
additional risks associated with our ability to successfully
integrate them into our business.
We continue to consider future acquisitions of other companies,
or their technologies or products, to improve our market
position, broaden our technological capabilities, and expand our
product offerings. If we are able to acquire companies, products
or technologies that would enhance our business, we could
experience difficulties in integrating them. Integrating
acquired businesses involves a number of risks, including, but
not limited to:
§ | the potential disruption of our ongoing business; | |
§ | unexpected costs or incurring unknown liabilities; | |
§ | the diversion of management resources from other strategic and operational issues; | |
§ | the inability to retain the employees of the acquired businesses; | |
§ | difficulties relating to integrating the operations and personnel of the acquired businesses; | |
§ | adverse effects on the existing customer relationships of acquired companies; | |
§ | the potential incompatibility of business cultures; | |
§ | adverse effects associated with entering into markets and acquiring technologies in areas in which we have little experience; and | |
§ | acquired intangible assets becoming impaired as a result of technological advancements, or worse-than-expected performance of the acquired company. |
If we are unable to successfully address any of these risks, our
business could be harmed.
Future
transactions may limit our ability to use our net operating loss
carryforwards.
As of March 27, 2010, we had U.S. federal tax net
operating loss (NOL) carryforwards of approximately
$461.5 million. These NOL carryforwards may be used to
offset future taxable income and thereby reduce our
U.S. federal income taxes otherwise payable. There is a
risk we may not be able to generate taxable income in
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the future in the amount necessary to fully utilize all of these
NOLs. Section 382 of the Internal Revenue Code of 1986, as
amended (the Code), imposes an annual limit on the
ability of a corporation that undergoes an ownership
change to use its NOL carry forwards to reduce its tax
liability. If we were at some point in the future to experience
an ownership change as defined in Section 382
of the Code, our use of the net operating loss carryforwards and
credit carryforwards may be limited as described in the Code.
Our
stock price has been and is likely to continue to be
volatile.
The market price of our common stock fluctuates significantly.
This fluctuation has been or may be the result of numerous
factors, including, but not limited to:
§ | actual or anticipated fluctuations in our operating results; | |
§ | announcements concerning our business or those of our competitors, customers, or suppliers; | |
§ | loss of a significant customer, or customers; | |
§ | changes in financial estimates by securities analysts or our failure to perform as anticipated by the analysts; | |
§ | announcements regarding technological innovations or new products by us or our competitors; | |
§ | announcements by us of significant acquisitions, strategic partnerships, joint ventures, or capital commitment; | |
§ | announcements by us of significant divestitures or sale of certain assets or intellectual property; | |
§ | litigation arising out of a wide variety of matters, including, among others, employment matters and intellectual property matters; | |
§ | departure of key personnel; | |
§ | single significant stockholders selling for any reason; | |
§ | general assumptions made by securities analysts; | |
§ | general conditions in the IC industry; and | |
§ | general market conditions and interest rates. |
We
have provisions in our charter, and are subject to certain
provisions of Delaware law, which could prevent, delay or impede
a change of control of our company. These provisions could
affect the market price of our stock.
Certain provisions of Delaware law and of our Certificate of
Incorporation and By-Laws could make it more difficult for a
third party to acquire us, even if our stockholders support the
acquisition. These provisions include, but are not limited to:
§ | the inability of stockholders to call a special meeting of stockholders; | |
§ | a prohibition on stockholder action by written consent; and | |
§ | a requirement that stockholders provide advance notice of any stockholder nominations of directors or any proposal of new business to be considered at any meeting of stockholders. |
We are also subject to the anti-takeover laws of Delaware that
may prevent, delay or impede a third party from acquiring or
merging with us, which may adversely affect the market price of
our common stock.
We are
subject to the risks of owning real property.
As described in Note 17, Subsequent
Event, of the Notes to Consolidated Financial
Statements contained in Item 8, we recently purchased land
for the purpose of building our U.S. headquarters in
Austin,
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Texas, and we own our facility in Tucson, Arizona. The recent
purchase of land and the ownership of our facility in Tucson
subject us to the risks of owning real property, which may
include:
§ | the possibility of environmental contamination and the costs associated with correcting any environmental problems; | |
§ | adverse changes in the value of these properties, due to interest rate changes, changes in the neighborhood in which the property is located, or other factors; | |
§ | increased cash commitments for constructing a new building in Austin, Texas, or improving the current building and property in Tucson, Arizona; and | |
§ | the risk of financial loss in excess of amounts covered by insurance, or uninsured risks, such as the loss caused by damage to the buildings as a result of fire, floods, or other natural disasters. |
ITEM 1B. | Unresolved Staff Comments |
None.
ITEM 2. | Properties |
As of May 1, 2010, our principal leased facilities, located
in Austin, Texas, consisted of approximately 214,000 square
feet of office space. This leased space includes our
headquarters and engineering facility, which has
197,000 square feet with lease terms that extend into
calendar year 2012, excluding lease extension options, and
17,000 square feet of leased space at our failure analysis
facility with lease terms that extend into calendar year 2013.
We have subleased approximately 38,000 square feet of space
at our Austin headquarters with sublease terms that extend into
calendar year 2012.
As a result of our facilities consolidation activities, which
began in fiscal year 1999 concurrent with the move of our
headquarters from California to Texas, as of May 1, 2009,
we no longer had any leased space in California. We had one
California facility, which consisted of approximately
90,000 square feet of leased office and engineering space,
expire in April 2009.
During fiscal year 2008, the Company acquired Apex
Microtechnology Corporation. As a result of the acquisition,
Cirrus owns a 54,000 square foot facility in Tucson,
Arizona, which continues to serve as the assembly and test
facility for the Apex Precision Power product line.
We also continue to lease our former design facility in Boulder,
Colorado following the move of the design activities to our
headquarters in Austin, Texas. This design facility is
approximately 12,000 square feet and has a lease that
expires in September, 2010. We have subleased approximately
10,000 square feet of this office space with a sublease
term date that coincides with the Cirrus primary lease. The
Company does not intend to renew this lease agreement.
We do not anticipate difficulty in either retaining occupancy at
any of our facilities through lease renewals prior to expiration
or replacing them with equivalent facilities, and we believe
that our existing facilities are suitable and adequate for our
present purposes.
Below is a detailed schedule that identifies our occupied leased
and owned property locations as of May 1, 2010 with various
lease terms through Cirrus fiscal year 2014:
Design Centers
|
Sales Support
Offices USA
|
Sales Support Offices International | ||
Austin, Texas
|
Burlington, Massachusetts | Hong Kong, China | ||
Tucson, Arizona
|
Shanghai, China | |||
Shenzhen, China | ||||
Tokyo, Japan | ||||
Singapore | ||||
Seoul, South Korea | ||||
Taipei, Taiwan | ||||
Buckinghamshire, United Kingdom |
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See Note 7 Commitments and
Contingencies, Note 10 Restructuring
Costs and Other, and Note 17 Subsequent
Event of the Notes to Consolidated Financial
Statements contained in Item 8 for further detail.
ITEM 3. | Legal Proceedings |
Silvaco
Data Systems
On December 8, 2004, Silvaco Data Systems
(Silvaco) filed suit against us, and others, in
Santa Clara County Superior Court (the Court),
alleging misappropriation of trade secrets, conversion, unfair
business practices, and civil conspiracy. Silvacos
complaint stems from a trade secret dispute between Silvaco and
a software vendor, Circuit Semantics, Inc., who supplied us with
certain software design tools. Silvaco alleges that our use of
Circuit Semantics design tools infringes upon
Silvacos trade secrets and that we are liable for
compensatory damages in the sum of $10 million. Silvaco has
not indicated how it will substantiate this amount of damages
and we are unable to reasonably estimate the amount of damages,
if any.
On January 25, 2005, we answered Silvacos complaint
by denying any wrong-doing. In addition, we filed a
cross-complaint against Silvaco alleging breach of contract
relating to Silvacos refusal to provide certain technology
that would enable us to use certain unrelated software tools.
On July 5, 2007, the Court granted our motion for judgment
on the pleadings, determining that all claims except for the
misappropriation of trade secrets claims were pre-empted by
trade secret law. On October 15, 2007, the Court granted
our motion for summary judgment on the trade secret
misappropriation claim because we presented undisputed evidence
that Silvaco will be unable to prove that Cirrus misappropriated
Silvacos trade secrets.
On February 12, 2008, we settled our cross-complaint
against Silvaco, whereby Silvaco agreed to pay Cirrus $30,000 as
full and final restitution of all claims that could have been
alleged in the cross-complaint.
Based on these orders and the settlement of the cross-complaint,
the Court entered judgment in our favor on Silvacos
complaint and our cross-complaint on March 4, 2008. As a
result of the favorable judgment, on May 16, 2008, the
court awarded approximately $59,000 for our expenses in
defending the suit.
On April 7, 2008, Silvaco filed a notice of appeal on these
matters. The appeal was heard by the Court of Appeal of the
State of California, Sixth Appellate District on April 13,
2010. On April 29, 2010, the appellate court affirmed the
judgment of the district court, finding that the district court
did not err by granting summary judgment in favor of Cirrus
Logic. Silvaco has until June 8, 2010, to petition the
California Supreme Court for review of the case.
Other
Claims
From time to time, other various claims, charges and litigation
are asserted or commenced against us arising from, or related
to, contractual matters, intellectual property, employment
disputes, as well as other issues. Frequent claims and
litigation involving these types of issues are not uncommon in
our industry. As to any of these claims or litigation, we cannot
predict the ultimate outcome with certainty.
Page 19 of 72
Table of Contents
ITEM 4. | Reserved |
PART II
ITEM 5. | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Our Common Stock is traded on the NASDAQ Global Select Market
under the symbol CRUS. The following table shows, for the
periods indicated, the high and low
intra-day
sales prices for our Common Stock.
High
|
Low
|
|||||||
Fiscal year ended March 27, 2010
|
||||||||
First quarter
|
$ 4.98 | $ 3.25 | ||||||
Second quarter
|
6.22 | 4.01 | ||||||
Third quarter
|
6.89 | 4.51 | ||||||
Fourth quarter
|
8.13 | 6.23 | ||||||
Fiscal year ended March 28, 2009
|
||||||||
First quarter
|
$ 7.63 | $ 5.50 | ||||||
Second quarter
|
6.55 | 4.46 | ||||||
Third quarter
|
5.95 | 2.28 | ||||||
Fourth quarter
|
4.35 | 2.16 |
As of May 26, 2010, there were approximately 842 holders of
record of our Common Stock.
We have not paid cash dividends on our Common Stock and
currently intend to continue a policy of retaining any earnings
for reinvestment in our business.
On January 29, 2009, we announced that our Board authorized
a share repurchase program of up to $20 million. The
repurchases will be funded from existing cash and may be
effected from time to time depending on general market and
economic conditions and in accordance with applicable securities
laws. No share repurchases under this program have occurred as
of March 27, 2010. Our prior repurchase program, which was
announced in January 2008 and authorized the repurchase of up to
$150 million of our common stock, was completed in April
2008 for a total of $150 million with 24.5 million
shares repurchased. All shares of our common stock that were
repurchased under this program were cancelled as of
June 28, 2008.
Page 20 of 72
Table of Contents
Stock
Price Performance Graph
The following graph and table show a comparison of the five-year
cumulative total stockholder return, calculated on a dividend
reinvestment basis, for Cirrus Logic, the S&P 500 Composite
Index (the S&P 500), and the Semiconductor
Subgroup of the S&P Electronics Index (the S&P
Semiconductors Index).
COMPARISON OF 5
YEAR CUMULATIVE TOTAL RETURN*
Among Cirrus Logic, Inc., The S&P 500 Index
And The S&P Semiconductors Index
Among Cirrus Logic, Inc., The S&P 500 Index
And The S&P Semiconductors Index
![(PERFORMANCE GRAPH)](https://www.sec.gov/Archives/edgar/data/0000772406/000095012310054820/d73254d7325401.gif)
* |
$100 invested on
3/31/05 in stock or index, including reinvestment of
dividends. Fiscal year ending March 31. |
Copyright©
2010 S&P, a division of The McGraw-Hill Companies Inc. All
rights reserved.
Copyright©
2010 Standard & Poors, a division of The
McGraw-Hill Companies Inc. All rights reserved.
(www.researchdatagroup.com/S&P.htm)
3/05 | 3/06 | 3/07 | 3/08 | 3/09 | 3/10 | |||||||||||||||||||||
Cirrus Logic, Inc.
|
100.00 | 187.61 | 169.47 | 148.67 | 83.19 | 185.62 | ||||||||||||||||||||
S&P 500
|
100.00 | 111.73 | 124.95 | 118.60 | 73.43 | 109.97 | ||||||||||||||||||||
S&P Semiconductors
|
100.00 | 108.31 | 99.99 | 94.97 | 67.27 | 105.27 |
Stockholder returns over the indicated periods should not be
considered indicative of future stockholder returns.
The information in this
Form 10-K
appearing under the heading Stock Price Performance
Graph is being furnished pursuant to
Item 2.01(e) of
Regulation S-K
under the securities Act of 1933, as amended, and shall not be
deemed to be soliciting material or
filed with the Securities and Exchange Commission or
subject to Regulation 14A or 14C, other than as provided in
Item 201(e) of
Regulation S-K,
or to the liabilities of Section 18 of the Securities
Exchange Act of 1934, as amended.
Page 21 of 72
Table of Contents
ITEM 6. | Selected Consolidated Financial Data |
The information contained below should be read along with
Item 7 Managements Discussion and
Analysis of Financial Condition and Results of Operations and
Item 8 Financial Statements and Supplementary
Data (Amounts in thousands, except per share amounts).
Fiscal Years | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
(1) | (1) | (1) | (3) | (4) | ||||||||||||||||
Net sales
|
$ | 220,989 | $ | 174,642 | $ | 181,885 | $ | 182,304 | $ | 193,694 | ||||||||||
Net Income (loss)
|
38,398 | 3,475 | (5,846 | ) | 27,895 | 52,426 | ||||||||||||||
Basic earnings (loss) per share
|
$ | 0.59 | $ | 0.05 | $ | (0.07 | ) | $ | 0.32 | $ | 0.61 | |||||||||
Diluted earnings (loss) per share
|
$ | 0.59 | $ | 0.05 | $ | (0.07 | ) | $ | 0.31 | $ | 0.60 | |||||||||
Financial position at year end:
|
||||||||||||||||||||
Cash, cash equivalents, restricted investments and marketable
securities(2)
|
$ | 141,626 | $ | 120,232 | $ | 187,498 | $ | 271,715 | $ | 243,468 | ||||||||||
Total assets
|
267,610 | 207,004 | 298,306 | 353,060 | 319,041 | |||||||||||||||
Working capital
|
142,965 | 126,908 | 194,665 | 286,417 | 232,189 | |||||||||||||||
Long-term obligations
|
7,119 | 8,328 | 9,381 | 13,503 | 14,803 | |||||||||||||||
Total stockholders equity(2)
|
$ | 218,601 | $ | 172,928 | $ | 240,935 | $ | 304,937 | $ | 264,270 |
1) | Refer to the consolidated financial statements and the Notes thereto contained in Item 8 of this Form 10-K for fiscal years 2010, 2009, and 2008 for an expanded discussion of factors that materially affect the comparability of the information reflected in the selected consolidated financial data presented above. | |
2) | The reduction in cash, cash equivalents, restricted investments, and marketable securities, as well as total stockholders equity, in fiscal years 2008 and 2009 is primarily attributable to the completion of a $150 million stock repurchase program, which commenced in late fiscal year 2008 and was completed in fiscal year 2009. Additionally, the Company completed the acquisition of Apex Microtechnology in fiscal year 2008. | |
3) | Net income in fiscal year 2007 was unfavorably impacted by a $4.3 million charge for an impairment of non-marketable securities, a $1.1 million restructuring charge, and a $1.9 million charge for acquired in-process research and development associated with an acquisition completed on December 29, 2006. Excluding the acquired in-process research and development charge referred to above, neither the financial position nor the results of operations of the Company for fiscal year 2007 were materially impacted as a result of this acquisition. | |
4) | Net income in fiscal year 2006 was favorably impacted by a $24.8 million litigation settlement, a $7.0 million gain from a license agreement amendment, and $2.3 million in restructuring related activities. |
ITEM 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
You should read the following discussion in conjunction with
our audited historical consolidated financial statements, which
are included elsewhere in this
Form 10-K.
Managements Discussion and Analysis of Financial Condition
and Results of Operations contains statements that are
forward-looking. These statements are based on current
expectations and assumptions that are subject to risk,
uncertainties and other factors. Actual results could differ
materially because of the factors discussed in Part I,
Item 1A. Risk Factors of this
Form 10-K.
Page 22 of 72
Table of Contents
Overview
We were incorporated in California in 1984, became a public
company in 1989 and were reincorporated in the State of Delaware
in February 1999. Initially, our focus was on providing ICs for
personal computer applications, including personal computer
(PC) graphics and storage. In 2001, we refocused our
business efforts away from these areas, which we believed had
become commodity-like in terms of pricing and offered diminished
opportunities for sustained product differentiation and
profitability. We reinforced our commitment to operate
efficiently and profitably by taking strategic actions beginning
in 2005 to improve our top and bottom line growth, including:
(1) improving efficiencies by focusing on our product lines
including mixed-signal audio and energy products,
(2) divesting our digital video product line assets and
non-core products to focus on our core strengths, and
(3) enhancing our capital structure by completing a
$150 million stock repurchase program in fiscal year 2009
to increase long-term stockholder value. We continued this
process in fiscal year 2010 by focusing on winning new designs,
growing our market share in portable audio products in
particular, and by laying the foundation for growth in our
energy products.
Fiscal
Year 2010
In spite of the continuing credit market crisis and other
macro-economic challenges affecting the global economy
throughout our fiscal year 2010, fiscal year 2010 net sales
of $221 million represented a 27 percent increase over
fiscal year 2009 net sales of $174.6 million. Further,
the fiscal year 2010 net sales performance represented the
highest fiscal year net sales amount for the Company since our
fiscal year 2003 results. Increased sales from our audio product
line, in particular portable audio and surround codec products
were key drivers in the overall improvement in top-line revenues
in fiscal year 2010 versus the prior fiscal year.
While fiscal year 2010 net sales from our energy product
line reflected a net 13 percent reduction from fiscal year
2009 results, the energy product line ended its fiscal year on a
positive note as increased sales of seismic and power meter
products, as well as improved performance from ARM and
communication products, resulted in fiscal year 2010 fourth
quarter energy product revenue growth of 22 percent over
the third quarter of fiscal year 2010 and 50 percent over
the fourth quarter of fiscal year 2009. We saw improvements in a
variety of our energy product lines throughout the most recent
fiscal year, as our traditional industrial business benefitted
from the improving economy. Seismic product sales are still down
from peak levels, although it has improved over prior quarters.
Overall gross margin of 53.7 percent for fiscal year 2010
reflected a decrease from fiscal year 2009 margin of
55.6 percent due to the recent growth in sales of portable
audio products, as well as a mix change to lower margin products
in our energy product line driven primarily by a reduction in
seismic product sales in fiscal 2010. The Company continued to
prudently manage expenses given the continued poor macroeconomic
conditions, although we did take advantage of the availability
of engineering talent, which resulted in a modest increase to
the overall employee headcount during fiscal year 2010. The
Company achieved net income of $38.4 million in fiscal year
2010, which included an $11.8 million recognition of
deferred tax assets. The $38.4 million of net income in
fiscal year 2010 represented an increase of $34.9 million
over fiscal year 2009 net income of $3.5 million.
Finally, the Companys cash, cash equivalents and
investments balances as of March 27, 2010, of
$141.6 million reflects an increase of $21.4 million
over the ending balances from the prior fiscal year.
Fiscal
Year 2009
The credit market crisis and other macro-economic challenges
affected the global economy, the semiconductor industry, and our
own results of operations in fiscal year 2009. The recession
reduced both business and consumer spending, which impacted
sales of end-user products that incorporate our components.
Consequently, for fiscal year 2009 net sales were down
approximately 4 percent from the preceding year. However,
our strength in revenue from new products and prudent expense
management were key drivers in the Company maintaining
bottom-line profitability for the year as a whole while
establishing a solid base for future growth. Additionally, in
the fourth quarter of fiscal year 2009, we announced a
$20 million stock repurchase program. No share repurchases
under this program have occurred as of March 27, 2010.
Page 23 of 72
Table of Contents
Fiscal
Year 2008
During fiscal year 2008, we acquired 100 percent of the
outstanding stock of Apex Microelectronics Corporation for a
purchase price of approximately $42.8 million, consisting
primarily of cash and direct acquisition costs. Apex designs and
produces integrated circuits, hybrids and modules used in a wide
range of industrial and aerospace applications that require
high-power precision analog products, such as PWMs and
power amplifiers. These precision amplifiers are used for
driving motors and piezoelectric devices, programmable power
supplies and other devices requiring high power and precision
control. In fiscal year 2008, we took additional steps to
improve our competitive cost structure. First, we committed to a
plan to close Caretta Integrated Circuits (Caretta),
a subsidiary based in Shanghai, China. We also made a strategic
decision to further streamline our organization structure, which
resulted in an additional headcount reduction of
61 employees. Finally, on January 30, 2008, we
announced that our Board authorized a share repurchase program
of up to $150 million. The Company completed this share
repurchase program on April 28, 2008, and purchased a total
of 24.5 million shares, or approximately 28 percent of
the total number of shares outstanding prior to the program. All
shares of our common stock that were repurchased were cancelled
as of June 28, 2008.
Results
of Operations
The following table summarizes the results of our operations for
each of the past three fiscal years as a percentage of net
sales. All percentage amounts were calculated using the
underlying data in thousands:
Fiscal Years Ended | ||||||||||||
March 27, |
March 28, |
March 29, |
||||||||||
2010 | 2009 | 2008 | ||||||||||
Audio products
|
70 | % | 56 | % | 55 | % | ||||||
Energy products
|
30 | % | 44 | % | 45 | % | ||||||
Net sales
|
100 | % | 100 | % | 100 | % | ||||||
Gross margin
|
54 | % | 56 | % | 57 | % | ||||||
Research and development
|
23 | % | 26 | % | 27 | % | ||||||
Selling, general and administrative
|
21 | % | 26 | % | 29 | % | ||||||
Restructuring costs and other, net
|
| % | | % | 6 | % | ||||||
Impairment of (proceeds from) non-marketable securities
|
| % | | % | 2 | % | ||||||
Acquired in process research and development
|
| % | | % | 1 | % | ||||||
Provision (benefit) for litigation expenses and settlements
|
(1 | %) | 1 | % | | % | ||||||
Patent agreement, net
|
| % | | % | | % | ||||||
Impairment of intangible assets
|
| % | 1 | % | | % | ||||||
Income (loss) from operations
|
11 | % | 2 | % | (8 | %) | ||||||
Interest income
|
1 | % | 2 | % | 7 | % | ||||||
Other income (expense), net
|
| % | | % | | % | ||||||
Income (loss) before income taxes
|
12 | % | 4 | % | (1 | %) | ||||||
Provision (benefit) for income taxes
|
(5 | %) | 2 | % | 2 | % | ||||||
Net income (loss)
|
17 | % | 2 | % | (3 | %) | ||||||
Net
Sales
We report sales in two product categories: audio products and
energy products. Our sales by product line are as follows (in
thousands):
March 27, |
March 28, |
March 29, |
||||||||||
2010 | 2009 | 2008 | ||||||||||
Audio products
|
$ | 153,661 | $ | 97,293 | $ | 100,097 | ||||||
Energy products
|
67,328 | 77,349 | 81,788 | |||||||||
Total
|
$ | 220,989 | $ | 174,642 | $ | 181,885 | ||||||
Page 24 of 72
Table of Contents
Net sales for fiscal year 2010 increased 27 percent, to
$221.0 million from $174.6 million in fiscal year
2009. The increase in net sales reflects a $56.4 million
increase in audio product sales and a $10.0 million
decrease in energy product sales. The audio products group
experienced growth from the sales of portable and surround
codecs products, which were partially offset by decreases in ADC
and interface product sales. Within the energy product group,
sales decreases were primarily attributable to lower sales of
seismic, communications, and ARM processor-based products. These
decreases were partially offset by an increase in power meter
products sales.
Net sales for fiscal year 2009 decreased 4 percent, to
$174.6 million from $181.9 million in fiscal year
2008. The drop in net sales reflects a $4.4 million
decrease in energy product sales and a $2.8 million
decrease in audio product sales. Within the energy product
group, sales decreases were primarily attributable to seismic,
industrial A/D converters and amplifiers, communications, and
ARM processor-based products. These decreases were partially
offset by an increase in Apex Precision Power product sales,
primarily attributable to a full years contribution in fiscal
year 2009, as Apex was acquired by the Company on July 24,
2007. The audio products group experienced substantial growth
from sales of portable products, which were partially offset by
decreases in DAC and ADC product sales.
Export sales, principally to Asia, including sales to
U.S.-based
customers that manufacture products at plants overseas, were
approximately $173.6 million in fiscal year 2010,
$119.5 million in fiscal year 2009, and $112.5 million
in fiscal year 2008. Export sales to customers located in Asia
were 65 percent of net sales in fiscal year 2010,
48 percent of net sales in fiscal year 2009, and
40 percent of net sales in fiscal year 2008. All other
export sales represented 14 percent, 20 percent, and
22 percent of net sales in fiscal years 2010, 2009, and
2008, respectively.
Our sales are denominated primarily in U.S. dollars. During
fiscal years 2010, 2009, and 2008, we did not enter into any
foreign currency hedging contracts.
Gross
Margin
Gross margin was 54 percent in fiscal year 2010, down from
56 percent in fiscal year 2009. The decrease in margin from
fiscal year 2009 was mainly due to changes in both customer and
product mix. While the audio product group experienced a slight
increase in margin from fiscal year 2009 to fiscal year 2010 and
the energy group margins were essentially unchanged for this
comparable period, the increase in the percentage of sales from
the audio group in fiscal year 2010 caused a net reduction in
overall margins. The sale of product that had been written down
in prior fiscal years contributed approximately
$1.3 million, or 0.6 percent, to gross margin compared
to a contribution of approximately $1.6 million, or
0.9 percent, in fiscal year 2009. In total, excess and
obsolete inventory charges increased by $0.6 million from
fiscal year 2009, which decreased gross margin by
0.3 percent.
Gross margin was 56 percent in fiscal year 2009, down from
57 percent in fiscal year 2008. The decrease in margin from
fiscal year 2008 was mainly due to changes in both customer and
product mix. The audio product group experienced a reduction in
margin from fiscal year 2008 to fiscal year 2009, which was
partially offset by an increase in energy product margin for
this same period. The sale of product that had been written down
in prior fiscal years contributed approximately
$1.6 million, or 0.9 percent, to gross margin compared
to contribution of approximately $1.1 million, or
0.6 percent, in fiscal year 2008. In total, excess and
obsolete inventory charges decreased by $1.4 million from
fiscal year 2008, which increased gross margin by
0.8 percentage points.
Research
and Development Expenses
Fiscal year 2010 research and development expenses increased
$7.1 million, or 16 percent, from fiscal year 2009.
The variance was primarily due to a $3.5 million increase
in salary and benefit costs associated with research and
development personnel, whose headcount increased 12 percent
in fiscal year 2010 as compared to fiscal year 2009.
Additionally, product development expenses increased
$2.8 million, primarily due to higher photo-mask expenses.
These increases in research and development expenses were
partially
Page 25 of 72
Table of Contents
offset by non-recurring engineering work performed and billed to
third parties, which resulted in a $0.6 million reduction
in research and development expenses.
Fiscal year 2009 research and development expenses decreased
$4.2 million, or 9 percent, from fiscal year 2008. The
decrease was primarily due to a decrease in product development
expenses of $1.9 million, as a result of lower mask
expenses and engineering wafer costs. In addition, salary and
benefit costs associated with research and development personnel
decreased by $1.5 million. Finally, non-recurring
engineering worked performed and billed to third parties
resulted in an additional $0.7 million reduction in
research and development expenses.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses increased
$0.6 million in fiscal year 2010, or 1 percent,
compared to fiscal year 2009 as an increase in salaries and
benefits costs was offset by decreased expenses across several
expense categories. A $2.3 million increase in salaries and
benefits costs was primarily attributable to increased
headcount, and also due to higher sales commissions brought on
by increased product sales and fluctuations in commissionable
product mix in fiscal year 2010 versus fiscal year 2009.
Offsetting this increase was a $0.6 million reduction in
net rent expenses, a $0.6 decrease in marketing expenses, and a
$0.5 million reduction in professional expenses.
Selling, general and administrative expenses decreased
$8.3 million in fiscal year 2009, or 15 percent,
compared to fiscal year 2008. The decrease was primarily
attributable to a $3.7 million reduction in professional
expenses caused by the absence of fees associated with the
internal stock option investigation performed in fiscal year
2008 and the reduction in Silvaco lawsuit expenses. See also
Part 1 Item 3 Legal
Proceedings for additional discussion regarding the
Silvaco Data Systems lawsuit. Commission expense decreased
$1.2 million due primarily to lower sales and fluctuations
in commissionable product mix in fiscal year 2009 versus fiscal
year 2008. Salaries and benefits costs were $1.5 million
lower in fiscal year 2009 versus fiscal year 2008, primarily due
to reduced headcount and other associated employee costs.
Finally, occupancy costs in fiscal year 2009 were
$0.9 million lower than in fiscal year 2008, primarily due
to the termination of a lease in Fremont, California.
Restructuring
Costs and Other, net
During fiscal year 2010, we recorded net restructuring charges
of $0.5 million as a separate line item on the statement of
operations in operating expenses under the caption
Restructuring costs and other, net. The
restructuring charge was primarily due to revised sublease
assumptions for lease space within our corporate headquarters
building. See also Note 10 Restructuring
Costs and Other of the Notes to Consolidated Financial
Statements contained in Item 8 for additional discussion on
these restructuring activities.
During fiscal year 2008, we recorded net restructuring charges
of $10.5 million as a separate line item on the statement
of operations in operating expenses under the caption
Restructuring costs and other, net. This net
charge was comprised primarily of two separate steps taken to
improve our competitive cost structure. First, we committed to a
plan to close Caretta, a subsidiary based in Shanghai, China.
This action eliminated approximately 30 positions in China
during the Companys fourth fiscal quarter, and resulted in
the Company recording primarily a non-cash charge for the assets
and goodwill related to Caretta of $10.2 million, as well
as $0.9 million in cash payments for the affected
employees. Also in the fourth quarter of fiscal year 2008, we
reduced headcount by 61 employees. The restructuring charge
associated with this activity amounted to $0.9 million, and
were primarily related to employee severance costs. Also in
fiscal year 2008, in connection with the expiration of a lease
agreement in Fremont, California in December 2007, we recorded a
$1.5 million reduction to the fiscal year 2004 and 2006
restructuring liabilities to reduce the accrual to the estimated
final settlement amounts.
As of March 27, 2010, we have a remaining restructuring
accrual for all of our past restructurings of $1.3 million,
primarily related to future lease payments net of anticipated
subleases that will be paid over the respective lease terms
through fiscal year 2013. We have classified $0.6 million
of this restructuring accrual as long-term.
Page 26 of 72
Table of Contents
Impairment
of (Proceeds From) Non-Marketable Securities
In the third quarter of fiscal year 2010, as part of a
convertible note financing round for Magnum Semiconductor, Inc.
(Magnum), a company that we had previously had an
investment in, we received proceeds of $500 thousand from Magnum
as consideration for our ownership interest in Magnum
securities, which in fiscal year 2008 had previously been fully
impaired. The proceeds were recorded as a separate line item on
the consolidated statement of operations in operating expenses
under the caption Impairment of (proceeds from)
non-marketable securities.
During the second quarter of fiscal year 2008, we determined an
impairment indicator existed related to our remaining cost
method investment in Magnum, as Magnum had received additional
capital funding from other sources, and our portion of the
investment was diluted. We performed a fair value analysis of
our cost method investment in Magnum in accordance with FASB ASC
Topic 320 Investments Debt and Equity
Securities. Based on the results of the analysis on
September 29, 2007, we recognized an impairment of
$3.7 million to reduce the carrying value of the Magnum
cost method investment to zero. The impairment was recorded as a
separate line item on the consolidated statement of operations
in operating expenses under the caption Impairment of
(proceeds from) non-marketable securities.
Acquired
In-Process Research and Development
On July 24, 2007, we acquired 100 percent of the
outstanding stock of Apex. The results of Apexs operations
have been included in our consolidated financial statements
since the acquisition date. We acquired Apex for a purchase
price of approximately $42.8 million, consisting primarily
of cash and direct acquisition costs. Approximately
$1.8 million of the purchase price was allocated to
in-process research and development and was included in total
operating expenses on the consolidated statement of operations
under the caption Acquired in process research and
development. Of the remaining purchase price,
$21.2 million was allocated to acquired intangible assets;
$16.9 million was allocated to identified assets including
real property and other fixed assets, accounts receivable, and
inventory; $6.2 million was allocated to goodwill; and
$3.3 million was allocated to net liabilities assumed. In
fiscal year 2009, a refund of $0.2 million related to
income taxes was received, which reduced goodwill to
$6.0 million.
Provision
(Benefit) For Litigation Expenses and Settlements
On March 23, 2009, a lawsuit was filed against the Company
alleging patent infringement. During the third quarter of fiscal
year 2010, a settlement agreement was concluded which resulted
in Cirrus Logic recognizing a $135 thousand charge related to
the suit. In a separate matter, on June 17, 2009, during
the first quarter of fiscal year 2010, the Company received
proceeds of a net $2.7 million from its insurance carrier
as part of the final settlement of the derivative lawsuits
described in Note 8,Legal Matters, of
the Notes to Consolidated Financial Statements contained in
Item 8. The proceeds of $2.7 million was recorded as a
recovery of costs previously incurred in accordance with FASB
ASC Topic 450, Contingencies. The combined
net amount of $2.6 million from these two fiscal year 2010
transactions are reflected as a separate line item on the
consolidated statement of operations in operating expenses under
the caption Provision (benefit) for litigation expenses
and settlements.
During fiscal year 2009, we recognized a $2.2 million
charge related to legal fees and expenses associated with the
derivative lawsuits. The charge was recorded as a separate line
item on the consolidated statement of operations in operating
expenses under the caption Provision (benefit) for
litigation expenses and settlements.
Patent
Agreement, Net
On June 11, 2009, we entered into a Patent Purchase
Agreement for the sale of certain Company owned patents and on
August 26, 2009, the Company received cash consideration of
$1.4 million from the purchaser. The proceeds were recorded
as a recovery of costs previously incurred and are reflected as
a separate line item on the consolidated statement of operations
in operating expenses under the caption Patent
agreement, net.
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Impairment
of Intangible Assets
In the fourth quarter of fiscal year 2009, we noted several
impairment indicators surrounding our patents acquired from
Tripath in June 2007. We performed an impairment analysis under
FASB ASC Topic 360 Property, Plant, and
Equipment, and noted that the undiscounted cash flows
estimated to be generated from these patents were less than the
carrying amount of the assets. We then compared the estimated
fair value of these assets to their carrying amount and
recognized an impairment loss of $2.1 million. The
impairment was recorded as a separate line item on the
consolidated statement of operations in operating expenses under
the caption Impairment of intangible assets.
Interest
Income
Interest income in fiscal years 2010, 2009, and 2008, was
$1.3 million, $2.8 million, and $12.1 million
respectively. The decrease in interest income in fiscal year
2010 compared to fiscal years 2009 and 2008 was attributable to
two factors: (i) lower average invested capital balances on
which interest was earned, which were $130.4 million,
$112.6 million, and $240.4 million, respectively, for
fiscal years 2010, 2009, and 2008 and (ii) lower yields on
invested capital. The decreases in the average invested capital
balances from fiscal year 2008 to fiscal year 2010 are
principally attributable to the cash requirements associated
with the Companys common stock repurchases occurring in
the fourth quarter of fiscal year 2008 and the first quarter of
fiscal year 2009. On January 28, 2008 our Board of
Directors authorized a share repurchase program of up to
$150 million. The Company completed the stock repurchase
program on April 28, 2008, for a total of $150 million
with 24.5 million shares repurchased at an average price of
$6.11 per share.
Income
Taxes
We recorded an income tax benefit of $11.7 million in
fiscal year 2010 on a pre-tax income of $26.7 million,
yielding an effective tax benefit rate of 44 percent. Our
effective tax rate was lower than the U.S. statutory rate
of 35 percent, primarily as a result of the realization of
deferred tax assets that had been fully reserved and the release
of a portion of the valuation allowance on certain deferred tax
assets that have not yet been utilized. The release of a portion
of the valuation allowance generated an $11.8 million tax
benefit and was based on an evaluation of the net
U.S. deferred tax assets that we expect to utilize in the
upcoming year as a result of projected tax basis net income.
We recorded an income tax provision of $2.7 million in
fiscal year 2009 on a pre-tax income of $6.2 million,
yielding an effective tax rate of 44 percent. Our effective
tax rate was higher than the U.S. statutory rate of
35 percent primarily due to a $2.7 million charge to
tax expense to increase the valuation allowance on our
U.S. deferred tax assets.
We recorded an income tax provision of $3.0 million in
fiscal year 2008 on a pre-tax loss of $2.8 million,
yielding an effective tax rate of 109 percent. Our
effective tax rate was higher than the U.S. statutory rate
of 35 percent primarily due to a $4.6 million charge
to tax expense to increase the valuation allowance on our
U.S. deferred tax assets.
We evaluate the realizability of the deferred tax assets on a
quarterly basis. We have deferred tax assets generated in
non-U.S. jurisdictions
that we have recognized since it is more likely than not that
these assets will be realized.
Outlook
We came into the year with high expectations driven by our
growing successes in portable audio, and we exceeded those
expectations on the strength of demand from a variety of product
lines outside of portable. We also took advantage of
opportunities in the labor market by hiring promising
engineering talent. By maintaining control over variable
expenses, the growth in revenue and stable margins allowed us to
deliver significantly improved earnings for fiscal year 2010.
Subject to macro-economic conditions in the coming fiscal year
and other business risk factors as described in Item 1A, we
are optimistic that this momentum can continue.
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There are multiple drivers that can enable strong operational
and financial performance in fiscal year 2011. On the Audio side
of our business, our strategy is to target growing markets, work
with tier one customers in those markets, and develop
outstanding technology that solves critical problems for them.
We strive for strong
engineer-to-engineer
relationships at these key accounts, which has resulted in a
growing base of design wins across many products in this market.
Our emphasis is on exceeding the expectations of our existing
customers, yet we are focused on winning new customers. New
products targeting the general mobile phone market will be
publically launched in fiscal year 2011, and we are actively
promoting these new parts to key customers. Within home audio,
in fiscal year 2010 we announced our first 65nm DSP and this
product is currently ramping into production with a key customer
in Japan. Weve also seen signs of improvement in other
audio markets we serve, such as automotive.
Within the energy side of our business, we saw improvements in a
variety of our energy product lines throughout the year. Our
traditional industrial business benefits from the improving
economy. Seismic is still down from its peak levels, but it has
improved over prior quarters, which adds incrementally to gross
margin. Our current investments in the energy product lines are
focused on power meters, and the energy control areas such as
power factor correction, lighting, and motor control. We have
been in the power meter business for many years, and the recent
push for smart grid enhancements has created new opportunities
worldwide. Our most recent power meter product to hit production
shipped over a million units per quarter during the second half
of fiscal year 2010. We are in the product definition phase for
the next generation of low cost metrology chips for the global
market, and much like portable audio, our focus is on tier one
accounts in this market. We are actively promoting our first PFC
product, and look to parlay this effort into an enhanced lineup
of derivative products.
Overall, we believe that we are well positioned to face the
challenges presented by the current economic environment, but
future sales, costs, margins, profits and profitability are all
influenced by numerous factors, all of which are inherently
difficult to forecast. Please refer to
Item 1A Risk Factors of the Notes to
Consolidated Financial Statements contained in Item 8 for
additional information on these factors.
Liquidity
and Capital Resources
In fiscal year 2010, our operating activities generated
$25.1 million in cash. The positive cash flow from
operating activities is predominantly due to the cash components
of our net income as well as a $10.5 million increase in
accounts payable, a $3.5 million increase in accrued
salaries and benefits, and a $3.1 million increase in
deferred revenue. These positive cash flows were partially
offset by cash outflows attributable to a $15.5 million
increase in inventory and a $13.1 million increase in
accounts receivable. In fiscal year 2009, our operating
activities generated $23.1 million in cash. The positive
cash flow from operating activities is predominantly due to the
cash components of our net income as well as an
$11.8 million decrease in accounts receivable, and a
$2.7 million decrease in inventory, which were partially
offset by a $6.3 million decrease in accounts payable and a
$4.4 million decrease in other accrued liabilities. In
fiscal year 2008, our operating activities generated
$23.0 million in cash. The positive cash flow from
operating activities was predominantly due to the cash
components of our net loss as well as a $4.9 million
increase in accounts payable and a $2.3 million increase in
deferred revenue. These increases were partially offset by a
$6.1 million decrease in other accrued liabilities, a
$3.3 million increase in inventories, and a
$1.7 million decrease in accrued salaries and benefits.
In fiscal year 2010, we used approximately $42.6 million in
cash from investing activities, principally due to the net
purchase of $36.8 million in marketable securities. In
addition, during fiscal year 2010, we invested $3.7 million
in property, equipment, and capitalized software and
$2.2 million in technology. In fiscal year 2009, we
generated approximately $36.5 million in cash from
investing activities, principally due to the net sale of
$41.8 million in marketable securities. In addition, during
fiscal year 2009 we invested $3.1 million in property,
equipment, and capitalized software and $2.1 million in
technology. In fiscal year 2008, we generated approximately
$2.9 million in cash from investing activities, principally
due to the net sale of $53.4 million in
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marketable securities, partially offset by our purchase of Apex
for approximately $42.8 million, net of cash acquired. In
addition, during fiscal year 2008 we invested $3.8 million
and $3.7 million in technology and property, equipment, and
capitalized software, respectively.
During fiscal years 2010, 2009, and 2008, we generated
$2.0 million, $2.6 million and $5.6 million,
respectively, in cash from financing activities related to the
receipt of cash from common stock issuances as a result of the
exercises of employee stock options and, in fiscal years 2009
and 2008, our employee stock purchase plan. During the first
quarter of fiscal year 2009, the Company utilized approximately
$87.2 million in cash to repurchase and retire portions of
its outstanding common stock, as previously discussed in
Part II Item 5 Market for
Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities. During the fourth
quarter of fiscal year 2008, the Company utilized approximately
$62.8 million in cash to repurchase and retire portions of
its outstanding common stock under this same stock repurchase
program.
As of March 27, 2010, we had restricted investments of
$5.9 million, which primarily secures certain obligations
under our lease agreement for our principal facility located in
Austin, Texas. This facility is 197,000 square feet and
houses our headquarters and engineering operations.
Although we cannot provide assurances to our stockholders that
we will be able to generate cash in the future, we anticipate
that our existing capital resources and cash flow generated from
future operations will enable us to maintain our current level
of operations for at least the next 12 months.
Off
Balance Sheet Arrangements
As of March 27, 2010, the Company did not have any material
off-balance-sheet arrangements, as defined in
Item 303(a)(4)(ii) of SEC
Regulation S-K.
Contractual
Obligations
In our business activities, we incur certain commitments to make
future payments under contracts such as purchase orders,
operating leases and other long-term contracts. Maturities under
these contracts are set forth in the following table as of
March 27, 2010:
Payment due by period (In thousands) | ||||||||||||||||||||
< 1 year | 1 3 years | 3 5 years | > 5 years | Total | ||||||||||||||||
Facilities leases, net
|
$ | 4,450 | $ | 5,584 | $ | 38 | $ | | $ | 10,072 | ||||||||||
Equipment leases
|
13 | 14 | 8 | | 35 | |||||||||||||||
Wafer purchase commitments
|
16,360 | | | | 16,360 | |||||||||||||||
Assembly purchase commitments
|
2,628 | | | | 2,628 | |||||||||||||||
Outside test purchase commitments
|
3,277 | | | | 3,277 | |||||||||||||||
Manufacturing raw materials
|
866 | | | | 866 | |||||||||||||||
Other purchase commitments
|
134 | | | | 134 | |||||||||||||||
Total
|
$ | 27,728 | $ | 5,598 | $ | 46 | $ | | $ | 33,372 | ||||||||||
On March 24, 2010 the Company entered into an agreement to
purchase a parcel of real property in Austin, Texas, for
$9.6 million, for the purpose of constructing a new
U.S. headquarters. While the agreement currently provides
the Company the opportunity to terminate the agreement prior to
closing the land purchase transaction, it is more likely than
not that the transaction will be completed.
Recently
Issued Accounting Pronouncements
In January 2010, the FASB issued Accounting Standards Update
(ASU)
No. 2010-06,
Fair Value Measurements and Disclosures (Topic 820):
Improving Disclosures about Fair Value Measurements
(ASU 2010-06),
which amends the disclosure guidance with respect to fair value
measurements. Specifically,
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the new guidance requires disclosure of amounts transferred in
and out of Levels 1 and 2 fair value measurements, a
reconciliation presented on a gross basis rather than a net
basis of activity in Level 3 fair value measurements,
greater disaggregation of the assets and liabilities for which
fair value measurements are presented and more robust disclosure
of the valuation techniques and inputs used to measure
Level 2 and 3 fair value measurements. ASU
2010-06 was
effective for interim and annual reporting periods beginning
after December 15, 2009, with the exception of the new
guidance around the Level 3 activity reconciliations, which
is effective for fiscal years beginning after December 15,
2010. The adoption of this guidance with respect to
Levels 1 and 2 fair value measurements did not have a
material impact on our consolidated financial position, results
of operations or cash flows. The adoption of this guidance with
respect to Level 3 fair value measurements is not
anticipated to have a material impact on our consolidated
financial position, results of operations or cash flows.
In May 2009, the FASB issued guidance now codified as FASB ASC
Topic 855, Subsequent Events, which
establishes general standards of accounting for, and disclosures
of, events that occur after the balance sheet date but before
financial statements are issued or are available to be issued.
This pronouncement is effective for interim or fiscal periods
ending after June 15, 2009. Accordingly, the Company
adopted these provisions of FASB ASC Topic 855 on March 29,
2009. The adoption of this pronouncement did not have a material
impact on our consolidated financial position, results of
operations or cash flows. However, the provisions of FASB ASC
Topic 855 resulted in additional disclosures with respect to
subsequent events. See Note 17, Subsequent Event,
for this additional disclosure.
In April 2009, the FASB issued guidance now codified as FASB ASC
Topic 820 Fair Value Measurements and Disclosures
to address challenges in estimating fair value when the
volume and level of activity for an asset or liability have
significantly decreased. The guidance emphasizes that even if
there has been a significant decrease in the volume and level of
activity for the asset or liability and regardless of the
valuation technique(s) used, the objective of a fair value
measurement remains the same. Fair value is the price that would
be received to sell an asset or paid to transfer a liability in
an orderly transaction (that is, not a forced liquidation or
distressed sale) between market participants at the measurement
date under current market conditions. It is effective for
interim and annual reporting periods ending after June 15,
2009. Our adoption of this pronouncement during the first
quarter of fiscal year 2010 did not have an impact on our
consolidated financial position, results of operations, or cash
flows.
In April 2009, the FASB issued guidance now codified as FASB ASC
Topic 825, Financial Instruments, which
amends previous Topic 825 guidance to require disclosures about
fair value of financial instruments in interim as well as annual
financial statements. This pronouncement is effective for
periods ending after June 15, 2009. Accordingly, the
Company adopted these provisions of FASB ASC Topic 825 on
March 29, 2009. The adoption of this pronouncement did not
have a material impact on our consolidated financial position,
results of operations, or cash flows. However, the provisions of
FASB ASC Topic 825 resulted in additional disclosures with
respect to the fair value of the Companys financial
instruments. See Note 9, Fair Value Measurements,
for these additional disclosures.
In April 2009, the FASB issued guidance now codified as FASB ASC
Topic 320, Investments Debt and Equity
Securities and Topic 325
Investments Other, which is
designed to create greater clarity and consistency in accounting
for and presenting impairment losses on securities. The
pronouncement is effective for periods ending after
June 15, 2009. Accordingly, the Company adopted this
pronouncement on March 29, 2009. The adoption of this
guidance did not have a material impact on our consolidated
financial position, results of operations or cash flows.
However, the provisions of FASB ASC Topic 320 resulted in
additional disclosures with respect to the fair value of the
Companys investments with unrealized losses that are not
deemed
other-than-temporarily
impaired. See Note 9, Fair Value Measurements, for
these additional disclosures.
In June 2008, the FASB issued FASB
ASC 260-10-45,
formerly FSP Emerging Issues Task Force (EITF)
03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities. ASC
260-10-45
provides that unvested share-based payment awards that contain
non-forfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and shall
be included in the computation of earnings per share pursuant to
the two-class method described in FASB
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ASC 260, Earnings per Share .
ASC 260-10-45
is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods
within those years on a retrospective basis. The Company adopted
ASC 260-10-45
at the beginning of fiscal 2010. The adoption did not have a
material impact on the Companys financial statements.
In September 2006, the FASB issued guidance now codified as FASB
ASC Topic 820, Fair Value Measurements and
Disclosures, which defines fair value, establishes a
framework for measuring fair value and expands disclosures about
fair value measurements. The pronouncement was effective for
fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. In February 2008, the FASB
released additional guidance now codified under FASB ASC Topic
820, which provides for delayed application of certain guidance
related to non-financial assets and non-financial liabilities,
except for items that are recognized or disclosed at fair value
in the financial statements on a recurring basis (at least
annually), until fiscal years beginning after November 15,
2008, and interim periods within those years. The Company
adopted certain provisions of FASB ASC Topic 820 effective
March 30, 2008 (see Note 9, Fair Value
Measurements, to the Condensed Consolidated Financial
Statements for additional information). Pursuant to the
requirements of FASB ASC Topic 820, the Company adopted the
provisions of Topic 820 with respect to our non-financial assets
and non-financial liabilities effective March 29, 2009. The
implementation of this pronouncement did not have a material
impact on our consolidated financial position, results of
operations or cash flows.
Critical
Accounting Policies
Our discussion and analysis of the Companys financial
condition and results of operations are based upon the
consolidated financial statements included in this report, which
have been prepared in accordance with U.S. generally
accepted accounting principles. The preparation of these
financial statements requires us to make estimates and judgments
that affect the reported amounts. We evaluate the estimates on
an on-going basis. We base these estimates on historical
experience and on various other assumptions that we believe to
be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under
different assumptions and conditions. We also have policies that
we consider to be key accounting policies, such as our policies
for revenue recognition, including the deferral of revenues and
cost of sales on sales to our distributors, and our stock option
granting practices; however, these policies do not meet the
definition of critical accounting estimates because they do not
generally require us to make estimates or judgments that are
difficult or subjective.
We believe the following critical accounting policies involve
significant judgments and estimates that are used in the
preparation of the consolidated financial statements:
§ | For purposes of determining the variables used in the calculation of stock compensation expense under the provisions of FASB ASC Topic 505, Equity and FASB ASC Topic 718, Compensation Stock Compensation, we perform an analysis of current market data and historical company data to calculate an estimate of implied volatility, the expected term of the option, and the expected forfeiture rate. With the exception of the expected forfeiture rate, which is not an input, we use these estimates as variables in the Black-Scholes option pricing model. Depending upon the number of stock options granted, any fluctuations in these calculations could have a material effect on the results presented in our Consolidated Statement of Operations. In addition, any differences between estimated forfeitures and actual forfeitures could also have a material impact on our financial statements. | |
§ | The Company evaluates accounts receivable in accordance with FASB ASC Topic 310, Receivables. We maintain allowances for doubtful accounts for estimated losses resulting from the inability or failure of our customers to make required payments. We regularly evaluate our allowance for doubtful accounts based upon the age of the receivable, our ongoing customer relations, as well as any disputes with the customer. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required, which could have a material effect on our operating results and financial position. Additionally, we may maintain an allowance for doubtful accounts for estimated losses on receivables from customers with whom we |
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are involved in litigation. See Note 3 Accounts Receivable, net of the Notes to Consolidated Financial Statements contained in Item 8. |
§ | The Company evaluates inventory in accordance with FASB ASC Topic 330, Inventory. Inventories are recorded at the lower of cost or market, with cost being determined on a first-in, first-out basis. We write down inventories to net realizable value based on forecasted demand, management judgment, and the age of inventory. Actual demand and market conditions may be different from those projected by management, which could have a material effect on our operating results and financial position. See Note 1 Description of Business and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements contained in Item 8. | |
§ | We evaluate the recoverability of property, plant, and equipment and intangible assets in accordance with FASB ASC Topic 360, Property, Plant, and Equipment, and FASB ASC Topic 350, Intangibles Goodwill and Other. We test for impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets carrying amounts. An impairment loss is recognized in the event the carrying value of these assets exceeds the fair value of the applicable assets. Impairment evaluations involve management estimates of asset useful lives and future cash flows. Actual useful lives and cash flows could be different from those estimated by management, which could have a material effect on our operating results and financial position. See Note 6 Intangibles, net of the Notes to Consolidated Financial Statements contained in Item 8. | |
§ | The Company evaluates goodwill and other intangible assets in accordance with FASB ASC Topic 350, Intangibles Goodwill and Other. Goodwill is recorded at the time of an acquisition and is calculated as the difference between the total consideration paid for an acquisition and the fair value of the net tangible and intangible assets acquired. Accounting for acquisitions requires extensive use of accounting estimates and judgments to allocate the purchase price to the fair value of the net tangible and intangible assets acquired, including in-process research and development (IPR&D). Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment tests. If the assumptions and estimates used to allocate the purchase price are not correct, or if business conditions change, purchase price adjustments or future asset impairment charges could be required. The value of our intangible assets, including goodwill, could be impacted by future adverse changes such as: (i) any future declines in our operating results, (ii) a decline in the valuation of technology company stocks, including the valuation of our common stock, (iii) a significant slowdown in the worldwide economy and the semiconductor industry, or (iv) any failure to meet the performance projections included in our forecasts of future operating results. In accordance with FASB ASC Topic 350, the Company tests goodwill for impairment on an annual basis or more frequently if the Company believes indicators of impairment exist. Impairment evaluations involve management estimates of asset useful lives and future cash flows. Significant management judgment is required in the forecasts of future operating results that are used in the evaluations. It is possible, however, that the plans and estimates used may be incorrect. If our actual results, or the plans and estimates used in future impairment analysis, are lower than the original estimates used to assess the recoverability of these assets, we could incur additional impairment charges in a future period. | |
§ | Our available-for-sale investments, non-marketable securities and other investments are subject to a periodic impairment review pursuant to FASB ASC Topic 320, Investments Debt and Equity Securities. Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. This determination requires significant judgment and actual results may be materially different than our estimate. Marketable securities are evaluated for impairment if the decline in fair value below cost basis is significant and/or has lasted for an extended period of time. Non-marketable securities or other investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. For investments accounted for using the cost method of accounting, we evaluate information (e.g., budgets, business plans, financial statements) in addition to quoted market prices, if any, in determining whether an other-than-temporary decline in value exists. Factors indicative of an other-than-temporary decline include recurring operating losses, credit |
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defaults, and subsequent rounds of financings at an amount below the cost basis of the investment. This list is not all inclusive and we weigh all quantitative and qualitative factors in determining if an other-than-temporary decline in value of an investment has occurred. When a decline in value is deemed to be other-than-temporary, we recognize an impairment loss in the current periods operating results to the extent of the decline. Actual values could be different from those estimated by management, which could have a material effect on our operating results and financial position. See Note 2 Marketable Securities and Note 4 Non-Marketable Securities of the Notes to Consolidated Financial Statements contained in Item 8. |
§ | In accordance with Statement of FASB ASC Topic 740, Income Taxes, we provide for the recognition of deferred tax assets if realization of such assets is more likely than not. We have provided a valuation allowance against a substantial portion of our net U.S. deferred tax assets due to uncertainties regarding their realization. We evaluate the realizability of our deferred tax assets on a quarterly basis by determining whether or not the anticipated pre-tax income for the upcoming twelve months is expected to be sufficient to utilize the deferred tax assets that we have recognized. If our future income is not sufficient to utilize the deferred tax assets that we have recognized, we increase the valuation allowance to the point at which all of the remaining recognized deferred tax assets will be utilized by the anticipated future pre-tax income for the next twelve months. An increase in the valuation allowance results in a simultaneous increase to income tax expense or, in some cases, a decrease in contributed capital. If our anticipated future pre-tax income is sufficient to conclude that additional deferred tax assets should be recognized, we decrease the valuation allowance. This results in a simultaneous decrease to income tax expense or, possibly, an increase in contributed capital. See Note 14 Income Taxes of the Notes to Consolidated Financial Statements contained in Item 8. | |
§ | Restructuring charges for workforce reductions and facilities consolidations reflected in the accompanying financial statements were accrued based upon specific plans established by management, in accordance with FASB ASC Topic 420, Exit or Disposal Cost Obligations. We use an estimated borrowing rate as the discount rate for all of our restructuring accruals made under FASB ASC Topic 420. Our facilities consolidation accruals are based upon our estimates as to the length of time a facility would be vacant, as well as the amount of sublease income we would receive once we sublet the facility, after considering current and projected market conditions. Changes in these estimates could result in an adjustment to our restructuring accruals in a future quarter, which could have a material effect on our operating results and financial position. See Note 10 Restructuring Costs and Other of the Notes to Consolidated Financial Statements contained in Item 8. | |
§ | We are subject to the possibility of loss contingencies for various legal matters. See Note 8 Legal Matters of the Notes to Consolidated Financial Statements contained in Item 8. We regularly evaluate current information available to us to determine whether any accruals should be made based on the status of the case, the results of the discovery process and other factors. If we ultimately determine that an accrual should be made for a legal matter, this accrual could have a material effect on our operating results and financial position and the ultimate outcome may be materially different than our estimate. |
ITEM 7A. | Quantitative and Qualitative Disclosures about Market Risk |
We are exposed to market risks associated with interest rates on
our debt securities, currency movements on
non-U.S. dollar
denominated assets and liabilities, and the affect of market
factors on the value of our non-marketable equity securities. We
assess these risks on a regular basis and have established
policies to protect against the adverse effects of these and
other potential exposures. All of the potential changes noted
below are based on sensitivity analyses as of March 27,
2010. Actual results may differ materially.
Interest
Rate Risk
Our primary financial instruments include cash and cash
equivalents, marketable securities, accounts receivable,
accounts payable, and accrued liabilities. The Companys
investments are managed by outside professional managers within
investment guidelines set by the Company. These guidelines
include security
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type, credit quality, and maturity, and are intended to limit
market risk by restricting the Companys investments to
high quality debt instruments with relatively short-term
maturities. The Company does not use derivative financial
instruments in its investment portfolio. Due to the short-term
nature of our investment portfolio and the current low interest
rate environment, our downside exposure to interest rate risk is
minimal.
To provide a meaningful assessment of the interest rate risk
associated with our investment portfolio, we performed a
sensitivity analysis to determine the impact a change in
interest rates would have on the value of our investment
portfolio. At March 27, 2010, an immediate one percent, or
100 basis points, increase or decrease in interest rates
could result in a $1.3 million fluctuation in our annual
interest income. However, our investment portfolio holdings as
of March 27, 2010, yielded less than 100 basis points,
which reduces our downside interest rate risk to an amount
slightly less than the $1.3 million calculation. At
March 28, 2009, an immediate one percent, or 100 basis
points, increase or decrease in interest rates could have
resulted in a $1.5 million fluctuation in our annual
interest income. At March 29, 2008, an immediate one
percent, or 100 basis points, increase or decrease in
interest rates could have resulted in a $2.3 million
fluctuation in our annual interest income. For all of these
fiscal years, the risks associated with fluctuating interest
rates were limited to our annual interest income and not the
underlying principal as we generally have the ability to hold
debt related investments to maturity. The amounts disclosed in
this paragraph are based on a 100 basis point fluctuation
in interest rates applied to the average cash balance for that
fiscal year.
Foreign
Currency Exchange Risk
Our revenue and spending is transacted primarily in
U.S. dollars; however, in fiscal years 2010, 2009, and
2008, we entered into minimal transactions in other currencies
to fund the operating needs of our design, technical support,
and sales offices outside of the U.S. As of March 27,
2010, and March 28, 2009, a ten percent change in the value
of the related currencies would not have a material impact on
our results of operations and financial position.
In addition to the direct effects of changes in exchange rates
on the value of open exchange contracts, we may, from time to
time, have changes in exchange rates that can also affect the
volume of sales or the foreign currency sales prices of our
products and the relative costs of operations based overseas.
Non-Marketable
Securities Risk
Our investments in non-marketable securities are affected by
many of the same factors that could result in an adverse
movement of market prices, although the impact cannot be
directly quantified. Such a movement and the underlying economic
conditions would negatively affect the prospects of the
companies we invest in, their ability to raise additional
capital, and the likelihood of our being able to realize our
investments through liquidity events such as initial public
offerings, mergers, or private sales. These types of investments
involve a great deal of risk, and there can be no assurance that
any specific company will grow or become successful;
consequently, we could lose all or part of our investment.
During the second quarter of fiscal year 2008, we determined an
impairment indicator existed related to our remaining
$3.6 million cost method investment in Magnum, as Magnum
had participated in another round of capital funding from other
sources, and our portion of the investment was diluted. We
performed a fair value analysis of our cost method investment in
Magnum in accordance with FASB ASC Topic 320
Investments Debt and Equity
Securities. Based on the results of that analysis as
of September 29, 2007, we recognized an impairment of
$3.7 million to reduce the carrying value of the Magnum
cost method investment to zero. The impairment is recorded as a
separate line item on the statement of operations in operating
expenses under the caption Impairment of (proceeds
from) non-marketable securities. In the third quarter
of fiscal year 2010, as part of a convertible note financing
round for Magnum, we received proceeds of $500 thousand from
Magnum as consideration for our ownership interest in Magnum
securities. The proceeds were recorded as a separate line item
on the consolidated statement of operations in operating
expenses under the caption Impairment of (proceeds
from) non-marketable securities. At March 27,
2010, we had no remaining investments in non-marketable
securities.
Page 35 of 72
ITEM 8. | Financial Statements and Supplementary Data |
Index to
Consolidated Financial Statements
37 | ||||
39 | ||||
40 | ||||
41 | ||||
42 | ||||
43 |
Page 36 of 72
Table of Contents
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Cirrus Logic, Inc.
We have audited the accompanying consolidated balance sheets of
Cirrus Logic, Inc. as of March 27, 2010 and March 28,
2009, and the related consolidated statements of operations,
stockholders equity, and cash flows for each of the three
fiscal years in the period ended March 27, 2010. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Cirrus Logic, Inc. at March 27, 2010
and March 28, 2009, and the consolidated results of its
operations and its cash flows for each of the three years in the
period ended March 27, 2010, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Cirrus Logic, Inc.s internal control over financial
reporting as of March 27, 2010, based on criteria
established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated June 1, 2010 expressed an
unqualified opinion thereon.
/s/ Ernst &
Young LLP
Austin, Texas
June 1, 2010
Page 37 of 72
Table of Contents
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Cirrus Logic, Inc.
We have audited Cirrus Logic, Inc.s internal control over
financial reporting as of March 27, 2010, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). Cirrus Logic,
Inc.s management is responsible for maintaining effective
internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting included in the accompanying
Managements Annual Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion
on the companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Cirrus Logic, Inc. maintained, in all material
respects, effective internal control over financial reporting as
of March 27, 2010, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Cirrus Logic, Inc. as of
March 27, 2010 and March 28, 2009, and the related
consolidated statements of operations, shareholders
equity, and cash flows for each of the three fiscal years in the
period ended March 27, 2010 of Cirrus Logic, Inc. and our
report dated June 1, 2010 expressed an unqualified opinion
thereon.
/s/ Ernst &
Young LLP
Austin, Texas
June 1, 2010
Page 38 of 72
Table of Contents
March 27, |
March 28, |
|||
2010 | 2009 | |||
Assets
|
||||
Current assets:
|
||||
Cash and cash equivalents
|
$16,109 | $31,504 | ||
Restricted investments
|
5,855 | 5,755 | ||
Marketable securities
|
85,384 | 79,346 | ||
Accounts receivable, net
|
23,963 | 10,814 | ||
Inventories
|
35,396 | 19,878 | ||
Deferred tax assets
|
12,549 | 683 | ||
Prepaid assets
|
2,307 | 2,527 | ||
Other current assets
|
3,292 | 2,149 | ||
Total current assets
|
184,855 | 152,656 | ||
Long-term marketable securities
|
34,278 | 3,627 | ||
Property, plant and equipment, net
|
18,674 | 19,367 | ||
Intangibles, net
|
21,896 | 23,309 | ||
Goodwill
|
6,027 | 6,027 | ||
Other assets
|
1,880 | 2,018 | ||
$267,610 | $207,004 | |||
Liabilities and Stockholders Equity
|
||||
Current liabilities:
|
||||
Accounts payable
|
$20,340 | $9,886 | ||
Accrued salaries and benefits
|
9,962 | 6,432 | ||
Deferred income on shipments to distributors
|
6,488 | 3,426 | ||
Other accrued liabilities
|
5,100 | 6,004 | ||
Total current liabilities
|
41,890 | 25,748 | ||
Lease commitments and contingencies
|
1,070 | 2,077 | ||
Long-term restructuring accrual
|
596 | 931 | ||
Other long-term liabilities
|
5,453 | 5,320 | ||
Stockholders Equity:
|
||||
Preferred stock, 5.0 million shares authorized but unissued
|
| | ||
Common stock, $0.001 par value, 280,000 shares
authorized, 65,653 shares and 65,241 shares issued and
outstanding at March 27, 2010 and March 28, 2009,
respectively
|
66 | 65 | ||
Additional paid-in capital
|
952,737 | 945,390 | ||
Accumulated deficit
|
(733,553) | (771,951) | ||
Accumulated other comprehensive loss
|
(649) | (576) | ||
Total stockholders equity
|
218,601 | 172,928 | ||
$267,610 | $207,004 | |||
The accompanying notes are an integral part of these financial
statements.
Page 39 of 72
Table of Contents
Fiscal Years Ended | ||||||||||||
March 27, |
March 28, |
March 29, |
||||||||||
2010 | 2009 | 2008 | ||||||||||
Net sales
|
$ | 220,989 | $ | 174,642 | $ | 181,885 | ||||||
Cost of sales
|
102,258 | 77,458 | 78,652 | |||||||||
Gross margin
|
118,731 | 97,184 | 103,233 | |||||||||
Operating expenses:
|
||||||||||||
Research and development
|
51,421 | 44,315 | 48,484 | |||||||||
Selling, general and administrative
|
45,923 | 45,304 | 53,554 | |||||||||
Restructuring costs and other, net
|
493 | | 10,542 | |||||||||
Impairment of (proceeds from) non-marketable securities
|
(500 | ) | | 3,657 | ||||||||
Acquired in-process research and development
|
| | 1,761 | |||||||||
Provision (benefit) for litigation expenses and settlements
|
(2,610 | ) | 2,205 | | ||||||||
Patent agreement, net
|
(1,400 | ) | | | ||||||||
Impairment of intangible assets
|
| 2,144 | | |||||||||
Total operating expenses
|
93,327 | 93,968 | 117,998 | |||||||||
Income (loss) from operations
|
25,404 | 3,216 | (14,765 | ) | ||||||||
Interest income
|
1,345 | 2,777 | 12,068 | |||||||||
Other income (expense), net
|
(66 | ) | 164 | (104 | ) | |||||||
Income (loss) before income taxes
|
26,683 | 6,157 | (2,801 | ) | ||||||||
Provision (benefit) for income taxes
|
(11,715 | ) | 2,682 | 3,045 | ||||||||
Net income (loss)
|
$ | 38,398 | $ | 3,475 | $ | (5,846 | ) | |||||
Basic earnings (loss) per share:
|
$ | 0.59 | $ | 0.05 | $ | (0.07 | ) | |||||
Diluted earnings (loss) per share
|
$ | 0.59 | $ | 0.05 | $ | (0.07 | ) | |||||
Weighted average common shares outstanding:
|
||||||||||||
Basic
|
65,338 | 65,530 | 87,967 | |||||||||
Diluted
|
65,626 | 65,711 | 87,967 |
The accompanying notes are an integral part of these financial
statements.
Page 40 of 72
Table of Contents
Fiscal Years Ended | ||||||||||||
March 27, |
March 28, |
March 29, |
||||||||||
2010 | 2009 | 2008 | ||||||||||
Cash flows from operating activities:
|
||||||||||||
Net income (loss)
|
$ | 38,398 | $ | 3,475 | $ | (5,846 | ) | |||||
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
||||||||||||
Depreciation and amortization
|
7,888 | 8,168 | 8,582 | |||||||||
Acquired in-process research and development
|
| | 1,761 | |||||||||
Loss on retirement or write-off of long-lived assets
|
70 | 113 | 8 | |||||||||
Amortization of lease settlement
|
(83 | ) | (995 | ) | (249 | ) | ||||||
Deferred income taxes
|
(11,932 | ) | 2,701 | 4,222 | ||||||||
Gain on marketable securities
|
(500 | ) | | | ||||||||
Stock compensation expense
|
5,318 | 5,166 | 5,274 | |||||||||
Impairment of intangible assets
|
| 2,144 | 10,433 | |||||||||
Impairment of non-marketable securities
|
| | 3,657 | |||||||||
Changes in operating assets and liabilities:
|
||||||||||||
Accounts receivable, net
|
(13,149 | ) | 11,838 | (666 | ) | |||||||
Inventories
|
(15,518 | ) | 2,744 | (3,259 | ) | |||||||
Other assets
|
(937 | ) | 2,201 | (332 | ) | |||||||
Accounts payable
|
10,454 | (6,278 | ) | 4,868 | ||||||||
Accrued salaries and benefits
|
3,530 | (653 | ) | (1,672 | ) | |||||||
Deferred revenues
|
3,062 | (3,158 | ) | 2,294 | ||||||||
Income taxes payable
|
116 | | (3 | ) | ||||||||
Other accrued liabilities
|
(1,581 | ) | (4,399 | ) | (6,085 | ) | ||||||
Net cash provided by operating activities
|
25,136 | 23,067 | 22,987 | |||||||||
Cash flows from investing activities:
|
||||||||||||
Proceeds from sale of available for sale marketable securities
|
111,167 | 148,941 | 250,549 | |||||||||
Purchases of available for sale marketable securities
|
(147,929 | ) | (107,137 | ) | (197,119 | ) | ||||||
Proceeds from sale of non-marketable securities
|
500 | | | |||||||||
Purchases of property, plant and equipment
|
(3,654 | ) | (3,060 | ) | (3,699 | ) | ||||||
Investments in technology
|
(2,185 | ) | (2,127 | ) | (3,750 | ) | ||||||
Acquisition of businesses, net of cash acquired
|
(550 | ) | (550 | ) | (42,753 | ) | ||||||
Increase in restricted investments
|
(100 | ) | | | ||||||||
Decrease (increase) in deposits and other assets
|
190 | 414 | (360 | ) | ||||||||
Net cash provided by (used in) investing activities
|
(42,561 | ) | 36,481 | 2,868 | ||||||||
Cash flows from financing activities:
|
||||||||||||
Repurchase and retirement of common stock
|
| (87,244 | ) | (62,756 | ) | |||||||
Issuance of common stock, net of issuance costs
|
2,030 | 2,586 | 5,555 | |||||||||
Net cash provided by (used in) financing activities
|
2,030 | (84,658 | ) | (57,201 | ) | |||||||
Net decrease in cash and cash equivalents
|
(15,395 | ) | (25,110 | ) | (31,346 | ) | ||||||
Cash and cash equivalents at beginning of year
|
31,504 | 56,614 | 87,960 | |||||||||
Cash and cash equivalents at end of year
|
$ | 16,109 | $ | 31,504 | $ | 56,614 | ||||||
Supplemental disclosures of cash flow information
|
||||||||||||
Cash payments (refunds) during the year for:
|
||||||||||||
Interest expense
|
$ | | $ | | $ | | ||||||
Income taxes
|
90 | 174 | 141 |
The accompanying notes are an integral part of these financial
statements.
Page 41 of 72
Table of Contents
Accumulated |
||||||||||||||||||||||||
Additional |
Other |
|||||||||||||||||||||||
Common Stock |
Paid-in |
Accumulated |
Comprehensive |
|||||||||||||||||||||
Shares | Amount | Capital | Deficit | Income (Loss) | Total | |||||||||||||||||||
Balance, March 31, 2007
|
88,163 | $ | 88 | $ | 926,812 | $ | (621,180 | ) | $ | (783 | ) | $ | 304,937 | |||||||||||
Components of comprehensive income (loss):
|
||||||||||||||||||||||||
Net loss
|
| | | (5,846 | ) | | (5,846 | ) | ||||||||||||||||
Change in unrealized loss on marketable securities
|
| | | | 559 | 559 | ||||||||||||||||||
Total comprehensive income
|
| | | | | (5,287 | ) | |||||||||||||||||
Issuance of stock under stock plans
|
1,043 | 1 | 5,554 | | | 5,555 | ||||||||||||||||||
Cumulative effect of initial adoption of ASC Topic 740
|
| | | 1,575 | | 1,575 | ||||||||||||||||||
Repurchase and retirement of common stock
|
(13,307 | ) | (13 | ) | | (71,106 | ) | | (71,119 | ) | ||||||||||||||
Amortization of deferred stock compensation
|
| | 5,274 | | | 5,274 | ||||||||||||||||||
Balance, March 29, 2008
|
75,899 | 76 | 937,640 | (696,557 | ) | (224 | ) | 240,935 | ||||||||||||||||
Components of comprehensive income (loss):
|
||||||||||||||||||||||||
Net income
|
| | | 3,475 | | 3,475 | ||||||||||||||||||
Change in unrealized gain on marketable securities
|
| | | | (352 | ) | (352 | ) | ||||||||||||||||
Total comprehensive income
|
| | | | | 3,123 | ||||||||||||||||||
Issuance of stock under stock plans
|
579 | | 2,584 | | | 2,584 | ||||||||||||||||||
Repurchase and retirement of common stock
|
(11,237 | ) | (11 | ) | | (78,869 | ) | | (78,880 | ) | ||||||||||||||
Amortization of deferred stock compensation
|
| | 5,166 | | | 5,166 | ||||||||||||||||||
Balance, March 28, 2009
|
65,241 | 65 | 945,390 | (771,951 | ) | (576 | ) | 172,928 | ||||||||||||||||
Components of comprehensive income (loss):
|
||||||||||||||||||||||||
Net income
|
| | | 38,398 | | 38,398 | ||||||||||||||||||
Change in unrealized gain on marketable securities
|
| | | | (73 | ) | (73 | ) | ||||||||||||||||
Total comprehensive income
|
| | | | | 38,325 | ||||||||||||||||||
Issuance of stock under stock plans
|
412 | 1 | 2,029 | | | 2,030 | ||||||||||||||||||
Amortization of deferred stock compensation
|
| | 5,318 | | | 5,318 | ||||||||||||||||||
Balance, March 27, 2010
|
65,653 | $ | 66 | $ | 952,737 | $ | (733,553 | ) | $ | (649 | ) | $ | 218,601 | |||||||||||
The accompanying notes are an integral part of these financial
statements.
Page 42 of 72
Table of Contents
CIRRUS
LOGIC, INC.
1. | Description of Business and Summary of Significant Accounting Policies |
Description
of Business
Cirrus Logic, Inc. (Cirrus Logic,
Cirrus, We, Us,
Our, or the Company) develops
high-precision, analog and mixed-signal integrated circuits
(ICs) for a broad range of consumer and industrial
markets. Building on our diverse analog and mixed-signal patent
portfolio, Cirrus Logic delivers highly optimized products for
consumer and commercial audio, automotive entertainment, and
targeted industrial applications. We also develop ICs,
board-level modules and hybrids for high-power amplifier
applications branded as the Apex Precision
Powertm
(Apex) line of products. We also provide complete
system reference designs based on our technology that enable our
customers to bring products to market in a timely and
cost-effective manner.
We were incorporated in California in 1984, became a public
company on 1989, and were reincorporated in the State of
Delaware in February 1999. Our primary facilities housing
engineering, sales and marketing, administration, and test
operations are located in Austin, Texas. In addition, we have an
administrative and manufacturing facility in Tucson, Arizona and
sales locations internationally and throughout the United
States. We also serve customers from international sales offices
in Europe and Asia, including the Peoples Republic of
China, Hong Kong, South Korea, Japan, Singapore, Taiwan, and the
United Kingdom. Our common stock, which has been publicly traded
since 1989, is listed on the NASDAQ Global Select Market under
the symbol CRUS.
Basis of
Presentation
We prepare financial statements on a 52- or 53-week year that
ends on the last Saturday in March. Fiscal years 2010, 2009, and
2008 were all 52-week years.
Principles
of Consolidation
The accompanying consolidated financial statements have been
prepared in accordance with U.S. generally accepted
accounting principles and include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated.
Use of
Estimates
The preparation of financial statements in accordance with
U.S. generally accepted accounting principles requires the
use of management estimates. These estimates are subjective in
nature and involve judgments that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and
liabilities at fiscal year end and the reported amounts of
revenue and expenses during the reporting period. Actual results
could differ from these estimates.
Cash and
Cash Equivalents
Cash and cash equivalents consist primarily of money market
funds, commercial paper, and U.S. Government Treasury and
Agency instruments with original maturities of three months or
less at the date of purchase.
Restricted
Investments
As of March 27, 2010, and March 28, 2009, we had
restricted investments of $5.9 million and
$5.8 million, respectively, in support of our letters of
credit needs. The letters of credit primarily secure certain
obligations under our operating lease agreement for our
headquarters and engineering facility in Austin, Texas, and are
scheduled for periodic declines in amount. The $0.1 million
increase in fiscal year 2010 relates to an agreement executed on
March 24, 2010, for the purchase of real property for the
construction of our U.S. headquarters in Austin, Texas.
Page 43 of 72
Table of Contents
Marketable
Securities
We determine the appropriate classification of marketable
securities at the time of purchase and reevaluate this
designation as of each balance sheet date. We classify these
securities as either
held-to-maturity,
trading, or
available-for-sale
in accordance with FASB ASC Topic 320,
Investments Debt and Equity
Securities. As of March 27, 2010, and
March 28, 2009, all marketable securities and restricted
investments were classified as
available-for-sale
securities. The Company classifies its investments as
available for sale because it expects to possibly
sell some securities prior to maturity. The Companys
investments are subject to market risk, primarily interest rate
and credit risk. The Companys investments are managed by
an outside professional manager within investment guidelines set
by the Company. Such guidelines include security type, credit
quality, and maturity, and are intended to limit market risk by
restricting the Companys investments to high quality debt
instruments with relatively short-term maturities. The fair
value of investments is determined using observable or quoted
market prices for those securities.
Available-for-sale
securities are carried at fair value, with unrealized gains and
losses included as a component of accumulated other
comprehensive income (loss). The amortized cost of debt
securities in this category is adjusted for amortization of
premiums and accretion of discounts to maturity computed under
the effective interest method and is included in interest
income. Realized gains and losses, declines in value judged to
be other than temporary, and interest on
available-for-sale
securities are included in net income. The cost of securities
sold is based on the specific identification method.
Inventories
We use the lower of cost or market method to value our
inventories, with cost being determined on a
first-in,
first-out basis. One of the factors we consistently evaluate in
the application of this method is the extent to which products
are accepted into the marketplace. By policy, we evaluate market
acceptance based on known business factors and conditions by
comparing forecasted customer unit demand for our products over
a specific future period, or demand horizon, to quantities on
hand at the end of each accounting period.
On a quarterly and annual basis, we analyze inventories on a
part-by-part
basis. Inventory quantities on hand in excess of forecasted
demand are considered to have reduced market value and,
therefore, the cost basis is adjusted to the lower of cost or
market. Typically, market values for excess or obsolete
inventories are considered to be zero. The short product life
cycles and the competitive nature of the industry are factors
considered in the estimation of customer unit demand at the end
of each quarterly accounting period.
Inventories were comprised of the following (in thousands):
Year Ended | ||||||||
March 27, |
March 28, |
|||||||
2010 | 2009 | |||||||
Work in process
|
$ | 18,016 | $ | 11,516 | ||||
Finished goods
|
17,380 | 8,362 | ||||||
Inventories
|
$ | 35,396 | $ | 19,878 | ||||
The increase in inventory balances at March 27, 2010, as
compared to March 28, 2009, is related primarily to
increased demand forecasts for our products, and is consistent
with revenue growth experienced at the end of fiscal year 2010
versus the end of fiscal year 2009.
Property,
Plant and Equipment, net
Property, plant and equipment is recorded at cost, net of
depreciation and amortization. Depreciation and amortization is
calculated on a straight-line basis over estimated economic
lives, ranging from three to 39 years. Leasehold
improvements are depreciated over the shorter of the term of the
lease or the estimated useful life. Furniture, fixtures,
machinery, and equipment are all depreciated over a useful life
of five to 20 years, while buildings are depreciated over a
period of up to 39 years. In general, our capitalized
software is amortized over a useful life of three years, with
capitalized enterprise resource planning software being
amortized over a
Page 44 of 72
Table of Contents
useful life of 10 years. Gains or losses related to
retirements or dispositions of fixed assets are recognized in
the period incurred.
Property, plant and equipment was comprised of the following (in
thousands):
March 27, |
March 28, |
|||||||
2010 | 2009 | |||||||
Land and buildings
|
$ | 8,120 | $ | 8,120 | ||||
Furniture and fixtures
|
4,342 | 4,324 | ||||||
Leasehold improvements
|
6,582 | 6,503 | ||||||
Machinery and equipment
|
26,973 | 25,586 | ||||||
Capitalized software
|
21,950 | 19,936 | ||||||
Total property, plant and equipment
|
67,967 | 64,469 | ||||||
Less: Accumulated depreciation and amortization
|
(49,293 | ) | (45,102 | ) | ||||
Property, plant and equipment, net
|
$ | 18,674 | $ | 19,367 | ||||
Depreciation and amortization expense on property, plant, and
equipment for fiscal years 2010, 2009, and 2008, was
$4.3 million, $4.7 million, and $4.7 million,
respectively.
Other-Than-Temporary
Impairment
All of the Companys
available-for-sale
investments, non-marketable securities, and other investments
are subject to a periodic impairment review pursuant to FASB ASC
Topic 320, Investments Debt and Equity
Securities. Investments are considered to be impaired
when a decline in fair value is judged to be
other-than-temporary.
Marketable securities are evaluated for impairment if the
decline in fair value below cost basis is significant
and/or has
lasted for an extended period of time. Non-marketable securities
or other investments are considered to be impaired when a
decline in fair value is judged to be
other-than-temporary.
For investments accounted for using the cost method of
accounting, management evaluates information (e.g., budgets,
business plans, financial statements) in addition to quoted
market price, if any, in determining whether an
other-than-temporary
decline in value exists. Factors indicative of an
other-than-temporary
decline include recurring operating losses, credit defaults, and
subsequent rounds of financings at an amount below the cost
basis of the investment. When a decline in value is deemed to be
other-than-temporary,
Cirrus recognizes an impairment loss in the current
periods operating results to the extent of the decline.
Goodwill
and Intangibles, net
The Company reports goodwill and other intangible assets in
accordance with FASB ASC Topic 350,
Intangibles Goodwill and Other.
Intangible assets include purchased technology licenses and
patents that are reported at cost and are amortized on a
straight-line basis over their useful lives, generally ranging
from three to ten years. Acquired intangibles include existing
technology, core technology or patents, license agreements,
trademarks, covenants
not-to-compete
and customer agreements. These assets are amortized on a
straight-line basis over lives ranging from one to fifteen
years. Goodwill is recorded at the time of an acquisition and is
calculated as the difference between the aggregate consideration
paid for an acquisition and the fair value of the net tangible
and intangible assets acquired. Accounting for acquisitions
requires extensive use of accounting estimates and judgments to
allocate the purchase price to the fair value of the net
tangible and intangible assets acquired, including in-process
research and development (IPR&D). Goodwill and
intangible assets deemed to have indefinite lives are not
amortized but are subject to annual impairment tests. If the
assumptions and estimates used to allocate the purchase price
are not correct, or if business conditions change, purchase
price adjustments or future asset impairment charges could be
required. The value of our intangible assets, including
goodwill, could be impacted by future adverse changes such as:
(i) any future declines in our operating results,
(ii) a decline in the valuation of technology company
stocks, including the valuation of our common stock,
(iii) a significant slowdown in the worldwide economy and
the semiconductor industry, or (iv) any failure to meet the
performance projections included in our forecasts of future
operating results. In accordance with FASB ASC Topic 350, the
Company tests goodwill and indefinite lived intangibles
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for impairment on an annual basis or more frequently if the
Company believes indicators of impairment exist. Impairment
evaluations involve management estimates of asset useful lives
and future cash flows. Significant management judgment is
required in the forecasts of future operating results that are
used in the evaluations. It is possible, however, that the plans
and estimates used may be incorrect. If our actual results, or
the plans and estimates used in future impairment analysis, are
lower than the original estimates used to assess the
recoverability of these assets, we could incur additional
impairment charges in a future period.
Long-Lived
Assets
In accordance with FASB ASC Topic 360, Property, Plant,
and Equipment, we test for impairment losses on
long-lived assets and definite-lived intangibles used in
operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those
assets are less than the assets carrying amounts. We
measure any impairment loss by comparing the fair value of the
asset to its carrying amount. We estimate fair value based on
discounted future cash flows, quoted market prices, or
independent appraisals.
Foreign
Currency Translation
All of our international subsidiaries have the U.S. dollar
as the functional currency. The local currency financial
statements are remeasured into U.S. dollars using current
rates of exchange for assets and liabilities. Gains and losses
from remeasurement are included in other income (expense), net.
Revenue and expenses from our international subsidiaries are
remeasured using the monthly average exchange rates in effect
for the period in which the items occur. For all periods
presented, our foreign currency remeasurement expense was not
significant.
Concentration
of Credit Risk
Financial instruments that potentially subject us to material
concentrations of credit risk consist primarily of cash
equivalents, restricted investments, marketable securities,
long-term marketable securities, and trade accounts receivable.
We are exposed to credit risk to the extent of the amounts
recorded on the balance sheet. By policy, our cash equivalents,
restricted investments, marketable securities, and long-term
marketable securities are subject to certain nationally
recognized credit standards, issuer concentrations, sovereign
risk, and marketability or liquidity considerations.
In evaluating our trade receivables, we perform credit
evaluations of our major customers financial condition and
monitor closely all of our receivables to limit our financial
exposure by limiting the length of time and amount of credit
extended. We sell a significant amount of products in the Asian
countries. In certain situations, we may require payment in
advance or utilize letters of credit to reduce credit risk. By
policy, we establish a reserve for trade accounts receivable
based on the type of business in which a customer is engaged,
the length of time a trade account receivable is outstanding,
and other knowledge that we may possess relating to the
probability that a trade receivable is at risk for non-payment.
The following table summarizes the receivable balance of
distributors and customers that represented more than
10 percent of consolidated gross accounts receivable:
Year Ended | ||||||||
March 27, |
March 28, |
|||||||
2010 | 2009 | |||||||
Futaihua Industrial
|
20 | % | ** | |||||
Avnet, Inc.
|
17 | % | 21 | % | ||||
Hon Hai Precision Industry Co., LTD.
|
** | 11 | % |
** | Less than 10 percent for the period presented |
No other distributors or customers had receivable balances that
represented more than 10 percent of consolidated gross
accounts receivable as of the end of fiscal years 2010 and 2009.
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Since the components we produce are largely proprietary and
generally not available from second sources, we consider our end
customer to be the entity specifying the use of our component in
their design. These end customers may then purchase our products
directly from us, from a distributor, or through a third party
manufacturer contracted to produce their end product. For fiscal
years 2010 and 2009, our ten largest customers represented
approximately 54 percent and 36 percent of our sales.
We had one end customer that purchased through multiple contract
manufacturers and represented approximately 36 percent and
16 percent of the Companys total sales for fiscal
years 2010 and 2009, respectively. Further, we had one
distributor that represented 26 percent, 33 percent,
and 27 percent of our sales for fiscal years 2010, 2009,
and 2008 respectively. No other customer or distributor
represented more than 10 percent of net sales in fiscal
years 2010, 2009, or 2008.
Revenue
Recognition
We recognize revenue in accordance with FASB ASC Topic 605,
Revenue Recognition. Revenue from products
sold directly to international customers and to certain
international distributors is recognized upon title passage of
inventory. For sales made directly to international customers
and to international distributors, title generally passes at the
port of destination. For sales made directly to domestic
customers, title generally passes upon shipment. Sales made to
domestic distributors and certain international distributors are
recorded as deferred revenue until the final sale to the end
customer has occurred. Generally, distributor agreements allow
certain rights of return and price protection. License and
royalty revenue is recognized as it is earned per unit shipped
or when a contractual milestone is reached.
Warranty
Expense
We warrant that our products, when delivered, will be free from
defects in material workmanship under normal use and service.
Our obligations are generally limited to replacing, repairing or
giving credit for, at our option, any products that are returned
within one year after the date of shipment and if notice is
given to us in writing within 30 days of the customer
learning of such problem. Warranty expense was not significant
for any period presented.
Shipping
Costs
Our shipping and handling costs are included in cost of sales
for all periods presented.
Advertising
Costs
Advertising costs are expensed as incurred. Advertising costs
were $1.0 million, $1.5 million, and $1.2 million
in fiscal years 2010, 2009, and 2008, respectively.
Stock-Based
Compensation
Stock-based compensation is measured at the grant date based on
the grant-date fair value of the awards and is recognized as an
expense, on a ratable basis, over the vesting period, which is
generally four years. Determining the amount of stock-based
compensation to be recorded requires the Company to develop
estimates used in calculating the grant-date fair value of stock
options. The Company calculates the grant-date fair value using
the Black-Scholes valuation model. The use of valuation models
requires the Company to make estimates of assumptions such as
expected volatility, expected term, risk-free interest rate,
expected dividend yield, and forfeiture rates. See
Note 12 Stockholders
Equity for additional information relating to
stock-based compensation.
Income
Taxes
We report income taxes in accordance with FASB ASC Topic 740,
Income Taxes, which provides for the
recognition of deferred tax assets if realization of such assets
is more likely than not. We have provided a valuation allowance
against a substantial portion of our net U.S. deferred tax
assets due to uncertainties regarding their realization. We
evaluate the realizability of our deferred tax assets on a
quarterly basis.
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We adopted FASB Financial Interpretation No. (FIN) 48,
Accounting for Uncertainty in Income Taxes,
now codified as FASB ASC Topic 740, Income
Taxes, at the beginning of fiscal year 2008. As a
result of the adoption of this accounting literature, we
recognize liabilities for uncertain tax positions based on the
two-step process prescribed by the interpretation. The first
step requires us to determine if the weight of available
evidence indicates that the tax position has met the threshold
for recognition; therefore, we must evaluate whether it is more
likely than not that the position will be sustained on audit,
including resolution of any related appeals or litigation
processes. The second step requires us to measure the tax
benefit of the tax position taken, or expected to be taken, in
an income tax return as the largest amount that is more than
50 percent likely of being realized upon ultimate
settlement. We reevaluate the uncertain tax positions each
quarter based on factors including, but not limited to, changes
in facts or circumstances, changes in tax law, effectively
settled issues under audit, and new audit activity. Depending on
the jurisdiction, such a change in recognition or measurement
may result in the recognition of a tax benefit or an additional
charge to the tax provision in the period.
Net
Income (Loss) Per Share
Basic net income (loss) per share is based on the weighted
effect of common shares issued and outstanding and is calculated
by dividing net income (loss) by the basic weighted average
shares outstanding during the period. Diluted net income (loss)
per share is calculated by dividing net income (loss) by the
weighted average number of common shares used in the basic net
income (loss) per share calculation, plus the equivalent number
of common shares that would be issued assuming exercise or
conversion of all potentially dilutive common shares
outstanding. These potentially dilutive items consist primarily
of outstanding stock options and restricted stock awards.
Incremental weighted average common shares attributable to the
assumed exercise of outstanding options of 181,000 shares
for the year ended March 29, 2008, were excluded from the
computation of diluted net income (loss) per share because the
effect would be anti-dilutive due to our loss position during
the year. The weighted outstanding options excluded from our
diluted calculation for the years ended March 27, 2010,
March 28, 2009, and March 29, 2008, were 8,043,000,
7,796,000, and 5,623000, respectively, as the exercise price
exceeded the average market price during the period.
Accumulated
Other Comprehensive Income (loss)
We report our accumulated other comprehensive income (loss)
based upon FASB ASC Topic 220, Comprehensive
Income. Our accumulated other comprehensive
loss is comprised of foreign currency translation adjustments
from prior years when we had subsidiaries whose functional
currency was not the U.S. Dollar, as well as unrealized
gains and losses on investments classified as
available-for-sale.
See Note 13 Accumulated Other
Comprehensive Income (Loss) for additional discussion.
Recently
Issued Accounting Pronouncements
In January 2010, the FASB issued Accounting Standards Update
(ASU)
No. 2010-06,
Fair Value Measurements and Disclosures (Topic 820):
Improving Disclosures about Fair Value Measurements
(ASU
2010-06),
which amends the disclosure guidance with respect to fair value
measurements. Specifically, the new guidance requires disclosure
of amounts transferred in and out of Levels 1 and 2 fair
value measurements, a reconciliation presented on a gross basis
rather than a net basis of activity in Level 3 fair value
measurements, greater disaggregation of the assets and
liabilities for which fair value measurements are presented and
more robust disclosure of the valuation techniques and inputs
used to measure Level 2 and 3 fair value measurements. ASU
2010-06 was
effective for interim and annual reporting periods beginning
after December 15, 2009, with the exception of the new
guidance around the Level 3 activity reconciliations, which
is effective for fiscal years beginning after December 15,
2010. The adoption of this guidance with respect to
Levels 1 and 2 fair value measurements did not have a
material impact on our consolidated financial position, results
of operations, or cash flows. The adoption of this guidance with
respect to Level 3 fair value measurements is not
anticipated to have a material impact on our consolidated
financial position, results of operations, or cash flows.
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In May 2009, the FASB issued guidance now codified as FASB ASC
Topic 855, Subsequent Events, which
establishes general standards of accounting for, and disclosures
of, events that occur after the balance sheet date but before
financial statements are issued or are available to be issued.
This pronouncement is effective for interim or fiscal periods
ending after June 15, 2009. Accordingly, the Company
adopted these provisions of FASB ASC Topic 855 on March 29,
2009. The adoption of this pronouncement did not have a material
impact on our consolidated financial position, results of
operations or cash flows. However, the provisions of FASB ASC
Topic 855 resulted in additional disclosures with respect to
subsequent events. See Note 17, Subsequent Event,
for this additional disclosure.
In April 2009, the FASB issued guidance now codified as FASB ASC
Topic 820 Fair Value Measurements and Disclosures
to address challenges in estimating fair value when the
volume and level of activity for an asset or liability have
significantly decreased. The guidance emphasizes that even if
there has been a significant decrease in the volume and level of
activity for the asset or liability and regardless of the
valuation technique(s) used, the objective of a fair value
measurement remains the same. Fair value is the price that would
be received to sell an asset or paid to transfer a liability in
an orderly transaction (that is, not a forced liquidation or
distressed sale) between market participants at the measurement
date under current market conditions. It is effective for
interim and annual reporting periods ending after June 15,
2009. Our adoption of this pronouncement during the first
quarter of fiscal year 2010 did not have an impact on our
consolidated financial position, results of operations, or cash
flows.
In April 2009, the FASB issued guidance now codified as FASB ASC
Topic 825, Financial Instruments, which
amends previous Topic 825 guidance to require disclosures about
fair value of financial instruments in interim as well as annual
financial statements. This pronouncement is effective for
periods ending after June 15, 2009. Accordingly, the
Company adopted these provisions of FASB ASC Topic 825 on
March 29, 2009. The adoption of this pronouncement did not
have a material impact on our consolidated financial position,
results of operations, or cash flows. However, these provisions
of FASB ASC Topic 825 resulted in additional disclosures with
respect to the fair value of the Companys financial
instruments. See Note 9, Fair Value Measurements,
for these additional disclosures.
In April 2009, the FASB issued guidance now codified as FASB ASC
Topic 320, Investments Debt and Equity
Securities and Topic 325
Investments Other, which is
designed to create greater clarity and consistency in accounting
for and presenting impairment losses on securities. The
pronouncement is effective for periods ending after
June 15, 2009. Accordingly, the Company adopted this
pronouncement on March 29, 2009. The adoption of this
guidance did not have a material impact on our consolidated
financial position, results of operations, or cash flows.
However, the provisions of FASB ASC Topic 320 resulted in
additional disclosures with respect to the fair value of the
Companys investments with unrealized losses that are not
deemed
other-than-temporarily
impaired. See Note 9, Fair Value Measurements, for
these additional disclosures.
In June 2008, the FASB issued FASB
ASC 260-10-45,
formerly FSP Emerging Issues Task Force (EITF)
03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities.
FASB
ASC 260-10-45
provides that unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and shall
be included in the computation of earnings per share pursuant to
the two-class method described in FASB ASC 260,
Earnings per Share. FASB
ASC 260-10-45
is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods
within those years on a retrospective basis. The Company adopted
FASB ASC
260-10-45 at
the beginning of fiscal 2010. The adoption did not have a
material impact on the Companys financial statements.
In September 2006, the FASB issued guidance now codified as FASB
ASC Topic 820, Fair Value Measurements and
Disclosures, which defines fair value, establishes a
framework for measuring fair value and expands disclosures about
fair value measurements. The pronouncement was effective for
fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. In February 2008, the FASB
released additional guidance now codified under FASB ASC Topic
820, which provides for delayed application of certain guidance
related to non-financial assets and non-financial liabilities,
except for items that are recognized or disclosed at fair value
in the financial statements on a recurring basis (at least
annually), until
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fiscal years beginning after November 15, 2008, and interim
periods within those years. The Company adopted certain
provisions of FASB ASC Topic 820 effective March 30, 2008
(see Note 9, Fair Value Measurements, to the
Condensed Consolidated Financial Statements for additional
information). Pursuant to the requirements of FASB ASC Topic
820, the Company adopted the provisions of Topic 820 with
respect to our non-financial assets and non-financial
liabilities effective March 29, 2009. The implementation of
this pronouncement did not have a material impact on our
consolidated financial position, results of operations or cash
flows.
2. | Marketable Securities |
The Companys investments that have original maturities
greater than 90 days have been classified as
available-for-sale
securities in accordance with FASB ASC Topic 320,
Investments Debt and Equity
Securities. Marketable securities are categorized on
the consolidated balance sheet as restricted investments and
marketable securities, as appropriate.
The following table is a summary of
available-for-sale
securities (in thousands):
Amortized |
Gross Unrealized |
Gross Unrealized |
Estimated Fair Value |
|||||||||||||
As of March 27, 2010: | Cost | Gains | Losses | (Net Carrying Amount) | ||||||||||||
Corporate securities U.S.
|
$ | 57,283 | $ | 133 | $ | (55 | ) | $ | 57,361 | |||||||
U.S. Government securities
|
44,423 | 44 | (6 | ) | 44,461 | |||||||||||
Agency discount notes
|
15,946 | 7 | (7 | ) | 15,946 | |||||||||||
Commercial Paper
|
7,744 | 5 | | 7,749 | ||||||||||||
Total securities
|
$ | 125,396 | $ | 189 | $ | (68 | ) | $ | 125,517 | |||||||
The Companys specifically identified gross unrealized
losses of $68 thousand relates to thirty different securities
with a total amortized cost of approximately $46.2 million
at March 27, 2010. Because the Company does not intend to
sell the investments at a loss and the Company will not be
required to sell the investments before recovery of its
amortized cost basis, it did not consider the investment in
these securities to be
other-than-temporarily
impaired at March 27, 2010. Further, the securities with
gross unrealized losses had been in a continuous unrealized loss
position for less than 12 months as of March 27, 2010.
Amortized |
Gross Unrealized |
Gross Unrealized |
Estimated Fair Value |
|||||||||||||
As of March 28, 2009: | Cost | Gains | Losses | (Net Carrying Amount) | ||||||||||||
Corporate securities U.S.
|
$ | 29,585 | $ | 40 | $ | (153 | ) | $ | 29,472 | |||||||
Corporate securities − government guaranteed
|
4,600 | 7 | | 4,607 | ||||||||||||
U.S. Government securities
|
32,886 | 157 | (2 | ) | 33,041 | |||||||||||
Agency discount notes
|
21,463 | 147 | (2 | ) | 21,608 | |||||||||||
Total securities
|
$ | 88,534 | $ | 351 | $ | (157 | ) | $ | 88,728 | |||||||
The Companys specifically identified gross unrealized
losses of $157 thousand relates to fourteen different securities
with amortized costs of approximately $20.5 million at
March 28, 2009. Because the Company does not intend to sell
the investments at a loss and the Company will not be required
to sell the investments before recovery of its amortized cost
basis, it did not consider the investment in these securities to
be
other-than-temporarily
impaired at March 28, 2009. Further, the securities with
gross unrealized losses had been in a continuous unrealized loss
position for less than 12 months as of March 28, 2009.
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The cost and estimated fair value of
available-for-sale
investments by contractual maturity were as follows:
March 27, 2010 | March 28, 2009 | |||||||||||||||
Amortized |
Estimated |
Amortized |
Estimated |
|||||||||||||
Cost | Fair Value | Cost | Fair Value | |||||||||||||
Within 1 year
|
$ | 91,096 | $ | 91,239 | $ | 84,901 | $ | 85,101 | ||||||||
After 1 year
|
34,300 | 34,278 | 3,633 | 3,627 | ||||||||||||
$ | 125,396 | $ | 125,517 | $ | 88,534 | $ | 88,728 | |||||||||
The increase in
available-for-sale
investments during fiscal year 2010 is primarily attributable to
cash generated from operations during the period.
3. | Accounts Receivable, net |
The following are the components of accounts receivable, net (in
thousands):
March 27, |
March 28, |
|||||||
2010 | 2009 | |||||||
Gross accounts receivable
|
$ | 24,451 | $ | 11,265 | ||||
Less: Allowance for doubtful accounts
|
(488 | ) | (451 | ) | ||||
Accounts receivable, net
|
$ | 23,963 | $ | 10,814 | ||||
The increase in accounts receivable balances at March 27,
2010, as compared to March 28, 2009, is consistent with
revenue growth experienced at the end of fiscal year 2010 versus
the end of fiscal year 2009.
The following table summarizes the changes in the allowance for
doubtful accounts (in thousands):
Balance, March 29, 2008
|
$ | (404 | ) | |
Write-off of uncollectible accounts, net of recoveries
|
(47 | ) | ||
Balance, March 28, 2009
|
(451 | ) | ||
Write-off of uncollectible accounts, net of recoveries
|
(37 | ) | ||
Balance, March 27, 2010
|
$ | (488 | ) | |
During the fourth quarter of fiscal year 2010, we received a
$0.1 million payment associated with claims in a bankruptcy
case for past-due receivables that had been written off in a
prior fiscal year.
4. | Non-Marketable Securities |
In the third quarter of fiscal year 2010, as part of a
convertible note financing round for Magnum Semiconductor, Inc.
(Magnum), a company that we previously had an
investment in, we received proceeds of $500 thousand from Magnum
as consideration for our ownership interest in Magnum securities
which we determined had been fully impaired in fiscal year 2008.
The proceeds were recorded as a separate line item on the
consolidated statement of operations in operating expenses under
the caption Impairment of (proceeds from)
non-marketable securities.
As of March 27, 2010, we had no remaining investments in
non-marketable securities.
5. | Acquisitions |
On December 8, 2008, we executed an asset purchase
agreement with Thaler Corporation of Tucson, Arizona, an entity
specializing in the manufacture of precision analog and mixed
signal devices. The purchase price of the acquisition was
$1.1 million, which consisted primarily of intangible
assets and inventory. The intangible assets, which were
$0.8 million of the purchase price, are being amortized
over a period of 5 years. Fifty percent of the purchase
price, or $550 thousand, was paid in cash at closing, and the
remaining balance
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was paid on April 8, 2009. This remaining balance of $550
thousand was recorded as Other accrued
liabilities on the consolidated balance sheet as of
March 28, 2009.
On July 24, 2007, we acquired 100 percent of the
outstanding stock of Apex. Apex designs and produces integrated
circuits, hybrids and modules used in a wide range of industrial
and aerospace applications that require high-power precision
analog products, such as PWMs and power amplifiers. These
precision amplifiers are used for driving motors and
piezoelectric devices, programmable power supplies and other
devices requiring high power and precision control. The
acquisition was undertaken to strengthen and diversify our
existing product lines. The results of Apexs operations
have been included in our consolidated financial statements
since the acquisition date. We acquired Apex for a purchase
price of approximately $42.8 million, consisting primarily
of cash and direct acquisition costs. The purchase price was
allocated to the estimated fair value of assets acquired and
liabilities assumed based on independent appraisals and
management estimates. We recorded acquired intangible assets of
$21.2 million, which are being amortized, excluding the
acquired trade name, which is not being amortized, over a
composite life of 15 years. The acquisition resulted in a
purchase price that was in excess of the fair value of the net
assets acquired and, as a result, the Company recorded goodwill
of $6.2 million. During fiscal year 2009, we received
approximately $0.2 million in proceeds from a tax
settlement that reduced the goodwill recognized on this
purchase. The goodwill will not be deductible for tax purposes.
Approximately $1.8 million of the purchase price was
allocated to IPR&D and was expensed upon completion of the
acquisition, which was recorded as a separate line item on the
Statement of Operations under the caption Acquired
in-process research and development in operating
expenses.
6. | Intangibles, net |
The following information details the gross carrying amount and
accumulated amortization of our intangible assets (in thousands):
March 27, 2010 | March 28, 2009 | |||||||||||||||
Gross |
Accumulated |
Gross |
Accumulated |
|||||||||||||
Amount | Amortization | Amount | Amortization | |||||||||||||
Core technology
|
$ | 1,390 | $ | (1,377 | ) | $ | 1,390 | $ | (1,223 | ) | ||||||
License agreements
|
440 | (436 | ) | 440 | (387 | ) | ||||||||||
Existing technology
|
17,235 | (5,325 | ) | 17,235 | (4,328 | ) | ||||||||||
Trademarks
|
2,758 | (320 | ) | 2,758 | (320 | ) | ||||||||||
Non-compete agreements
|
398 | (99 | ) | 398 | (20 | ) | ||||||||||
Customer relationships
|
4,682 | (844 | ) | 4,682 | (508 | ) | ||||||||||
Technology licenses
|
16,125 | (12,731 | ) | 14,950 | (11,758 | ) | ||||||||||
$ | 43,028 | $ | (21,132 | ) | $ | 41,853 | $ | (18,544 | ) | |||||||
In the fourth quarter of fiscal year 2009, we noted several
impairment indicators surrounding our patents acquired from
Tripath in June, 2007. We performed an impairment analysis under
FASB ASC Topic 360 and noted that the undiscounted cash flows
estimated to be generated from these patents were less than the
carrying amount of the assets. We then compared the estimated
fair value of these assets to their carrying amount and
recognized an impairment loss of $2.1 million. The
impairment was recorded as a separate line item on the statement
of operations in operating expenses under the caption
Impairment of intangible assets.
Amortization expense for all intangibles in fiscal years 2010,
2009, and 2008 was $3.6 million, $3.5 million, and
$3.9 million, respectively. The following table details the
estimated aggregate amortization
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expense for all intangibles owned as of March 27, 2010 for
each of the five succeeding fiscal years (in thousands):
For the year ended March 26, 2011
|
$ | 2,988 | ||
For the year ended March 31, 2012
|
$ | 2,746 | ||
For the year ended March 30, 2013
|
$ | 1,722 | ||
For the year ended March 29, 2014
|
$ | 1,422 | ||
For the year ended March 28, 2015
|
$ | 1,303 |
7. | Commitments and Contingencies |
Facilities
and Equipment Under Operating Lease Agreements
With the exception of the Apex facility in Tucson, Arizona, we
lease our facilities and certain equipment under operating lease
agreements, some of which have renewal options. Certain of these
arrangements provide for lease payment increases based upon
future fair market rates. As of May 1, 2010, our principal
leased facilities, located in Austin, Texas, consisted of
approximately 214,000 square feet of office space. This
leased space includes our headquarters and engineering facility,
which has 197,000 square feet with lease terms that extend
into calendar year 2012, excluding lease extension options, and
17,000 square feet of leased space at our failure analysis
facility with lease terms that extend into calendar year 2013.
We have subleased approximately 38,000 square feet of space
at our Austin headquarters with sublease terms that extend into
calendar year 2012.
The aggregate minimum future rental commitments under all
operating leases, net of sublease income, for the following
fiscal years are (in thousands):
Net Facilities |
Equipment |
Total |
||||||||||||||||||
Facilities | Subleases | Commitments | Commitments | Commitments | ||||||||||||||||
2011
|
$ | 5,372 | $ | 922 | $ | 4,450 | $ | 13 | $ | 4,463 | ||||||||||
2012
|
4,828 | 907 | 3,921 | 7 | 3,928 | |||||||||||||||
2013
|
2,045 | 382 | 1,663 | 6 | 1,669 | |||||||||||||||
2014
|
38 | | 38 | 6 | 44 | |||||||||||||||
2015
|
| | | 2 | 2 | |||||||||||||||
Thereafter
|
| | | | | |||||||||||||||
Total minimum lease payments
|
$ | 12,283 | $ | 2,211 | $ | 10,072 | $ | 34 | $ | 10,106 | ||||||||||
Total rent expense was approximately $4.4 million,
$5.9 million, and $7.3 million, for fiscal years 2010,
2009, and 2008, respectively. Sublease rental income was
$1.2 million, $2.1 million, and $3.0 million, for
fiscal years 2010, 2009, and 2008, respectively. During fiscal
years 2010, 2009, and 2008 we recorded approximately
$0.4 million, $0.1 million, and $0.8 million in
rent expense reductions, respectively, to adjust our loss
contingency accrual for a change in sublease assumptions with
regards to our facilities in Austin, Texas and Fremont,
California.
As of March 27, 2010, a total of $1.6 million related
to vacated leases remained accrued, of which $1.0 million
has been classified as long-term. These amounts are included in
the table above. The $1.3 million in facilities
restructuring accruals that existed for these leases as of
March 27, 2010 are discussed in greater detail in
Note 10 Restructuring Costs and Other.
On January 29, 2008, Cirrus Investments, L.P. (Cirrus
Investments), an entity unrelated to the Company, filed
suit against the Company, and others, in the Superior Court of
California, County of Santa Clara, alleging breach of
commercial leases and holdover rent with respect to two
properties we leased from Cirrus Investments in Fremont,
California. Cirrus Investments complaint primarily related
to alleged violations of certain restoration obligations that
the Company had at the end of the lease term of these two
properties.
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Cirrus Logic settled this matter on October 8, 2008, via
execution of a Settlement Agreement for payment of approximately
$1.0 million to Cirrus Investments.
Wafer,
Assembly and Test Purchase Commitments
We rely primarily on third-party foundries for our wafer
manufacturing needs. As of March 27, 2010, we had
agreements with multiple foundries for the manufacture of
wafers. None of these foundry agreements have volume purchase
commitments or take or pay clauses. The agreements
provide for purchase commitments based on purchase orders.
Cancellation fees or other charges may apply and are generally
dependent upon whether wafers have been started or the stage of
the manufacturing process at which the notice of cancellation is
given. As of March 27, 2010, we had foundry commitments of
$16.4 million.
In addition to our wafer supply arrangements, we contract with
third-party assembly vendors to package the wafer die into
finished products. Assembly vendors provide fixed-cost-per-unit
pricing, as is common in the semiconductor industry. We had
non-cancelable assembly purchase orders with numerous vendors
totaling $2.6 million at March 27, 2010.
We have transitioned the majority of our test services to
outside third party contractors. Test vendors provide
fixed-cost-per-unit pricing, as is common in the semiconductor
industry. Our total non-cancelable commitment for outside test
services as of March 27, 2010 was $3.3 million.
Other open purchase orders as of March 27, 2010 amount to
$1.0 million and primarily relate to raw materials costs
incurred in our facility in Tucson, Arizona, which continues to
serve as the assembly and test facility for our Apex products.
8. | Legal Matters |
Derivative
Lawsuits
On January 5, 2007, a purported stockholder filed a
derivative lawsuit in the state district court in Travis County,
Texas against current and former officers and directors of
Cirrus Logic and against the Company, as a nominal defendant,
alleging various breaches of fiduciary duties, conspiracy,
improper financial reporting, insider trading, violations of the
Texas Securities Act, unjust enrichment, accounting, gross
mismanagement, abuse of control, rescission, and waste of
corporate assets related to certain prior grants of stock
options by the Company. Our response to the lawsuit was filed on
April 20, 2007. On June 12, 2007, the state district
court stayed the lawsuit until a final determination was reached
in the District Court actions described below.
Two additional lawsuits arising out of the same claims were
filed in federal court in the United States District Court for
the Western District of Texas Austin Division.
Between March 19, 2007, and March 30, 2007, two
purported stockholders filed derivative lawsuits related to the
Companys prior stock option grants against current and
former officers and directors of Cirrus Logic and against the
Company, as a nominal defendant. The individual defendants named
in these lawsuits overlap, but not completely, with the state
suit. The lawsuits allege many of the causes of action alleged
in the Texas state court suit, but also include claims for
alleged violations of Section 10(b) of the Exchange Act and
Rule 10b-5,
violations of Section 14(a) of the Exchange Act and
violations of Section 20(a) of the Exchange Act.
On December 19, 2008, a Stipulation of Settlement (the
Original Stipulation) between the parties was filed
with the federal court. The Original Stipulation provided for
the proposed settlement of all pending stockholder derivative
lawsuits relating to the Companys historical stock option
granting practices. The terms of the settlement included:
(1) the adoption by Cirrus Logic of a variety of corporate
governance measures, including measures that relate to and
address many of the underlying issues in the derivative
lawsuits; (2) a release of claims against all defendants
and the dismissal of the derivative lawsuits with prejudice; and
(3) the payment by the Companys Directors and
Officers insurer of $2.85 million to the
plaintiffs lawyers in payment in full of plaintiffs
claims for attorneys fees and expenses. As part of the
Original Stipulation, the defendants denied any wrongdoing or
liability against them as it relates to the claims and
contentions alleged by the plaintiffs in the lawsuits. On
December 30, 2008, the federal court denied the
parties proposed stipulation.
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On March 13, 2009, a Revised Stipulation of Settlement (the
Revised Stipulation) was filed with the federal
court. The Revised Stipulation modified the terms of the
Original Stipulation to address the concerns of the Court raised
in the Courts denial of the Original Stipulation.
Specifically, the terms of the Revised Stipulation include:
(1) the extension of the term of the proposed corporate
governance changes to seven years rather than four years, and
the extension of governance changes specifically regarding stock
options to remain in effect indefinitely, subject to stockholder
approved changes after seven years; (2) a release of claims
against all defendants and the dismissal of the derivative
lawsuits with prejudice; (3) the payment by the
Companys Directors and Officers insurer of
$2.85 million to the Company; and (4) the withdrawal
by plaintiffs of any request for an award of their
attorneys fees and expenses.
The Court approved the Revised Stipulation on May 28, 2009
and entered judgment thereon. On June 17, 2009, the Company
received proceeds of a net $2.7 million dollars from its
insurance carrier as part of the final settlement of this
litigation. The parties dismissed the remaining state district
court action on July 27, 2009.
Silvaco
Data Systems
On December 8, 2004, Silvaco Data Systems
(Silvaco) filed suit against us, and others, in
Santa Clara County Superior Court (the Court),
alleging misappropriation of trade secrets, conversion, unfair
business practices, and civil conspiracy. Silvacos
complaint stems from a trade secret dispute between Silvaco and
a software vendor, Circuit Semantics, Inc., who supplied us with
certain software design tools. Silvaco alleges that our use of
Circuit Semantics design tools infringes upon
Silvacos trade secrets and that we are liable for
compensatory damages in the sum of $10 million. Silvaco has
not indicated how it will substantiate this amount of damages
and we are unable to reasonably estimate the amount of damages,
if any.
On January 25, 2005, we answered Silvacos complaint
by denying any wrong-doing. In addition, we filed a
cross-complaint against Silvaco alleging breach of contract
relating to Silvacos refusal to provide certain technology
that would enable us to use certain unrelated software tools.
On July 5, 2007, the Court granted our motion for judgment
on the pleadings, determining that all claims except for the
misappropriation of trade secrets claims were pre-empted by
trade secret law. On October 15, 2007, the Court granted
our motion for summary judgment on the trade secret
misappropriation claim because we presented undisputed evidence
that Silvaco will be unable to prove that Cirrus misappropriated
Silvacos trade secrets.
On February 12, 2008, we settled our cross-complaint
against Silvaco, whereby Silvaco agreed to pay Cirrus $30,000 as
full and final restitution of all claims that could have been
alleged in the cross-complaint.
Based on these orders and the settlement of the cross-complaint,
the Court entered judgment in our favor on Silvacos
complaint and our cross-complaint on March 4, 2008. As a
result of the favorable judgment, on May 16, 2008, the
court awarded approximately $59,000 for our expenses in
defending the suit.
On April 7, 2008, Silvaco filed a notice of appeal on these
matters. The appeal was heard by the Court of Appeal of the
State of California, Sixth Appellate District on April 13,
2010. On April 29, 2010, the appellate court affirmed the
judgment of the district court, finding that the district court
did not err by granting summary judgment in favor of Cirrus
Logic. Silvaco has until June 8, 2010, to petition the
California Supreme Court for review of the case.
Other
Claims
From time to time, other various claims, charges and litigation
are asserted or commenced against us arising from, or related
to, contractual matters, intellectual property, employment
disputes, as well as other issues. Frequent claims and
litigation involving these types of issues are not uncommon in
our industry. As to any of these claims or litigation, we cannot
predict the ultimate outcome with certainty.
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9. | Fair Value Measurements |
The Company adopted certain provisions of FASB ASC Topic 820 as
of March 30, 2008, the beginning of fiscal year 2009, to
measure the fair value of certain of its financial assets
required to be measured on a recurring basis. Under FASB ASC
Topic 820, based on the observability of the inputs used in the
valuation techniques, the Company is required to provide the
following information according to the fair value hierarchy. The
fair value hierarchy ranks the quality and reliability of the
information used to determine fair values. Financial assets and
liabilities carried at fair value will be classified and
disclosed in one of the following three categories:
§ | Level 1 Quoted prices in active markets for identical assets or liabilities. | |
§ | Level 2 Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | |
§ | Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
As of March 27, 2010, the Companys cash equivalents
and restricted investments of $22.0 million, and short and
long-term investments of $119.7 million, are all valued
using quoted prices generated by market transactions involving
identical assets, or Level 1 assets as defined under FASB
ASC Topic 820.
Effective in fiscal year 2009, the Company adopted a new
accounting standard which defines fair value, establishes a
framework for measuring fair value and expands on required
disclosures regarding fair value measurements. This standard
applies to reported balances that are required or permitted to
be measured at fair value under existing accounting
pronouncements accordingly, but does not require any new fair
value measurements of previously reported balances. The
following table summarizes the carrying amount and fair value of
the Companys financial instruments as of March 27,
2010 (in thousands):
Carrying |
Fair |
|||||||
Financial instruments
|
Amount | Value | ||||||
Cash and cash equivalents
|
$ | 16,109 | $ | 16,109 | ||||
Restricted investments
|
5,855 | 5,855 | ||||||
Marketable securities
|
85,384 | 85,384 | ||||||
Long term marketable securities
|
34,278 | 34,278 | ||||||
$ | 141,626 | $ | 141,626 | |||||
Financial assets and liabilities with carrying amounts
approximating fair value include cash and cash equivalents,
restricted investments, and marketable securities. The carrying
amount of these financial assets and liabilities approximates
fair value because of their short maturity. The fair values of
long-term marketable securities are valued using quoted prices
generated by market transactions involving identical assets.
10. | Restructuring Costs and Other |
During fiscal year 2010, we recorded net restructuring charges
of $0.5 million as a separate line item on the statement of
operations in operating expenses under the caption
Restructuring costs and other, net. The
restructuring charge primarily relates to a change in sublease
assumptions for the Companys corporate offices in Austin,
Texas.
During fiscal year 2008, we recorded net restructuring charges
of $10.5 million as a separate line item on the statement
of operations in operating expenses under the caption
Restructuring costs and other, net. This net
charge was comprised primarily of two separate steps taken to
improve our competitive cost structure. First, we committed to a
plan to close Caretta, a subsidiary based in Shanghai, China.
This action eliminated approximately 30 positions in China
during the Companys fourth fiscal quarter, and resulted in
the Company recording a charge of approximately
$11.1 million, which consisted primarily of non-cash
charges of
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$6.5 million for goodwill and $3.6 million related to
intangibles, as well as approximately $0.9 million in cash
payments for the affected employees. These charges reduced the
carrying value of the Caretta-related intangible assets to zero,
an amount that reflects the Companys decision to no longer
market Carettas power management ICs for the
single-cell lithium ion battery market. Also in the fourth
quarter of fiscal year 2008, we made a strategic decision to
streamline our organization structure, which resulted in a
further worldwide headcount reduction of 61 employees. The
restructuring charge associated with this activity was
$0.9 million, and was primarily related to employee
severance costs. Also in fiscal year 2008, in connection with
the expiration of a lease agreement in Fremont, California in
December 2007, we recorded a $1.5 million reduction to the
fiscal year 2004 and 2006 restructuring liabilities to reduce
the accrual to the estimated final settlement amounts.
The following table sets forth the activity in our fiscal year
2004 restructuring accrual (in thousands):
Facilities |
||||||||||||
Severance | Abandonment | Total | ||||||||||
Balance, March 29, 2003
|
$ | | $ | | $ | | ||||||
Fiscal year 2004 provision
|
1,688 | 6,205 | 7,893 | |||||||||
Cash payments, net
|
(1,514 | ) | (908 | ) | (2,422 | ) | ||||||
Balance, March 27, 2004
|
174 | 5,297 | 5,471 | |||||||||
Fiscal year 2005 provision
|
| 178 | 178 | |||||||||
Cash payments, net
|
(174 | ) | (944 | ) | (1,118 | ) | ||||||
Balance, March 26, 2005
|
| 4,531 | 4,531 | |||||||||
Fiscal year 2006 provision
|
| 627 | 627 | |||||||||
Cash payments, net
|
| (954 | ) | (954 | ) | |||||||
Balance, March 25, 2006
|
| 4,204 | 4,204 | |||||||||
Fiscal year 2007 provision
|
| 214 | 214 | |||||||||
Cash payments, net
|
| (1,124 | ) | (1,124 | ) | |||||||
Balance, March 31, 2007
|
| 3,294 | 3,294 | |||||||||
Fiscal year 2008 provision
|
| 14 | 14 | |||||||||
Cash payments, net
|
| (1,069 | ) | (1,069 | ) | |||||||
Balance, March 29, 2008
|
| 2,239 | 2,239 | |||||||||
Fiscal year 2009 provision
|
| 147 | 147 | |||||||||
Cash payments, net
|
| (423 | ) | (423 | ) | |||||||
Balance, March 28, 2009
|
| 1,963 | 1,963 | |||||||||
Fiscal year 2010 provision
|
| 604 | 604 | |||||||||
Cash payments, net
|
| (1,226 | ) | (1,226 | ) | |||||||
Balance, March 27, 2010
|
$ | | $ | 1,341 | $ | 1,341 | ||||||
Fiscal year 2010 activity reflected a net reduction in the 2004
restructuring accrual of $0.6 million, which included an
increase in the provision for a $0.5 million restructuring
charge brought about by a change in sublease assumptions, as
well as normal accretion of $0.1 million for the period.
Fiscal year 2009 activity reflected a net reduction in the 2004
restructuring accrual of $0.3 million, which included an
increase in the provision for normal accretion for the period.
The fiscal year 2008 provision included a $0.3 million
reduction to the facilities abandonment accrual in recognition
of the end of the lease term in December 2007, which was offset
by additions to the accrual for accretion during the period.
As of March 27, 2010, we have a remaining restructuring
accrual of $1.3 million, primarily related to net lease
expenses that will be paid over the respective lease terms
through fiscal year 2013, along with other anticipated lease
termination costs. We have classified the short-term portion of
our restructuring activities, $0.7 million, as
Other accrued liabilities.
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11. | Employee Benefit Plans |
We have a 401(k) Profit Sharing Plan (the Plan)
covering all of our qualifying domestic employees. Under the
Plan, employees may elect to contribute any percentage of their
annual compensation up to the annual IRS limitations. We match
50 percent of the first 6 percent of the
employees annual contribution to the plan. We made
matching employee contributions of $0.9 million,
$0.9 million, and $0.8 million during fiscal years
2010, 2009, and 2008, respectively.
12. | Stockholders Equity |
Share
Repurchase Program
On January 29, 2009, we publicly announced that our Board
authorized a share repurchase program of up to $20 million.
The repurchases will be funded from existing cash and may be
effected from time to time depending on general market and
economic conditions and in accordance with applicable securities
laws. As of March 27, 2010, no share repurchases have
occurred under this share repurchase program.
On January 30, 2008, we announced that our Board authorized
a share repurchase program of up to $150 million. The
Company repurchased 13.3 million shares of its common stock
for $71.1 million during fiscal year 2008, which included
$8.3 million of accrued share repurchases that were
cash-settled in fiscal year 2009. During the first quarter of
fiscal year 2009, we continued our stock repurchase activity by
repurchasing a total of 11.2 million shares of our common
stock for $78.9 million as part of this program. As of
April 28, 2008, the share repurchase program was completed,
with a cumulative 24.5 million shares acquired at a total
cost of $150 million. All of these shares were repurchased
in the open market and were funded from existing cash. All
shares of our common stock that were repurchased were cancelled
as of June 28, 2008.
Employee
Stock Purchase Plan
In March 1989, we adopted the 1989 Employee Stock Purchase Plan
(ESPP). The plan had a 20 year duration, and
expired under its own terms effective May 26, 2009.
Preferred
Stock
On May 24, 2005, the Board approved an amendment (the
Amendment) to the Amended and Restated Rights
Agreement, dated as of February 17, 1999, between the
Company and BankBoston, N.A., as Rights Agent. The Amendment
accelerated the termination of the Companys preferred
stock purchase rights (the Rights) from the close of
business on May 4, 2008, to the close of business on
May 26, 2005. On May 25, 2005, the Chief Financial
Officer (CFO) signed a Certificate of Elimination
that was subsequently filed with the Secretary of State of the
State of Delaware which had the effect of eliminating from the
Companys Certificate of Incorporation all references to
the Series A Participating Preferred Stock of the Company
and returning these shares to the status of undesignated shares
of authorized Preferred Stock of the Company. We have not issued
any of the authorized 1.5 million shares of Series A
Participating Preferred Stock.
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Stock
Compensation Expense
The following table summarizes the effects of stock-based
compensation on cost of goods sold, research and development,
sales, general and administrative, pre-tax income (loss), and
net income after taxes for options granted under the
Companys equity incentive plans (in thousands, except per
share amounts; unaudited):
Fiscal Years Ended | ||||||||||||
March 27, |
March 28, |
March 29, |
||||||||||
2010 | 2009 | 2008 | ||||||||||
Cost of sales
|
$ | 212 | $ | 212 | $ | 190 | ||||||
Research and development
|
1,882 | 1,923 | 1,897 | |||||||||
Sales, general and administrative
|
3,224 | 3,031 | 3,187 | |||||||||
Effect on pre-tax income (loss)
|
5,318 | 5,166 | 5,274 | |||||||||
Income Tax Benefit
|
| | | |||||||||
Total share based compensation expense (net of taxes)
|
$ | 5,318 | $ | 5,166 | $ | 5,274 | ||||||
Share based compensation effects on basic earnings (loss) per
share
|
$ | 0.08 | $ | 0.08 | $ | 0.06 | ||||||
Share based compensation effects on diluted earnings (loss) per
share
|
$ | 0.08 | $ | 0.08 | $ | 0.06 | ||||||
Share based compensation effects on operating activities cash
flow
|
5,318 | 5,166 | 5,274 | |||||||||
Share based compensation effects on financing activities cash
flow
|
| | |
The total share based compensation expense included in the table
above and which is attributable to restricted stock awards was
$0.1 million, $0.2 million, and $0.2 million for
fiscal years 2010, 2009, and 2008, respectively.
During fiscal year 2010, we received a net $2.0 million
from the exercise of options granted under the Companys
Stock Plans.
The total intrinsic value of options exercised during fiscal
year 2010, 2009, and 2008 was $0.8 million,
$0.9 million, and $2.1 million, respectively.
Intrinsic value represents the difference between the market
value of Cirrus Logic common stock at the time of exercise and
the strike price of the option.
As of March 27, 2010, there was $11.6 million of
compensation cost related to non-vested stock option awards
granted under the Companys equity incentive plans not yet
recognized in the Companys financial statements. The
unrecognized compensation cost is expected to be recognized over
a weighted average period of 1.37 years.
The Company currently is granting equity awards from the 2006
Stock Incentive Plan (the Plan), which was approved
by stockholders in July 2006. The Plan provides for granting of
stock options, restricted stock awards, performance awards,
phantom stock awards, and bonus stock awards, or any combination
of the foregoing. To date, the Company has granted stock options
and restricted stock awards under the Plan. Stock options
generally vest over a four-year period and are exercisable for a
period of ten years from the date of grant. Restricted stock
awards generally vest ratably over a period of four years.
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As of March 27, 2010, approximately 20.3 million
shares of common stock were reserved for issuance under the
Option Plans. Additional information with respect to stock
option activity is as follows (in thousands, except per share
amounts):
Outstanding Options | ||||||||||||
Weighted |
||||||||||||
Options Available |
Average |
|||||||||||
for Grant | Number | Exercise Price | ||||||||||
Balance, March 31, 2007
|
16,706 | 9,020 | $ | 8.54 | ||||||||
Option plans terminated
|
(2,311 | ) | | | ||||||||
Options granted
|
(3,072 | ) | 3,011 | 6.71 | ||||||||
Options exercised
|
| (1,006 | ) | 5.50 | ||||||||
Options forfeited
|
2,489 | (525 | ) | 7.00 | ||||||||
Options expired
|
| (1,964 | ) | 12.43 | ||||||||
Balance, March 29, 2008
|
13,812 | 8,536 | $ | 7.94 | ||||||||
Option plans terminated
|
(652 | ) | | | ||||||||
Options granted
|
(2,117 | ) | 2,068 | 5.18 | ||||||||
Options exercised
|
| (501 | ) | 4.72 | ||||||||
Options forfeited
|
1,061 | (436 | ) | 6.71 | ||||||||
Options expired
|
| (604 | ) | 9.31 | ||||||||
Balance, March 28, 2009
|
12,104 | 9,063 | $ | 7.45 | ||||||||
Option plans terminated
|
(477 | ) | | | ||||||||
Options granted
|
(2,471 | ) | 2,471 | 5.53 | ||||||||
Options exercised
|
| (401 | ) | 5.01 | ||||||||
Options forfeited
|
774 | (264 | ) | 5.44 | ||||||||
Options expired
|
| (490 | ) | 9.63 | ||||||||
Balance, March 27, 2010
|
9,930 | 10,379 | $ | 6.74 | ||||||||
Additional information with regards to outstanding options that
are vesting, expected to vest, or exercisable as of
March 27, 2010 is as follows:
Number of |
Weighted |
Weighted Average |
Aggregate |
|||||||||||||
Options |
Average |
Remaining Contractual |
Intrinsic Value |
|||||||||||||
(thousands) | Exercise Price | Term (years) | (thousands) | |||||||||||||
Vested and expected to vest
|
9,956 | $ | 6.78 | 6.77 | $ | 18,098 | ||||||||||
Exercisable
|
5,933 | $ | 7.55 | 5.40 | $ | 9,109 |
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The following table summarizes information regarding outstanding
and exercisable options as of March 27, 2010:
Options Outstanding | Options Exercisable | |||||||||||||||||||
Weighted Average |
Weighted |
Number |
Weighted |
|||||||||||||||||
Number |
Remaining |
Average Exercise |
Exercisable |
Average |
||||||||||||||||
Range of Exercise Prices
|
(in thousands) | Contractual Life | Price | (in thousands) | Exercise Price | |||||||||||||||
$1.83 - $ 5.02
|
1,039 | 5.53 | $ | 4.07 | 726 | $ | 4.01 | |||||||||||||
$5.14 - $ 5.20
|
638 | 4.79 | 5.16 | 611 | 5.16 | |||||||||||||||
$5.25 - $ 5.25
|
1,542 | 8.52 | 5.25 | 528 | 5.25 | |||||||||||||||
$5.27 - $ 5.53
|
274 | 9.00 | 5.47 | 124 | 5.47 | |||||||||||||||
$5.55 - $ 5.55
|
1,864 | 9.53 | 5.55 | 0 | 0.00 | |||||||||||||||
$5.66 - $ 6.20
|
532 | 7.07 | 5.78 | 346 | 5.81 | |||||||||||||||
$6.51 - $ 6.51
|
1,278 | 7.44 | 6.51 | 765 | 6.51 | |||||||||||||||
$6.56 - $ 7.26
|
1,514 | 5.57 | 7.06 | 1,319 | 7.10 | |||||||||||||||
$7.32 - $ 8.41
|
1,054 | 6.19 | 7.84 | 877 | 7.86 | |||||||||||||||
$8.48 - $44.13
|
644 | 1.27 | 18.78 | 637 | 18.90 | |||||||||||||||
10,379 | 6.86 | $ | 6.74 | 5,933 | $ | 7.55 | ||||||||||||||
As of March 27, 2010, and March 28, 2009, the number
of options exercisable was 5.9 million and
5.2 million, respectively.
In accordance with the provisions of FASB ASC Topic 718,
Compensation Stock Compensation,
options outstanding that are expected to vest are presented net
of estimated future option forfeitures, which are estimated as
compensation costs are recognized. Options with a fair value of
$4.5 million, $4.3 million, and $3.9 million
became vested during fiscal years 2010, 2009, and 2008,
respectively.
Restricted
Stock Awards
In fiscal year 2009, the Company granted restricted stock awards
to select employees. The grant date for these awards is equal to
the measurement date. These awards are valued as of the
measurement date and amortized over the requisite vesting
period. A summary of the activity for restricted stock awards in
fiscal years 2010, 2009 and 2008, which is a subset of the stock
option information presented above, is presented below (in
thousands, except for per share amounts):
Weighted |
||||||||||||
Average |
||||||||||||
Grant Date |
Aggregate |
|||||||||||
Number of |
Fair Value |
Intrinsic |
||||||||||
Shares | (per share) | value(1) | ||||||||||
March 31, 2007
|
| | ||||||||||
Granted
|
61 | $ | 7.75 | |||||||||
Vested
|
| | | |||||||||
Forfeited
|
| | ||||||||||
March 29, 2008
|
61 | 7.75 | ||||||||||
Granted
|
48 | 5.73 | ||||||||||
Vested
|
(15 | ) | | 86 | ||||||||
Forfeited
|
(21 | ) | | |||||||||
March 28, 2009
|
73 | $ | 6.86 | |||||||||
Granted
|
| | ||||||||||
Vested
|
(11 | ) | | 55 | ||||||||
Forfeited
|
(13 | ) | | |||||||||
March 27, 2010
|
49 | $ | 6.20 | |||||||||
(1) Represents the value of Cirrus stock on the date that
the restricted stock vested.
Page 61 of 72
Table of Contents
Stock-Based
Compensation
We estimated the fair value of each option grant on the date of
grant using the Black-Scholes option-pricing model using a
dividend yield of zero and the following additional assumptions:
Year Ended | ||||||||||||
March 27, 2010 | March 28, 2009 | March 29, 2008 | ||||||||||
Expected stock price volatility
|
50.71-56.59 | % | 47.23-59.22 | % | 39.13-50.08 | % | ||||||
Risk-free interest rate
|
1.80-2.25 | % | 1.48-2.99 | % | 2.26-4.95 | % | ||||||
Expected lives (in years)
|
4.33-4.64 | 4.08-4.23 | 2.51-3.19 |
Using the Black-Scholes option valuation model, the weighted
average estimated fair values of employee stock options granted
in fiscal years 2010, 2009, and 2008, were $2.89, $2.82, and
$2.70, respectively.
13. | Accumulated Other Comprehensive Income (Loss) |
Our accumulated other comprehensive income (loss) is comprised
of foreign currency translation adjustments and unrealized gains
and losses on investments classified as
available-for-sale.
The foreign currency translation adjustments are not currently
adjusted for income taxes because they relate to indefinite
investments in
non-U.S. subsidiaries
that have since changed from a foreign functional currency to a
U.S dollar functional currency.
The following table summarizes the changes in the components of
accumulated other comprehensive income (loss) (in thousands):
Foreign |
Unrealized Gains |
|||||||||||
Currency | (Losses) on Securities | Total | ||||||||||
Balance, March 29, 2008
|
$ | (770 | ) | $ | 546 | $ | (224 | ) | ||||
Current-period activity
|
| (352 | ) | (352 | ) | |||||||
Balance, March 28, 2009
|
(770 | ) | 194 | (576 | ) | |||||||
Current-period activity
|
| (73 | ) | (73 | ) | |||||||
Balance, March 27, 2010
|
$ | (770 | ) | $ | 121 | $ | (649 | ) | ||||
14. | Income Taxes |
Income (loss) before income taxes consisted of (in thousands):
Year Ended | ||||||||||||
March 27, |
March 28, |
March 29, |
||||||||||
2010 | 2009 | 2008 | ||||||||||
United States
|
$ | 24,289 | $ | 3,739 | $ | 9,606 | ||||||
Non-U.S.
|
2,394 | 2,418 | (12,407 | ) | ||||||||
$ | 26,683 | $ | 6,157 | $ | (2,801 | ) | ||||||
Page 62 of 72
Table of Contents
The provision (benefit) for income taxes consists of (in
thousands):
Year Ended | ||||||||||||
March 27, |
March 28, |
March 29, |
||||||||||
2010 | 2009 | 2008 | ||||||||||
Current:
|
||||||||||||
Federal
|
$ | (75 | ) | $ | (142 | ) | $ | | ||||
State
|
8 | 6 | | |||||||||
Non-U.S.
|
264 | 167 | 258 | |||||||||
Total current tax provision (benefit)
|
$ | 197 | $ | 31 | $ | 258 | ||||||
Deferred:
|
||||||||||||
U.S.
|
$ | (11,787 | ) | $ | 2,660 | $ | 4,568 | |||||
Non-U.S.
|
(125 | ) | (9 | ) | (1,781 | ) | ||||||
Total deferred tax provision (benefit)
|
(11,912 | ) | 2,651 | 2,787 | ||||||||
Total tax provision (benefit)
|
$ | (11,715 | ) | $ | 2,682 | $ | 3,045 | |||||
The provision (benefit) for income taxes differs from the amount
computed by applying the statutory federal rate to pretax income
(loss) as follows (in percentages):
Year Ended | ||||||||||||
March 27, |
March 28, |
March 29, |
||||||||||
2010 | 2009 | 2008 | ||||||||||
Expected income tax provision (benefit) at the U.S. federal
statutory rate
|
35.0 | 35.0 | (35.0 | ) | ||||||||
Foreign earnings repatriation
|
| | 82.5 | |||||||||
In-process research and development
|
| | 22.0 | |||||||||
Valuation allowance changes affecting the provision of income
taxes
|
(80.5 | ) | (12.4 | ) | (98.0 | ) | ||||||
Foreign taxes at different rates
|
(2.7 | ) | (11.6 | ) | 108.4 | |||||||
Foreign earnings taxed in the U.S.
|
0.2 | 6.6 | 1.5 | |||||||||
Refundable R&D credit
|
(0.3 | ) | (2.3 | ) | | |||||||
Stock compensation
|
4.2 | 17.3 | 26.4 | |||||||||
Nondeductible expenses
|
0.4 | 11.3 | 2.0 | |||||||||
Other
|
(0.2 | ) | (0.3 | ) | (1.1 | ) | ||||||
Provision (benefit) for income taxes
|
(43.9 | ) | 43.6 | 108.7 | ||||||||
Page 63 of 72
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Significant components of our deferred tax assets and
liabilities are (in thousands):
Year Ended | ||||||||
March 27, |
March 28, |
|||||||
2010 | 2009 | |||||||
Deferred tax assets:
|
||||||||
Inventory valuation
|
$ | 2,617 | $ | 3,123 | ||||
Accrued expenses and allowances
|
3,127 | 2,949 | ||||||
Net operating loss carryforwards
|
168,832 | 174,418 | ||||||
Research and development tax credit carryforwards
|
33,552 | 36,278 | ||||||
State tax credit carryforwards
|
532 | 539 | ||||||
Capitalized research and development
|
20,353 | 27,980 | ||||||
Depreciation and Amortization
|
315 | 442 | ||||||
Other
|
15,287 | 13,859 | ||||||
Total deferred tax assets
|
$ | 244,615 | $ | 259,588 | ||||
Valuation allowance for deferred tax assets
|
(226,213 | ) | (252,551 | ) | ||||
Net deferred tax assets
|
$ | 18,402 | $ | 7,037 | ||||
Deferred tax liabilities:
|
||||||||
Acquisition intangibles
|
$ | 6,393 | $ | 6,960 | ||||
Total deferred tax liabilities
|
$ | 6,393 | $ | 6,960 | ||||
Total net deferred tax assets
|
$ | 12,009 | $ | 77 | ||||
As of March 27, 2010, we have $12.0 million of net
deferred tax assets. We have classified $12.5 million on
the consolidated balance sheet within current assets as
Deferred tax assets, $0.3 million as
long-term assets under Other assets, and
$0.9 million as Other long term
liabilities.
The valuation allowance decreased by $25.9 million in
fiscal year 2010 and increased by $1.4 million in fiscal
year 2009. During fiscal year 2010, $11.8 million of the
decrease was related to a release of the valuation allowance
associated with the U.S. deferred tax asset. This decrease
was based on an evaluation of the deferred tax assets that we
consider being more likely than not to be utilized. At
March 27, 2010, we had federal net operating loss
carryforwards of $461.5 million. Of that amount,
$64.4 million relates to companies we acquired during
fiscal year 2002 and are, therefore, subject to certain
limitations under Section 382 of the Internal Revenue Code.
In addition, approximately $32.8 million of the federal net
operating loss is attributable to employee stock option
deductions, the benefit from which will be allocated to
additional paid-in capital rather than current earnings if
subsequently realized. We have net operating losses in various
states that total $107 million. The federal net operating
loss carryforwards expire in fiscal years 2011 through 2030. The
state net operating loss carryforwards expire in fiscal years
2011 through 2030. We also have
non-U.S. net
operating losses of $4.1 million, of which
$1.8 million does not expire. The remaining
$2.3 million expires in calendar years 2010 through 2013.
There are federal research and development credit carryforwards
of $18.9 million that expire in fiscal years 2011 through
2030. There are $14.7 million of state research and
development credits. Of that amount, $3.0 million will
expire in fiscal years 2022 through 2027. The remaining
$11.7 million of state research and development credits are
not subject to expiration. The state investment credits of
$0.3 million will expire in fiscal year 2011.
We have approximately $327 thousand of cumulative undistributed
earnings in certain
non-U.S. subsidiaries.
We have not recognized a deferred tax liability on these
undistributed earnings because the Company currently intends to
reinvest these earnings in operations outside the U.S. The
unrecognized deferred tax liability on these earnings is
approximately $118 thousand. With our current tax attributes, if
the earnings were distributed, we would most likely not accrue
any additional current income tax expense because this income
would be offset by our net operating loss carryforwards and
other future deductions.
Page 64 of 72
Table of Contents
We adopted the provisions of FIN 48, now codified as ASC
Topic 740, on April 1, 2007. As a result of the adoption of
this pronouncement, we recognized a $1.6 million decrease
in the liability for unrecognized tax benefits with a
corresponding increase to the balance of retained earnings as of
April 1, 2007. A reconciliation of the beginning and ending
amounts of unrecognized tax benefits is as follows (in
thousands):
Balance at March 28, 2009
|
$ | 85 | ||
Additions based on tax positions related to the current year
|
| |||
Reductions for tax positions of prior years
|
| |||
Settlements
|
| |||
Reductions related to expirations of statutes of limitation
|
| |||
Balance at March 27, 2010
|
$ | 85 | ||
All of the unrecognized tax benefits are associated with tax
carryforwards that, if recognized, would have no effect on the
effective tax rate because of the valuation allowance that has
been placed on the majority all of our U.S. deferred tax
assets. The Company does not believe that its unrecognized tax
benefits will significantly increase or decrease during the next
12 months.
We accrue interest and penalties related to unrecognized tax
benefits as a component of the provision for income taxes. We
did not record any interest or penalties during fiscal year 2010.
The Company and its subsidiaries are subject to
U.S. federal income tax as well as income tax in multiple
state and foreign jurisdictions. Fiscal years 2006 through 2010
remain open to examination by the major taxing jurisdictions to
which we are subject. During fiscal year 2010, the Internal
Revenue Service issued a no change letter in
connection with the audit of our fiscal year 2006 federal income
tax return.
15. | Segment Information |
We are focused on becoming a leader in high-precision analog and
mixed-signal ICs for a broad range of audio and energy markets.
We sell audio converters, audio interface devices, audio
processors and audio amplification products for these markets,
as well as hybrids and modules for high-power applications. We
also provide complete system reference designs based on our
technology that enable our customers to bring products to market
in a timely and cost-effective manner. We determine our
operating segments in accordance with FASB ASC Topic 280,
Segment Reporting. Our Chief Executive
Officer (CEO) has been identified as the chief
operating decision maker as defined by FASB ASC Topic 280.
Our CEO receives and uses enterprise-wide financial information
to assess financial performance and allocate resources, rather
than detailed information at a product line level. Additionally,
our product lines have similar characteristics and customers.
They share operations support functions such as sales, public
relations, supply chain management, various research and
development and engineering support, in addition to the general
and administrative functions of human resources, legal, finance
and information technology. Therefore, there is no complete,
discrete financial information maintained for these product
lines. Commencing with fiscal year 2009, we report revenue in
two product categories: audio products and energy products. The
energy product category had previously been referred to as
industrial, but has been revised to reflect our
focus on integrated circuits designed for a variety of energy
exploration, measurement and control applications.
Year Ended | ||||||||||||
March 27, |
March 28, |
March 29, |
||||||||||
2010 | 2009 | 2008 | ||||||||||
Audio products
|
$ | 153,661 | $ | 97,293 | $ | 100,097 | ||||||
Energy products
|
67,328 | 77,349 | 81,788 | |||||||||
Total
|
$ | 220,989 | $ | 174,642 | $ | 181,885 | ||||||
Page 65 of 72
Table of Contents
Geographic
Area
The following illustrates revenues by geographic locations based
on the sales office location (in thousands):
Year Ended | ||||||||||||
March 27, 2010 | March 28, 2009 | March 29, 2008 | ||||||||||
United States
|
$ | 47,936 | $ | 53,309 | $ | 68,219 | ||||||
European Union
|
15,819 | 25,580 | 13,727 | |||||||||
United Kingdom
|
1,337 | 426 | 4,400 | |||||||||
China
|
103,992 | 46,266 | 29,169 | |||||||||
Hong Kong
|
5,611 | 5,937 | 9,518 | |||||||||
Japan
|
12,335 | 10,062 | 14,972 | |||||||||
South Korea
|
10,134 | 7,021 | 6,347 | |||||||||
Taiwan
|
10,585 | 10,862 | 13,888 | |||||||||
Other Asia
|
12,381 | 12,408 | 12,811 | |||||||||
Other
non-U.S.
countries
|
859 | 2,771 | 8,834 | |||||||||
Total consolidated revenues
|
$ | 220,989 | $ | 174,642 | $ | 181,885 | ||||||
The following illustrates property, plant and equipment, net, by
geographic locations, based on physical location (in thousands):
Year Ended | ||||||||
March 27, 2010 | March 28, 2009 | |||||||
United States
|
$ | 18,449 | $ | 19,058 | ||||
United Kingdom
|
9 | 2 | ||||||
China
|
104 | 183 | ||||||
Hong Kong
|
10 | 30 | ||||||
Japan
|
23 | 19 | ||||||
South Korea
|
25 | 43 | ||||||
Taiwan
|
38 | 9 | ||||||
Other Asia
|
16 | 23 | ||||||
Total consolidated property, plant and equipment, net
|
$ | 18,674 | $ | 19,367 | ||||
16. | Quarterly Results (Unaudited) |
The following quarterly results have been derived from our
audited annual consolidated financial statements. In the opinion
of management, this unaudited quarterly information has been
prepared on the same basis as the annual consolidated financial
statements and includes all adjustments, including normal
recurring adjustments, necessary for a fair presentation of this
quarterly information. This information should be read along
with the financial statements and related notes. The operating
results for any quarter are not necessarily indicative of
results to be expected for any future period.
Page 66 of 72
Table of Contents
The unaudited quarterly statement of operations data for each
quarter of fiscal years 2010 and 2009 were as follows (in
thousands, except per share data):
Fiscal Year 2010 | ||||||||||||||||
4th |
3rd |
2nd |
1st |
|||||||||||||
Quarter | Quarter | Quarter | Quarter | |||||||||||||
(5) | (4) | (3) | ||||||||||||||
Net sales
|
$ | 62,639 | $ | 65,162 | $ | 55,674 | $ | 37,514 | ||||||||
Gross margin
|
35,284 | 34,886 | 28,974 | 19,587 | ||||||||||||
Net income
|
20,358 | 11,055 | 6,764 | 221 | ||||||||||||
Basic income per share
|
$ | 0.31 | $ | 0.17 | $ | 0.10 | $ | | ||||||||
Diluted income per share
|
0.31 | 0.17 | 0.10 | |
Fiscal Year 2009 | ||||||||||||||||
4th |
3rd |
2nd |
1st |
|||||||||||||
Quarter | Quarter | Quarter | Quarter | |||||||||||||
(2) | (1) | |||||||||||||||
Net sales
|
$ | 33,520 | $ | 43,833 | $ | 53,278 | $ | 44,011 | ||||||||
Gross margin
|
18,469 | 24,078 | 29,986 | 24,651 | ||||||||||||
Net income (loss)
|
(7,768 | ) | 2,750 | 6,355 | 2,138 | |||||||||||
Basic income (loss) per share
|
$ | (0.12 | ) | $ | 0.04 | $ | 0.10 | $ | 0.03 | |||||||
Diluted income (loss) per share
|
(0.12 | ) | 0.04 | 0.10 | 0.03 |
(1) | Net income was impacted by a $1.8 million provision for litigation expenses. | |
(2) | Net income (loss) was impacted by a $2.7 million charge to tax expense to increase the valuation allowance on our U.S. deferred tax assets, a $2.1 million charge for the impairment of intangible assets, and a $0.4 million provision for litigation expenses. | |
(3) | Net income was favorably impacted by a $2.7 million benefit for litigation expenses related to the receipt of proceeds from our insurance carrier as part of the final settlement of the derivative lawsuits described in Note 8, Legal Matters. | |
(4) | Net income was favorably impacted by the receipt of $1.4 million from a Patent Purchase Agreement for the sale of certain Company owned patents. | |
(5) | Net income was favorably impacted by an $11.8 million benefit to tax expense to decrease the valuation allowance on our U.S. deferred tax assets. |
17. | Subsequent Event |
The Company entered into a Purchase and Sale Agreement with
Fortis Communities-Austin, L.P. relating to the purchase by the
Company of certain real property for a planned new headquarters
facility on March 24, 2010. Pursuant to the Purchase
Agreement, the Company agreed to purchase the land for
$9.62 million, of which $100,000 was placed in escrow on
March
24th. The
Company is provided a Feasibility Period through June 7,
2010, whereby it may terminate, in its sole and absolute
discretion, the Purchase Agreement if the Company discovers any
aspect of the property to be unsatisfactory for any reason
whatsoever. On April 27, 2010, the Company announced that
it plans to build a new headquarters at 800 West Sixth St.,
Austin, Texas. The new facility is expected to begin
construction late in 2010 and be completed by the summer of 2012.
Page 67 of 72
Table of Contents
ITEM 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
Item 9A. | Controls and Procedures |
Disclosure
Controls and Procedures
The Companys management carried out an evaluation, under
the supervision and with the participation of the CEO and CFO,
of the effectiveness of the design and operation of
Companys disclosure controls and procedures (as defined in
Securities Exchange Act of 1934
Rules 13a-15(e)
and
15d-15(e))
as of March 27, 2010. Based on that evaluation, the
Companys CEO and CFO have concluded that such disclosure
controls and procedures were effective in alerting them in a
timely manner to material information relating to the Company
required to be included in its periodic reports filed with the
SEC.
Managements
Annual Report on Internal Control Over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined under
Rule 13a-15(f).
Under the supervision and with the participation of our
management, including our CEO and CFO, we assessed the
effectiveness of our internal control over financial reporting
as of the end of the period covered by this report based on the
framework in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
Because of its inherent limitation, internal control over
financial reporting may not prevent or detect misstatements. In
addition, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become
inadequate because of changes in conditions and that the degree
of compliance with the policies or procedures may deteriorate.
Based on its assessment of internal control over financial
reporting, management has concluded that our internal control
over financial reporting was effective as of March 27,
2010, to provide reasonable assurance regarding the reliability
of our financial reporting and the preparation of our financial
statements for external purposes in accordance with
U.S. generally accepted accounting principles.
Our independent registered public accounting firm,
Ernst & Young LLP, has issued an attestation report on
managements updated assessment of our internal control
over financial reporting as of March 27, 2010, included in
Item 8 of this report.
Changes
in Internal Control Over Financial Reporting
There has been no change in the Companys internal control
over financial reporting during the quarter ended March 27,
2010, that has materially affected, or is reasonably likely to
materially affect, the Companys internal control over
financial reporting.
ITEM 10. | Directors and Executive Officers of the Registrant |
The information set forth in the Proxy Statement to be delivered
to stockholders in connection with our Annual Meeting of
Stockholders to be held on July 23, 2010 under the headings
Corporate Governance Board Meetings and
Committees, Corporate Governance Audit Committee,
Proposals to be Voted on
Proposal No. 1 Election of Directors,
Executive Compensation Executive Officers, and
Section 16(a) Beneficial Ownership Reporting Compliance
is incorporated herein by reference.
ITEM 11. | Executive Compensation |
The information set forth in the Proxy Statement under the
headings Compensation Discussion and Analysis and
Compensation Committee Report is incorporated herein by
reference.
Page 68 of 72
Table of Contents
ITEM 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The information set forth in the Proxy Statement under the
headings Equity Compensation Plan Information and
Ownership of Securities is incorporated herein by
reference.
ITEM 13. | Certain Relationships and Related Transactions |
The information set forth in the Proxy Statement under the
headings Certain Relationships and Related Transactions
and Corporate Governance is incorporated herein by
reference.
ITEM 14. | Principal Accountant Fees and Services |
The information set forth in the Proxy Statement under the
heading Audit and Non-Audit Fees and Services is
incorporated herein by reference.
ITEM 15. | Exhibit and Financial Statement Schedules |
(a) The following documents are filed as part of this
Report:
1. Consolidated Financial Statements
§ | Reports of Ernst & Young LLP, Independent Registered Public Accounting Firm. | |
§ | Consolidated Balance Sheets as of March 27, 2010, and March 28, 2009. | |
§ | Consolidated Statements of Operations for the fiscal years ended March 27, 2010, March 28, 2009, and March 29, 2008. | |
§ | Consolidated Statements of Cash Flows for the fiscal years ended March 27, 2010, March 28, 2009, and March 29, 2008. | |
§ | Consolidated Statements of Stockholders Equity for the fiscal years ended March 27, 2010, March 28, 2009, and March 29, 2008. | |
§ | Notes to Consolidated Financial Statements. |
2. Financial Statement Schedules
All schedules have been omitted since the required information
is not present or not present in amounts sufficient to require
submission of the schedule, or because the information required
is included in the consolidated financial statements or notes
thereto.
3. Exhibits
The following exhibits are filed as part of or incorporated by
reference into this Report:
3.1
|
Certificate of Incorporation of Registrant, filed with the Delaware Secretary of State on August 26, 1998. (1) | |
3.2
|
Amended and Restated Bylaws of Registrant. (2) | |
10.1+
|
1990 Directors Stock Option Plan, as amended. (3) | |
10.2+
|
Cirrus Logic, Inc. 1996 Stock Plan, as amended and restated as of December 4, 2007. (4) | |
10.3+
|
2002 Stock Option Plan, as amended. (5) | |
10.4+
|
Cirrus Logic, Inc. 2006 Stock Incentive Plan. (6) | |
10.5+
|
Form of Stock Option Agreement for options granted under the Cirrus Logic, Inc. 2006 Stock Incentive Plan. (6) | |
10.6+
|
Form of Notice of Grant of Stock Option for options granted under the Cirrus Logic, Inc. 2006 Stock Incentive Plan. (6) | |
10.7+
|
Form of Stock Option Agreement for Outside Directors under the Cirrus Logic, Inc. 2006 Stock Incentive Plan. (7) | |
10.8+
|
Form of Restricted Stock Award Agreement under the Cirrus Logic, Inc. 2006 Stock Incentive Plan. (8) | |
10.9+
|
2007 Executive Severance and Change of Control Plan, effective as of October 1, 2007. (9) | |
10.10+
|
2007 Management and Key Individual Contributor Incentive Plan, as amended on February 15, 2008. (10) |
Page 69 of 72
Table of Contents
10.11
|
Lease Agreement by and between Desta Five Partnership, Ltd. and Registrant, dated November 10, 2000, for 197,000 square feet located at 2901 Via Fortuna, Austin, Texas. (1) | |
10.12
|
Amendment No. 1 to Lease Agreement by and between Desta Five Partnership, Ltd. and Registrant dated November 10, 2000. (11) | |
10.13
|
Amendment No. 2 to Lease Agreement by and between Desta Five Partnership, Ltd. and Registrant dated November 10, 2000. (5) | |
10.14
|
Amendment No. 3 to Lease Agreement by and between Desta Five Partnership, Ltd. and Registrant dated November 10, 2000. (12) | |
10.15
|
The Revised Stipulation of Settlement dated March 10, 2009 (13) | |
10.16*
|
Purchase and Sale Agreement by and between Fortis Communities-Austin, L.P. and Registrant dated March 24, 2010. | |
10.17*
|
First Amendment to Purchase and Sale Agreement by and between Fortis Communities-Austin, L.P. and Registrant dated May 14, 2010. | |
14
|
Code of Conduct. (14) | |
23.1*
|
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. | |
24.1*
|
Power of Attorney (see signature page). | |
31.1*
|
Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2*
|
Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1*
|
Certification of Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2*
|
Certification of Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
+ | Indicates a management contract or compensatory plan or arrangement. | |
* | Filed with this Form 10-K. |
(1) | Incorporated by reference from Registrants Report on Form 10-K for the fiscal year ended March 31, 2001, filed with the SEC on June 22, 2001 (Registration No. 000-17795). | |
(2) | Incorporated by reference from Registrants Report on Form 8-K filed with the SEC on September 21, 2005. | |
(3) | Incorporated by reference from Registrants Registration Statement on Form S-8 filed with the SEC on August 8, 2001 (Registration No. 333-67322). | |
(4) | Incorporated by reference from Registrants Report on Form 10-Q filed with the SEC on January 30, 2008. | |
(5) | Incorporated by reference from Registrants Report on Form 10-K for the fiscal year ended March 29, 2003, filed with the SEC on June 13, 2003 (Registration No. 000-17795). | |
(6) | Incorporated by reference from Registrations Statement on Form S-8 filed with the SEC on August 1, 2006. | |
(7) | Incorporated by reference from Registrants Report on Form 10-Q filed with the SEC on August 1, 2007. | |
(8) | Incorporated by reference from Registrants Report on Form 10-Q filed with the SEC on November 5, 2007. | |
(9) | Incorporated by reference from Registrants Report on Form 8-K filed with the SEC on October 3, 2007. | |
(10) | Incorporated by reference from Registrants Report on Form 10-K for the fiscal year ended March 29, 2008, filed with the SEC on May 29, 2008 (Registration No. 000-17795). | |
(11) | Incorporated by reference from Registrants Report on Form 10-K for the fiscal year ended March 30, 2002, filed with the SEC on June 19, 2002 (Registration No. 000-17795). | |
(12) | Incorporated by reference from Registrants Report on Form 10-K for the fiscal year ended March 25, 2006 filed with the SEC on May 25, 2006. | |
(13) | Incorporated by reference from Registrants Report on Form 10-Q filed with the SEC on April 1, 2009. | |
(14) | Incorporated by reference from Registrants Report on Form 10-K for the fiscal year ended March 27, 2004, filed with the SEC on June 9, 2004 (Registration No. 000-17795). |
Page 70 of 72
Table of Contents
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned;
thereunto duly authorized.
CIRRUS LOGIC, INC.
By: |
/s/ Thurman
K. Case
|
Thurman K. Case
Vice President, Chief Financial Officer and
Chief Accounting Officer
June 1, 2010
KNOW BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Thurman K. Case, his
attorney-in-fact, with the power of substitution, for him in any
and all capacities, to sign any amendments to this report on
Form 10-K
and to file the same, with exhibits thereto and other documents
in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of the
attorney-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, the following persons on behalf of the Registrant, in the
capacities and on the dates indicated have signed this report
below:
Signature
|
Title
|
Date
|
||||
/s/ Michael
L. Hackworth Michael L. Hackworth |
Chairman of the Board and Director | June 1, 2010 | ||||
/s/ Jason
P. Rhode Jason P. Rhode |
President and Chief Executive Officer | June 1, 2010 | ||||
/s/ Thurman
K. Case Thurman K. Case |
Vice President, Chief Financial Officer and Chief Accounting Officer | June 1, 2010 | ||||
/s/ John
C. Carter John C. Carter |
Director | June 1, 2010 | ||||
/s/ Timothy
R. Dehne Timothy R. Dehne |
Director | June 1, 2010 | ||||
/s/ D.
James Guzy D. James Guzy |
Director | June 1, 2010 | ||||
/s/ William
D. Sherman William D. Sherman |
Director | June 1, 2010 | ||||
/s/ Robert
H. Smith Robert H. Smith |
Director | June 1, 2010 |
Page 71 of 72
Table of Contents
Exhibit Index
(a) The following exhibits are filed as part of this Report:
Number
|
Description
|
|
10.16
|
Purchase and Sale Agreement by and between Fortis Communities-Austin, L.P. and Registrant dated March 24, 2010. | |
10.17
|
First Amendment to Purchase and Sale Agreement by and between Fortis Communities-Austin, L.P. and Registrant dated May 14, 2010. | |
23.1
|
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. | |
24.1
|
Power of Attorney (see signature page). | |
31.1
|
Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2
|
Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1
|
Certification of Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2
|
Certification of Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
Page 72 of 72