UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
/x/
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended December 27, 2009
OR
/ /
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from to
.
Commission
File No. 0-12695
INTEGRATED DEVICE TECHNOLOGY, INC.
(Exact
Name of Registrant as Specified in Its Charter)
DELAWARE
(State
or Other Jurisdiction of
Incorporation
or Organization)
|
|
94-2669985
(I.R.S.
Employer
Identification
No.)
|
6024
SILVER CREEK VALLEY ROAD, SAN JOSE, CALIFORNIA
(Address
of Principal Executive Offices)
|
|
95138
(Zip
Code)
|
Registrant's
Telephone Number, Including Area Code: (408) 284-8200
|
|
|
Title of each
class
|
|
Name of each exchange on which
registered
|
|
|
|
Common
stock, $.001 par value
|
|
The
NASDAQ Stock Market LLC
|
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 ý No ¨
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 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes ¨ No ¨
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
definition of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
x Large
accelerated
filer ¨ Accelerated
filer ¨ Non-accelerated
filer ¨ Smaller reporting
company
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act) Yes ¨ No ý
The
number of outstanding shares of the registrant's Common Stock, $.001 par value
per share, as of January 24, 2010, was approximately 165,749,102.
INTEGRATED
DEVICE TECHNOLOGY, INC.
QUARTERLY
REPORT ON FORM 10-Q FOR THE PERIOD ENDED DECEMBER 27, 2009
PART I—FINANCIAL
INFORMATION
Item
1.
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|
4 |
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5 |
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6 |
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7 |
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Item
2.
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37 |
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Item
3.
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47 |
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Item
4.
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48 |
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PART II—OTHER
INFORMATION
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Item
1.
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48 |
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Item
1A.
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50 |
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Item
2.
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58 |
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Item
3.
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59 |
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Item
4.
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59 |
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Item
5.
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59 |
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Item
6.
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59 |
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59 |
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PART
I FINANCIAL INFORMATION
ITEM 1. FINANCIAL
STATEMENTS (UNAUDITED)
INTEGRATED
DEVICE TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(UNAUDITED;
IN THOUSANDS, EXCEPT PER SHARE DATA)
|
|
Three
months ended
|
|
|
Nine
months ended
|
|
|
|
Dec.
27,
2009
|
|
|
Dec.
28,
2008
|
|
|
Dec.
27,
2009
|
|
|
Dec.
28,
2008
|
|
Revenues
|
|
$ |
142,480 |
|
|
$ |
167,079 |
|
|
$ |
397,938 |
|
|
$ |
555,828 |
|
Cost
of revenues
|
|
|
82,751 |
|
|
|
97,410 |
|
|
|
239,913 |
|
|
|
314,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
59,729 |
|
|
|
69,669 |
|
|
|
158,025 |
|
|
|
241,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
38,316 |
|
|
|
37,247 |
|
|
|
116,086 |
|
|
|
122,398 |
|
Selling,
general and administrative
|
|
|
24,754 |
|
|
|
30,879 |
|
|
|
80,851 |
|
|
|
96,055 |
|
Acquired
in-process research and development
|
|
|
-- |
|
|
|
5,597 |
|
|
|
-- |
|
|
|
5,597 |
|
Goodwill
and acquisition-related intangible assets impairment
|
|
|
-- |
|
|
|
339,051 |
|
|
|
-- |
|
|
|
339,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
63,070 |
|
|
|
412,774 |
|
|
|
196,937 |
|
|
|
563,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(3,341
|
) |
|
|
(343,105
|
) |
|
|
(38,912
|
) |
|
|
(321,820
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
(loss) on divestiture
|
|
|
(4,461
|
) |
|
|
-- |
|
|
|
78,286 |
|
|
|
-- |
|
Other-than-temporary
impairment loss on investments
|
|
|
-- |
|
|
|
(3,000
|
) |
|
|
-- |
|
|
|
(3,000
|
) |
Interest
income and other (expense), net
|
|
|
597 |
|
|
|
(1,150
|
) |
|
|
3,221 |
|
|
|
699 |
|
Interest
expense
|
|
|
(15
|
) |
|
|
(14
|
) |
|
|
(45
|
) |
|
|
(47
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes
|
|
|
(7,220
|
) |
|
|
(347,269
|
) |
|
|
42,550 |
|
|
|
(324,168
|
) |
Provision
for (benefit from) income taxes
|
|
|
147 |
|
|
|
(2,010
|
) |
|
|
3,498 |
|
|
|
262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
(7,367 |
) |
|
$ |
(345,259 |
) |
|
$ |
39,052 |
|
|
$ |
(324,430 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income (loss) per share
|
|
$ |
(0.04 |
) |
|
$ |
(2.06 |
) |
|
$ |
0.24 |
|
|
$ |
(1.92 |
) |
Diluted
net income (loss) per share
|
|
$ |
(0.04 |
) |
|
$ |
(2.06 |
) |
|
$ |
0.24 |
|
|
$ |
(1.92 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Weighted
average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
165,954 |
|
|
|
167,412 |
|
|
|
165,658 |
|
|
|
169,354 |
|
Diluted
|
|
|
165,954 |
|
|
|
167,412 |
|
|
|
166,114 |
|
|
|
169,354 |
|
|
|
|
|
|
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|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
INTEGRATED
DEVICE TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(UNAUDITED;
IN THOUSANDS, EXCEPT PER SHARE DATA)
|
Dec.
27,
2009
|
|
Mar.
29,
2009
|
|
Assets
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
188,715 |
|
|
$ |
136,036 |
|
Short-term
investments
|
|
|
190,057 |
|
|
|
160,037 |
|
Accounts
receivable
|
|
|
61,065 |
|
|
|
54,894 |
|
Inventories
|
|
|
49,343 |
|
|
|
69,722 |
|
Deferred
tax assets
|
|
|
1,696 |
|
|
|
1,696 |
|
Prepayments
and other current assets
|
|
|
22,765 |
|
|
|
19,881 |
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
513,641 |
|
|
|
442,266 |
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
69,407 |
|
|
|
71,561 |
|
Goodwill
|
|
|
101,184 |
|
|
|
89,404 |
|
Acquisition-related
intangibles, net
|
|
|
50,882 |
|
|
|
50,509 |
|
Other
assets
|
|
|
24,986 |
|
|
|
24,627 |
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
760,100 |
|
|
$ |
678,367 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders' equity
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
32,224 |
|
|
$ |
25,837 |
|
Accrued
compensation and related expenses
|
|
|
15,940 |
|
|
|
18,820 |
|
Deferred
income on shipments to distributors
|
|
|
19,505 |
|
|
|
16,538 |
|
Income
taxes payable
|
|
|
3,080 |
|
|
|
457 |
|
Other
accrued liabilities
|
|
|
27,647 |
|
|
|
21,206 |
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
98,396 |
|
|
|
82,858 |
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities
|
|
|
3,467 |
|
|
|
3,220 |
|
Long-term
income tax payable
|
|
|
21,066 |
|
|
|
20,907 |
|
Other
long-term obligations
|
|
|
25,778 |
|
|
|
14,314 |
|
Total
liabilities
|
|
|
148,707 |
|
|
|
121,299 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Notes 16 and 17)
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock; $.001 par value: 10,000 shares authorized; no shares
issued
|
|
|
-- |
|
|
|
-- |
|
Common
stock; $.001 par value: 350,000 shares authorized; 165,983 and
165,298 shares outstanding at December 27, 2009 and March 29, 2009,
respectively
|
|
|
166 |
|
|
|
165 |
|
Additional
paid-in capital
|
|
|
2,301,362 |
|
|
|
2,283,601 |
|
Treasury
stock; at cost: 58,310 shares and 57,752 shares at December 27,
2009 and March 29, 2009, respectively
|
|
|
(781,190
|
) |
|
|
(777,847
|
) |
Accumulated
other comprehensive income
|
|
|
1,724 |
|
|
|
870 |
|
Accumulated
deficit
|
|
|
(910,669
|
) |
|
|
(949,721
|
) |
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
611,393 |
|
|
|
557,068 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$ |
760,100 |
|
|
$ |
678,367 |
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
INTEGRATED
DEVICE TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(UNAUDITED;
IN THOUSANDS)
|
Nine
months ended
|
|
|
Dec.
27,
2009
|
|
Dec.
28
2008
|
|
Cash
flows provided by operating activities:
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
39,052 |
|
|
$ |
(324,430 |
) |
Adjustments:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
17,348 |
|
|
|
19,880 |
|
Amortization
of intangible assets
|
|
|
16,130 |
|
|
|
61,103 |
|
Goodwill
and acquisition-related intangible assets impairment
|
|
|
-- |
|
|
|
339,051 |
|
Acquired
in-process research and development
|
|
|
-- |
|
|
|
5,597 |
|
Other-than-temporary
impairment loss on investments
|
|
|
-- |
|
|
|
3,000 |
|
Gain
from divestitures
|
|
|
(78,286
|
) |
|
|
-- |
|
Stock-based
compensation expense, net of amounts capitalized in
inventory
|
|
|
12,341 |
|
|
|
25,783 |
|
Assets
impairment
|
|
|
1,853 |
|
|
|
-- |
|
Deferred
tax provision
|
|
|
247 |
|
|
|
(100
|
) |
Changes
in assets and liabilities (net of effects of acquisitions and
divestitures):
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
(5,934
|
) |
|
|
18,061 |
|
Inventories
|
|
|
27,560 |
|
|
|
3,060 |
|
Prepayments
and other assets
|
|
|
4,447 |
|
|
|
10,200 |
|
Accounts
payable
|
|
|
6,178 |
|
|
|
(2,727
|
) |
Accrued
compensation and related expenses
|
|
|
(4,260
|
) |
|
|
(7,199
|
) |
Deferred
income on shipments to distributors
|
|
|
621 |
|
|
|
(4,051
|
)) |
Income
taxes payable and receivable
|
|
|
3,073 |
|
|
|
3,929 |
|
Other
accrued liabilities and long term liabilities
|
|
|
4,792 |
|
|
|
(3,181
|
) |
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
45,162 |
|
|
|
147,976 |
|
|
|
|
|
|
|
|
|
|
Cash
flows provided by (used for) investing activities
|
|
|
|
|
|
|
|
|
Acquisitions,
net of cash acquired
|
|
|
(64,482
|
) |
|
|
(20,097
|
) |
Proceeds
from divestitures
|
|
|
109,434 |
|
|
|
-- |
|
Purchases
of property, plant and equipment
|
|
|
(9,885
|
) |
|
|
(12,867
|
) |
Purchases
of short-term investments
|
|
|
(208,836
|
) |
|
|
(141,475
|
) |
Proceeds
from sales of short-term investments
|
|
|
130,254 |
|
|
|
18,199 |
|
Proceeds
from maturities of short-term investments
|
|
|
48,595 |
|
|
|
117,359 |
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used for) investing activities
|
|
|
5,080 |
|
|
|
(38,881
|
) |
|
|
|
|
|
|
|
|
|
Cash
flows provided by (used for) financing activities
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock
|
|
|
4,858 |
|
|
|
11,147 |
|
Repurchase
of common stock
|
|
|
(3,343
|
) |
|
|
(62,338
|
) |
Excess
tax benefit from share based payment arrangements
|
|
|
-- |
|
|
|
192 |
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used for) financing activities
|
|
|
1,515 |
|
|
|
(50,999
|
) |
|
|
|
|
|
|
|
|
|
Effect
of exchange rates on cash and cash equivalents
|
|
|
922 |
|
|
|
(1,866
|
) |
Net
increase in cash and cash equivalents
|
|
|
52,679 |
|
|
|
56,230 |
|
Cash
and cash equivalents at beginning of period
|
|
|
136,036 |
|
|
|
131,986 |
|
Cash
and cash equivalents at end of period
|
|
$ |
188,715 |
|
|
$ |
188,216 |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
Common
stock options assumed in connection with Tundra
acquisition
|
|
$ |
721 |
|
|
$ |
-- |
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
INTEGRATED
DEVICE TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
Note 1
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements of Integrated
Device Technology, Inc. (“IDT” or the “Company”) contain all adjustments
that are, in the opinion of management, necessary to state fairly the interim
financial information included therein. The year-end condensed
balance sheet data was derived from audited financial statements, but does not
include all disclosures required by accounting principles generally accepted in
the United States of America.
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts in the Company’s financial
statements and the accompanying notes. Actual results could differ from those
estimates.
These
financial statements should be read in conjunction with the audited consolidated
financial statements and accompanying notes included in the Company's Annual
Report on Form 10-K for the fiscal year ended March 29,
2009. Operating results for the three months and nine months ended
December 27, 2009 are not necessarily indicative of operating results for an
entire fiscal year.
In
accordance with authoritative guidance for subsequent events, the Company has
evaluated the period from December 27, 2009, the date of the financial
statements, through February 4, 2010, the date of the issuance of the financial
statements and the date of the filing of this Form 10-Q for subsequent
events.
Note
2
Significant
Accounting Policies
Investments:
Available-for-Sale
Investments. Investments designated as available-for-sale
include marketable debt and equity securities. Available-for-sale
investments are classified as short-term, as these investments generally consist
of highly marketable securities that are intended to be available to meet
near-term cash requirements. Marketable securities classified as
available-for-sale are reported at market value, with net unrealized gains or
losses recorded in accumulated other comprehensive income, a separate component
of stockholders' equity, until realized. Realized gains and losses on
investments are computed based upon specific identification and are included in
interest income and other (expense), net.
Trading
Securities. Trading securities are stated at fair value, with
gains or losses resulting from changes in fair value recognized currently in
earnings. The Company elects to classify as “trading” assets a portion of its
marketable equity securities, which are contained in the “Other assets” line
item in the non-current section of the Consolidated Balance Sheets. These
investments consist exclusively of a marketable equity portfolio held to
generate returns that seek to offset changes in liabilities related to certain
deferred compensation arrangements. Gains or losses from changes in the fair
value of these equity securities are recorded as non-operating earnings which
are offset by losses or gains on the related liabilities recorded as
compensation expense.
Non-Marketable Equity
Securities. Non-marketable equity securities are accounted for
at historical cost or, if the Company has significant influence over the
investee, using the equity method of accounting.
Other-Than-Temporary
Impairment. All of the Company’s available-for-sale
investments and non-marketable equity securities are subject to a periodic
impairment review. Investments are considered to be impaired when a
decline in fair value is judged to be other-than-temporary. This
determination requires significant judgment. For publicly traded
investments, impairment is determined based upon the specific facts and
circumstances present at the time, including a review of the closing price over
the previous six months, general market conditions and the Company’s intent and
ability to hold the investment for a period of time sufficient to allow for
recovery. For non-marketable equity securities, the impairment
analysis requires the identification of events or circumstances that would
likely have a significant adverse effect on the fair value of the investment,
including revenue and earnings trends, overall business prospects and general
market conditions in the investees’ industry or geographic
area. Investments identified as having an indicator of impairment are
subject to further analysis to determine if the investment is
other-than-temporarily impaired, in which case the investment is written down to
its impaired value.
Concentrations of credit
Risk. Financial
instruments that potentially subject the Company to a significant concentration
of credit risk consist of cash, cash equivalents, short term investments, and
trade accounts receivable. The Company invests its excess funds
primarily in checking, money market funds, United States government treasuries
and agency securities, corporate bonds and corporate commercial paper with
reputable major financial institutions.
The
Company sells integrated circuits primarily in the U.S., Europe and Asia. The
Company monitors the financial condition of its major customers, including
performing credit evaluations of those accounts which management considers to be
high risk, and generally does not require collateral from its customers. When
deemed necessary, the Company may limit the credit extended to certain
customers. The Company’s relationship with the customer, and the customer’s past
and current payment experience, are also factored into the evaluation in
instances where limited financial information is available. The Company
maintains and reviews its allowance for doubtful accounts by considering factors
such as historical bad debts, age of the account receivable balances, customer
credit-worthiness and current economic conditions that may affect a customer’s
ability to pay.
The
Company utilizes a relatively small number of global and regional distributors
around the world, who buy product directly from the Company on behalf of their
customers. One family of distributors, Maxtek and its affiliates,
represented approximately 20% and 21% of the Company’s revenues for
the three and nine months ended December 27, 2009, respectively, and 18% and 22%
of the Company’s revenues for the three and nine months ended December 28, 2008,
respectively. At December 27, 2009 and March 29, 2009, Maxtek and its
affiliates, represented approximately 25% and 21%of the Company’s gross accounts
receivable, respectively.
Inventories.
Inventories are recorded at the lower of standard cost (which approximates
actual cost on a first-in, first-out basis) or market
value. Inventory held at consignment locations is included in
finished goods inventory as the Company retains full title and rights to the
product. Inventory valuation include provisions for obsolete and
excess inventory based on management’s forecasts of demand over specific future
time horizons and reserves to value the Company’s inventory at the lower of cost
or market which rely on forecasts of average selling prices (ASPs) in future
periods.
Revenue
Recognition. The Company’s revenue results from semiconductors
sold through three channels: direct sales to original equipment manufacturers
(“OEMs”) and electronic manufacturing service providers (“EMSs”), consignment
sales to OEMs and EMSs, and sales through distributors. The
Company recognizes revenue when persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, the price is fixed or
determinable, and its ability to collect is reasonably assured.
For
distributors in North America and Europe regions, who have stock rotation, price
protection and ship from stock pricing adjustment rights, the Company defers
revenue and related cost of revenues on sales to these distributors until the
product is sold through by the distributor to an
end-customer. Subsequent to shipment to the distributor, the Company
may reduce product pricing through price protection based on market conditions,
competitive considerations and other factors. Price protection is
granted to distributors
on the
inventory that they have on hand at the date the price protection is
offered. The Company also grants certain credits to its distributors on
specifically identified portions of the distributors’ business to allow them to
earn a competitive gross margin on the sale of the Company’s products to their
end customers. As a result of its inability to estimate these credits, the
Company has determined that the sales price to these
distributors is not fixed or determinable until the final sale to the
end-customer.
In the
Asia Pacific (“APAC”) and Japan regions, the Company has distributors for which
revenue is recognized upon shipment, with reserves recorded for the estimated
return and pricing adjustment exposures. The determination of
the amount of reserves to be recorded for stock rotation rights requires the
Company to make estimates as to the amount of product which will be returned by
customers within their limited contractual rights. The Company
utilizes historical return rates to estimate the exposure in accordance with
authoritative
guidance for Revenue Recognition When Right of Return Exists. In addition, from
time-to-time, the Company can offer pricing adjustments to distributors for
product purchased in a given quarter that remains in their
inventory. These amounts are estimated by management based on
discussions with customers, assessment of market trends, as well as historical
practice.
Based on
the terms in the agreements with its distributors and the application of this
policy, the Company recognizes revenue once the distributor sells our products
to an end-customer for North American and European distributors and recognizes
revenue upon shipment to Japanese and other Asian distributors.
Stock-based Compensation. The
fair value of employee restricted stock units is equal to the market value of
the Company’s common stock on the date the award is granted. The
Company estimates the fair value of employee stock options and the right to
purchase shares under the employee stock purchase plan using the Black-Scholes
valuation model, consistent with the Financial Accounting Standard Board's
(FASB) authoritative guidance for share-based
payments. Option-pricing models require the input of highly
subjective assumptions, including the expected term of options and the expected
price volatility of the stock underlying such options. In addition,
the Company is required to estimate the number of stock-based awards that will
be forfeited due to employee turnover. The Company attributes the
value of stock-based compensation to expense on an accelerated
method. Finally, the Company capitalizes into inventory a portion of
the periodic stock-based compensation expense that relates to employees working
in manufacturing activities.
The
Company updates the expected term of stock option grants annually based on its
analysis of the stock option exercise behavior over a period of
time. The interest rate is based on the average U.S. Treasury
interest rate over the expected term during the applicable
quarter. The Company believes that the implied volatility of its
common stock is an important consideration of overall market conditions and a
good indicator of the expected volatility of its common
stock. However, due to the limited volume of options freely traded
over the counter, the Company believes that implied volatility, by itself, is
not representative of the expected volatility of its common
stock. Therefore, upon the adoption of FASB authoritative guidance
for stock-based payment at the beginning of fiscal 2007, the Company revised the
volatility factor used to estimate the fair value of its stock-based awards
which now reflects a blend of historical volatility of its common stock and
implied volatility of call options and dealer quotes on call options, generally
having a term of less than twelve months. The Company has not paid,
nor does it have current plans to pay dividends on its common stock in the
foreseeable future.
Income Taxes. The
Company accounts for income taxes under an asset and liability approach that
requires the expected future tax consequences of temporary differences between
book and tax bases of assets and liabilities be recognized as deferred tax
assets and liabilities. Generally accepted accounting principles require the
Company to evaluate the ability to realize the value of its net deferred tax
assets on an ongoing basis. A valuation allowance is recorded to reduce the net
deferred tax assets to an amount that will more likely than not be realized.
Accordingly, the Company considers various tax planning strategies, forecasts of
future taxable income and its most recent operating results in assessing the
need for a valuation allowance. In consideration of the ability to realize the
value of net deferred tax assets, recent results must be given substantially
more weight than any projections of future profitability. Since the fourth
quarter of fiscal 2003, the Company has determined that, under applicable
accounting principles, it could not conclude that it was more likely than not
that the Company would realize the value of its net deferred tax assets. The
Company’s assumptions regarding the ultimate realization of these assets
remained
unchanged
in the third quarter of fiscal 2010 and accordingly, the Company continues to
record a valuation allowance to reduce its deferred tax assets to the amount
that is more likely than not to be realized.
On
April 2, 2007, the Company adopted FASB authoritative guidance which
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements. This interpretation prescribes a recognition
threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. As
a result of the implementation of this guidance, the Company recognizes the tax
liability for uncertain income tax positions on the income tax return based on
the two-step process prescribed in the interpretation. The first step is to
determine whether it is more likely than not that each income tax position would
be sustained upon audit. The second step is to estimate and measure the tax
benefit as the amount that has a greater than 50% likelihood of being realized
upon ultimate settlement with the tax authority. Estimating these amounts
requires the Company to determine the probability of various possible outcomes.
The Company evaluates these uncertain tax positions on a quarterly basis. This
evaluation is based on the consideration of several factors including changes in
facts or circumstances, changes in applicable tax law, settlement of issues
under audit, and new exposures. If the Company later determines that the
exposure is lower or that the liability is not sufficient to cover its revised
expectations, the Company adjusts the liability and effect a related change in
its tax provision during the period in which the Company makes such
determination.
Note
3
Recent
Accounting Pronouncements
In June
2009, the FASB issued the FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles (“Codification”). This authoritative guidance
establishes the Codification, which officially launched on July 1, 2009, that is
now the source of authoritative U.S. generally accepted accounting principles
(GAAP) recognized by the FASB to be applied by nongovernmental entities. Rules
and interpretive releases of the Securities and Exchange Commission (SEC) under
authority of federal securities laws are also sources of authoritative U.S. GAAP
for SEC registrants. The subsequent issuances of new standards will be in the
form of Accounting Standards Updates that will be included in the Codification.
Generally, the Codification is not expected to change U.S. GAAP. All other
accounting literature excluded from the Codification will be considered
non-authoritative. This guidance is effective for financial statements issued
for interim and annual periods ending after September 15, 2009. The Company
adopted this guidance in the second quarter of fiscal 2010. The adoption of this
guidance did not have a significant impact on the Company’s condensed
consolidated financial statements or related footnotes.
In May
2009, the FASB issued accounting guidance for subsequent events, which establishes general
standards of accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or are available
to be issued. This guidance sets forth the circumstances under which an entity
should recognize events or transactions occurring after the balance sheet date
in its financial statements. This guidance also requires the disclosure of the
date through which an entity has evaluated subsequent events and the basis for
that date—that is, whether that date represents the date the financial
statements were issued or were available to be issued. This guidance is
effective for interim or annual reporting periods ending after June 15, 2009.
The Company adopted this guidance in the first quarter of fiscal 2010. The
adoption of this guidance did not have a significant impact on the Company’s
condensed consolidated financial statements or related footnotes.
In
April 2009, the FASB issued authoritative fair value disclosure guidance
for financial instruments. This guidance requires an entity to provide interim
disclosures about the fair value of all financial instruments as well as in
annual financial statements. Additionally, this guidance requires
disclosures of the methods and significant assumptions used in estimating the
fair value of financial instruments on an interim basis as well as changes of
the methods and significant assumptions from prior periods. This guidance is
effective for interim and annual periods ending after June 15, 2009. The
Company adopted this guidance in the first quarter of fiscal 2010. The adoption
of this guidance did not have a significant impact on the Company condensed
consolidated financial position and results of operations.
In
April 2009, the FASB issued authoritative guidance for determining fair
value when the volume and level of activity for the asset or liability have
significantly decreased and identifying transactions that are not orderly. This
standard provides guidance on how to determine the fair value of assets and
liabilities. The guidance relates to determining fair values when there is no
active market or where the price inputs being used represent distressed sales.
It reaffirms that the objective of fair value measurement––to reflect how much
an asset would be sold for in an orderly transaction (as opposed to a distressed
forced transaction) at the date of the financial statements under current market
conditions. Specifically, it reaffirms the need to use judgment to ascertain if
a formerly active market has become inactive and in determining fair values when
markets have become inactive. The guidance is effective for interim and fiscal
years beginning after June 15, 2009. The Company adopted this guidance in
the first quarter of fiscal 2010. The adoption of this guidance did not have a
significant impact on the Company’s condensed consolidated financial position
and results of operations.
In
April 2009, the FASB amended the existing guidance on accounting for assets
acquired and liabilities assumed in a business combination that arise from
contingencies, including the initial recognition and measurement, subsequent
measurement and accounting and disclosures for assets and liabilities arising
from contingencies in business combinations. This guidance is effective for
contingent assets and contingent liabilities acquired in business combinations
for which the acquisition date is on or after the beginning of the fiscal year
beginning after December 15, 2008. The Company adopted this guidance in the
first quarter of fiscal 2010. See Note 11 – “Business Combinations”
in Part I, Item 1 for further discussion.
In
April 2009, the FASB amended the existing guidance on determining whether an
impairment for investments in debt securities is
other-than-temporary. This guidance does not amend existing
recognition and measurement guidance related to other-than-temporary impairments
of equity securities. The Company adopted this guidance in the first quarter of
fiscal 2010 and the adoption of this guidance did not have a material impact on
the Company’s condensed consolidated financial position and results of
operations.
In June
2008, the FASB issued the authoritative guidance for determining whether
instruments granted in share-based payment transactions are participating
securities. This guidance states 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. This
guidance is effective for fiscal years beginning after December 15, 2008. The
Company adopted this guidance in the first quarter of fiscal 2010 and the
adoption of this guidance did not have a material impact on the Company’s
condensed consolidated financial position and results of
operations.
In April
2008, the FASB amended the existing guidance on determination of the
useful life of intangible assets. This guidance amends the factors that should
be considered in developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset. The intent of the guidance is
to improve the consistency between the useful life of a recognized intangible
asset and the period of expected cash flows used to measure the fair value of
the intangible asset. This guidance is effective for fiscal years beginning
after December 15, 2008. The Company adopted this guidance in the first
quarter of fiscal 2010.
In
February 2008, the FASB amended the existing guidance on fair value measurements
for purposes of lease classification to remove certain leasing transactions from
its scope and was effective upon issuance. In addition, FASB issued
authoritative guidance that provided a one year deferral for application of the
new fair value measurement principles for all 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 the beginning of the first quarter of fiscal 2010. The Company adopted
this guidance in the first quarter of fiscal year 2010. In October
2008, the FASB issued authoritative guidance on determining the fair value of a
financial asset when the market for that asset is not active. This guidance was
effective upon issuance. The adoption of this guidance did not have a
material impact on the Company’s condensed consolidated financial position and
results of operations.
In
December 2007, the FASB revised the authoritative guidance for business
combinations. The guidance changes the accounting for business combinations
including the measurement of acquirer shares issued in consideration for a
business combination, the recognition of contingent consideration, the
accounting for pre-acquisition gain and loss contingencies, the recognition of
capitalized in-process research and development, the accounting for
acquisition-related restructuring cost accruals, the treatment of acquisition
related transaction costs and the recognition of changes in the acquirer’s
income tax valuation allowance. This guidance is effective for fiscal years
beginning after December 15, 2008, with early adoption prohibited. The
Company adopted this guidance in the first quarter of fiscal
2010. See Note 11 – “Business Combinations” in Part I, Item 1 for
further discussion.
Note 4
Net
Income (Loss) Per Share
Net
income (loss) per share has been computed using weighted-average common shares
outstanding.
|
|
Three
months ended
|
|
|
Nine
months ended
|
|
(in thousands, except per
share amounts)
|
|
Dec.
27,
2009
|
|
|
Dec.
28,
2008
|
|
|
Dec.
27,
2009
|
|
|
Dec.
28,
2008
|
|
Net
income (loss)
|
|
$ |
(7,367 |
) |
|
$ |
(345,259 |
) |
|
$ |
39,052 |
|
|
$ |
(324,430 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
165,954 |
|
|
|
167,412 |
|
|
|
165,658 |
|
|
|
169,354 |
|
Dilutive
effect of employee stock options and restricted stock
units
|
|
|
-- |
|
|
|
-- |
|
|
|
456 |
|
|
|
-- |
|
Weighted
average common shares outstanding, assuming dilution
|
|
|
165,954 |
|
|
|
167,412 |
|
|
|
166,114 |
|
|
|
169,354 |
|
Basic
net income (loss) per share
|
|
$ |
(0.04 |
) |
|
$ |
(2.06 |
) |
|
$ |
0.24 |
|
|
$ |
(1.92 |
) |
Diluted
net income (loss) per share
|
|
$ |
(0.04 |
) |
|
$ |
(2.06 |
) |
|
$ |
0.24 |
|
|
$ |
(1.92 |
) |
Stock
options to purchase 24.9 million shares and 28.3 million shares for the three
and nine month periods ended December 27, 2009, respectively, and 29.0 million
and 29.6 million for the three and nine month periods ended December 28, 2008,
respectively, were outstanding, but were excluded from the calculation of
diluted earnings per share because the exercise price of the stock options was
greater than the average share price of the common shares and therefore, the
effect would have been anti-dilutive. In addition, unvested restricted stock
units of less than 0.1 million for the three and nine months ended December 27,
2009, respectively, and 1.2 million and 0.6 million for the three and
nine months ended December 28, 2008, respectively, were excluded from the
calculation because they were anti-dilutive after considering unrecognized
stock-based compensation expense. Net loss per share for the three
month period ended December 27, 2009 and three month and nine month periods
ended December 28, 2008, respectively, were based only on weighted average
common shares outstanding.
Note
5
Stock-Based
Employee Compensation
Compensation
Expense
The
following table summarizes stock-based compensation expense by line items
appearing in the Company’s Condensed Consolidated Statements of
Operations:
|
|
Three
months ended
|
|
|
Nine
months ended
|
|
(in
thousands)
|
|
Dec.
27,
2009
|
|
|
Dec.
28,
2008
|
|
|
Dec.
27,
2009
|
|
|
Dec.
28,
2008
|
|
Cost
of revenue
|
|
$ |
630 |
|
|
$ |
787 |
|
|
$ |
2,250 |
|
|
$ |
2,756 |
|
Research
and development
|
|
|
2,246 |
|
|
|
5,101 |
|
|
|
7,921 |
|
|
|
15,402 |
|
Selling,
general and administrative
|
|
|
1,287 |
|
|
|
3,124 |
|
|
|
2,170 |
|
|
|
7,625 |
|
Total
stock-based compensation expense
|
|
|
4,163 |
|
|
|
9,012 |
|
|
|
12,341 |
|
|
|
25,783 |
|
Tax
effect on stock-based compensation expense (1)
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
Total
stock-based compensation expense, net of related tax
effects
|
|
$ |
4,163 |
|
|
$ |
9,012 |
|
|
$ |
12,341 |
|
|
$ |
25,783 |
|
(1)
|
Assumes
a zero tax rate for each period presented as the Company has a full
valuation allowance for its deferred tax
assets.
|
Stock-based
compensation expense recognized in the Condensed Consolidated Statements of
Operations is based on awards ultimately expected to vest. The
authoritative guidance for stock-based compensation requires forfeitures to be
estimated at the time of grant and revised, if necessary, in subsequent periods
if actual forfeitures differ from those estimates. In the second quarter of
fiscal 2010, the Company changed the way in which it determines and applies its
forfeiture estimates, and as a result, reduced its compensation expense by $1.5
million in the second quarter of fiscal 2010. The change is not
expected to have a significant impact on future periods' stock-based
compensation expense. The Company attributes the value of stock-based
compensation to expense on an accelerated method.
The
following table summarizes stock-based compensation expense associated with each
type of award:
|
|
Three
months ended
|
|
|
Nine
months ended
|
|
(in
thousands)
|
|
Dec.
27,
2009
|
|
|
Dec.
28,
2008
|
|
|
Dec.
27,
2009
|
|
|
Dec.
28,
2008
|
|
Employee
stock options
|
|
$ |
2,201 |
|
|
$ |
6,675 |
|
|
$ |
7,189 |
|
|
$ |
19,118 |
|
Employee
stock purchase plan (“ESPP”)
|
|
|
679 |
|
|
|
684 |
|
|
|
1,397 |
|
|
|
2,188 |
|
Restricted
stock units (“RSUs”)
|
|
|
1,122 |
|
|
|
1,839 |
|
|
|
3,597 |
|
|
|
4,599 |
|
Change
in amounts capitalized in inventory
|
|
|
161 |
|
|
|
(186
|
) |
|
|
158 |
|
|
|
(122
|
) |
Total
stock-based compensation expense
|
|
$ |
4,163 |
|
|
$ |
9,012 |
|
|
$ |
12,341 |
|
|
$ |
25,783 |
|
On March
29, 2009, the Company’s 1984 Employee Stock Purchase plan
expired. No stock was issued under the employee stock purchase plan
in the first quarter of fiscal 2010. In the second and third quarter
of fiscal 2010, the Company issued 0.4 million and 0.5 million shares of common
stock under its 2009 Employee Stock Purchase plan.
Valuation
Assumptions
Assumptions
used in the Black-Scholes valuation model and resulting weighted average
grant-date fair values were as follows:
|
|
Three
months ended
|
|
|
Nine
months ended
|
|
|
|
Dec.
27,
2009
|
|
|
Dec.
28,
2008
|
|
|
Dec.
27,
2009
|
|
|
Dec.
28,
2008
|
|
Stock
option plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
Term
|
|
4.58
years
|
|
|
4.67
years
|
|
|
4.66
years
|
|
|
4.59
years
|
|
Risk-free
interest rate
|
|
|
2.17 |
% |
|
|
2.12 |
% |
|
|
2.13 |
% |
|
|
2.79 |
% |
Volatility
|
|
|
42.5 |
% |
|
|
49.1 |
% |
|
|
45.4 |
% |
|
|
41.7 |
% |
Dividend
Yield
|
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
Weighted
average grant-date fair value
|
|
$ |
2.30 |
|
|
$ |
2.26 |
|
|
$ |
2.17 |
|
|
$ |
3.81 |
|
ESPP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
Term
|
|
0.25
years
|
|
|
0.25
years
|
|
|
0.25
years
|
|
|
0.25
years
|
|
Risk-free
interest rate
|
|
|
0.1 |
% |
|
|
0.94 |
% |
|
|
0.2 |
% |
|
|
1.39 |
% |
Volatility
|
|
|
35.4 |
% |
|
|
55.7 |
% |
|
|
48.5 |
% |
|
|
42.3 |
% |
Dividend
Yield
|
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
Weighted
average fair value
|
|
$ |
1.46 |
|
|
$ |
2.21 |
|
|
$ |
1.55 |
|
|
$ |
2.09 |
|
On September
17, 2009, at the 2009 Annual Meeting of Stockholders, the Company’s stockholders
approved a one-time stock option exchange program (“option exchange”) for
the employees other than members of its Board of Directors and executive
officers subject to the provisions of Section 16 of the Exchange Act, which
allowed employees to surrender certain outstanding stock options for
cancellation in exchange for the grant of new replacement options to purchase a
lesser number of shares having an exercise price equal to the fair market value
of the Company’s common stock on the replacement grant date.
On
October 30, 2009, the Company completed an offer to exchange certain options to
purchase shares of its common stock, par value $0.001 per share. A
total of 992 eligible employees participated in the option exchange. Pursuant to
the terms and conditions of the option exchange, the Company accepted for
exchange options totaling 9,992,195, representing 61% of the total number of
options eligible for exchange. All surrendered options were cancelled effective
as of the expiration of the option exchange, and immediately thereafter, in
exchange therefor, the Company granted new options with an exercise price
of $5.88 per share (representing the per share closing price of its common
stock on October 30, 2009, as reported on the NASDAQ Global Select Market)
to purchase an aggregate of 3,329,036 shares of common stock under the 2004
Plan. New options have a contractual term of five years, based on the
weighted average remaining contractual term of options eligible for
exchange as determined
at the tender offer date and generally will vest over a three-year period from
the date of grant, with one-third of the shares vesting on the one-year
anniversary of the grant date and the remaining shares vesting monthly for the
24 months thereafter. The fair value of the new options granted was
measured as the total of the unrecognized compensation cost of the original
options tendered and the incremental compensation cost of the new options
granted. The incremental compensation cost of the new options granted was
measured as the excess of the fair value of the new options granted over the
fair value of the original options immediately before
cancellation. The total remaining unrecognized compensation expense
related to the original options will be recognized over the remaining requisite
service period of the original options while the incremental compensation cost
of the new options granted will be recognized over the three years service
period.
As a
result of the option exchange, the total incremental compensation expense of the
new options is approximately $1.8 million, of which $0.2 million was recognized
in the third quarter of fiscal 2010.
Equity
Incentive Programs
The
Company currently issues awards under three equity-based plans in order to
provide additional incentive and retention to directors and employees who are
considered to be essential to the long-range success of the
Company. These plans are further described below.
1994 Stock Option Plan (1994
Plan)
In May
1994, the Company’s stockholders approved the 1994 Plan. In September
2000, the Company’s stockholders elected to extend the plan to expire on July
26, 2010. Under the 1994 Plan, 13,500,000 shares of common stock have
been made available for issuance as stock options to employees, officers,
directors, consultants, independent contractors and advisors of the Company and
its affiliates. Shares issuable upon exercise of stock options
granted pursuant to the Company’s 1985 Incentive and Nonqualified Stock Option
Plan that expire or become un-exercisable for any reason without having been
exercised in full are also available for issurance under the 1994 Plan (not
to exceed 10,000,000 shares). Options granted by the Company under
the 1994 Plan generally expire seven years from the date of grant and generally
vest over a four-year period from the date of grant. The exercise
price of the options granted by the Company under the
1994 Plan shall not be less than 100% of the fair market value for a common
share subject to such option on the date the option is granted. As of
December 27, 2009, 1,031,031 shares remain available for future grant under the
1994 Plan.
2004 Equity Plan (2004
Plan)
In
September 2004, the Company’s stockholders approved the 2004
Plan. Under the 2004 Plan, 28,500,000 shares of common stock have
been made available for issuance as stock options, restricted stock awards,
stock appreciation rights, performance awards, restricted stock unit awards, and
stock-based awards to employees, directors and consultants, of which a maximum
of 4,000,000 shares are eligible for non-option “full value”
awards. The 2004 Plan allows for time-based and performance-based
vesting for the awards. Options granted by the Company under the 2004
Plan generally expire seven years from the date of grant and generally vest over
a four-year period from the date of grant, with one-quarter of the shares of
common stock vesting on the one-year anniversary of the grant date and the
remaining shares vesting monthly for the 36 months thereafter. The
exercise price of the options granted by the Company under the 2004 Plan shall
not be less than 100% of the fair market value for a common share subject to
such option on the date the option is granted. Full value awards made
under the 2004 Plan shall become vested over a period of not less than three
years (or, if vesting is performance-based, over a period of not less than one
year) following the date such award is made; provided, however, that full value
awards that result in the issuance of an aggregate of up to 5% of common stock
available for issuance under the 2004 Plan may be granted to any one or more
participants without respect to such minimum vesting provisions. As
of December 27, 2009, 8,580,383 shares remain available for future grant under
the 2004 Plan.
Restricted
stock units available for grant by the Company under the 2004 Plan generally
vest over a 48-month period from the grant date. Prior to vesting,
participants holding restricted stock units do not have shareholder
rights. Shares are issued on or as soon as administratively
practicable following the vesting date of the restricted stock units and upon
issuance, recordation and delivery, the participant will have all the rights of
a shareholder of the Company with respect to voting such stock and receipt of
dividends and distributions on such stock. As of December 27, 2009,
1,825,251 restricted stock unit awards were outstanding under the 2004
Plan.
The
following table summarizes the Company’s stock option activities for the nine
months ended December 27, 2009:
|
|
|
|
|
(in
thousands)
|
Shares
|
|
Weighted
Average Exercise Price
|
|
Options
outstanding as of March 29, 2009
|
27,544
|
|
$
|
12.30
|
|
Granted
|
7,882
|
|
|
6.24
|
|
Exercised
|
(5)
|
|
|
3.65
|
|
Canceled,
forfeited or expired
|
(12,050)
|
|
|
12.98
|
|
Options
outstanding as of December 27, 2009
|
23,371
|
|
$
|
9.91
|
|
Options
exercisable at December 27, 2009
|
14,448
|
|
$
|
12.07
|
|
As of
December 27, 2009, the weighted average remaining contractual life of options
outstanding was 3.2 years and the aggregate intrinsic value was
$6.1million. The weighted average remaining contractual life of
options exercisable was 1.8 years and the aggregate intrinsic value was $0.4
million. Unrecognized compensation cost related to non-vested
stock-based awards, net of estimated forfeitures was $9.6 million and will be
recognized over a weighted average period of 2.0 years.
As of
December 27, 2009, stock options vested and expected to vest totaled
approximately 21.8 million shares, with a weighted-average exercise price of
$10.18 per share and a weighted average remaining contractual life of 3.1
years. The aggregate intrinsic value was approximately $5.0
million.
The
following table summarizes the Company’s restricted stock unit activities for
the nine months ended December 27, 2009:
(in
thousands)
|
|
Shares
|
|
|
Weighted
Average Grant Date Fair Value
|
|
RSU’s
outstanding as of March 29, 2009
|
|
|
1,238 |
|
|
$ |
12.09 |
|
Granted
|
|
|
1,097 |
|
|
|
5.30 |
|
Released
|
|
|
(316 |
) |
|
|
12.59 |
|
Forfeited
|
|
|
(194 |
) |
|
|
9.61 |
|
Outstanding
at December 27, 2009
|
|
|
1,825 |
|
|
$ |
8.19 |
|
As of
December 27, 2009, there was approximately $5.8 million of unrecognized
compensation cost related to restricted stock units granted under the Company’s
equity incentive plans. The unrecognized compensation cost is
expected to be recognized over a weighted average period of 1.6
years.
2009 Employee Stock Purchase
Plan (2009 ESPP)
On June
18, 2009, the Board approved implementation of the 2009 ESPP and authorized
the reservation and issuance of up to 9,000,000 shares of the Company’s common
stock under the 2009 ESPP, subject to stockholder approval. On September 17,
2009, the Company’s stockholders approved the plan at the 2009 Annual Meeting of
Stockholders. The 2009 ESPP is intended to be implemented in
successive quarterly purchase periods commencing on the first day of each fiscal
quarter of the Company. In order to maintain its qualified status
under Section 423 of the Internal Revenue Code, the 2009 ESPP imposes certain
restrictions, including the limitation that no employee is permitted to
participate in the 2009 ESPP if the rights of such employee to purchase common
stock of the Company under the 2009 ESPP and all similar purchase plans of the
Company or its subsidiaries would accrue at a rate which exceeds $25,000 of the
fair market value of such stock (determined at the time the right is granted)
for each
calendar
year. During the nine months ended December 27, 2009, the Company
issued 0.9 million shares of common stock with a weighted-average purchase price
of $5.25 per share under the 2009 ESPP.
Note 6
Balance
Sheet Detail
(in
thousands)
Inventories
|
|
December
27,
2009
|
|
|
March
29,
2009
|
|
Raw
materials
|
|
$ |
3,305 |
|
|
$ |
6,876 |
|
Work-in-process
|
|
|
25,270 |
|
|
|
35,252 |
|
Finished
goods
|
|
|
20,768 |
|
|
|
27,594 |
|
Total
inventories
|
|
$ |
49,343 |
|
|
$ |
69,722 |
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
|
|
|
|
|
|
Land
|
|
$ |
15,598 |
|
|
$ |
14,533 |
|
Machinery
and equipment
|
|
|
773,886 |
|
|
|
796,387 |
|
Building
and leasehold improvement
|
|
|
134,491 |
|
|
|
134,358 |
|
|
|
|
923,975 |
|
|
|
945,278 |
|
Less:
accumulated deprecation
|
|
|
(854,568
|
) |
|
|
(873,717
|
) |
Total
property, plant and equipment, net
|
|
$ |
69,407 |
|
|
$ |
71,561 |
|
|
|
|
|
|
|
|
|
|
Other
accrued liabilities
|
|
|
|
|
|
|
|
|
Short-term
portion of supplier obligations
|
|
|
6,833 |
|
|
|
2,279 |
|
Short-term
portion of restructuring liability
|
|
|
3,018 |
|
|
|
3,334 |
|
Accrued
audit and legal fees
|
|
|
1,483 |
|
|
|
1,469 |
|
Short-term
portion of fair market value of the supply agreement entered into with
Netlogic
|
|
|
1,414 |
|
|
|
-- |
|
Accrued
royalties
|
|
|
1,404 |
|
|
|
1,158 |
|
Accrued
medical expenses
|
|
|
1,136 |
|
|
|
1,226 |
|
Accrued
sales representative commissions
|
|
|
1,033 |
|
|
|
1,333 |
|
Other
accrued liabilities
|
|
|
11,326 |
|
|
|
10,407 |
|
Total
other accrued liabilities
|
|
$ |
27,647 |
|
|
$ |
21,206 |
|
|
|
|
|
|
|
|
|
|
Other
long-term obligations
|
|
|
|
|
|
|
|
|
Deferred
compensation related liabilities
|
|
$ |
14,340 |
|
|
$ |
10,946 |
|
Long-term
portion of restructuring liability
|
|
|
5,754 |
|
|
|
890 |
|
Long-term
portion of supplier obligations
|
|
|
4,132 |
|
|
|
1,384 |
|
Long-term
portion of fair market value of the supply agreement entered into with
Netlogic
|
|
|
1,098 |
|
|
|
-- |
|
Long-term
portion of deferred gain on equipment sales
|
|
|
232 |
|
|
|
940 |
|
Other
|
|
|
222 |
|
|
|
154 |
|
Total
other long-term obligations
|
|
$ |
25,778 |
|
|
$ |
14,314 |
|
Note
7
Deferred
Income on Shipments to Distributors
Included
in the caption “Deferred
income on shipments to distributors” on the Condensed Consolidated
Balance Sheets are amounts related to shipments to certain distributors for
which revenue is not recognized until the Company’s product has been sold by the
distributor to an end customer. The components at December
27, 2009 and March 29, 2009 were as follows:
(in
thousands)
|
|
December
27,
2009
|
|
|
March
29, 2009
|
|
Gross
deferred revenue
|
|
$ |
24,742 |
|
|
$ |
21,302 |
|
Gross
deferred costs
|
|
|
5,237 |
|
|
|
4,764 |
|
Deferred
income on shipments to distributors
|
|
$ |
19,505 |
|
|
$ |
16,538 |
|
The gross
deferred revenue represents the gross value of shipments to distributors at the
list price billed to the distributor less any price protection credits provided
to them in connection with reductions in list price while the products remain in
their inventory. The amount ultimately recognized as revenue will be
lower than this amount as a result of future price protection and ship from
stock pricing credits which are issued in connection with the sell through of
the Company’s products to end customers. Historically this amount has
represented an average of approximately 25% of the list price billed to the
customer. The gross deferred costs represent the standard costs, which
approximate actual costs of products, the Company sells to the
distributors. Although the Company monitors the levels and quality of
inventory in the distribution channel, the experience is that product returned
from these distributors are able to be sold to a different distributor or in a
different region of the world. As such, inventory write-downs for
product in the distribution channel have not been significant.
Note
8
Fair
Value Measurement
Effective
March 31, 2009, the Company adopted the authoritative guidance for fair value
measurement, which defines fair value as the price that would be received from
selling an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. As such, fair value is a
market-based measurement that should be determined based on assumptions that
market participants would use in pricing assets or liabilities. When
determining the fair value measurements for assets and liabilities required or
permitted to be recorded at fair value, the Company considers the principal or
most advantageous market in which it would transact.
Fair Value
Hierarchy
The
authoritative guidance for fair value measurement establishes a fair value
hierarchy that requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. The hierarchy
which prioritizes the inputs used to measure fair value from market based
assumptions to entity specific assumptions are as follows:
Level 1:
Inputs based on quoted market prices for identical assets or liabilities in
active markets at the measure date.
Level 2:
Observable inputs other than quoted prices included in Level 1, such as quoted
prices for similar assets and liabilities in active markets; quoted prices for
identical or similar assets and liabilities in markets that are not active; or
other inputs that are observable or can be corroborated by observable market
data.
Level 3:
Inputs reflect management’s best estimate of what market participants would use
in pricing the asset or liability at the measurement date. The inputs
are unobservable in the market and significant to the instrument’s
valuation.
The
following table summarizes the Company’s financial assets and liabilities
measured at fair value on a recurring basis as of December 27,
2009:
|
|
Fair
Value at Reporting Date Using:
|
|
(in
thousands)
|
|
Level
1
|
|
|
Level
2
|
|
|
Total
Balance
|
|
Cash
Equivalents and Short Term Investments:
|
|
|
|
|
|
|
|
|
|
Money
market funds
|
|
$ |
97,361 |
|
|
|
-- |
|
|
$ |
97,361 |
|
US
government treasuries and agencies securities
|
|
|
96,559 |
|
|
|
-- |
|
|
|
96,559 |
|
Corporate
bonds
|
|
|
-- |
|
|
|
70,619 |
|
|
|
70,619 |
|
Corporate
commercial paper
|
|
|
-- |
|
|
|
31,185 |
|
|
|
31,185 |
|
Bank
deposits
|
|
|
-- |
|
|
|
2,700 |
|
|
|
2,700 |
|
Other
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
related to non-qualified deferred compensation plan
|
|
|
-- |
|
|
|
12,418 |
|
|
|
12,418 |
|
Total
assets measured at fair value
|
|
$ |
193,920 |
|
|
$ |
116,922 |
|
|
$ |
310,842 |
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-qualified
deferred compensation obligations
|
|
|
-- |
|
|
|
14,340 |
|
|
|
14,340 |
|
|
|
$ |
-- |
|
|
$ |
14,340 |
|
|
$ |
14,340 |
|
The
following table summarizes the Company’s financial assets and liabilities
measured at fair value on a recurring basis as of March 29, 2009:
|
|
Fair
Value at Reporting Date Using:
|
|
(in
thousands)
|
|
Level
1
|
|
|
Level
2
|
|
|
Total
Balance
|
|
Cash
Equivalents and Short Term Investments:
|
|
|
|
|
|
|
|
|
|
Money
market funds
|
|
$ |
75,531 |
|
|
|
-- |
|
|
$ |
75,531 |
|
US
government treasuries and agencies securities
|
|
|
108,935 |
|
|
|
-- |
|
|
|
108,935 |
|
Corporate
bonds
|
|
|
-- |
|
|
|
47,436 |
|
|
|
47,436 |
|
Corporate
commercial paper
|
|
|
-- |
|
|
|
39,637 |
|
|
|
39,637 |
|
Bank
deposits
|
|
|
-- |
|
|
|
10,110 |
|
|
|
10,110 |
|
Municipal
bonds
|
|
|
-- |
|
|
|
1,056 |
|
|
|
1,056 |
|
Asset-backed
securities
|
|
|
-- |
|
|
|
146 |
|
|
|
146 |
|
Other
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
related to non-qualified deferred compensation plan
|
|
|
-- |
|
|
|
9,668 |
|
|
|
9,668 |
|
Total
assets measured at fair value
|
|
$ |
184,466 |
|
|
$ |
108,053 |
|
|
$ |
292,519 |
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-qualified
deferred compensation obligations
|
|
|
-- |
|
|
|
10,946 |
|
|
|
10,946 |
|
Total
liabilities measured at fair value
|
|
$ |
-- |
|
|
$ |
10,946 |
|
|
$ |
10,946 |
|
The
Company’s cash equivalents and short term investments are classified within
Level 1 or Level 2 of the fair value hierarchy because they are valued using
quoted market prices, broker or dealer quotation, spot rates or alternative
pricing sources with reasonable levels of price transparency. The
securities in Level 1 are highly liquid and actively traded in exchange markets
or over-the-counter markets. The securities in Level 2 represent securities with
quoted prices in markets that are not as active or for which all significant
inputs are observable.
The
Company maintains an unfunded deferred compensation plan to provide benefits to
executive officers and other key employees. Under the plan,
participants can defer any portion of their salary and bonus compensation into
the plan and may choose from a portfolio of funds from which earnings are
measured. Participant balances are always 100%
vested. The deferred compensation plan obligation is recorded
at fair value based on the quoted prices of the underlying mutual funds and
included in other long-term obligations on the Company’s Condensed Consolidated
Balance Sheets. Increases or decreases related to the obligations are recorded
in operating expenses. Additionally, the Company has set aside assets
in a separate trust that is invested in corporate owned life insurance intended
to substantially offset the liability under the plan. The Company has
identified both its assets and liability related to the plan within Level 2 in
the fair value hierarchy as these valuations are based on observable market data
obtained directly from the dealer or observable price quotes for similar assets
such as the underlying mutual fund pricing.
Cash
equivalents are highly liquid investments with original maturities of three
months or less at the time of purchase. The Company maintains its cash and cash
equivalents with reputable major financial institutions. Deposits
with these banks may exceed the Federal Deposit Insurance Corporation (“FDIC”)
insurance limits or similar limits in foreign jurisdictions. These deposits
typically may be redeemed upon demand and, therefore, bear minimal
risk. While the Company monitors daily the cash balances in its
operating accounts and adjusts the balances as appropriate, these balances could
be impacted if one or more of the financial institutions with which the Company
deposits fails or is subject to other adverse conditions in the financial
markets. As of December 27, 2009, the Company has not experienced any
losses in its operating accounts.
All of
the Company’s available-for-sale investments are subject to a periodic
impairment review. Investments are considered to be impaired when a decline in
fair value is judged to be other-than-temporary. This determination requires
significant judgment. For publicly traded investments, impairment is determined
based upon the specific facts and circumstances present at the time, including a
review of the closing price over the length of time, general market conditions
and the Company’s intent and ability to hold the investment for a period of time
sufficient to allow for recovery. Although the Company believes its portfolio
continues to be comprised of sound investments due to high credit ratings and
government guarantees of the underlying investments, a further decline in the
capital and financial markets would adversely impact the market values of its
investments and their liquidity. The Company continually monitors the credit
risk in its portfolio and future developments in the credit markets and makes
appropriate changes to its investment policy as deemed necessary. The
Company did not record any impairment charges related to its short-term
investments in the three and nine months ended December 27, 2009.
Note 9
Investments
Available
for Sale Securities
Available-for-sale
investments at December 27, 2009 were as follows:
(in
thousands)
|
|
Cost
|
|
|
Gross
Unrealized Gains
|
|
|
Gross
Unrealized Losses
|
|
|
Estimated
Fair Value
|
|
Money
market funds
|
|
$ |
97,361 |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
97,361 |
|
U.S.
government treasuries and agency securities
|
|
|
96,414 |
|
|
|
148 |
|
|
|
(3 |
) |
|
|
96,559 |
|
Corporate
bonds
|
|
|
70,292 |
|
|
|
336 |
|
|
|
(9 |
) |
|
|
70,619 |
|
Corporate
commercial paper
|
|
|
31,185 |
|
|
|
-- |
|
|
|
-- |
|
|
|
31,185 |
|
Bank
deposits
|
|
|
2,700 |
|
|
|
-- |
|
|
|
-- |
|
|
|
2,700 |
|
Total
available-for-sale investments
|
|
|
297,952 |
|
|
|
484 |
|
|
|
(12 |
) |
|
|
298,424 |
|
Less
amounts classified as cash equivalents
|
|
|
(108,367 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(108,367 |
) |
Short-term
investments
|
|
$ |
189,585 |
|
|
$ |
484 |
|
|
$ |
(12 |
) |
|
$ |
190,057 |
|
Available-for-sale
investments at March 29, 2009 were as follows:
(in
thousands)
|
|
Cost
|
|
|
Gross
Unrealized Gains
|
|
|
Gross
Unrealized Losses
|
|
|
Estimated
Fair Value
|
|
Money
market funds
|
|
$ |
75,531 |
|
|
|
-- |
|
|
|
-- |
|
|
$ |
75,531 |
|
U.S.
government treasuries and agency securities
|
|
|
108,528 |
|
|
$ |
445 |
|
|
$ |
(38 |
) |
|
|
108,935 |
|
Corporate
bonds
|
|
|
47,452 |
|
|
|
102 |
|
|
|
(118 |
) |
|
|
47,436 |
|
Corporate
commercial paper
|
|
|
39,634 |
|
|
|
3 |
|
|
|
-- |
|
|
|
39,637 |
|
Bank
deposits
|
|
|
10,110 |
|
|
|
-- |
|
|
|
-- |
|
|
|
10,110 |
|
Municipal
bonds
|
|
|
1,027 |
|
|
|
29 |
|
|
|
-- |
|
|
|
1,056 |
|
Asset-backed
securities
|
|
|
145 |
|
|
|
1 |
|
|
|
-- |
|
|
|
146 |
|
Total
available-for-sale investments
|
|
|
282,427 |
|
|
|
580 |
|
|
|
(156 |
) |
|
|
282,851 |
|
Less
amounts classified as cash equivalents
|
|
|
(122,818 |
) |
|
|
(1 |
) |
|
|
5 |
|
|
|
(122,814 |
) |
Short-term
investments
|
|
$ |
159,609 |
|
|
$ |
579 |
|
|
$ |
(151 |
) |
|
$ |
160,037 |
|
The
amortized cost and estimated fair value of available-for-sale debt securities at
December 27, 2009, by contractual maturity, were as follows:
(in
thousands)
|
|
Amortized
Cost
|
|
|
Estimated
Fair Value
|
|
Due
in 1 year or less
|
|
$ |
275,257 |
|
|
$ |
275,535 |
|
Due
in 1-2 years
|
|
|
20,292 |
|
|
|
20,487 |
|
Due
in 2-5 years
|
|
|
2,402 |
|
|
|
2,402 |
|
Total
investments in available-for-sale debt securities
|
|
$ |
297,951 |
|
|
$ |
298,424 |
|
The
following table shows the gross unrealized losses and fair value of the
Company’s investments with unrealized losses as of December 27, 2009, aggregated
by length of time that individual securities have been in a continuous loss
position.
|
|
Less
than 12 months
|
|
|
12
months or Greater
|
|
|
Total
|
|
(in
thousands)
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
Corporate
bonds
|
|
$ |
16,981 |
|
|
$ |
(9 |
) |
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
16,981 |
|
|
$ |
(9 |
) |
U.S.
government treasuries and agency securities
|
|
|
2,000 |
|
|
|
(3 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
2,000 |
|
|
|
(3 |
) |
Total
|
|
$ |
18,981 |
|
|
$ |
(12 |
) |
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
18,981 |
|
|
$ |
(12 |
) |
The
following table shows the gross unrealized losses and fair value of the
Company’s investments with unrealized losses as of March 29, 2009, aggregated by
length of time that individual securities have been in a continuous loss
position.
|
|
Less
than 12 months
|
|
|
12
months or Greater
|
|
|
Total
|
|
(in
thousands)
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
Corporate
bonds
|
|
$ |
28,629 |
|
|
$ |
(105 |
) |
|
$ |
795 |
|
|
$ |
(13 |
) |
|
$ |
29,424 |
|
|
$ |
(118 |
) |
U.S.
government treasuries and agency securities
|
|
|
19,212 |
|
|
|
(38 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
19,212 |
|
|
|
(38 |
) |
Total
|
|
$ |
47,841 |
|
|
$ |
(143 |
) |
|
$ |
795 |
|
|
$ |
(13 |
) |
|
$ |
48,636 |
|
|
$ |
(156 |
) |
Currently,
a significant portion of its available-for-sale investments that the Company
holds are all high grade instruments. As of December 27, 2009, the
unrealized losses on the Company’s available-for-sale
investments
represented an insignificant amount in relation to its total available-for-sale
portfolio. Substantially all of the Company’s unrealized losses on our
available-for-sale marketable debt instruments can be attributed to fair value
fluctuations in an unstable credit environment that resulted in a decrease in
the market liquidity for debt instruments. Because the Company has
the ability to hold these investments until a recovery of fair value, which may
be maturity, the Company did not consider these investments to be
other-than-temporarily impaired at December 27, 2009 and March 29,
2009.
Trading
Securities
Trading
securities are stated at fair value, with gains or losses resulting from changes
in fair value recognized currently in non-operating earnings. As of December 27,
2009 and March 29, 2009, the deferred compensation plan assets were
approximately $12.4 million and $9.7 million, which were included in other
assets in the Condensed Consolidated Balance Sheets. The Company recorded net
gains of $2.3 million during the first nine months of fiscal 2010 and net loss
of $2.9 million during the first nine months of fiscal 2009 in interest income
and other (expense), net in the Condensed Consolidated Statements of
Operations.
Non-Marketable
Equity Securities
In
conjunction with the merger with Integrated Circuit Systems, Inc. (ICS), the
Company acquired an investment in Best Elite International Limited (“Best
Elite”). Best Elite is a private company, which owns a wafer fabrication
facility in Suzhou, China. The Company purchases wafers from Best
Elite’s wafer fabrication facility for certain legacy ICS
products. In accordance with authoritative guidance for the equity
method of accounting for investment in common stock, the Company accounts for
this investment under the cost method. This investment is subject to periodic
impairment review. In determining whether a decline in value of its
investment in Best Elite has occurred and is other than temporary, an assessment
was made by considering available evidence, including the general market
conditions in the wafer fabrication industry, Best Elite’s financial condition,
near-term prospects, market comparables and subsequent rounds of
financing. The valuation also takes into account the Best
Elite’s capital structure, liquidation preferences for its capital and other
economic variables. The valuation methodology for determining the decline in
value of non-marketable equity securities is based on inputs that require
management judgment. The carrying value of the
Company’s investment in Best Elite was approximately $2.0 million and is
classified within other assets on the Company’s Condensed Consolidated Balance
Sheets as of December 27, 2009 and March 29, 2009.
Note 10
Derivative
Financial Instruments
As a
result of its international operations, sales and purchase transactions, the
Company is subject to risks associated with fluctuating currency exchange rates.
The Company may use derivative financial instruments to hedge these risks when
instruments are available and cost effective in an attempt to minimize the
impact of currency exchange rate movements on its operating results and on the
cost of capital equipment purchases. The Company may enter into
hedges of forecasted transactions when the underlying transaction is highly
probable and reasonably certain to occur within the subsequent twelve months.
Examples of these exposures would include forecasted expenses of a foreign
manufacturing plant, design center or sales office. The Company may additionally
enter into a derivative to hedge the foreign currency risk of a capital
equipment purchase if the capital equipment purchase order is executed and
designated as a firm commitment.
The
Company may also utilize currency forward contracts to hedge currency exchange
rate fluctuations related to certain short term foreign currency assets and
liabilities. As of December 27, 2009 and March 29, 2009, the Company did not
have any outstanding foreign currency contracts that were designated as hedges
of forecasted cash flows or capital equipment purchases. The Company
does not enter into derivative financial instruments for speculative or trading
purposes.
Gains and
losses on these undesignated derivatives substantially offset gains and losses
on the assets and liabilities being hedged and the net amount is included in
interest income and other (expense), net in the Condensed Consolidated
Statements of Operations. The Company did not have any outstanding foreign
currency contracts that were designated as hedges of certain short term foreign
currency assets and liabilities at the end of the third quarter of fiscal
2010. An immaterial amount of net gains and losses were included in
interest income and other (expense), net during the first nine months of fiscal
2010 and 2009.
Besides
foreign exchange rate exposure, the Company’s cash and investment portfolios are
subject to risks associated with fluctuations in interest
rates. While the Company’s policies allow for the use of derivative
financial instruments to hedge the fair values of such investments, the Company
has yet to enter into this type of hedging arrangement.
Note
11
Business
Combinations
Acquisition
of Tundra Semiconductor Corporation (“Tundra”)
On June
29, 2009, the Company completed its acquisition of Tundra, pursuant to which the
Company acquired 100% of the voting common stock of Tundra at a price of
CDN$6.25 per share, or an aggregate purchase price of approximately CDN$120.8
million. The Company paid approximately $104.3 million in
cash. In addition, as part of the consideration in the acquisition, IDT assumed
options to purchase up to 0.8 million shares of IDT common stock. As a result, the
acquisition resulted in the issuance of approximately 0.8 million stock options
with a fair value of $0.7 million. The total consideration was
approximately $105.0 million. The options were valued using the
Black-Scholes option pricing model. Approximately $3.4 million of
acquisition-related costs were included in the selling, general and
administrative expenses on the Condensed Consolidated Statements of Operations
for the nine months ended December 27, 2009.
(in
thousands)
|
|
|
|
Cash
paid
|
|
$ |
104,316 |
|
Assumed
stock options
|
|
|
721 |
|
Total
purchase price
|
|
$ |
105,037 |
|
In
accordance with authoritative guidance for business combinations, the Company
has allocated the purchase price to the tangible and intangible assets acquired
and liabilities assumed, based on their estimated fair values. The excess
purchase price over those fair values is recorded as goodwill. Tundra’s
technology and development capabilities are complementary to the Company’s
existing product portfolios for RapidIO and PCI Express. The Company
expects that this strategic combination will provide customers with a broader
product offering as well as improved service, support and a future roadmap for
serial connectivity. These are significant contributing factors
to the establishment of the purchase price, resulting in the recognition of
goodwill. The fair values assigned to tangible and intangible assets
acquired and liabilities assumed are based on management’s estimates and
assumptions. Goodwill is not expected to be deductible for tax
purposes. Goodwill is not amortized but will be reviewed at least annually for
impairment. Purchased intangibles with finite lives are amortized over their
respective estimated useful lives on a straight line basis.
The
purchase price has been allocated as follows:
(in
thousands)
|
|
Fair
Value
|
|
Identifiable
tangible assets acquired
|
|
|
|
Cash
and cash equivalents
|
|
$ |
46,085 |
|
Accounts
receivable
|
|
|
1,260 |
|
Inventories
|
|
|
19,881 |
|
Prepayments
and other current assets
|
|
|
6,119 |
|
Property,
plant and equipment, net
|
|
|
7,692 |
|
Other
assets
|
|
|
4,025 |
|
Accounts
payable and accruals
|
|
|
(11,877 |
) |
Other
long-term obligations
|
|
|
(3,549 |
) |
Net
identifiable tangible assets acquired
|
|
|
69,636 |
|
Amortizable
intangible assets
|
|
|
19,979 |
|
Goodwill
|
|
|
15,422 |
|
Total
purchase price
|
|
$ |
105,037 |
|
A summary
of the allocation of amortizable intangible assets is as follows:
|
|
Fair
Value
(in
thousands)
|
|
Amortizable
intangible assets:
|
|
|
|
Existing
technologies
|
|
$ |
8,476 |
|
Customer
relationships
|
|
|
7,973 |
|
Trade
name
|
|
|
2,911 |
|
In-process
research and development (IPR&D)
|
|
|
619 |
|
Total
|
|
$ |
19,979 |
|
Useful
lives are primarily based on the underlying assumptions used in the discounted
cash flow (“DCF”) models.
Identifiable
Tangible Assets
Tundra’s
assets and liabilities were reviewed and adjusted, if required, to their
estimated fair value.
Inventories – The value
allocated to inventories reflects the estimated fair value of the acquired
inventory based on the expected sales price of the inventory, less reasonable
selling margin.
Property, plant and equipment
– The fair value was determined under the continued use premise as the assets
were valued as part of a going concern. This premise assumes that the
assets will remain “as-is, where is” and continue to be used at their present
location for the continuation of business operations. Value in use
includes all direct and indirect costs necessary to acquire, install, fabricated
and make the assets operational. The fair value was estimated using a
cost approach methodology.
Amortizable Intangible
Assets
Existing
technology consists of products that have reached technological feasibility. The
Company valued the existing technology utilizing a DCF model, which uses
forecasts of future revenues and expenses related to the intangible
asset. The Company utilized discount factors of 20% - 22% for the
existing technology and is amortizing the intangible assets over 5 years on a
straight-line basis.
Customer
relationship values have been estimated utilizing a DCF model, which uses
forecasts of future revenues and expenses related to the intangible
asset. The Company utilized discount factors of 20%-22% for
each of these intangible assets and is amortizing the intangible assets over 5
years on a straight-line basis.
The
Tundra trade name value was determined using the relief from royalty method,
which represents the benefit of owning this intangible asset rather than paying
royalties for its use. The Company utilized a discount rate of 20%
for the trade name and is amortizing this intangible asset over 7 years on a
straight-line basis.
Projects
that qualify as IPR&D represent those at the development stage and require
further research and development to determine technical feasibility and
commercial viability. Technological feasibility is established when an
enterprise has completed all planning, designing, coding, and testing activities
that are necessary to establish that a product can be produced to meet its
design specifications, including functions, features, and technical performance
requirements. The value of IPR&D was determined by considering the
importance of each project to the Company’s overall development plan, estimating
costs to develop the purchased IPR&D into commercially viable products,
estimating the resulting net cash flows from the projects when completed and
discounting the net cash flows to their present value based on the percentage of
completion of the IPR&D projects. The Company utilized the DCF method to
value the IPR&D, using a discount factor of 22-24% and will amortize this
intangible asset once the projects are complete. There were two IPR&D
projects underway at Tundra at the acquisition date. As of December 27, 2009,
one of the projects was 100% complete and another project was 95%
complete. Approximately $4.7 million costs were incurred in
connection with both projects. The Company estimates that an additional
investment of $0.3 million will be required to complete the project with an
estimated completion date during the fourth quarter of fiscal 2010.
Pro Forma
Financial Information (unaudited)
The
following unaudited pro forma financial information presents the combined
results of operations of the Company and Tundra as if the acquisition had
occurred as of the beginning of fiscal 2010 and fiscal 2009. The unaudited pro
forma financial information is presented for informational purposes only and is
not indicative of the results of operations that would have been achieved if the
acquisition had been taken place at the beginning of fiscal 2010 and fiscal
2009. The unaudited pro forma financial information presented below
combines the historical IDT and historical Tundra results for the nine months
ended December 27, 2009 and December 28, 2008, respectively, and includes the
business combination effect of the amortization charges from acquired intangible
assets, the fair value adjustment to acquired inventory sold, adjustments to
interest income and related tax effects.
|
|
Nine
months ended
|
|
(Unaudited)
(in
thousands, except per share amounts)
|
|
Dec.
27,
2009
|
|
|
Dec.
28,
2008
|
|
Supplement
pro forma
|
|
|
|
|
|
|
Tundra’s
net revenues (6/29/09 through 12/27/09)
|
|
|
18,909 |
|
|
|
-- |
|
Tundra’s
net income (6/29/09 through 12/27/09)
|
|
|
7,705 |
|
|
|
-- |
|
Net
revenues (1)
|
|
$ |
408,178 |
|
|
$ |
604,349 |
|
Net
income (loss) (1)
|
|
|
34,446 |
|
|
|
(322,748
|
) |
Basic
income (loss) per share
|
|
$ |
0.21 |
|
|
$ |
(1.91 |
) |
Diluted
income (loss) per share
|
|
$ |
0.21 |
|
|
$ |
(1.91 |
) |
(1)
Supplement pro forma information includes Tundra’s financial results for the
periods March 30, 2009 through June 28, 2009 and March 24, 2008 through
December 28, 2008, respectively.
Acquisition
of certain assets of Leadis Technology, Inc. (“Leadis”)
On June
10, 2009, the Company completed its acquisition of certain sensor technology and
related assets from Leadis, along with members of Leadis’ engineering team. The
total purchase price of approximately $6.3 million was paid in cash.
Approximately $ 0.2 million of acquisition-related costs was included in
the selling, general and administrative expenses on the Condensed Consolidated
Statements of Operations for the nine months ended December 27,
2009.
In
accordance with authoritative guidance for the business combinations, the
Company has allocated the purchase price to the tangible and intangible assets
acquired and liabilities assumed, based on their estimated fair values. The
excess purchase price over those fair values is recorded as goodwill. The
acquisition provided the Company with a touch sensor technology, team of
engineers, certain assets and a product line involving touch sensor technology.
The Company believes these technologies will allow it to address a broader range
of multimedia applications with highly integrated processing, interfacing and
connectivity solutions. This transaction is intended to enable the Company to
provide OEMs and original design manufactures (ODMs) with lower power, higher
functionality Application-Specific Standard Products (ASSPs) that will enable
them to provide consumers with a richer, more complete digital media experience.
These opportunities, along with the ability to sell touch sensor products to the
existing base of the Company’s customers, were significant contributing factors
to the establishment of the purchase price. The fair values assigned to tangible
and intangible assets acquired and liabilities assumed are based on management
estimates and assumptions. The goodwill as a result of this acquisition is
expected to be deductible for tax purposes over 15 years. Goodwill is not
amortized but will be reviewed at least annually for impairment. Purchased
intangibles with finite lives are being amortized over their respective
estimated useful lives on a straight line basis.
The
purchase price has been allocated as follows:
(in
thousands)
|
|
Fair
Value
|
|
Net
tangible assets acquired
|
|
$ |
151 |
|
Amortizable
intangible assets
|
|
|
6,040 |
|
Goodwill
|
|
|
59 |
|
Total
purchase price
|
|
$ |
6,250 |
|
A summary
of the allocation of amortizable intangible assets is as follows:
(in
thousands)
|
|
Fair
Value
|
|
Amortizable
intangible assets:
|
|
|
|
Existing
technologies
|
|
$ |
4,670 |
|
Customer
relationships
|
|
|
1,092 |
|
In-process
research and development (IPR&D)
|
|
|
278 |
|
Total
|
|
$ |
6,040 |
|
Useful
lives are primarily based on the underlying assumptions used in the DCF
models.
Net
Tangible Assets
Assets
were reviewed and adjusted, if required, to their estimated fair
value.
Amortizable
Intangible Assets
Existing
technologies consists of products that have reached technological feasibility.
The Company valued the existing technologies utilizing a DCF model, which used
forecasts of future revenues and expenses related to the intangible assets. The
Company utilized discount factors of 42% and 44% for existing technologies and
is amortizing the intangible assets on a straight-line basis over 7
years.
The value
of the customer relationships intangible asset was estimated using a DCF model,
which used forecasts of future revenues and expenses related to the intangible
assets. The Company utilized discount factors of 42% - 45% and is amortizing
this intangible asset on a straight-line basis over 5 years.
Projects
that qualify as IPR&D represent those at the development stage and require
further research and development to determine technical feasibility and
commercial viability. Technological feasibility is established when an
enterprise has completed all planning, designing, coding, and testing activities
that are necessary to establish that a product can be produced to meet its
design specifications, including functions,
features,
and technical performance requirements. The value of IPR&D was determined by
considering the importance of each project to the Company’s overall development
plan, estimating costs to develop the purchased IPR&D into commercially
viable products, estimating the resulting net cash flows from the projects when
completed and discounting the net cash flows to their present value based on the
percentage of completion of the IPR&D projects. The Company utilized the DCF
method to value the IPR&D, using discount factors of 45% and 46% and will
amortize this intangible asset once the projects are complete. There were two
IPR&D projects underway at Leadis at the acquisition date. As of
December 27, 2009, the projects were 39% and 30% complete and approximately $0.6
million and $1.1 million costs were incurred. The Company estimates that
additional investment of $1.0 million and $2.6 million will be required to
complete the projects with estimated completion dates during the second and
fourth quarter of fiscal 2011.
Leadis
acquisition related financial results have been included in the Company’s
Condensed Consolidated Statements of Operations from the closing date of the
acquisition on June 28, 2009. Pro forma earnings information has not been
presented because the effect of the acquisition is not material to the Company’s
historical financials results.
Acquisition
of certain assets of Silicon Optix
On
October 20, 2008, the Company completed its acquisition of certain video signal
processing technology and related assets along with members of the Silicon
Optix’s engineering teams. The total purchase price was approximately $20.1
million, including approximately $0.7 million of acquisition-related transaction
costs. A summary of the total purchase price is as
follows:
(in
thousands)
|
|
|
|
Cash
paid
|
|
$ |
19,406 |
|
Acquisition-related
transaction costs
|
|
|
691 |
|
Total
purchase price
|
|
$ |
20,097 |
|
In
accordance with authoritative guidance for the business combinations, the
Company has allocated the purchase price to the tangible and intangible assets
acquired and liabilities assumed, including in-process research and development,
based on their estimated fair values. The excess purchase price over those fair
values is recorded as goodwill. The acquisition provided the Company with a
video signal processing technology, team of engineers, certain assets and a
product line involving video technologies. The Company believes these
technologies will allow it to pursue expanded opportunities, particularly in the
emerging high-definition video market. These opportunities, along with the
ability to sell video products to the existing base of IDT customers, were
significant contributing factors to the establishment of the purchase price. The
fair values assigned to tangible and intangible assets acquired and liabilities
assumed are based on management estimates and assumptions. As of December 27,
2009, approximately $0.9 million of the total goodwill is expected to be
deductible for tax purposes over 15 years. Goodwill is not amortized but will be
reviewed at least annually for impairment. Purchased intangibles with finite
lives are being amortized over their respective estimated useful lives on a
straight line basis. The purchase price has been allocated as
follows:
(in
thousands)
|
|
Fair
Value
|
|
Net
tangible assets acquired
|
|
$ |
537 |
|
Amortizable
intangible assets
|
|
|
4,746 |
|
IPR&D
|
|
|
5,597 |
|
Goodwill
|
|
|
9,217 |
|
Total
purchase price
|
|
$ |
20,097 |
|
A summary
of the allocation of amortizable intangible assets is as follows:
(in
thousands)
|
|
Fair
Value
|
|
Amortizable
intangible assets:
|
|
|
|
Existing
technologies
|
|
$ |
3,654 |
|
Customer
relationships
|
|
|
582 |
|
Trade
name
|
|
|
510 |
|
Total
|
|
$ |
4,746 |
|
Useful
lives are primarily based on the underlying assumptions used in the DCF
models.
Net
Tangible Assets
Assets
were reviewed and adjusted, if required, to their estimated fair
value.
Amortizable
Intangible Assets
Existing
technologies consists of products that have reached technological feasibility.
The Company valued the existing technologies utilizing a DCF model, which used
forecasts of future revenues and expenses related to the intangible assets. The
Company utilized discount factors of 24% and 32% for existing technologies and
is amortizing the intangible assets on a straight-line basis over 3 to 7
years.
The value
of the customer relationships intangible asset was estimated using a DCF model,
which used forecasts of future revenues and expenses related to the intangible
assets. The Company utilized a discount factor of 24% and is amortizing this
intangible asset on a straight-line basis over 3 years.
The
Silicon Optix’s trade names were valued using the relief from royalty method,
which represents the benefit of owning this intangible asset rather than paying
royalties for its use. The Company utilized a discount factor of 27% and is
amortizing this intangible asset on a straight-line basis over 7
years.
IPR&D
Of the
total purchase price, $5.6 million was allocated to IPR&D. Projects that
qualify as IPR&D represent those that have not yet reached technological
feasibility and which have no alternative future use. Technological feasibility
is established when an enterprise has completed all planning, designing, coding,
and testing activities that are necessary to establish that a product can be
produced to meet its design specifications, including functions, features, and
technical performance requirements. The value of IPR&D was determined by
considering the importance of each project to the Company’s overall development
plan, estimating costs to develop the purchased IPR&D into commercially
viable products, estimating the resulting net cash flows from the projects when
completed and discounting the net cash flows to their present value based on the
percentage of completion of the IPR&D projects. The Company utilized the DCF
method to value the IPR&D, using a discount factor of 32%. There was one
IPR&D project underway at Silicon Optix at the acquistion date. As of
December 27, 2009, the project was 95% complete and approximately $7.7 million
cost was incurred. The Company estimates that additional investment of $1.3
million will be required to complete the project with estimated completion date
during the fourth quarter of fiscal 2010.
Note
12
Divestiture
Military
business
On
November 30, 2009, the Company completed the sale of certain assets and
transferred certain liabilities related to its military business to Spectrum
Control, Inc ("Spectrum Control") for approximately $12.8 million. As a result,
in the third quarter of fiscal 2010,
the
Company recorded a loss of $4.3 million related to the divestiture. All
employees in the Company’s military business were transferred to Spectrum
Control as a result of the transaction. In addition, the Company also signed a
sublease agreement with Spectrum Control. The sublease will expire in
May, 2010. Prior to the divestiture, the military business was part
of a larger cash-flow generating product group and did not, on its own,
represent a separate operation of the Company, as such discontinued operations
reporting does not apply.
The
following table summarizes the components of the loss:
(in
thousands)
|
|
|
|
Cash
proceeds from sale
|
|
$ |
12,800 |
|
Assets
sold to Spectrum Control
|
|
|
|
|
Accounts
receivable, net
|
|
|
(1,022
|
) |
Inventory,
net
|
|
|
(5,027
|
) |
Fixed
Assets, net
|
|
|
(982
|
) |
Intangible
assets, net
|
|
|
(9,517
|
) |
Other
assets
|
|
|
(46
|
) |
Liabilities
assumed by Spectrum Control
|
|
|
572 |
|
Transaction
and other costs
|
|
|
(1,051
|
) |
Loss
on divestiture
|
|
$ |
(4,273 |
) |
Silicon
logic engineering business
On
December 4, 2009, the Company completed the sale of certain assets and
transferred certain liabilities related to its Silicon Logic Engineering
business to Open Silicon, Inc (“OSI’) for $1 in cash. In the third quarter of
fiscal 2010, the Company recorded a loss of $0.2 million related to the
divestiture. In connection with the divestiture, the Company entered into a
design service agreement with OSI whereby they agreed to provide and the Company
agreed to purchase design services from OSI through the end of calendar year
2010. The total commitment under this design service agreement is $0.8 million.
The Company also signed a sublease agreement with OSI. The sublease
will expire in June 2012. The sale of the SLE business was not qualified as
discontinued operations as the Company will continue to have cash flows
associated with design service agreement that the Company signed with
OSI.
The
following table summarizes the components of the loss:
(in
thousands)
|
|
|
|
Cash
proceeds from sale
|
|
$ |
- |
|
Assets
sold to OSI
|
|
|
|
|
Fixed
Assets, net
|
|
|
(120
|
) |
Other
assets
|
|
|
(24
|
) |
Liabilities
assumed by Spectrum Control
|
|
|
17 |
|
Transaction
and other costs
|
|
|
(61
|
) |
Loss
on divestiture
|
|
$ |
(188 |
) |
Network
search engine business
On July
17, 2009, the Company completed the sale of certain assets related to its
network search engine business (the "NWD assets") to NetLogic Microsystems,
Inc ("Netlogic"), pursuant to an Asset Purchase Agreement by and between the
Company and NetLogic dated April 30, 2009. Upon closing of the transaction,
NetLogic paid the Company $100 million in cash consideration, which included
inventory valued at approximately $10 million, subject to
adjustment. As of September 27, 2009, the inventory we sold to
Netlogic was valued at $8.2 million. Subsequently, in the
third quarter of fiscal 2010, the Company reimbursed Netlogic the excess cash
for the inventory in the amount of $1.8 million. The Company’s NWD
assets are part of the
Communications
reportable segment. In connection with the divestiture, the Company entered into
a supply agreement with NetLogic whereby they agreed to buy and the Company
agreed to sell Netlogic certain network search engine products for a limited
time following the closing of the sale. According to the terms set
forth in the agreement, the Company has committed to supply certain products
either at its standard costs or below its normal gross margins for such
products, which are lower than their estimated fair values. As a result, the
Company recorded $3.0 million related to the estimated fair value of this
agreement, of which $0.5 million were recognized as revenue in the first nine
months of fiscal 2010. The Company expects to complete sales under this
agreement within 2 years. In the second quarter of fiscal 2010, the
Company recorded a gain of $82.7 million. The sale of the NWD business was not
qualified as discontinued operations as the Company will continue to have cash
flows associated with the supply agreement that the Company signed with
Netlogic.
The
following table summarizes the components of the gain:
(in
thousands)
|
|
|
|
Cash
proceeds from sale
|
|
$ |
98,183 |
|
Assets
sold to Netlogic
|
|
|
|
|
Net
inventory sold to Netlogic
|
|
|
(7,593
|
) |
Fixed
assets and license transferred to Netlogic
|
|
|
(583
|
) |
Goodwill
write off
|
|
|
(3,701
|
) |
Transaction
and other costs
|
|
|
(579
|
) |
Fair
market value of the supply agreement with Netlogic
|
|
|
(2,980
|
) |
Gain
on divestiture
|
|
$ |
82,747 |
|
Note
13
Goodwill
and Other Intangible Assets
The
changes in the carrying amounts of goodwill by segment for the three and nine
months ended December 27, 2009 were as follows:
(in
thousands)
|
|
Communications
|
|
|
Computing
and Consumer
|
|
|
Total
|
|
Balance
as of March 29, 2009
|
|
$ |
63,204 |
|
|
$ |
26,200 |
|
|
$ |
89,404 |
|
Additions
(1)
|
|
|
-- |
|
|
|
59 |
|
|
|
59 |
|
Balance
as of June 29, 2009
|
|
|
63,204 |
|
|
|
26,259 |
|
|
|
89,463 |
|
Additions
(2)
|
|
|
13,321 |
|
|
|
2,142 |
|
|
|
15,463 |
|
Adjustments
(3)
|
|
|
(3,701
|
) |
|
|
-- |
|
|
|
(3,701
|
) |
Balance
as of September 27, 2009
|
|
|
72,824 |
|
|
|
28,401 |
|
|
|
101,225 |
|
Adjustments
(4)
|
|
|
(41
|
) |
|
|
-- |
|
|
|
(41
|
) |
Balance
as of December 27, 2009
|
|
$ |
72,783 |
|
|
$ |
28,401 |
|
|
$ |
101,184 |
|
(1)
|
Additions
were from the Leadis acquisition.
|
(2)
|
Additions
were from the Tundra acquisition.
|
(3)
|
Adjustments
primarily represent the write off of goodwill associated with the
divestiture of networking assets. See note 12-"Divestitures" for further
discussion.
|
(4)
|
Adjustments
were related to the Tundra
acquisition.
|
Identified
intangible asset balances are summarized as follows:
|
|
December
27, 2009
|
|
|
|
|
|
(in
thousands)
|
|
Gross
assets
|
|
|
Accumulated
amortization
|
|
|
Net
assets
|
|
Identified
intangible assets:
|
|
|
|
|
|
|
|
|
|
Existing
technology
|
|
$ |
229,218 |
|
|
$ |
(196,578 |
) |
|
$ |
32,641 |
|
Trademarks
|
|
|
11,634 |
|
|
|
(8,502
|
) |
|
|
3,131 |
|
Customer
relationships
|
|
|
133,241 |
|
|
|
(119,030
|
) |
|
|
14,211 |
|
Foundry
& Assembler relationships
|
|
|
64,380 |
|
|
|
(64,378
|
) |
|
|
2 |
|
Non-compete
agreements
|
|
|
52,958 |
|
|
|
(52,958
|
) |
|
|
-- |
|
IPR&D
|
|
|
897 |
|
|
|
-- |
|
|
|
897 |
|
Other
|
|
|
29,553 |
|
|
|
(29,553
|
) |
|
|
-- |
|
Total
identified intangible assets
|
|
$ |
521,881 |
|
|
$ |
(470,999 |
) |
|
$ |
50,882 |
|
|
|
March
29, 2009
|
|
|
|
|
|
(in
thousands)
|
|
Gross
assets
|
|
|
Accumulated
amortization
|
|
|
Net
assets
|
|
Identified
intangible assets:
|
|
|
|
|
|
|
|
|
|
Existing
technology
|
|
$ |
236,423 |
|
|
$ |
(198,133 |
) |
|
$ |
38,290 |
|
Trademarks
|
|
|
9,360 |
|
|
|
(8,878
|
) |
|
|
482 |
|
Customer
relationships
|
|
|
138,317 |
|
|
|
(126,586
|
) |
|
|
11,731 |
|
Foundry
& assembler relationships
|
|
|
64,380 |
|
|
|
(64,374
|
) |
|
|
6 |
|
Non-compete
agreements
|
|
|
52,958 |
|
|
|
(52,958
|
) |
|
|
-- |
|
Other
|
|
|
31,053 |
|
|
|
(31,053
|
) |
|
|
-- |
|
Total
identified intangible assets
|
|
$ |
532,491 |
|
|
$ |
(481,982 |
) |
|
$ |
50,509 |
|
Amortization
expense for identified intangibles is summarized below:
|
|
Three
months ended
|
|
|
Nine
months ended
|
|
(in
thousands)
|
|
Dec.
27,
2009
|
|
|
Dec.
28,
2008
|
|
|
Dec.
27,
2009
|
|
|
Dec.
28,
2008
|
|
Existing
technology
|
|
$ |
2,996 |
|
|
$ |
13,349 |
|
|
$ |
11,176 |
|
|
$ |
41,441 |
|
Trademarks
|
|
|
122 |
|
|
|
294 |
|
|
|
262 |
|
|
|
900 |
|
Customer
relationships
|
|
|
1,684 |
|
|
|
5,666 |
|
|
|
4,688 |
|
|
|
17,396 |
|
Foundry
& assembler relationships
|
|
|
1 |
|
|
|
289 |
|
|
|
4 |
|
|
|
991 |
|
Non-compete
agreements
|
|
|
-- |
|
|
|
35 |
|
|
|
-- |
|
|
|
236 |
|
Other
|
|
|
-- |
|
|
|
19 |
|
|
|
-- |
|
|
|
139 |
|
Total
|
|
$ |
4,803 |
|
|
$ |
19,652 |
|
|
$ |
16,130 |
|
|
$ |
61,103 |
|
Based on
the identified intangible assets recorded at December 27, 2009, the future
amortization expense of identified intangibles for the next five fiscal years is
as follows (in
thousands):
Fiscal
year
|
|
Amount
|
|
Remainder
of fiscal year 2010
|
|
$ |
4,452 |
|
2011
|
|
|
16,693 |
|
2012
|
|
|
12,372 |
|
2013
|
|
|
7,475 |
|
2014
|
|
|
5,025 |
|
Thereafter
|
|
|
3,968 |
|
Total
|
|
$ |
49,985 |
|
Comprehensive
Income (Loss)
The
components of comprehensive income (loss) were as follows:
|
|
Three
months ended
|
|
|
Nine
months ended
|
|
(in
thousands)
|
|
Dec.
27,
2009
|
|
|
Dec.
28,
2008
|
|
|
Dec.
27,
2009
|
|
|
Dec.
28,
2008
|
|
Net
income (loss)
|
|
$ |
(7,367 |
) |
|
$ |
(345,259 |
) |
|
$ |
39,052 |
|
|
$ |
(324,430 |
) |
Currency
translation adjustments
|
|
|
(180
|
) |
|
|
(905
|
) |
|
|
806 |
|
|
|
(1,636
|
) |
Change
in net unrealized gain (loss) on investments
|
|
|
(77
|
) |
|
|
826 |
|
|
|
48 |
|
|
|
196 |
|
Comprehensive
income (loss)
|
|
$ |
(7,624 |
) |
|
$ |
(345,338 |
) |
|
$ |
39,906 |
|
|
$ |
(325,870 |
) |
The
components of accumulated other comprehensive income, net of tax, were as
follows:
|
|
|
(in
thousands)
|
December
27,
2009
|
|
March
29,
2009
|
|
Cumulative
translation adjustments
|
|
$ |
1,252 |
|
|
$ |
446 |
|
Unrealized
gain on available-for-sale investments
|
|
|
472 |
|
|
|
424 |
|
Total
accumulated other comprehensive income
|
|
$ |
1,724 |
|
|
$ |
870 |
|
Note 15
Industry
Segments
In the
first quarter of fiscal 2010, as part of a refinement of its business strategy,
the Company incorporated multi-port products from the Communications segment
into the Computing and Consumer segment. This change
in segment reporting had no impact on the Company’s consolidated balance sheets,
statements of operations, statements of cash flows or statements of
stockholders’ equity for any periods. The segment information for three month
and nine months ended December 28, 2008 has been adjusted retrospectively to
conform to the current period presentation.
The
Company’s Chief Executive Officer has been identified as the Chief Operating
Decision Maker.
The
Company’s reportable segments include the following:
·
|
Communications
segment: includes Rapid I/O switching solutions, flow-control management
devices, FIFOs, integrated communications processors, high-speed SRAM,
military application, digital logic, telecommunications and network search
engines (divested in the second quarter of fiscal
2010).
|
·
|
Computing
and Consumer segment: includes clock generation and distribution products,
PCI Express switching and bridging solutions, high-performance server
memory interfaces, multi-port products, PC audio and video
products.
|
The
tables below provide information about these segments:
Revenues
by segment
|
|
Three
months ended
|
|
|
Nine
months ended
|
|
(in
thousands)
|
|
Dec.
27,
2009
|
|
|
Dec.
28,
2008
|
|
|
Dec.
27,
2009
|
|
|
Dec.
28,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communications
|
|
$ |
61,689 |
|
|
$ |
68,303 |
|
|
$ |
179,663 |
|
|
$ |
241,203 |
|
Computing
and Consumer
|
|
|
80,791 |
|
|
|
98,776 |
|
|
|
218,275 |
|
|
|
314,625 |
|
Total
consolidated revenues
|
|
$ |
142,480 |
|
|
$ |
167,079 |
|
|
$ |
397,938 |
|
|
$ |
555,828 |
|
Income
(loss) by segment
|
|
Three
months ended
|
|
|
Nine
months ended
|
|
(in
thousands)
|
|
Dec.
27,
2009
|
|
|
Dec.
28,
2008
|
|
|
Dec.
27,
2009
|
|
|
Dec.
28,
2008
|
|
Communications
|
|
$ |
21,972 |
|
|
$ |
19,940 |
|
|
$ |
58,545 |
|
|
$ |
83,124 |
|
Computing
and Consumer
|
|
|
(4,772
|
) |
|
|
9,017 |
|
|
|
(25,971
|
) |
|
|
26,021 |
|
Amortization
of intangible assets
|
|
|
(4,803
|
) |
|
|
(19,652
|
) |
|
|
(16,130
|
) |
|
|
(61,104
|
) |
Acquisition
related costs and other
|
|
|
254 |
|
|
|
2 |
|
|
|
(3,692
|
) |
|
|
8 |
|
Gain
(loss) on divestiture
|
|
|
(4,461
|
) |
|
|
-- |
|
|
|
78,286 |
|
|
|
-- |
|
Acquired
in-process research and development
|
|
|
-- |
|
|
|
(5,597
|
) |
|
|
-- |
|
|
|
(5,597
|
) |
Goodwill
and intangible assets impairment
|
|
|
-- |
|
|
|
(339,051
|
) |
|
|
-- |
|
|
|
(339,051
|
) |
Other-than-temporary
impairment of investment
|
|
|
-- |
|
|
|
(3,000
|
) |
|
|
-- |
|
|
|
(3,000
|
) |
Assets
impairment
|
|
|
216 |
|
|
|
-- |
|
|
|
(1,786
|
) |
|
|
-- |
|
Inventory
fair value adjustment
|
|
|
(8,421
|
) |
|
|
-- |
|
|
|
(16,055
|
) |
|
|
-- |
|
Restructuring
and related costs
|
|
|
(2,297
|
) |
|
|
(597
|
) |
|
|
(17,796
|
) |
|
|
(1,902
|
) |
Facility
closure costs
|
|
|
(23
|
) |
|
|
(50
|
) |
|
|
(59
|
) |
|
|
(146
|
) |
Fabrication
production transfer costs
|
|
|
(783
|
) |
|
|
-- |
|
|
|
(1,105
|
) |
|
|
-- |
|
Compensation
benefit (expense) - deferred compensation plan
|
|
|
(521
|
) |
|
|
1,895 |
|
|
|
(2,522
|
) |
|
|
2,610 |
|
Stock-based
compensation expense
|
|
|
(4,163
|
) |
|
|
(9,012
|
) |
|
|
(12,341
|
) |
|
|
(25,783
|
) |
Interest
income and other (expense), net
|
|
|
597 |
|
|
|
(1,150
|
) |
|
|
3,221 |
|
|
|
699 |
|
Interest
expense
|
|
|
(15
|
) |
|
|
(14
|
) |
|
|
(45
|
) |
|
|
(47
|
) |
Income
(loss) before income taxes
|
|
$ |
(7,220 |
) |
|
$ |
(347,269 |
) |
|
$ |
42,550 |
|
|
$ |
(324,168 |
) |
The
Company does not allocate amortization of intangible assets, severance and
retention costs, acquisition-related costs, stock-based compensation, interest
income and other, and interest expense to its segments. In addition,
the Company does not allocate assets to its segments. The Company excludes these
items consistent with the manner in which it internally evaluates its results of
operations.
The
Company’s significant operations outside of the United States include
manufacturing facilities in Malaysia and Singapore, design centers in the U.S.,
Canada and China, and sales subsidiaries in Japan, Asia Pacific and Europe.
Revenues from unaffiliated customers by geographic area, based on the customers'
shipment locations, were as follows:
|
|
Three
months ended
|
|
|
Nine
months ended
|
|
(in
thousands)
|
|
Dec.
27,
2009
|
|
|
Dec.
28,
2008
|
|
|
Dec.
27,
2009
|
|
|
Dec.
28,
2008
|
|
Asia
Pacific
|
|
$ |
92,205 |
|
|
$ |
106,815 |
|
|
$ |
261,915 |
|
|
$ |
353,905 |
|
Americas
|
|
|
23,071 |
|
|
|
31,831 |
|
|
|
69,453 |
|
|
|
107,764 |
|
Japan
|
|
|
16,374 |
|
|
|
16,319 |
|
|
|
37,978 |
|
|
|
51,666 |
|
Europe
|
|
|
10,830 |
|
|
|
12,114 |
|
|
|
28,592 |
|
|
|
42,493 |
|
Total
consolidated revenues
|
|
$ |
142,480 |
|
|
$ |
167,079 |
|
|
$ |
397,938 |
|
|
$ |
555,828 |
|
The
Company's property, plant and equipment are summarized below by geographic
area:
in
thousands)
|
|
December
27,
2009
|
|
|
March
29,
2009
|
|
United
States
|
|
$ |
53,904 |
|
|
$ |
60,836 |
|
Canada
|
|
|
6,672 |
|
|
|
700 |
|
Malaysia
|
|
|
4,285 |
|
|
|
4,888 |
|
Singapore
|
|
|
3,864 |
|
|
|
2,918 |
|
All
other countries
|
|
|
682 |
|
|
|
2,219 |
|
Total
property, plant and equipment, net
|
|
$ |
69,407 |
|
|
$ |
71,561 |
|
Note
16
Commitments
and Guarantees
Guarantees
As of
December 27, 2009, the Company’s financial guarantees consisted of guarantees
and standby letters of credit, which are primarily related to the Company’s
electrical utilities in Malaysia, utilization of non-country nationals in
Malaysia and Singapore, consumption tax in Japan and value-added tax obligations
in Singapore and Holland, and a workers’ compensation plan in the United States.
The maximum amount of potential future payments under these arrangements is
approximately $2.3 million.
The
Company indemnifies certain customers, distributors, and subcontractors for
attorney fees and damages awarded against these parties in certain circumstances
in which the Company’s products are alleged to infringe third party intellectual
property rights, including patents, registered trademarks, or copyrights. The
terms of the Company’s indemnification obligations are generally perpetual from
the effective date of the agreement. In certain cases, there are limits on and
exceptions to the Company’s potential liability for indemnification relating to
intellectual property infringement claims. The Company cannot estimate the
amount of potential future payments, if any, that might be required to make as a
result of these agreements. The Company has not paid any claim or been required
to defend any claim related to its indemnification obligations, and accordingly,
the Company has not accrued any amounts for its indemnification obligations.
However, there can be no assurances that the Company will not have any future
financial exposure under these indemnification obligations.
The
Company maintains an accrual for obligations it incurs under its standard
product warranty program and customer, part, or process specific matters. The
Company’s standard warranty period is one year, however in certain instances the
warranty period may be extended to as long as two years. Management
estimates the fair value of the Company’s warranty liability based on actual
past warranty claims experience, its policies regarding customer warranty
returns and other estimates about the timing and disposition of product returned
under the standard program. Customer, part, or process specific
reserves
are
estimated using a specific identification method. Historical profit
and loss impact related to warranty returns activity has been minimal. The total
accrual was $0.3 million and $0.5 million as of December 27, 2009 and March 29,
2009, respectively.
Note 17
Litigation
On
October 24, 2006, the Company was served with a civil antitrust complaint
filed by Reclaim Center, Inc., et. al. as plaintiffs in the U.S. District Court
for the Northern District of California against us and 37 other entities on
behalf of a purported class of indirect purchasers of Static Random Access
Memory (SRAM) products. The Complaint alleges that the Company and other
defendants conspired to raise the prices of SRAM, in violation of Section 1
of the Sherman Act, the California Cartwright Act, and several other states’
antitrust, unfair competition, and consumer protection statutes. Shortly
thereafter, a number of other plaintiffs filed similar complaints on behalf of
direct and indirect purchasers of SRAM products. Given the similarity of the
complaints, the Judicial Panel on Multidistrict Litigation transferred the cases
to a single judge in the Northern District of California and consolidated the
cases for pretrial proceedings in February 2007. The consolidated cases are
captioned In re Static Random Access Memory (SRAM) Antitrust Litigation. In
August 2007, direct purchasers of SRAM products and indirect purchasers of SRAM
products filed separate Consolidated Amended Complaints. The Company was not
named as a defendant in either complaint. Pursuant to tolling agreements with
the indirect and direct purchaser plaintiffs, the statute of limitations was
tolled until January 10, 2009 as to potential claims against the
Company. The tolling agreements have now expired and the statute of
limitations is running on potential claims against the
Company. Discovery has closed in both cases. The Company intends
to vigorously defend itself against these claims.
In April
2008, LSI Corporation and its wholly owned subsidiary Agere Systems Inc.
(collectively “LSI”) instituted an action in the United States International
Trade Commission (ITC or “Commission”), naming the Company and 17 other
respondents. The ITC action seeks an exclusion order to prevent
importation into the U.S. of semiconductor integrated circuit devices and
products made by methods alleged to infringe an LSI patent relating to tungsten
metallization in semiconductor manufacturing. LSI also filed a companion case in
the U.S. District Court for the Eastern District of Texas seeking an injunction
and damages of an unspecified amount relating to such alleged infringement.
Since the initiation of both actions, five additional parties have been named as
respondents/defendants in the respective actions. Some of the defendants in the
action have since settled the claims against them. The action in the U.S.
District Court has been stayed pending the outcome of the ITC action. The
hearing in the ITC action was conducted July 20 through July 27, 2009. On
September 21, 2009, the Administrative Law Judge (“ALJ”) issued his Initial
Determination finding that
the patent claims asserted by LSI were invalid in light of the prior
art. Based on the finding of invalidity, the Court held that no
violation of section 337 has occurred with respect to the asserted
claims. On October 5, 2009, LSI filed a Petition to Review by the
Commission. Also on October 5, 2009, the defendants filed a Common
Contingent Petition for Review on common matters in the case, and the Company
separately filed a Contingent Petition for Review on Company-specific matters in
the case. Each side filed a Response Brief on October 13,
2009. On November 23, 2009, the Commission issued a Notice of
determination to review in-part the ALJ’s Initial Determination. The
Commission further instructed the ALJ to consider on remand the merit of
respondents' arguments with respect to invalidity of one asserted claim for
obviousness. On January 14, 2010, the ALJ issued a Remand
Determination that respondents had not demonstrated by clear and convincing
evidence that the claim at issue on remand was invalid due to
obviousness. Briefing responsive to the Remand by Respondents is due
February 2, 2010. The Reply brief from LSI is due February 9,
2010. The Commission has extended the target date for completion of
the investigation to March 22, 2010. The Company cannot predict the
outcome or provide an estimate of any possible losses. The Company
will continue to vigorously defend itself against the claims in these
actions.
Note
18
Restructuring
The
following table shows the provison of the restructuring charges and the
liability remaining as of December 27, 2009:
(in
thousands)
|
|
Cost
of goods sold
|
|
|
Operating
Expenses
|
|
|
|
Restructuring
|
|
|
Restructuring
|
|
Balance
as of March 29, 2009
|
|
$ |
575 |
|
|
$ |
3,649 |
|
Provision
|
|
|
55 |
|
|
|
1,421 |
|
Cash
payments
|
|
|
(274
|
) |
|
|
(2,578
|
) |
Balance
as of June 28, 2009
|
|
$ |
356 |
|
|
$ |
2,492 |
|
Provision
|
|
|
5,708 |
|
|
|
8,315 |
|
Cash
payments
|
|
|
(500
|
) |
|
|
(7,292
|
) |
Balance
as of September 27, 2009
|
|
$ |
5,564 |
|
|
|
3,515 |
|
Provision
|
|
|
386 |
|
|
|
1,912 |
|
Cash
payments
|
|
|
(246
|
) |
|
|
(2,359
|
) |
Balance
as of December 27, 2009
|
|
$ |
5,704 |
|
|
$ |
3,068 |
|
As part
of an effort to streamline operations with changing market conditions and to
create a more efficient organization, the Company took restructuring actions
through December 27, 2009, to reduce its workforce and consolidate
facilities. The Company’s restructuring expenses have been comprised
primarily of: (i) severance and termination benefit costs related to the
reduction of its workforce; and (ii) lease termination costs and costs
associated with permanently vacating certain facilities. The Company
accounted for each of these costs in accordance with accounting guidance on
accounting for costs associated with exit or disposal activities or accounting
guidance on employer’s accounting for post employment benefits. The determination of when
the Company accrues for severance costs, and which standard applies, depends on
whether the termination benefits are provided under a one-time benefit
arrangement or under an on-going benefit arrangement.
During
the third quarter of fiscal 2010, the Company initiated restructuring
actions intended to
further adjust its skills mix to new strategic and product opportunities. The
restructuring action included a reduction of approximately 61 positions within
its Analog and Power group across multiple locations worldwide. As a result, the
Company recorded restructuring expenses of $1.3 million for severance payments,
payments under federal, state and province notice statutes and retention and
other benefits associated with this restructuring action in the third quarter of
fiscal 2010. As of December 27, 2009, the Company made severance and retention
payments totaling $1.2 million related to these restructuring actions. The
Company expects to complete these restructuring actions in the fourth quarter of
fiscal 2010. In addition, the Company reduced a total of 15 positions and exited
certain leased facilities related to its divestitures in the third quarter of
fiscal 2010. The Company recorded restructuring expenses of $1.0 million for
lease impairment charges, severance payments, payments under federal, state and
province notice statutes and retention and other benefits associated with these
restructuring actions in the third quarter of fiscal 2010, of which $0.1 million
was related to severance, retention and other benefits to the terminated
employees and $0.9 million was for facilities impairment charges which was
recorded as selling, general and administrative (SG&A)
expense. As of December 27, 2009, the Company made severance and
retention payments totaling $0.1 million related to these restructuring actions.
The Company expects to complete these restructuring actions in the fourth
quarter of fiscal 2010.
During
the second quarter of fiscal 2010, the Company initiated a restructuring action
following its acquisition of Tundra and an assessment of ongoing personnel needs
in light of the acquisition. The restructuring action included a reduction of
approximately 133 positions worldwide. In addition, the Company also
impaired some facilities due to vacating certain locations. As a result,
the Company recorded restructuring expenses of $8.6 million for severance
payments, payments under federal, state and province notice statutes and
retention and other benefits associated with this restructuring action in the
second quarter of fiscal 2010, of which $8.4 million was related to lease
impairment charges, severance, retention and other benefits to the terminated
employees and $0.2 million was for facilities impairment charges which was
recorded as SG&A expense. In the third quarter of fiscal 2010, in
connection with its divestiture of SLE business, the Company transferred 24
employees to OSI and terminated 9 employees resulting in a reduction to its
accrued restructuring expenses by approximately $0.1 million. As of
December 27, 2009, the Company made severance and retention payments totaling
$6.9 million related to this restructuring action. The Company expects to
complete this restructuring action in the fourth quarter of fiscal 2010. The
facility lease charges will be paid off through the second quarter of fiscal
2011. In addition, in connection with its plan to transition the
manufacture of products to Taiwan Semiconductor Manufacturing Limited ("TSMC"),
the Company’s management approved a plan to exit wafer production operations at
its Oregon fabrication facility. As a result, the Company accrued
restructuring expenses of $4.8 million for severance payments and other benefits
associated with this restructuring action in the second quarter of fiscal 2010.
The Company expects to complete this restructuring action in the second quarter
of fiscal 2012.
During
the fourth quarter of fiscal 2009, the Company initiated a restructuring action
intended to align its spending with demand that has weakened in the slowing
economy. The restructuring action included a reduction of approximately 124
positions across multiple divisions worldwide. In March 2009, after carefully
considering the market, revenues and prices for search engines, the Company
decided to restructure its Networking division. As part of this
restructuring action, the Company reduced approximately 56 positions in this
division and ceased investment in new search engine product
development. In addition, the Company initiated restructuring
actions, which affected its sales personnel in Germany and
Japan. During the first nine months of fiscal 2010, the Company
reduced an additional 12 positions related to these actions. As a
result, the Company recorded restructuring expenses of $2.3 million and $5.3
million for severance payments, payments under federal, state and province
notice statutes and retention and other benefits associated with these
restructuring actions in the first nine months of fiscal 2010 and the fourth
quarter of fiscal 2009. As of December 27, 2009, severance, retention and
other benefits of $7.5 million were settled. The Company expects to
complete these restructuring actions in the fourth quarter of fiscal
2010.
During
the second quarter of fiscal 2006, the Company completed the consolidation of
its Northern California workforce into its San Jose headquarters and exited a
leased facility in Salinas, California. Upon exiting the building the Company
recorded lease impairment charges of approximately $2.3 million, which
represented the future rental payments under the agreement, reduced by an
estimate of sublease income, and discounted to present value using an interest
rate applicable to the Company. These charges were recorded as cost of revenues
of $0.7 million, research and development expense (R&D) of $0.9 million and
SG&A expense of $0.7 million. In fiscal 2008, the Company entered into a
sublease agreement for this facility, resulting in a reduction to its accrued
lease liabilities by $0.2 million. Since the initial restructuring,
the Company has made lease payments of $1.2 million related to the vacated
facility in Salinas. As of December 27, 2009, the remaining accrued
lease liabilities were $0.9 million.
Note
19
Income
Taxes
The
Company recorded an income tax provision of $0.1 million in the third quarter of
fiscal 2010, compared to a $2.0 million income tax benefit in the third quarter
of fiscal 2009. The income tax provision in the third quarter of
fiscal 2010 was attributable to a discrete tax provision of $1.3 million related
to its fiscal 2009 income tax return filing and a discrete tax benefit of $1.5
million as a result of the military business and NWD asset sales and the
estimated U.S. Federal and state taxes and estimated foreign income
taxes. The income tax benefit in the third quarter of fiscal 2009 consisted of a
$1.0 million tax benefit related to reductions in deferred tax liabilities
resulting from a goodwill impairment charge recorded in the quarter, a reduction
in foreign taxes of $0.6 million due to decreased profits and an increase in
recorded tax benefits of $0.5 million related to a tax return filing in Malaysia
during the quarter.
The
Company recorded an income tax provision of $3.5 million in the first nine
months of fiscal 2010, an increase of $3.2 million, compared to the first nine
months of fiscal 2009. The provision for income taxes in the first nine months
of fiscal 2010 primarily reflects a discrete income tax provision of $1.0
million for the sale of the NWD assets and MNC business, a $1.3 million income
tax provision related to our fiscal 2009 income tax return and the estimated
U.S. Federal and state taxes and estimated foreign income taxes. The income
tax provision for the first nine months of fiscal 2009 primarily reflects
estimated foreign income and withholding taxes and estimated U.S. Federal and
state taxes. The provision for income taxes for the first nine months of
fiscal 2009 was determined using the annual effective tax rate method.
In
February 2009, the Internal Revenue Service (IRS) commenced a tax audit for
fiscal years 2006 through 2008. The IRS field audit is still in
progress. The Company has received various information requests from the IRS.
Although the final outcome is uncertain, based on currently available
information, the Company believes that the ultimate outcome will not have a
material adverse effect on its financial position, cash flows or results of
operations
As of
December 27, 2009 and March 29, 2009, the Company was subject to examination in
various state and foreign jurisdictions for tax years 2004 forward, none of
which were individually material.
Note
20
Share
Repurchase Program
On
January 18, 2007, the Company’s Board of Directors initiated a $200 million
share repurchase program. During fiscal 2008, the Company’s Board of Directors
approved a $200 million expansion of the share repurchase program to a total
$400 million. In fiscal 2008 and 2007, the Company repurchased
approximately 28.9 million and 1.6 million shares at an average price of $11.60
per share and $15.95 per share for a total purchase price of $334.8 million and
$25.0 million, respectively. On April 30, 2008, the Company’s Board
of Directors approved an additional $100 million expansion of the share
repurchase program to a total of $500 million. In fiscal 2009, the
Company repurchased approximately 8.4 million shares at an average price of
$7.46 per share for a total purchase price of $62.3 million. During
the third quarter of fiscal 2010, the Company repurchased approximately 0.6
million shares at an average price of $5.99 per share for a total purchase price
of $3.3 million. As of December 27, 2009, approximately $74.6
million was available for future purchase under the share repurchase
program. Share repurchases were recorded as treasury stock and
resulted in a reduction of stockholders’ equity.
Note
21
Related
Party Transaction
On
December 4, 2009, in line with Company’s strategy to exit engineering services
business acquired as part of Tundra acquisition, the Company completed the sale
of certain assets and transferred certain liabilities related to its Silicon
Logic Engineering business to Open Silicon, Inc (“OSI’) for $1 in
cash. See Note 12 – “Divestitures” for further
discussion. Richard D. Crowley, Jr., the Company’s Vice President and
Chief Financial Officer, is a member of the board of directors of
OSI.
Note
22
Subsequent
Events
On
January 14, 2010, the Company completed its acquisition of Mobius Microsystems
(“Mobius”), a privately-held, fabless semiconductor company based in Sunnyvale,
California, acquiring all of Mobius’ outstanding shares of common stock for
approximately $25 million in cash. Pursuant to the agreement and upon
closing the transaction, the Company acquired patented all-silicon oscillator
technology and related assets along with members of Mobius’ engineering
team.
On
February 1, 2010, the Company announced a plan to discontinue manufacturing
operations in its Singapore facility. The Singapore operations will
begin a phased shut down that is anticipated to take approximately three
months. As a result, the Company will reduce its workforce in
Singapore, resulting in a reduction of the worldwide workforce of approximately
11%. The Company has taken this action following an assessment of
operational and financial considerations. In connection with these
actions, the Company estimates that it will incur approximately $2.3 million to
$2.7 million in cash expenditures for severance and related costs, primarily in
the fourth quarter of fiscal 2010 ending March 28, 2010. The Company
expects to complete this restructuring initiative in the first quarter of fiscal
2011.
ITEM 2. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This
report contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange
Act"). Forward-looking statements involve a number of risks and
uncertainties. These include, but are not limited to: global business
and economic conditions; operating results; new product introductions and sales;
competitive conditions; capital expenditures and resources; manufacturing
capacity utilization; customer demand and inventory levels; intellectual
property matters; mergers and acquisitions and integration activities; and the
risk factors set forth in Part II, Item 1A “Risk Factors” to this Report on Form
10-Q. As a result of these risks and uncertainties, actual results
could differ from those anticipated in the forward-looking
statements. Unless otherwise required by law, we undertake no
obligation to publicly revise these statements for future events or new
information after the date of this Report on Form 10-Q.
This
discussion and analysis should be read in conjunction with our Condensed
Consolidated Financial Statements and accompanying Notes included in this report
and the Audited Consolidated Financial Statements and Notes thereto included in
our Annual Report on Form 10-K for the fiscal year ended March 29, 2009 filed
with the SEC. Operating results for the three months and nine months ended
December 27, 2009 are not necessarily indicative of operating results for an
entire fiscal year.
Forward-looking
statements, which are generally identified by words such as “anticipates,”
“expects,” “plans,” and similar terms, include statements related to revenues
and gross profit, research and development activities, selling, general and
administrative expenses, intangible expenses, interest income and other, taxes,
capital spending and financing transactions, as well as statements regarding
successful development and market acceptance of new products, industry and
overall economic conditions and demand, and capacity utilization.
Results
of Operations
We
design, develop, manufacture and market a broad range of high-performance,
mixed-signal semiconductor solutions for the advanced communications, computing
and consumer industries. This is achieved by developing detailed
systems-level knowledge, and applying our fundamental semiconductor heritage in
high speed serial interfaces, timing, switching and memory to create solutions
to compelling technology problems faced by customers.
In the
first quarter of fiscal 2010, as part of a refinement of our business strategy,
we incorporated multi-port products from the Communications segment into the
Computing and Consumer segment. This change
in segment reporting had no impact on our consolidated balance sheets,
statements of operations, statements of cash flows or statements of
stockholders’ equity for any periods. The segment information for three month
and nine months ended December 28, 2008 has been adjusted retrospectively to
conform to the current period presentation. The Chief Executive
Officer has been identified as the Chief Operating Decision Maker.
Our
reportable segments include the following:
§
|
Communications
segment: includes Rapid I/O switching solutions, flow-control management
devices, FIFOs, integrated communications processors, high-speed SRAM,
military application (divested in the third quarter of fiscal 2010),
digital logic, telecommunications and network search engines (divested in
the second quarter of fiscal
2010),.
|
§
|
Computing
and Consumer segment: includes clock generation and distribution products,
PCI Express switching and bridging solutions, high-performance server
memory interfaces, multi-port products, PC audio and video
products.
|
Revenues
(in
thousands)
|
Three
months ended
|
|
Nine
months ended
|
|
|
Dec.
27, 2009
|
|
Dec.
28,
2008
|
|
Dec.
27, 2009
|
|
Dec.
28,
2008
|
|
Communications
|
|
$ |
61,689 |
|
|
$ |
68,303 |
|
|
$ |
179,663 |
|
|
$ |
241,203 |
|
Computing
and Consumer
|
|
|
80,791 |
|
|
|
98,776 |
|
|
|
218,275 |
|
|
|
314,625 |
|
Total
|
|
$ |
142,480 |
|
|
$ |
167,079 |
|
|
$ |
397,938 |
|
|
$ |
555,828 |
|
Communications
Segment
Revenues
in our Communications segment decreased $6.6 million, or 10% in the third
quarter of fiscal 2010 as compared to the third quarter of fiscal 2009. The
decrease was primarily driven by revenue declines in our networking division and
military products, as a result of our divestiture of the networking (NWD) assets
and military (MNC) business on July 17, 2009 and November 30, 2009,
respectively. Partially offsetting these decreases was an increase in
our flow control management products as a result of the Tundra acquisition.
Revenues from our SRAM, multi-port, FIFO, and digital logic products
increased 9% year over year due to the strength in the communications integrated
circuit market. Revenues from our communications timing and telecom
products increased 7% due to increased demand for our timing products in the
communications markets.
Computing
and Consumer Segment
Revenues
in our Computing and Consumer segment decreased $18.0 million, or 18% in the
third quarter of fiscal 2010 as compared to the third quarter of fiscal 2009 as
a result of the global economic downturn and increased competition in the
consumer market. Revenues within our Computing and Multimedia
division were flat, as increased end customer demand for systems using our
personal computing and consumer products was offset by erosion of average
selling prices. Revenues within our Enterprise Computing division
decreased 44%, driven by the continued ramp down of our Advanced Memory Buffer
(AMB) products. Partially offsetting these decreases was an increase in our
Video and Display division as a result of the Silicon Optix acquisition in the
third quarter of fiscal 2009 and new products continue to ramp up.
Revenues
in Asia Pacific (APAC), North America, Japan and Europe accounted for 65%, 16%,
11% and 8%, respectively, of our consolidated revenues in the third quarter of
fiscal 2010 compared to 64%, 19%, 10% and 7%, respectively, in the third quarter
of fiscal 2009. We expect that a significant portion of our revenue
will continue to be represented by sales to our customers in Asia, as many of
our largest customers utilize manufacturers in the APAC region.
Revenues (recent trends and
outlook). We currently anticipate overall revenues will
decrease slightly in the fourth quarter of fiscal 2010.
Revenues (first nine months of
fiscal 2010 compared to first nine months of fiscal 2009). Our
year-to-date revenues through the third quarter of fiscal 2010 were $397.9
million, a decrease of $157.9 million, or 28% when compared to the same period
one year ago. Revenues in our Communications segment decreased $61.5 million, or
26%, driven by our divestiture of the NWD assets and MNC business on July 17,
2009 and November 30, 2009, respectively, and lower revenues from SRAM,
multi-port, FIFO, and digital logic products. These decreases were partially
offset by the increased sales of our flow control management products as a
result of the Tundra acquisition. Revenues in our Computing and Consumer segment
decreased $96.4 million, or 31%, due to broad demand
weakness from our personal computing and consumer products end markets. The
decreases were partially offset by the growth in Video products revenues as a
result of the Silicon Optix’s acquisition and new products ramp up.
Included
in the caption “Deferred
income on shipments to distributors” on the Condensed Consolidated
Balance Sheets are amounts related to shipments to certain distributors for
which revenue is not recognized until our product has been sold by the
distributor to an end customer. The components of deferred
income
on
shipments to distributors as of December 27, 2009 and March 29, 2009 are as
follows:
(in
thousands)
|
|
Dec.
27,
2009
|
|
|
March
29,
2009
|
|
Gross
deferred revenue
|
|
$ |
24,742 |
|
|
$ |
21,302 |
|
Gross
deferred costs
|
|
|
5,237 |
|
|
|
4,764 |
|
Deferred
income on shipments to distributors
|
|
$ |
19,505 |
|
|
$ |
16,538 |
|
The gross
deferred revenue represents the gross value of shipments to distributors at the
list price billed to the distributor less any price protection credits provided
to them in connection with reductions in list price while the products remain in
their inventory. Based on our history, the amount ultimately
recognized as revenue will be lower than this amount as a result of ship from
stock pricing credits which are issued in connection with the sell through of
the product to an end customer. As the amount of price adjustments
subsequent to shipment is dependent on the overall market conditions, the levels
of these adjustments can fluctuate significantly from period to period.
Historically, this amount has represented an average of approximately 25% of the
list price billed to the customer. As these credits are issued, there
is no impact to working capital as this reduces both accounts receivable and
deferred revenue. The gross deferred costs represent the standard
costs (which approximate actual costs) of products we sell to the
distributors. The deferred income on shipments to distributors
increased $3.4 million or 16% for the first nine months of fiscal 2010 compared
to the fourth quarter of fiscal 2009. The increase was primarily
attributable to the increased shipments to distributors and inclusion of Tundra
shipments to distributors in the second and third quarter of fiscal 2010, which
had higher margins than IDT products.
Gross
Profit
(in
thousands)
|
Three
months ended
|
|
Nine
months ended
|
|
|
Dec.
27, 2009
|
|
Dec.
28, 2008
|
|
Dec.
27, 2009
|
|
Dec.
28, 2008
|
|
Gross
profit
|
|
$ |
59,729 |
|
|
$ |
69,669 |
|
|
$ |
158,025 |
|
|
$ |
241,281 |
|
Gross
margin
|
|
|
42 |
% |
|
|
42 |
% |
|
|
40 |
% |
|
|
43 |
% |
Gross profit (the third quarter of
fiscal 2010 compared to the third quarter of fiscal 2009). Gross
profit for the third quarter of fiscal 2010 was $59.7 million, a decrease of
$9.9 million, or 14% compared to the third quarter of fiscal 2009. Gross margin
for the third quarter of fiscal 2010 and fiscal 2009 were 42%. The
decrease in gross profit was primarily driven by lower revenue. Our
gross margin percentage was positively impacted by a higher utilization of our
fabrication facility and a favorable shift in the mix of products sold. The
utilization of our manufacturing capacity in Oregon increased from approximately
70% of equipped capacity in the third quarter of fiscal 2009 to 90% of equipped
capacity in the third quarter of fiscal 2010. Our gross margin
percentage benefited from a $10.6 million decrease in intangible asset
amortization as we wrote down the carrying value of certain intangible assets in
fiscal 2009. In addition, a portion of the intangible assets are being amortized
on an accelerated method, resulting in decreased amortization over
time. In addition, our gross margin benefited from a $0.8 million
decrease in royalty expenses. Furthermore, in the third quarter of
fiscal 2010 and 2009, gross profit benefited by approximately $1.1million and
$0.7 million, respectively, from the sale of inventory previously written
down. Offsetting these decreases, our gross margin for the third
quarter of fiscal 2010 was negatively impacted by $8.4 million related to the
sale of acquired inventory valued at fair value, less an estimated selling cost,
associated with our acquisition of Tundra.
Gross profit (first nine months of
fiscal 2010 compared to the first nine months of fiscal 2009). Our year
to date gross profit through the third quarter of fiscal 2010 was $158.0
million, a decrease of $83.3 million, or 35% compared to the same period one
year ago. Our gross margin for the nine months of fiscal 2010 was 40% compared
to 43% for the same period a year ago. The decrease in gross profit was
primarily attributable to the factors discussed above, including lower revenue
and sale of inventory valued at fair value, less an estimated selling
cost. In addition, our gross profit was negatively impacted by a $5.7
million of severance and benefit costs related to a reduction in force
associated with our acquisition of Tundra and the restructuring action within
our Oregon fabrication facility in the second quarter of fiscal
2010. Our gross profit was
also negatively impacted by an impairment charge related to a note receivable
net of deferred gain for the assets we sold to our subcontractor in fiscal
2007. Partially offsetting these decreases, our gross margin
benefited from a $31.8 million year-over-year decrease in intangible asset
amortization, $3.1 million, $1.1 million and $1.3 million decreases in equipment
expenses, performance related bonuses and royalty expenses,
respectively. Finally, in the first nine months of fiscal 2010 and
2009, gross profit benefited by approximately $4.4 million and $2.7 million,
respectively, from the sale of inventory previously written
down.
Operating
Expenses
The
following table shows our operating expenses:
|
|
Three
months ended
|
|
|
Nine
months ended
|
|
|
|
Dec.27,
2009
|
|
|
%
of Net Revenues
|
|
|
Dec.
28,
2008
|
|
|
%
of Net Revenues
|
|
|
Dec.
27,
2009
|
|
|
%
of Net Revenues
|
|
|
Dec.
28,
2008
|
|
|
%
of Net Revenues
|
|
Research
and Development
|
|
$ |
38,316 |
|
|
|
27 |
% |
|
$ |
37,247 |
|
|
|
22 |
% |
|
$ |
116,086 |
|
|
|
29 |
% |
|
$ |
122,398 |
|
|
|
22 |
% |
Selling,
General and Administrative
|
|
$ |
24,754 |
|
|
|
17 |
% |
|
$ |
30,879 |
|
|
|
18 |
% |
|
$ |
80,851 |
|
|
|
20 |
% |
|
$ |
96,055 |
|
|
|
17 |
% |
In-process
Research and Development
|
|
$ |
-- |
|
|
|
0 |
% |
|
$ |
5,597 |
|
|
|
3 |
% |
|
$ |
-- |
|
|
|
0 |
% |
|
$ |
5,597 |
|
|
|
1 |
% |
Goodwill
and acquisition-related intangible asset impairment
|
|
$ |
-- |
|
|
|
0 |
% |
|
$ |
339,051 |
|
|
|
203 |
% |
|
$ |
-- |
|
|
|
0 |
% |
|
$ |
339,051 |
|
|
|
61 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development. R&D expenses increased $1.1 million, or 3% to
$38.3 million in the third quarter of fiscal 2010 compared to the third quarter
of fiscal 2009. We completed our acquisition of Leadis and Tundra in
the first and second quarter of fiscal 2010, respectively. As a
result, our labor-related costs increased $1.4 million as the benefits of the
divestitures were offset by additional personnel related costs from Tundra and
Leadis acquisitions and our recent restructuring actions. In the
third quarter of fiscal 2009, we also benefited from a $1.0 million
incremental loss in the participant portfolio of the executive deferred
compensation plan primarily due to sequential declines in the stock
market. In addition, our equipment expense and outside service
expense increased $0.9 million and $0.7 million,
respectively. Partially offsetting these increases was a $3.3 million
decrease in other labor-related costs, including a $2.9 million decrease in
stock based compensation expense and a $0.4 million decrease in the expense
related to our 401(K) match expense as a result of the temporary suspension of
our US 401(K) employer match program.
Research and development (the first
nine months of fiscal 2010 compared to the first nine months of fiscal
2009). Our year to date R&D expenses through the third quarter of
fiscal 2010 were $116.1 million, a decrease of $6.3 million, or 5% compared to
the same period one year ago. The decrease was primarily attributable to a $4.3
million reduction in performance related bonuses; a $7.5 million decrease in
stock based compensation expense, a $1.5 million decrease in the 401(K)
match. In addition, indirect material expense decreased $0.8
million. Partially offsetting these decreases was a $3.8 million
increase in labor-related costs resulting from the Tundra and Leadis
acquisitions and restructuring actions taken during the first nine months of
fiscal 2010, net of payroll expense savings from our divestitures. In
addition, we recorded a gain of $0.5 million in the participant portfolio of the
executive deferred compensation plan in the first nine months of fiscal 2010,
compared to a loss of $1.4 million in the first nine months of fiscal
2009. Facilities and equipment expenses increased $0.5 million and
$1.3 million, respectively.
We
currently anticipate that R&D spending in the fourth quarter of fiscal 2010
will be higher as compared to the third quarter of fiscal 2010.
Selling, general and
administrative. SG&A expenses decreased $6.1million, or
20% to $24.8 million in the third quarter of fiscal 2010 compared to the third
quarter of fiscal 2009. The decrease was primarily attributable to a
$4.2 million reduction in intangible asset amortization as we wrote down the
fair value of intangible assets in fiscal 2009 and a portion of intangible
assets, which is being amortized on an accelerated method, resulting in
decreased amortization expense over time. Compared to the third
quarter of fiscal 2009, sales representative commissions decreased $2.1 million
attributable to lower revenues in the third quarter of fiscal
2010. In addition, stock based compensation expense decreased $1.8
million. Partially offsetting these decreases was a $1.2 million
increase in labor-related expenses, primarily attributable to the addition of
Tundra personnel and our recent restructuring actions, net of the payroll
expense savings from the divestitures. In the third quarter of fiscal
2009, we also benefited from a $0.6 million incremental loss in the
participant portfolio of the executive deferred compensation plan primarily due
to sequential declines in the stock market.
Selling, general and
administrative (the
first nine months of fiscal 2010 compared to the first nine months of fiscal
2009). Our year to date SG&A expenses through the third quarter of
fiscal 2010 were $80.9 million, a decrease of $15.2 million, or 16% compared to
the same period one year ago. The decreases was primarily attributable to an
$13.1 million reduction of intangible asset amortization, a decrease of $7.1
million in sales representative commissions due to decreased sales, a $5.5
million decrease in stock based compensation expense and a $2.0 million
reduction in performance related bonuses. Partially offsetting these
decreases was a $7.4 million increase in labor-related expenses as a result of
the Tundra acquisition and restructuring actions, net of payroll expense savings
from our divestitures. In addition, we recorded a gain of $0.8
million in the participant portfolio of the executive deferred compensation
plan, compared to a loss of $ 0.8million in the first nine months of fiscal
2009. We also experienced a $4.1 million increase in legal and
consulting services spending and a $0.7 million increase in equipment expense as
a result of the Tundra acquisition.
We
currently anticipate that SG&A spending in the fourth quarter of fiscal 2010
will be slightly higher compared to the third quarter of fiscal
2010.
Restructuring. During the third quarter
of fiscal 2010, we initiated restructuring actions intended to further adjust
our skills mix to new strategic and product opportunities. The restructuring
action included a reduction of approximately 61 positions within our Analog and
Power group across multiple locations worldwide. As a result, we recorded
restructuring expenses of $1.3 million for severance payments, payments under
federal, state and province notice statutes and retention and other benefits
associated with this restructuring action in the third quarter of fiscal 2010.
As of December 27, 2009, we made severance and retention payments totaling $1.2
million related to these restructuring actions. We expect to complete these
restructuring actions in the fourth quarter of fiscal 2010. In addition, in
connection with the divestitures in the third quarter of fiscal 2010, we reduced
a total of 15 positions and exited certain leased facilities. We recorded
restructuring expenses of $1.0 million for lease impairment charges, severance
payments, payments under federal, state and province notice statutes and
retention and other benefits associated with these restructuring actions in the
third quarter of fiscal 2010, of which $0.1 million was related to severance,
retention and other benefits to the terminated employees and $0.9 million was
for facilities impairment charges which was recorded as SG&A
expense. As of December 27, 2009, we made severance and retention
payments totaling $0.1million related to these restructuring actions. We expect
to complete these restructuring actions in the fourth quarter of fiscal
2010.
During
the second quarter of fiscal 2010, we initiated restructuring actions following
our acquisition of Tundra and an assessment of ongoing personnel needs in light
of the acquisition. In connection with these actions, we reduced
approximately 133 positions in Tundra worldwide and 6 positions in
IDT. As a result, we recorded restructuring expenses of $8.6 million
for lease impairment charges, severance payments, payments under federal, state
and province notice statutes and retention and other benefits associated with
these restructuring actions in the second quarter of fiscal 2010, of which $8.4
million was related to severance, retention and other benefits to the terminated
employees and $0.2 million was for facilities impairment charges which was
recorded as SG&A expense. In the third quarter of fiscal 2010, in connection
with our divestiture of Silicon Logic Engineering (SLE) business, we transferred
24 employees to Open Silicon, Inc. (OSI) and terminated 9 employees resulting in
a reduction to our accrued restructuring
expenses
by approximatley $0.1 million. As of December 27, 2009, we made the
severance and retention payments totaling $6.9 million related to these
restructuring actions. We expect to complete these restructuring actions in the
fourth quarter of fiscal 2010. In addition, in connection with our
plan to transition the manufacture of products to TSMC, our management approved
a plan to exit wafer production operations at our Oregon fabrication
facility. As a result, we accrued restructuring expenses of $4.8
million for severance payments and other benefits associated with this
restructuring action in the second quarter of fiscal 2010. We expect
to complete this restructuring action in the second quarter of fiscal
2012.
During
the fourth quarter of fiscal 2009, we initiated a restructuring action intended
to align our spending with demand that has weakened in the slowing economy. The
restructuring action included a reduction of approximately 124 positions across
multiple divisions worldwide. In March 2009, after carefully considering the
market, revenues and prices for search engines, we decided to restructure our
NWD division. As part of this restructuring action, we reduced
approximately 56 positions in this division and ceased investment in new search
engine product development. In addition, we initiated restructuring
actions, which affected our sales personnel in Germany and
Japan. During the first nine months of fiscal 2010, we reduced
additional 12 positions related to these actions. As a result, we
recorded restructuring expenses of $2.2 million and $5.3 million for severance
payments, payments under federal, state and province notice statutes and
retention and other benefits associated with these restructuring actions in the
first nine months of fiscal 2010 and the fourth quarter of fiscal 2009. As
of December 27, 2009, we settled severance retention and other benefits of $7.4
million related to these restructuring actions. We expect to complete
these restructuring actions in the third quarter of fiscal 2010.
During
the second quarter of fiscal 2006, we completed the consolidation of our
Northern California workforce into our San Jose headquarters and exited a leased
facility in Salinas, California. Upon exiting the facility we recorded lease
impairment charges of approximately $2.3 million, which represented the future
rental payments under the agreements, reduced by an estimate of sublease income,
and discounted to present value using an interest rate applicable to us. These
charges were recorded as cost of revenues of $0.7million, research and
development of $0.9 million and selling, general and administrative of $0.7
million. In fiscal 2008, we entered into a sublease agreement for our Salinas
facility, resulting in a reduction to our accrued lease liabilities by $0.2
million. Since the initial restructuring, we have made lease payments
of $1.2 million related to the vacated facility in Salinas. As of
December 27, 2009, the remaining accrued lease liabilities were $0.9
million.
Divestiture. On
November 30, 2009, we completed the sale of certain assets and transferred
certain liabilities related to our MNC business to Spectrum Control, Inc
("Spectrum Control") for approximately $12.8 million. As a result, in
the third quarter of fiscal 2010, we recorded a loss of $4.3 million related to
the divestiture. All employees in our MNC business were transferred to Spectrum
Control as a result of the transaction. In addition, we also signed a sublease
agreement with Spectrum Control. The sublease will expire in May,
2010.
On
December 4, 2009, we completed the sale of certain assets and transferred
certain liabilities related to the SLE business to OSI for $1 in cash. In the
third quarter of fiscal 2010, we recorded a loss of $0.2 million related to the
divestiture. In connection with the divestiture, we entered into a design
service agreement with OSI whereby they agreed to provide and the Company agreed
to purchase design services from OSI through the end of calendar year 2010. The
total commitment under this design service agreement is $0.8 million. We also
signed a sublease agreement with OSI. The sublease will expire in
June 2012.
On July
17, 2009, we completed the sale of certain assets related to NWD assets to
NetLogic Microsystems, Inc ("Netlogic"), pursuant to an Asset Purchase Agreement
by and between the Company and NetLogic dated April 30, 2009 (the "Agreement").
Upon closing of the transaction, NetLogic paid us $100 million in cash
consideration, which included inventory valued at approximately $10 million
(subject to adjustment). As of September 27, 2009, the inventory we
sold to Netlogic was valued at $8.2 million. Subsquently,in the third
quarter of fiscal 2010 we reimbursed Netlogic the excess cash for the inventory
in
the
amount of $1.8 million. The NWD Assets are part of the Communications reportable
segment. In connection with the divestiture, we entered into a supply agreement
with NetLogic whereby they agreed to buy and we agreed to sell Netlogic certain
network search engine products for a limited time following the closing of the
sale. According to the terms set forth in the agreement, we committed
to sell certain products either at our standard costs or below our normal gross
margins, which are lower than their estimated fair values. As a
result, we recorded $3.0 million related to the estimated fair value of this
agreement. In the first nine months of fiscal 2010, $0.5 million was
recognized as revenue. We expect to complete the sale under this agreement
within 2 years. In the second quarter of fiscal 2010, we recorded a
gain of $82.7 million related to the divestiture.
Interest income and other,
net. Changes in interest income and other, net are
summarized as follows:
(in
thousands)
|
|
Three
months ended
|
|
|
Nine
months ended
|
|
|
|
Dec.
27,
2009
|
|
|
Dec.
28,
2008
|
|
|
Dec.
27,
2009
|
|
|
Dec.
28,
2008
|
|
Interest
income
|
|
$ |
412 |
|
|
$ |
1,367 |
|
|
$ |
1,436 |
|
|
$ |
4,577 |
|
Other
income (expense), net
|
|
|
185 |
|
|
|
(2,517
|
) |
|
|
1,785 |
|
|
|
(3,878
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income and other (expense), net
|
|
|
597 |
|
|
|
(1,150
|
) |
|
|
3,221 |
|
|
|
699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income decreased $1.0 million in the third quarter of fiscal 2010 compared to
the third quarter of fiscal 2009. The decrease was primarily
attributable to a decrease in interest rates in the quarter. Other
income (expense), net increased $2.7million in the third quarter of fiscal 2010
compared to the third quarter of fiscal 2009. The increase was
primarily attributable to a gain of $0.4 million on our investment portfolio of
marketable equity securities related to deferred compensation arrangements in
the third quarter of fiscal 2010 while we recorded a loss of $2.0 million in the
third quarter of fiscal 2009.
Interest
income decreased $3.1 million in the first nine months of fiscal 2010 compared
to the first nine months of fiscal 2009. The decrease is primarily
attributable to less favorable interest rates. Other income,
(expense), net increased $5.7 million in the first nine months of fiscal 2010 as
compared to the first nine months of fiscal 2009. The increase is
primarily attributable to a gain of $2.2 million on our investment portfolio of
marketable equity securities related to deferred compensation arrangements in
the first nine months of fiscal 2010 while we recorded a loss of $2.9 million in
the same period one year ago.
Provision for income
taxes. We recorded an income tax provision of $0.1
million in the third quarter of fiscal 2010, compared to a $2.0 million income
tax benefit in the third quarter of fiscal 2009. The income tax
provision in the third quarter of fiscal 2010 is primarily attributable to a
discrete tax provision of $1.3 million related to our fiscal 2009 income
tax return filing and a discrete tax benefit of $1.5 million as a result of the
MNC business and NWD asset sales and the estimated United States (U.S.)
Federal and state taxes and estimated foreign income taxes. The provision
for income taxes in the third quarter of fiscal 2009 primarily reflected
estimated foreign income and withholding taxes and estimated U.S. Federal and
state taxes.
We
recorded an income tax provision of $3.5 million in the first nine months of
fiscal 2010, an increase of $3.2 million, compared to the first nine months of
fiscal 2009. The provision for income taxes in the first nine months of fiscal
2010 primarily reflects a discrete income tax provision of $1.0 million for the
sale of the NWD assets and MNC business, a $1.3 million income tax provision
related to our fiscal 2009 income tax return and the estimated U.S. and state
taxes and estimated foreign income taxes. The income tax provision for the first
nine months of fiscal 2009 primarily reflects estimated foreign income and
withholding taxes and estimated U.S. Federal and state taxes. In addition, on
May 27, 2009, the Ninth Circuit Court of Appeals issued its ruling in the case
of Xilinx, Inc. v. Commissioner (“Xilinx Case”), holding that
stock-
based
compensation expense was required to be included in certain transfer pricing
arrangements between a U.S. company and its foreign subsidiary. As a result of
the ruling in the Xilinx Case, certain tax attributes were reduced and we
recognized an incremental income tax expense of $0.6 million during the first
nine months of fiscal 2010.
As of
December 27, 2009, we continued to maintain a full valuation allowance against
our net U.S. deferred tax assets as we could not conclude that it was more
likely than not that we will be able to realize our U.S. deferred tax assets in
the foreseeable future. We will continue to evaluate the release of the
valuation allowance on a quarterly basis.
As
of December 27, 2009, we are subject to examination in the U.S.
federal tax jurisdiction for the fiscal years beginning with 2004. In February
2009, the IRS commenced a tax audit for fiscal years beginning 2006 through
2008. The audit is in its early stages and there have not been any
notices of proposed audit adjustments. Typically, these field audits
last from 12 to 18 months before taxpayers have an indication of the tax
positions with which the IRS disagrees. Although the final outcome is
uncertain, based on currently available information, we believe that the
ultimate outcome will not have a material adverse effect on our financial
position, cash flows or results of operations
Liquidity
and Capital Resources
Our cash,
cash equivalents and available for sale investments were $378.8 million as of
December 27, 2009, an increase of $82.7 million compared to March 29,
2009. The increase is primarily attributable to $109.4 million cash
received from our divestitures, $45.2 million in cash from operations, offset by
net cash payments of $64.5 million to purchase Tundra and Leadis assets in the
first nine months of fiscal 2010. We had no outstanding debt at
December 27, 2009 or March 29, 2009.
Cash
equivalents are highly liquid investments with original maturities of three
months or less at the time of purchase. We maintain the cash and cash
equivalents with reputable major financial institutions. Deposits with these
banks may exceed the Federal Deposit Insurance Corporation (FDIC) insurance
limits or similar limits in foreign jurisdictions. These deposits typically may
be redeemed upon demand and, therefore, bear minimal risk. In addition, a
significant portion of cash equivalents is concentrated in money market funds
which are invested in U.S. government treasuries only. While we monitor daily
the cash balances in our operating accounts and adjust the balances as
appropriate, these balances could be impacted if one or more of the financial
institutions with which we deposit fails or is subject to other adverse
conditions in the financial markets. As of today, we have not experienced any
loss or lack of access to our invested cash or cash equivalents in our operating
accounts; however, we can provide no assurances that access to our invested cash
and cash equivalents will not be impacted by adverse conditions in the financial
markets.
In
addition, as much of our revenues are generated outside the U.S., a significant
portion of our cash and investment portfolio accumulates in offshore locations.
At December 27, 2009, we had cash, cash equivalents and investments of
approximately $259.4 million invested overseas in accounts belonging to various
IDT foreign operating entities. While these amounts are primarily invested in
U.S. dollars, a portion is held in foreign currencies, and all offshore balances
are exposed to local political, banking, currency control and other risks. In
addition, these amounts may be subject to tax and other transfer
restrictions.
All of
our available-for-sale investments are subject to a periodic impairment review.
Investments are considered to be impaired when a decline in fair value is judged
to be other-than-temporary. This determination requires significant judgment.
For publicly traded investments, impairment is determined based upon the
specific facts and circumstances present at the time, including a review of the
closing price over the length of time, general market conditions and our intent
and ability to hold the investment for a period of time sufficient to allow for
recovery. Although we believe the portfolio continues to be comprised of sound
investments due to high credit ratings and government guarantees of the
underlying investments, a further decline in the capital and financial markets
would adversely impact the market values of its
investments
and their liquidity. We continually monitor the credit risk in our portfolio and
future developments in the credit markets and make appropriate changes to our
investment policy as deemed necessary. We did not record any
other-than-temporary impairment charges related to our short-term investments in
the first nine months of fiscal 2010 and fiscal 2009.
We
recorded a net income of $39.1 million in the first nine months of fiscal 2010
compared to a net loss of $324.4 million in the first nine months of fiscal
2009. Net cash provided by operating activities decreased $102.8
million to $45.2 million for the first nine months of fiscal 2010 compared to
$148.0 million for the first nine months of fiscal 2009. A summary of
the significant non-cash items included in net income and net loss are as
follows:
·
|
We
recorded a $78.3 million gain in connection with our divestitures in the
first nine months of fiscal 2010. We recorded no such gain in
the first nine months of fiscal
2009.
|
·
|
Amortization
of intangible assets was $16.1 million in the first nine months of fiscal
2010 compared to $61.1 million in the same period one year
ago. The decrease was primarily attributable to the lower
carrying value of intangible assets in the first nine months of fiscal
2010 as we recorded significant impairment charges in the third and fourth
quarter of fiscal 2009. In addition, the decrease was due to a
portion of intangible assets, which are being amortized on an accelerated
method, resulting in decreased amortization expense over
time.
|
·
|
Stock-based
compensation expense was $12.3 million in the first nine months of fiscal
2010 compared to $25.8 million in the same period one year
ago. The decrease was due to lower valuation of new grants and
lower headcount in the first nine months of fiscal 2010 as compared to the
first nine months of fiscal 2009.
|
·
|
Goodwill
and intangible assets impairment charges, acquired IPR&D and
other-than-temporary impairment charge were $339.1 million, $5.6 million
and $3.0 million, respectively, in the first nine months of fiscal 2009,
while we did not have such charge in the first nine months of fiscal
2010.
|
Net cash
provided by working capital-related items increased $18.4 million, from a net
$18.1 million cash provided in the first nine months of fiscal 2009 to net $36.5
million cash provided in the first nine months of fiscal 2010. A summary of
significant working capital items included:
·
|
An
increase in accounts receivable of $5.9 million in the first nine months
of fiscal 2010 compared to a decrease of $18.1 million in the first nine
months of fiscal 2009. The increase in accounts receivable in
the first nine month of fiscal 2010 was primarily attributable to the
timing of shipments. The decrease in accounts receivable in the
first nine months of fiscal 2009 reflected our cash collection efforts and
timing of shipments.
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A
decrease in inventory of $27.6 million in first nine months of fiscal 2010
compared to a decrease in inventory of $3.1 million in the first nine
months of fiscal 2009. The decrease in inventory in the first
nine month of fiscal 2010 was primarily attributable to the sale of our
inventory in connection with our divestitures. The decrease in
inventory in the first nine month of fiscal 2009 was due to our efforts to
align our inventory levels to meet current
demand.
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An
increase in accounts payable of $6.2 million in the first nine months of
fiscal 2010 compared to a decrease of $2.7 million in the first nine
months of fiscal 2009. The increase in the first nine month of
fiscal 2010 was primarily attributable to the timing of payments and
increase in the volume of foundry and subcontractor
activity.
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An
increase in other accrued and long term liabilities of $4.8 million in the
first nine months of fiscal 2010 compared to a decrease of $3.2 million in
the first nine months of fiscal 2009. The increase in the first nine
months of fiscal 2010 was primarily attributable to an increase in
accruals related to our restructuring actions, deferred gain related to
the agreement signed in connection with divestiture of our NWD assets and
an increase in the fair value of our executive deferred compensation plan
due to stock market performance improvement in the first nine months of
fiscal
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2010. The decrease in the first nine months of fiscal 2009 was
primarily attributable the decease in the fair value of our executive
deferred compensation plan due to the sequential decline in the stock
market and a payment of $1.2 million related to the executive transition
agreement signed with our former
CEO.
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An
increase in deferred income on shipments to distributors of $0.6 million
in the first nine months of fiscal 2010 compared to a decrease of $4.1
million in the first nine months of fiscal 2009. The increase
in deferred income on shipments to distributors was attributable to the
increased shipments to distributors. The decrease in deferred
income on shipments to distributors was attributable to our distributors
adjusting their inventory levels in light of challenges in the end
markets.
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A
decrease in accrued compensation expense of $4.3 million in the first nine
months of fiscal 2010 compared to a decrease of $7.2 million in the first
nine months of fiscal 2009. The decrease in accrued
compensation expense in the first nine months of fiscal 2010 was primarily
related to the timing of our fiscal period end and the payroll
cycle. The decrease in accrued compensation expense in the
first nine months of fiscal 2009 was primarily attributable to accruals
related to our fiscal 2009 bonus program, partially offset by a reduction
in performance-related bonuses as a result of our year end
payout.
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A
decrease in prepayments and other assets of $4.4 million in the first nine
months of fiscal 2010 compared to a decrease of $10.2 million in the first
nine months of fiscal 2009. The decrease in the first nine
months of fiscal 2010 was primarily attributable to a reduction in the
receivable from one of our foundries related to defective products, VAT
refund from the foreign government and normal recurring prepaid
amortization, partially offset by additional software maintenance
agreements signed and paid. The decrease in
fiscal 2009 is primarily attributable to the decrease in the fair value of
our corporate owned life insurance, receipts of interest from the IRS for
the tax settlement related to the ICS pre-acquisition income tax returns
and VAT refund from the foreign government along with the normal recurring
prepaid amortization.
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Net cash provided by investing
activities was $5.1 million in the first nine months of fiscal 2010, compared to
net cash used by investing activities of $38.9 million in the first nine months
of fiscal 2009. In the first nine months of fiscal 2010, net cash
proceeds from the divestiture activities were $109.4 million. Cash
used to purchase short-term investments were $208.8 million, partially offset by
cash proceeds from sale and maturity of short-term investments of $178.8
million. In addition, we paid approximately $58.5 million and $6.0
million, net of cash acquired, in conjunction with the acquisitions of Tundra
and Leadis. We used $9.9 million to purchase capital
equipment. In the first nine months of fiscal 2009, cash used to
purchase short-term investments were $141.5 million, partially offset by cash
proceeds from sale and maturity of short-term investments of $135.6
million. Cash used to purchase of capital equipment totaled
approximately $12.9 million. In addition, we used $20.1 million to
purchase Silicon Optix’s assets in the third quarter of fiscal
2009.
Net cash
provided by financing activities was $1.5 million in the first nine months of
fiscal 2010, compared to net cash used for financing activities of $51.0 million
in the first nine months of fiscal 2009. In the first nine months of
fiscal 2010, we received approximately $4.9 million from the exercise of
employee stock options and the issuance of stock under our employee stock
purchase plan, partially offset by the repurchase of $3.3 million of common
stock. In the first nine months of fiscal 2009, we repurchased approximately
$62.3 million of common stock, partially offset by proceeds of approximately
$11.1 million from the exercise of employee stock options and the issuance of
stock under our employee stock purchase plan.
We
anticipate capital expenditures of approximately $15.0 million during fiscal
2010 to be financed through cash generated from operations and existing cash and
investments. This estimate includes $9.9 million in capital
expenditures in the first nine months of fiscal 2010.
We
believe that existing cash and investment balances, together with cash flows
from operations, will be sufficient to meet our working capital and capital
expenditure needs for at least the next twelve months. We may choose to
investigate other financing alternatives; however, we cannot be certain that
additional financing will be available on satisfactory terms.
Off-balance
Sheet Arrangements
As of
December 27, 2009, we did not have any material off-balance-sheet arrangements,
as defined in Item 303(a) (4) (ii) of SEC Regulation S-K.
Subsequent
Events
On
January 14, 2010, we completed the acquisition of Mobius Microsystems
(“Mobius”), a privately-held fabless semiconductor company based in Sunnyvale,
California, acquiring all of Mobius’ outstanding shares of common stock for
approximately $25 million in cash. Pursuant to the agreement and upon
closing the transaction, we acquired patented all-silicon oscillator technology
and related assets along with members of Mobius’ engineering team.
On
February 1, 2010, the Company announced a plan to discontinue manufacturing
operations in its Singapore facility. The Singapore operations will
begin a phased shut down that is anticipated to take approximately three
months. As a result, the Company will reduce its workforce in
Singapore, resulting in a reduction of the worldwide workforce of approximately
11%. The Company has taken this action following an assessment of
operational and financial considerations. In connection with these
actions, the Company estimates that it will incur approximately $2.3 million to
$2.7 million in cash expenditures for severance and related costs, primarily in
the fourth quarter of fiscal 2010 ending March 28, 2010. The Company
expects to complete this restructuring initiative in the first quarter of fiscal
2011.
Recent
Accounting Pronouncements
For a
description of recent accounting pronouncements, including the expected dates of
adoption and estimated effects, if any, on our consolidated condensed financial
statements, see “Note 3 Recent Accounting Pronouncements” in the Notes to
Consolidated Condensed Financial Statements of this Form 10-Q.
Related
Party Transaction
On
December 4, 2009, in line with our strategy to exit engineering services
business acquired as part of Tundra acquisition, we completed the sale of
certain assets and transferred certain liabilities related to Silicon Logic
Engineering business to Open Silicon, Inc (“OSI’) for $1 in cash. See
“Note 12 Divestitures” in the Notes to Consolidated Condensed Financial
Statements of this Form 10-Q for further discussion. Richard D.
Crowley, Jr., the Company’s Vice President and Chief Financial Officer, is a
member of the board of directors of OSI.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Our
interest rate risk relates primarily to our short-term investments of
$190.1million as of December 27, 2009. By policy, we limit our exposure to
long-term investments and mitigate the credit risk through diversification and
adherence to a policy requiring the purchase of highly rated securities. As of
December 27, 2009, the Company’s cash, cash equivalents and investment portfolio
was concentrated in securities with same day liquidity and at the end of fiscal
2009, a substantial majority of securities in our investment portfolio had
maturities of less than two years. Although a hypothetical 10% change in
interest rates could have a material effect on the value of our investment
portfolio at a given time, we normally hold these investments until maturity,
which results in no realized impact on results of operations or cash
flows. We do not currently use derivative financial instruments in
our investment portfolio.
In
addition, we maintain assets in a separate trust that is invested in corporate
owned life insurance intended to substantially offset the liability under the
deferred compensation plan. The fair value of assets, determined
based on the value of the underlying mutual funds was $12.4 million as of
December 27, 2009. The deferred compensation obligation under the
arrangement is classified in Other Long-Term Liabilities within the Consolidated
Balance Sheet. As of December 27, 2009, the fair value of the
obligation was $14.3 million.
At
December 27, 2009, we had no outstanding debt.
We are
exposed to foreign currency exchange rate risk as a result of international
sales, assets and liabilities of foreign subsidiaries, local operating expenses
of our foreign entities and capital purchases denominated in foreign
currencies. We may use derivative financial instruments to help
manage our foreign currency exchange exposures. We do not enter into
derivatives for speculative or trading purposes. We performed a sensitivity
analysis as of December 27, 2009 and determined that, without hedging the
exposure, a 10% change in the value of the U.S. dollar would result in an
approximate 0.5% impact on gross profit margin percentage, as we operate
manufacturing facilities in Malaysia and Singapore, and an approximate 0.8%
impact to operating expenses (as a percentage of revenue) as we operate sales
offices in Japan and throughout Europe and design centers in the U.S., China and
Canada. At December 27, 2009 we did not have any outstanding foreign
exchange contract.
We did
not have any currency exposure related to any outstanding capital purchases as
of December 27, 2009.
ITEM
4. CONTROLS AND PROCEDURES
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC rules and forms, and that such information is
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. In designing and evaluating our disclosure
controls and procedures, our management recognizes that any disclosure
controls and procedures, no matter how well designed and operated, can provide
only reasonable, not absolute, assurance of achieving the desired control
objectives, and our management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible disclosure controls and
procedures.
At December 27, 2009, the end of the
quarter covered by this report, we carried out an evaluation, under the
supervision and with the participation of our management, including our
Chief Executive Officer and our Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective at a reasonable
assurance level. There have been no changes in our internal controls
over financial reporting during our most recent fiscal quarter that have
materially affected, or are reasonable likely to materially affect, our internal
controls over financial reporting.
PART
II OTHER INFORMATION
ITEM 1. LEGAL
PROCEEDINGS
On
October 24, 2006, we were served with a civil antitrust complaint filed by
Reclaim Center, Inc., et. al. as plaintiffs in the U.S. District Court for the
Northern District of California against us and 37 other entities on behalf of a
purported class of indirect purchasers of Static Random Access Memory (SRAM)
products. The Complaint alleges that the Company and other defendants conspired
to raise the prices of SRAM, in violation of Section 1 of the Sherman Act,
the California Cartwright Act, and several other states’
antitrust,
unfair
competition, and consumer protection statutes. Shortly thereafter, a number of
other plaintiffs filed similar complaints on behalf of direct and indirect
purchasers of SRAM products. Given the similarity of the complaints, the
Judicial Panel on Multidistrict Litigation transferred the cases to a single
judge in the Northern District of California and consolidated the cases for
pretrial proceedings in February 2007. The consolidated cases are captioned In
re Static Random Access Memory (SRAM) Antitrust Litigation. In August 2007,
direct purchasers of SRAM products and indirect purchasers of SRAM products
filed separate Consolidated Amended Complaints. We were not named as a defendant
in either complaint. Pursuant to tolling agreements with the indirect and direct
purchaser plaintiffs, the statute of limitations was tolled until
January 10, 2009 as to potential claims against us. The tolling
agreements have now expired and the statute of limitations is running on
potential claims against us. Discovery has closed in both
cases. We intend
to vigorously defend ourselves against these claims.
In April
2008, LSI Corporation and its wholly owned subsidiary Agere Systems Inc.
(collectively “LSI”) instituted an action in the United States International
Trade Commission (ITC or “Commission”), naming IDT and 17 other
respondents. The ITC action seeks an exclusion order to prevent
importation into the U.S. of semiconductor integrated circuit devices and
products made by methods alleged to infringe an LSI patent relating to tungsten
metallization in semiconductor manufacturing. LSI also filed a companion case in
the U.S. District Court for the Eastern District of Texas seeking an injunction
and damages of an unspecified amount relating to such alleged infringement.
Since the initiation of both actions, five additional parties have been named as
respondents/defendants in the respective actions. Some of the defendants in the
action have since settled the claims against them. The action in the U.S.
District Court has been stayed pending the outcome of the ITC action. The
hearing in the ITC action was conducted July 20 through July 27, 2009. On
September 21, 2009, the Administrative Law Judge (“ALJ”) issued his Initial
Determination finding that
the patent claims asserted by LSI were invalid in light of the prior
art. Based on the finding of invalidity, the Court held that no
violation of section 337 has occurred with respect to the asserted
claims. On October 5, 2009, LSI filed a Petition to Review by the
Commission. Also on October 5, 2009, the defendants filed a Common
Contingent Petition for Review on common matters in the case, and the Company
separately filed a Contingent Petition for Review on Company-specific matters in
the case. Each side filed a Response Brief on October 13,
2009. On November 23, 2009, the Commission issued a Notice of
determination to review in-part the ALJ’s Initial Determination. The
Commission further instructed the ALJ to consider on remand the merit of
respondents' arguments with respect to invalidity of one asserted claim for
obviousness. On January 14, 2010, the ALJ issued a Remand
Determination that respondents had not demonstrated by clear and convincing
evidence that the claim at issue on remand was invalid due to
obviousness. Briefing responsive to the Remand by Respondents is due
February 2, 2010. The Reply brief from LSI is due February 9,
2010. The Commission has extended the target date for completion of
the investigation to March 22, 2010. We cannot predict the outcome or
provide an estimate of any possible losses. We will continue to
vigorously defend ourselves against the claims in these actions.
Investing
in our common stock involves a high degree of risk. You should carefully
consider the risks and uncertainties described below and all information
contained in this report before you decide to purchase our common stock. If any
of the possible adverse events described below actually occurs, we may be unable
to conduct our business as currently planned and our financial condition and
operating results could be harmed. In addition, the trading price of our common
stock could decline due to the occurrence of any of these risks, and you may
lose all or part of your investment. The risks described below are not the only
risks facing us. Additional risks not currently known to us or that
we currently believe are immaterial may also impair our business operations,
results, and financial condition.
Our operating
results can fluctuate dramatically. Our operating results have
fluctuated in the past and are likely to vary in the future. For
example, we recorded net losses of $1.0 billion in fiscal 2009, net income of
$34.2 million in fiscal 2008 and net losses of $7.6 million in fiscal 2007.
Fluctuations in operating results can result from a wide variety of factors,
including:
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Global
market and economic conditions, including those related to the credit
markets, may adversely affect our business and results of
operations;
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The
cyclicality of the semiconductor industry and industry-wide wafer
processing capacity;
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Changes
in the demand for and mix of products sold and in the markets we and our
customers serve;
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The
amount and lead time of customer orders which can be shipped in the
current quarter;
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Competitive
pricing pressures;
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The
success and timing of new product and process technology announcements and
introductions from us or our
competitors;
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Potential
loss of market share among a concentrated group of
customers;
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Difficulty
in attracting and retaining key
personnel;
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Difficulty
in predicting customer product
requirements;
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Production
difficulties and interruptions caused by our complex manufacturing and
logistics operations;
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Difficulty
in managing fixed costs of our manufacturing capability in the face of
changes in demand;
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Reduced
control over our manufacturing and product delivery as a result of our
increasing reliance on subcontractors, foundry and other manufacturing
services;
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Costs
and other issues relating to future
acquisitions;
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Availability
and costs of raw materials from a limited number of
suppliers;
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Political
and economic conditions in various geographic
areas;
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Costs
associated with other events, such as intellectual property disputes or
other litigation; and
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Legislative,
tax, accounting, or regulatory changes or changes in their
interpretation.
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Global market and economic
conditions, including those related to the credit markets, may adversely affect
our business and results of operations.
Subsequent
to adverse changes in global financial markets and rapidly deteriorating
business conditions in the world’s developed economies in late 2008 and the
first half of calendar year 2009, global economic conditions have continued to
be weak through the end of second quarter of fiscal 2010. For the
period ended December 27, 2009, continued concerns about the impact of high
energy costs, geopolitical issues, the availability and cost of credit, the U.S.
mortgage market, a declining real estate market in the U.S. and federal
government interventions in the U.S. financial and credit markets have
contributed to instability in both U.S. and international capital and credit
markets, reduced corporate
profits
and capital spending, weakened demand and diminished expectations for the U.S.
and global economy. These conditions, combined with volatile oil
prices, low business and consumer confidence and high unemployment have
contributed to substantial volatility and a significant economic
recession.
As a
result of these market and business conditions, the cost and availability of
capital and credit have been and may continue to be adversely affected by
illiquid credit markets and wider credit spreads. If these market
conditions continue, they may limit our ability, and the ability of our
customers, to timely borrow and access the capital and credit markets to meet
liquidity needs, resulting in an adverse effect on our financial condition and
results of operations. Poor credit market conditions and the
contraction of global economic activity may have an adverse effect on the
financial condition of our customers. Should one or more of our major
customers become financially constrained, or insolvent, our revenues and results
of operations may be adversely affected. The economic slowdown may lead to
reduced customer spending for semiconductors and weakened demand for our
products which is likely to have a negative impact on revenue, gross profit and
results of operations. Reduced customer spending and weakened demand
may drive the semiconductor industry to reduce product pricing, which would also
have a negative impact on revenue, gross profit and results of
operations. In addition, the semiconductor industry has traditionally
been highly cyclical and has often experienced significant downturns in
connection with, or in anticipation of, deterioration in general economic
conditions. We cannot accurately predict how severe and prolonged the
current economic downturn might be.
The cyclicality
of the semiconductor industry exacerbates the volatility of our operating
results. The semiconductor industry is highly cyclical. The
semiconductor industry has experienced significant downturns, often in
connection with product cycles of both semiconductor companies and their
customers, but also related to declines in general economic
conditions. These downturns have been characterized by high inventory
levels and accelerated erosion of average selling prices. the current
economic downturn has, and any future downturns could significantly impact our
business from one period to the next relative to demand and resulting selling
price declines. In addition, the semiconductor industry has
experienced periods of increased demand, during which we may experience internal
and external manufacturing constraints. We may experience substantial
changes in future operating results due to the cyclical nature of the
semiconductor industry.
Intellectual
property claims against and /or on behalf of the Company could adversely affect
our business and operations. The semiconductor
industry is characterized by vigorous protection and pursuit of intellectual
property rights, which has resulted in significant and often protracted and
expensive litigation. We have been involved with patent litigation and asserted
intellectual property claims in the past, both as a plaintiff and a defendant,
which adversely affected our operating results. Although we have obtained patent
licenses from certain semiconductor manufacturers, we do not have licenses from
a number of semiconductor manufacturers that have broad patent portfolios.
Claims alleging infringement of intellectual property rights have been asserted
against us in the past and could be asserted against us in the future. These
claims could result in our having to discontinue the use of certain processes;
license certain technologies; cease the manufacture, use and sale of infringing
products; incur significant litigation costs and damages; and develop
non-infringing technology. We might not be able to obtain such licenses on
acceptable terms or to develop non-infringing technology. Further, the failure
to renew or renegotiate existing licenses on favorable terms, or the inability
to obtain a key license, could materially and adversely affect our business.
Future litigation, either as a plaintiff or a defendant, could adversely affect
our operating results, as a result of increased expenses, the cost of settled
claims, and/or payment of damages.
Demand for our
products depends primarily on demand in the communications, personal computer
(PC), and consumer markets which can be significantly impacted by concerns over
macroeconomic issues. Our product portfolio consists
predominantly of semiconductor solutions for the communications, PC, and
consumer markets. Our strategy and resources will be directed at the
development, production and marketing of products for these
markets. The markets for our products will depend on continued
and growing demand for communications equipment, PCs and consumer
electronics. These end-user markets may experience changes in demand
that could adversely affect our business and could be greater in
periods
of
economic uncertainty and contraction. To the extent demand for our
products or markets for our products do not grow, our business could be
adversely affected.
We build most of
our products based on estimated demand forecasts. Demand for
our products can change rapidly and without advance notice. Demand can also be
affected by changes in our customers’ levels of inventory and differences in the
timing and pattern of orders from their end customers. A large
percentage of our revenue in the Asia Pacific region is recognized upon shipment
to our distributors. Consequently, we have less visibility over both
inventory levels at our distributors and end customer demand for our
products. Further, the distributors have assumed more risk associated
with changes in end demand for our products. Accordingly, significant
changes in end demand in the semiconductor business in general, or for our
products in particular, may be difficult for us to detect or otherwise measure,
which could cause us to incorrectly forecast end-market demand for our
products. If we are not able to accurately forecast end demand for
our products, we may be left with large amounts of unsold products, may not be
able to fill all actual orders, and may not be able to efficiently utilize our
existing manufacturing capacity or make optimal investment and other business
decisions. As a result, we may end up with excess and obsolete inventory or we
may be unable to meet customer short-term demands, either of which could have an
adverse impact on our operating results.
We are reliant
upon subcontractors and third-party foundries. Beginning in
fiscal 2008, we do not perform assembly services in-house and are now totally
dependent on subcontractors for assembly operations. We are also
dependent on third-party outside foundries for the manufacture of a portion of
our silicon wafers. Our increased reliance on subcontractors and
third-party foundries for our current products increases certain risks because
we will have less control over manufacturing quality and delivery schedules,
maintenance of sufficient capacity to meet our orders and generally, maintaining
the manufacturing processes we require. We expect our use of
subcontractors and third-party foundries to continue to increase. Due
to production lead times and potential capacity constraints, any failure on our
part to adequately forecast the mix of product demand and resulting foundry and
subcontractor requirements could adversely affect our operating
results. In addition, we cannot be certain that these foundries and
subcontractors will continue to manufacture, assemble, package and test products
for us on acceptable economic and quality terms, or at all, and it may be
difficult for us to find alternatives in a timely and cost-effective manner if
they do not do so.
We have made and
may continue to make acquisitions and divestitures which could divert
management’s attention, cause ownership dilution to our stockholders, be
difficult to integrate and/or adversely affect our financial results.
Acquisitions and divestitures are commonplace in the semiconductor
industry and we have and may continue to acquire or divest businesses or
technologies. Integrating newly acquired businesses or technologies could put a
strain on our resources, could be costly and time consuming, and might not be
successful. Acquisitions or divestitures could divert our management’s attention
from other business concerns. In addition, we might lose key employees while
integrating new organizations. Acquisitions and divestitures could also result
in customer dissatisfaction, performance problems with an acquired company or
technology, dilutive or potentially dilutive issuances of equity securities, the
incurrence of debt, the assumption or incurrence of contingent liabilities, or
other unanticipated events or circumstances, any of which could harm our
business. Consequently, we might not be successful in integrating any acquired
businesses, products or technologies, and might not achieve anticipated revenues
and cost benefits.
Our results are
dependent on the success of new products. The markets we
serve are characterized by competition, rapid technological change, evolving
standards, short product life cycles and continuous erosion of average selling
prices. Consequently, our future success will be highly dependent
upon our ability to continually develop new products using the latest and most
cost-effective technologies, introduce our products in commercial quantities to
the marketplace ahead of the competition and have our products selected
for inclusion in leading system manufacturers’ products. In addition, the
development of new products will continue to require significant R&D
expenditures. If we are unable to successfully develop,
produce
and market new products in a timely manner, have our products available in
commercial quantities ahead of competitive products or have our products
selected for inclusion in products of systems manufacturers and sell them at
gross margins comparable to or better than our current products, our future
results of operations could be adversely impacted. In addition, our future
revenue growth is also partially dependent on our ability to penetrate new
markets in which we have limited experience and where competitors are already
entrenched. Even if we are able to develop, produce and successfully market new
products in a timely manner, such new products may not achieve market
acceptance.
We are dependent
on a concentrated group of customers for a significant part of our
revenues. A large portion of our revenues depends
on sales to a limited number of customers. If these relationships
were to diminish, or if these customers were to develop their own solutions or
adopt a competitor’s solution instead of buying our products, our results could
be adversely affected. For example, any diminished relationship with one or more
of our key customers could adversely affect our results.
Many of
our end-customer OEMs have outsourced their manufacturing to a concentrated
group of global EMSs and original design manufacturers (“ODMs”) who then buy
product directly from us or from our distributors on behalf of the
OEM. These EMSs and ODMs have achieved greater autonomy in the design
win, product qualification and product purchasing decisions, especially for
commodity products. Competition for the business of these EMSs and ODMs is
intense and there is no assurance we can remain competitive and retain our
existing market share with these customers. If these companies were to allocate
a higher share of commodity or second-source business to our competitors instead
of buying our products, our results would be adversely affected. Furthermore, as
EMSs and ODMs have represented a growing percentage of our overall business, our
concentration of credit and other business risks with these customers has
increased. Competition among global EMSs and ODMs is intense as they operate on
extremely thin margins. If any one or more of these global EMSs or
ODMs were to file for bankruptcy or otherwise experience significantly adverse
financial conditions, our business would be adversely impacted as
well.
Finally,
we utilize a relatively small number of global and regional distributors around
the world, who buy product directly from us on behalf of their customers. For
example, one family of distributors, Maxtek and its affiliates, represented
approximately 21% of our revenues for the first nine months of fiscal 2010 and
represented approximately 25% of our gross accounts receivable as of December
27, 2009. If our business relationships were to diminish or any of
these global distributors were to file for bankruptcy or otherwise experience
significantly adverse financial conditions, our business could be adversely
impacted. Because we continue to be dependent upon continued revenue from a
small group of OEM end customers, global and regional distributors, any material
delay, cancellation or reduction of orders from or loss of these
or other major customers could cause our sales to decline
significantly, and we may not be able to reduce the accompanying expenses at the
same rate.
The costs
associated with the legal proceedings in which we are involved can be
substantial, specific costs are unpredictable and not completely within our
control, and unexpected increases in litigation costs could adversely affect our
operating results. We are currently involved in legal
proceedings, as described above in Part II, Item 1 "Legal
Proceedings." The costs associated with legal proceedings are
typically high, relatively unpredictable and are not completely within our
control. While we do our best to forecast and control such costs, the
costs may be materially more than expected, which could adversely affect our
operating results. Moreover, we may become involved in unexpected litigation
with additional companies at any time, which would increase our aggregate
litigation costs and could adversely affect our operating results. We
are not able to predict the outcome of any of our legal actions and an adverse
decision in any of our legal actions could significantly harm our business and
financial performance.
We are exposed to
potential impairment charges on certain assets. Over the past
several years, we have made several acquisitions. As a result of
these acquisitions, we had over $1 billion of goodwill and over $204 million of
intangible assets on our balance sheet at the beginning of fiscal
2009. As a result of our interim impairment analysis in the third
quarter of 2009 and annual impairment analysis in the fourth
quarter
of fiscal 2009, we recorded a goodwill impairment charge of $946.3 million and
acquisition-related intangible asset impairment charge of $79.4 million in
fiscal 2009. In determining fair value, we consider various factors including
our market capitalization, forecasted revenue and costs, risk-adjusted discount
rates, future economic and market conditions, determination of appropriate
market comparables and expected periods over which our assets will be utilized
and other variables.
If our
assumptions regarding forecasted cash flow, revenue and margin growth rates of
certain long-lived asset groups and reporting units are not achieved, it is
reasonably possible that an impairment review may be triggered for the remaining
balance of goodwill and long-lived assets prior to the next annual review in the
fourth quarter of fiscal 2010, which could result in material charges that could
impact our operating results and financial position. In addition, from time to
time, we have made investments in other companies, both public and
private. If the companies that we invest in are unable to execute
their plans and succeed in their respective markets, we may not benefit from
such investments, and we could potentially lose the amounts we
invest. In addition, we evaluate our investment portfolio on a
regular basis to determine if impairments have occurred. Impairment
charges could have a material impact on our results of operations in any
period.
We are dependent
on key personnel. Our performance is substantially dependent on the
performance of our executive officers and key employees. The loss of the
services of any of our executive officers, technical personnel or other key
employees could adversely affect our business. In addition, our future success
depends on our ability to successfully compete with other technology firms in
attracting and retaining specialized technical and management personnel. If we
are unable to identify, hire and retain highly qualified technical and
managerial personnel, our business could be harmed.
Our product
manufacturing operations are complex and subject to
interruption. From time to time, we have experienced
production difficulties, including lower manufacturing yields or products that
do not meet our or our customers' specifications, which has resulted in delivery
delays, quality problems and lost revenue opportunities. While delivery delays
have been infrequent and generally short in duration, we could experience
manufacturing problems, capacity constraints and/or product delivery delays in
the future as a result of, among other things, the complexity of our
manufacturing processes, changes to our process technologies (including
transfers to other facilities and die size reduction efforts), and difficulties
in ramping production and installing new equipment at our
facilities. In addition, any significant quality problems could
damage our reputation with our customers and could take focus away from the
development of new and enhanced products. These could have a
significant negative impact on our financial results.
Substantially
all of our revenues are derived from products manufactured at facilities which
are exposed to the risk of natural disasters. If we were unable to use our
facilities or those of our subcontractors and third party foundries as a result
of a natural disaster or otherwise, our operations would be materially adversely
affected. While we maintain certain levels of insurance against
selected risks of business interruption, not all risks can be insured at a
reasonable cost. For example, we do not insure our facilities for
earthquake damage due to the costs involved. Even if we have
purchased insurance, the adverse impact on our business, including both costs
and lost revenue opportunities, could greatly exceed the amounts, if any, that
we might recover from our insurers.
We are
dependent upon electric power and water provided by public utilities where we
operate our manufacturing facilities. We maintain limited backup generating
capability, but the amount of electric power that we can generate on our own is
insufficient to fully operate these facilities, and prolonged power
interruptions and restrictions on our access to water could have a significant
adverse impact on our business.
Our results of
operations could vary as a result of the methods, estimates and judgments we use
in applying our accounting policies. The methods, estimates
and judgments we use in applying our accounting policies have a significant
impact on our results of operations (see “Significant Accounting Policies” in Part I, Item 1 of this
Form 10-Q). Such methods, estimates and judgments are, by their
nature, subject to substantial risks, uncertainties and assumptions, and factors
may arise over time that leads us to change our methods, estimates and
judgments. Changes in those methods, estimates and judgments could
significantly affect our results of operations. In particular, the
calculation of stock-based compensation expense under the authoritative guidance
requires us to use valuation methodologies that were not developed for use in
valuing employee stock options and make a number of assumptions, estimates and
conclusions regarding matters such as expected forfeitures, expected volatility
of our share price and the exercise behavior of our
employees. Changes in these variables could impact our stock-based
compensation expense and have a significant impact on our gross margins, R&D
and SG&A expenses.
Our reported
financial results may be adversely affected by new accounting pronouncements or
changes in existing accounting standards and practices. We
prepare our financial statements in conformity with accounting principles
generally accepted in the U.S. These accounting principles are subject to
interpretation by the FASB, the SEC and various organizations formed to
interpret and create appropriate accounting standards and practices. New
accounting pronouncements and varying interpretations of accounting standards
and practices have occurred and may occur in the future. New accounting
pronouncements or a change in the interpretation of existing accounting
standards or practices may have a significant effect on our reported financial
results and may even affect our reporting of transactions completed before the
change is announced or effective.
Our financial
results may be adversely impacted by higher than expected tax rates or exposure
to additional tax liabilities. As a global company, our
effective tax rate is highly dependent upon the geographic composition of
worldwide earnings and tax regulations governing each region. We are subject to
income taxes in the United States and various foreign jurisdictions, and
significant judgment is required to determine worldwide tax liabilities. Our
effective tax rate could be adversely affected by changes in the mix of earnings
between countries with differing statutory tax rates, in the valuation of
deferred tax assets, in tax laws or by material audit assessments, which could
affect our profitability. In particular, the carrying value of deferred tax
assets, which are predominantly in the United States, is dependent on our
ability to generate future taxable income in the United States. In addition, the
amount of income taxes we pay is subject to ongoing audits in various
jurisdictions, and a material assessment by a governing tax authority could
affect our profitability.
Tax benefits we
receive may be terminated or reduced in the future, which would increase our
costs. As a result of our international manufacturing
operations, a significant portion of our worldwide profits are in jurisdictions
outside the United States, including Bermuda, Singapore and Malaysia which offer
significant reductions in tax rates. These lower tax rates allow us
to record a relatively low tax expense on a worldwide basis. Under
current Bermuda law, we are not subject to tax on our income and capital
gains. If US corporate income tax laws were to change regarding
deferral of manufacturing profits or other issues impacting our operating
structure, this would have a significant impact to our financial
results. President Obama’s Administration recently announced new U.S.
tax legislative proposals that, if enacted, would adversely impact our effective
tax rate and overall tax paying position in the US.
In
addition, the Economic Development Board of Singapore granted Pioneer Status to
our wholly-owned subsidiary in Singapore in 1997. Initially, this tax exemption
was to expire after ten years, but the Economic Development Board in January
2008 agreed to extend the term to twelve years. As a result, a significant
portion of the income we earn in Singapore during this period will be exempt
from the Singapore income tax. We are required to meet several requirements as
to investment, headcount and activities in Singapore to retain this status. If
our Pioneer Status is terminated early because we do not continue to meet these
requirements, or for other reasons beyond our control, our financial results
could be
negatively
impacted. Also, in Malaysia, we have been granted a tax holiday related to
certain profits. If we are unable to renew this tax holiday when it
expires, we will be required to start paying income tax at the statutory tax
rate on our operations, which will adversely impact our effective tax
rate.
International
operations add increased volatility to our operating
results. A substantial percentage of our revenues
are derived from international sales, as summarized below:
(percentage
of total revenues)
|
|
First
nine months of fiscal 2010
|
|
|
Fiscal
2009
|
|
|
Fiscal
2008
|
|
Americas
|
|
|
16 |
% |
|
|
20 |
% |
|
|
28 |
% |
Asia
Pacific
|
|
|
65 |
% |
|
|
63 |
% |
|
|
56 |
% |
Japan
|
|
|
11 |
% |
|
|
9 |
% |
|
|
9 |
% |
Europe
|
|
|
8 |
% |
|
|
8 |
% |
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
In
addition, our facilities in Malaysia and Singapore, our design centers in Canada
and China, and our foreign sales offices incur payroll, facility and other
expenses in local currencies. Accordingly, movements in foreign currency
exchange rates can impact our revenues and costs of goods sold, as well as both
pricing and demand for our products.
Our
offshore sites and export sales are also subject to risks associated with
foreign operations, including:
·
|
Political
instability and acts of war or terrorism, which could disrupt our
manufacturing and logistical
activities;
|
·
|
Regulations
regarding use of local employees and
suppliers;
|
·
|
Currency
controls and fluctuations, devaluation of foreign currencies, hard
currency shortages and exchange rate
fluctuations;
|
·
|
Changes
in local economic conditions;
|
·
|
Governmental
regulation of taxation of our earnings and those of our personnel;
and
|
·
|
Changes
in tax laws, import and export controls, tariffs and freight
rates.
|
Contract
pricing for raw materials and equipment used in the fabrication and assembly
processes, as well as for foundry and subcontract assembly services, may also be
impacted by currency controls, exchange rate fluctuations and currency
devaluations. We sometimes hedge currency risk for currencies that
are highly liquid and freely quoted, but may not enter into hedge contracts for
currencies with limited trading volume.
In
addition, as much of our revenues are generated outside the United States, a
significant portion of our cash and investment portfolio accumulates
offshore. At December 27, 2009, we had cash, cash equivalents and
investments of approximately $259.4 million invested overseas in accounts
belonging to various IDT foreign operating entities. While these
amounts are primarily invested in U.S. dollars, a portion is held in foreign
currencies, and all offshore balances are exposed to local political, banking,
currency control and other risks. In addition, these amounts may be
subject to tax and other transfer restrictions.
If credit market
conditions worsen, it could have a material adverse impact on our investment
portfolio. Although we manage our investment portfolio by
purchasing only highly rated securities and diversifying our investments across
various sectors, investment types, and underlying issuers, recent volatility in
the short-term financial markets has been unprecedented. We
have a nominal amount of securities in asset backed commercial paper and hold no
auction rated or mortgage backed securities.
However
it is uncertain as to the full extent of the current credit and liquidity crisis
and with possible further deterioration, particularly within one or several of
the large financial institutions, the value of our investments could be
negatively impacted.
We rely upon
certain critical information systems for the operation of our
business. We maintain and rely upon certain critical
information systems for the effective operation of our business. These
information systems include telecommunications, the Internet, our corporate
intranet, various computer hardware and software applications, network
communications, and e-mail. These information systems are subject to attacks,
failures, and access denials from a number of potential sources including
viruses, destructive or inadequate code, power failures, and physical damage to
computers, communication lines and networking equipment. To the extent that
these information systems are under our control, we have implemented security
procedures, such as virus protection software and emergency recovery processes,
to address the outlined risks. While we believe that our
information systems are appropriately controlled and that we have processes in
place to adequately manage these risks, security procedures for information
systems cannot be guaranteed to be failsafe and our inability to use or access
these information systems at critical points in time could unfavorably impact
the timely and efficient operation of our business.
We are dependent
on a limited number of suppliers. Our manufacturing operations
depend upon obtaining adequate raw materials on a timely basis. The number of
suppliers of certain raw materials, such as silicon wafers, ultra-pure metals
and certain chemicals and gases needed for our products, is very limited. In
addition, certain packages for our products require long lead times and are
available from only a few suppliers. From time to time, suppliers have extended
lead times or limited supply to us due to capacity constraints. Our
results of operations would be materially and adversely affected if
we were unable to obtain adequate supplies of raw materials in a timely manner
or if there were significant increases in the costs of raw materials, or if
foundry or assembly subcontractor capacity was not available, or was only
available at uncompetitive prices.
We are subject to
a variety of environmental and other regulations related to hazardous materials
used in our manufacturing processes. Any failure by us to
adequately control the use or discharge of hazardous materials under present or
future regulations could subject us to substantial costs or liabilities or cause
our manufacturing operations to be suspended.
We have limited
experience with government contracting, which entails differentiated business
risks. Currently, certain of our subsidiaries derive revenue
from contracts and subcontracts with agencies of, or prime contractors to, the
U.S. government, including U.S. military agencies. Although former
employees of ICS who work for us have experience contracting with agencies of
the U.S. government, historically we have not contracted with agencies of the
U.S. government. As a company engaged, in part, in supplying
defense-related equipment to U.S. government agencies, we are subject to certain
business risks that are particular to companies that contract with U.S.
government agencies. These risks include the ability of the U.S.
government or related contractors to unilaterally:
·
|
Terminate
contracts at its convenience;
|
·
|
Terminate,
modify or reduce the value of existing contracts, if budgetary constraints
or needs change;
|
·
|
Cancel
multi-year contracts and related orders, if funds become
unavailable;
|
·
|
Adjust
contract costs and fees on the basis of audits performed by U.S.
government agencies;
|
·
|
Control
and potentially prohibit the export of our
products;
|
·
|
Require
that the company continue to supply products despite the expiration of a
contract under certain
circumstances;
|
·
|
Require
that the company fill certain types of rated orders for the U.S.
government prior to filling any orders for other
customers; and
|
·
|
Suspend
us from receiving new contracts pending resolution of any alleged
violations of procurement laws or
regulations.
|
In
addition, because we have defense industry contracts with respect to products
that are sold both within and outside of the United States, we are subject to
the following additional risks in connection with government
contracts:
·
|
The
need to bid on programs prior to completing the necessary design, which
may result in unforeseen technological difficulties, delays and/or cost
overruns;
|
·
|
The
difficulty in forecasting long-term costs and schedules and the potential
obsolescence of products related to long-term fixed price contracts;
and
|
·
|
The
need to transfer and obtain security clearances and export licenses, as
appropriate.
|
Our common stock
has experienced substantial price volatility. Volatility in
the price of our common stock may occur in the future, particularly as a result
of the current economic downturn and quarter-to-quarter variations in our actual
or anticipated financial results, or the financial results of other
semiconductor companies or our customers. Stock price volatility may also result
from product announcements by us or our competitors, or from changes in
perceptions about the various types of products we manufacture and
sell. In addition, our stock price may fluctuate due to price and
volume fluctuations in the stock market, especially in the technology sector,
and as a result of other considerations or events described in this
section.
We depend on the
ability of our personnel, raw materials, equipment and products to move
reasonably unimpeded around the world. Any political,
military, world health or other issue which hinders the worldwide movement of
our personnel, raw materials, equipment or products or restricts the import or
export of materials could lead to significant business disruptions. Furthermore,
any strike, economic failure, or other material disruption on the part of major
airlines or other transportation companies could also adversely affect our
ability to conduct business. If such disruptions result in cancellations of
customer orders or contribute to a general decrease in economic activity or
corporate spending on information technology, or directly impact our marketing,
manufacturing, financial and logistics functions, our results of operations and
financial condition could be materially and adversely affected.
ITEM 2. UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS
The
following table sets forth information with respect to repurchases of our common
stock during the third quarter of fiscal 2010:
Period
|
|
Total Number
of Shares Purchased
|
|
|
Average
Price Paid Per Share
|
|
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans
or Programs
|
|
|
Approximate
Dollar Value of Shares that May Yet Be Purchased Under the Plans or
Programs
|
|
September
28, 2009 – October 25, 2009
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
$ |
77,894,774 |
|
October
26, 2009 – November 22, 2009
|
|
|
12,100 |
|
|
$ |
6.19 |
|
|
|
12,100 |
|
|
$ |
77,819,902 |
|
November
23, 2009 – December 27, 2009
|
|
|
546,100 |
|
|
$ |
5.98 |
|
|
|
546,100 |
|
|
$ |
74,551,926 |
|
Total
|
|
|
558,200 |
|
|
$ |
5.99 |
|
|
|
558,200 |
|
|
|
|
|
On
January 18, 2007, our Board of Directors initiated a $200 million share
repurchase program. During fiscal 2008, our Board of Directors approved a $200
million expansion of the share repurchase program to a total $400
million. In fiscal 2008 and fiscal 2007, we repurchased approximately
28.9 million shares and 1.6 million shares at an average price of $11.60 per
share and $15.95 per share for a total purchase price of $334.8 million and
$25.0 million, respectively. On April 30, 2008, our Board of
Directors approved an additional
$100
million expansion of the share repurchase program to a total of $500
million. In fiscal 2009, we repurchased approximately 8.4 million
shares at an average price of $7.46 per share for a total purchase price of
$62.3 million. During
the third quarter of fiscal 2010, the Company repurchased approximately
0.6 million shares at an average price of $5.99 per share for a total purchase
price of $3.3 million. As of December 27, 2009, approximately $74.6
million was available for future purchase under the share repurchase
program. Share repurchases were recorded as treasury stock and
resulted in a reduction of stockholders’ equity.
ITEM 3. DEFAULTS UPON SENIOR
SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
(a) The
following exhibits are filed herewith:
Exhibit
number
|
|
Description
|
|
|
|
31.1
|
|
Certification
of Chief Executive Officer as required by Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended, dated February 4,
2010.
|
31.2
|
|
Certification
of Chief Financial Officer as required by Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended, dated February 4,
2010.
|
32.1
|
|
Certification
of Chief Executive Officer as required by Rule 13a-14(b) of the Securities
Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350 dated
February 4, 2010.
|
32.2
|
|
Certification
of Chief Financial Officer as required by Rule 13a-14(b) of the Securities
Exchange Act of 1934, as amended and 18 U.S.C. Section 1350 dated February
4, 2010.
|
Pursuant
to the requirements 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.
|
|
INTEGRATED
DEVICE TECHNOLOGY, INC.
|
Date:
February 4, 2010
|
|
/S/ THEODORE L. TEWKSBURY III
Theodore
L.Tewksbury III
President and Chief Executive
Officer
|
Date:
February 4, 2010
|
|
/S/ RICHARD D. CROWLEY, JR.
Richard
D. Crowley, Jr.
Vice
President, Chief Financial Officer
(Principal Financial and
Accounting Officer)
|
EXHIBIT
INDEX
Exhibit
number
|
|
Description
|
|
|
|
|
31.1 |
|
Certification
of Chief Executive Officer as required by Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended, dated February 4,
2010.
|
|
31.2 |
|
Certification
of Chief Financial Officer as required by Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended, dated February 4,
2010.
|
|
32.1 |
|
Certification
of Chief Executive Officer as required by Rule 13a-14(b) of the Securities
Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350 dated
February 4, 2010.
|
|
32.2 |
|
Certification
of Chief Financial Officer as required by Rule 13a-14(b) of the Securities
Exchange Act of 1934, as amended and 18 U.S.C. Section 1350 dated February
4, 2010.
|