UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
|
/x/
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the fiscal year ended March 29, 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
Securities
registered pursuant to Section 12(b) of the Act:
|
Title of each
class
|
Name of each exchange on which
registered
|
|
|
Common
stock, $.001 par value
|
The
NASDAQ Stock Market LLC
|
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes ý No o
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act. Yes o No ý
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 if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of
this chapter) is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K. ý
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 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
aggregate market value of the voting and non-voting common equity held by
non-affiliates was approximately $1.2 billion, computed by reference to the last
sales price of $8.45 as reported by The NASDAQ Stock Market LLC, as of the last
business day of the registrant’s most recently completed second fiscal quarter,
September 26, 2008. Shares of common stock held by each executive officer and
director and by each person who owns 5% or more of the outstanding common stock
have been excluded in that such persons may be deemed affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
The
number of outstanding shares of the registrant's Common Stock, $.001 par value,
as of April 26, 2009, was approximately 165,300,723.
DOCUMENTS
INCORPORATED BY REFERENCE
Items
10, 11, 12, 13, and 14 of Part III incorporate information by reference
from the registrant’s Proxy Statement for the 2009 Annual Meeting of
Stockholders.
ANNUAL
REPORT ON FORM 10-K
INDEX
|
Item
1
|
3
|
|
|
Item
1A.
|
11
|
|
|
Item
1B.
|
17
|
|
|
Item
2.
|
17
|
|
|
Item
3.
|
17
|
|
|
Item
4.
|
18
|
|
|
Item
5.
|
19
|
|
|
Item
6.
|
21
|
|
|
Item
7.
|
22
|
|
|
Item
7A.
|
36
|
|
|
Item
8.
|
37
|
|
|
Item
9.
|
72
|
|
|
Item
9A.
|
72
|
|
|
Item
9B.
|
72
|
|
|
Item
10.
|
73
|
|
|
Item
11.
|
75
|
|
|
Item
12.
|
75
|
|
|
Item
13.
|
75
|
|
|
Item
14.
|
75
|
|
|
Item
15.
|
76
|
|
|
79
|
Special
Note Regarding Forward-Looking Statements
We
have made statements in this Annual Report on Form 10-K in
Item 1-“Business”, Item 1A-“Risk Factors”, Item 3-“Legal
Proceedings”, Item 7-“Management’s Discussion and Analysis of Financial
Condition and Results of Operation” and in other sections of this Annual Report
on Form 10-K that are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, and amended and Section 21E of the
Securities Exchange Act of 1934, as amended. These statements relate
to future events and the future results of Integrated Device Technology, Inc.
and are based on current expectations, estimates, forecasts and projections
about the industry in which we operate and the beliefs and assumptions of our
management. In addition, in this Annual Report on Form 10-K, the
words ‘expects,’ ‘anticipates,’ ‘targets,’ ‘goals,’ ‘projects,’ ‘intends,’
‘plans,’ ‘believes,’ ‘seeks,’ ‘estimates,’ and variations of such words and
similar expressions, as they relate to us, our business and our management, are
intended to identify such forward-looking statements. Forward-looking
statements should not be read as a guarantee of future performance or results,
and will not necessarily be accurate indications of the times at, or by, which
such performance or results will be achieved. Forward-looking
statements are based on information available at the time those statements are
made and/or management’s good faith belief as of that time with respect to
future events, and are subject to risks and uncertainties that could cause
actual performance or results to differ materially from those expressed in or
suggested by the forward-looking statements. Factors that might cause
or contribute to such differences include, but are not limited to, those
discussed in this Report under the section entitled “Risk Factors” under Part I,
Item 1A and elsewhere in this Report, and in other reports we file with the
Securities and Exchange Commission (SEC), including our most recent reports on
Form 10-Q.
Forward-looking
statements speak only as of the date the statements are made. You
should not put undue reliance on any forward-looking statements. We
assume no obligation to update forward-looking statements to reflect actual
results, changes in assumptions or changes in other factors affecting
forward-looking information, except to the extent required by applicable
securities laws. If we do update one or more forward-looking
statements, no inference should be drawn that we will make additional updates
with respect to those or other forward-looking statements.
We
design, develop, manufacture and market a broad range of low power,
high-performance mixed signal semiconductor solutions for the advanced
communications, computing and consumer industries. Our communications products
target markets including the core, metro, access, enterprise, small office/home
office (SOHO), data center and wireless markets. Our computing products are
designed specifically for desktop, notebook, sub-notebook, storage and server
applications while our consumer products are optimized for gaming consoles,
set-top boxes, digital TV and smart phones.
With
best-in-class talent, technology and a forward-thinking product-development
philosophy targeted at digital media, IDT enables the industry to transport,
process and deliver digital media. We do this by developing detailed
systems-level knowledge and applying our fundamental semiconductor heritage to
create essential solutions to the compelling technology problems faced by our
customers.
We
market our products on a worldwide basis primarily to original equipment
manufacturers (OEMs) through a variety of channels, including a direct
sales force, distributors, electronic manufacturing suppliers (EMSs) and
independent sales representatives.
We
seek to differentiate our products from our competitors’ products through the
following capabilities:
|
·
|
Investment
in applications expertise, system-level knowledge and whole product
solution elements that allow us to solve difficult technology problems for
our customers that enable them to reduce their overall bill-of-materials
(BOM), increase system performance and lower power consumption while
accelerating their time to market;
|
|
·
|
Application
of our diverse skill, know-how and technology to help our customers
achieve maximum benefit from evolving technology standards relevant in the
market;
|
|
·
|
Demonstrating
the dependability and reliability of an experienced, high-volume vendor
with a long-term view; and
|
|
·
|
Combining
our digital design silicon heritage with the latest in analog,
mixed-signal capabilities to provide value-added, highly integrated
Application Specific Standard Products
(ASSPs).
|
|
·
|
Leveraging
our design services and customizability model to enable user-configured,
application-optimized, quick turn benefits to our
customers
|
IDT
was incorporated in California in 1980 and reincorporated in Delaware in 1987.
The terms "the Company," "IDT," "our," "us" and "we" refer to Integrated Device
Technology, Inc. and its consolidated subsidiaries.
PRODUCTS
AND MARKETS
We
provide a broad portfolio of essential semiconductor solutions, including
integrated circuits (ICs) that enable digital media to be transported, processed
and delivered in current and next-generation communications, computing and
consumer applications. We serve equipment vendors by applying our advanced
hardware, integrated software and heritage technologies to create flexible,
highly-integrated products that enhance the functionality and processing of
digital media.
During
Q2 2009, we announced a reorganization of the business units into five operating
segments. The five operating segments are Communications, Networking, Enterprise
Computing, Computing and Multimedia and Video and Display. The reorganization
was performed to align the organization and resources with our strategy,
customers and methods of doing business as well as to reduce costs and was fully
implemented in Q3 2009. As a result, we reevaluated our reportable business
segments in accordance with Statement of Financial Accounting Standards (SFAS)
131, Disclosures about
Segments of an Enterprise and Related Information (SFAS 131), resulting
in a change in our reportable segments from three (Networking segment, Timing
and Memory Interface segment and Standard Products and Others segment) to two
reportable segments (Communications segment and Computing and Consumer segment).
The Communications and Networking operating segments are aggregated into
Communications reportable segment, while Enterprise Computing, Computing and
Multimedia and Video and Display operating segments are aggregated into
Computing and Consumer reportable segment.
|
§
|
Communications
segment: includes network search engines (NSEs), clock and timing
solution, RapidIO®
switching solutions, flow-control management devices, FIFOs, multi-port
products, integrated communications processors, high-speed SRAM, military
application, digital logic,
telecommunications.
|
|
§
|
Computing
and Consumer segment: includes clock generation and distribution products,
high-performance server memory interfaces, PCI Express®
switching solutions, PC audio and video
products.
|
During
fiscal 2009, Communications and Computing and Consumer segments accounted for
approximately 46% and 54%, respectively, of our total revenues of $663.2
million. In fiscal 2008, these segments accounted for approximately 45% and 55%,
respectively, of our total revenues of $781.5 million. During fiscal
2007, these segments accounted for approximately 50% and 50%, respectively, of
our total revenues of $803.6 million.
We
offer custom designed products, Application-Specific Standard Products (ASSPs)
and general purpose industry-standard products.
Communications
Segment
This
segment includes network search engines, clock and timing solutions, Serial
RapidIO®
switching solutions, flow- control management devices, FIFOs, multi-port
products and integrated communications processors, high-speed SRAM, military
application, digital logic and telecommunications.
Communication
Clocks: Created for networking, communications (SONET/SDH), advanced
computing (servers and workstations) and enterprise storage (SAN &
NAS) applications, our communication clocks include high-performance and
high-reliability frequency generation and clock distribution products enabling
clock-tree development, clock synthesizers optimized for Freescale PowerQUICC™
processors, FemtoClocks™ ultra-low jitter clock sources, Stratum-compliant
jitter attenuation and frequency translation PLLs, surface acoustic
wave (SAW) PLL communications modules and voltage-controlled SAW
oscillator modules. We are a leading provider of timing solutions, offering a
complete portfolio of products for clock generation, distribution, recovery and
jitter attenuation to serve numerous computing, consumer and communications
applications.
Digital Logic Products: We
provide fast CMOS TTL-compatible, low-voltage CMOS and advanced low-voltage
CMOS, including a broad range of high-performance, 3.3-volt CMOS logic products.
These products are developed for network switches and routers, wireless base
stations, storage networks, servers and other applications.
First-in/first-out (FIFOs)
Memories: We develop products and technologies to help designers
solve inter-chip communications problems such as rate matching, data buffering,
bus matching and data-priority managing. We provide a large product portfolio
with more than 350 synchronous, asynchronous and bi-directional FIFO offerings
that address complex issues associated with high-performance networking
applications, such as terabit routers, multi-service switching platforms, host
bus adaptors and wireless base stations.
Military/Aerospace: Primarily
through our Micro Networks subsidiary, we supply high-performance,
high-reliability data conversion products (amplifiers, analog-to-digital (A/D)
and digital-to-analog (D/A) converters) and custom application specific
integrated circuits (ASIC) and multi-chip modules (MCM) for weapons and flight
control systems to the United States (U.S.) government and prime
contractors.
Multi-port Memory Products:
We offer a comprehensive portfolio of high-performance multi-port memory
products. Our portfolio consists of more than 150 types of asynchronous and
synchronous dual-ports, tri-ports, four-ports and bank-switchable dual-ports.
These devices are well-suited for wireless infrastructures, networking, storage,
wireless handsets, high-speed image processing and multi-core computing, such as
supercomputers.
Network Search Engines and Search
Accelerators: Our family of network search engines (NSEs) and search
accelerators are based on the integration of ternary content addressable memory
(TCAM) and high-performance logic. IDT search accelerators and NSEs support
network processing units and application-specific integrated circuits (ASICs) or
field-programmable gate arrays (FPGAs) and enable intelligent application
management in next-generation networking equipment. Our portfolio includes a
family of custom devices, as well as devices with high-performance interfaces
for ASICs, and glue-less interfaces to leading network processors, to accelerate
packet classification and forwarding in core, metro, enterprise, wireless and
access networks. The IDT search accelerator family allows for the delivery of
one billion searches per second performance, integrated error correction code
(ECC), and an IPv6-optimized 80-bit dual data rate (DDR) interface.
Serial RapidIO® Solutions: Our family of
Serial RapidIO® products
provides cost-effective, off-the-shelf solutions targeting wireless base station
infrastructure applications; specifically baseband processing solutions that
utilize DSP clusters as well as radio card interface solutions utilizing the
Common Public Radio Interface (CPRI™) industry standard. The Pre-Processing
Switch (PPS) family is central to the DSP clusters and increases the efficiency
of the DSPs by performing data alignment, packet assembly, summing and
multi-casting of the data to multiple endpoints thus eliminating the need for
additional FPGAs. The Central Packet Switch (CPS) family addresses the needs of
switching data between multiple endpoints without pre-processing of the data.
These switches are ideal for central switch cards as well as baseband processing
cards. The Serial Buffer family of devices provides all the necessary buffering
and storage of data at full 10Gb line rates as well as parallel interfaces to
enable the use of legacy components over a non-Serial RapidIO®
interface. The Functional InterConnect (FIC) devices offer low-cost connectivity
between Serial RapidIO®, CPRI™,
TDM, and parallel interfaces. A “Baseband-on-a-Card” uTCA board with software
and Application Programming Interfaces (APIs) enable our customers to
significantly improve their time-to-market. These Serial RapidIO®
Solutions are also ideal for other DSP cluster applications including video
imaging, IPTV, medical and military applications.
SRAM Products: With over two
decades of SRAM experience, we produce a broad line of high-speed,
industry-standard SRAMs that are used in the communications and other markets.
We offer a wide range of products from 16-Kbit to 18-Mbit densities in both
synchronous and asynchronous architectures. We invented zero bus turnaround™
technology (ZBT), which has become the communications SRAM standard, and
co-developed the quad data rate™ architecture (QDR).
Telecommunications Products:
We offer a broad telecommunications semiconductor portfolio, including products
for access and transport, time-division multiplex (TDM) switching and voice
processing. The IDT SuperJET™ family of J1/E1/T1 transceivers includes the
industry’s first monolithic octal density device, designed to address
next-generation universal line-card designs in communications applications. In
addition, we provide products for multiplexing and a wide selection of time slot
interchange switches and programmable voice CODEC devices for high-volume
applications.
Computing
and Consumer Segment
This
segment includes clock generation and distribution products, high-performance
server memory interfaces, PCI Express®
switching solutions, PC audio and video products.
Audio: Our high-definition
(HD) Audio codecs ensure that PCs and notebooks have the best audio fidelity in
the market. Our growing portfolio supports from 2 to 10 channels of audio along
with advanced technologies such as integrated digital microphone interface,
modem interface, ADAT® optical
interface and more. The power optimization, high performance and quality of our
HD Audio codecs bring higher fidelity to media center and entertainment PCs. In
addition, our graphical user interface (GUI) enables end users to visually
experience the IDT brand while simplifying their control of the computer audio
subsystem.
Consumer and PC Clocks:
Optimized for digital consumer applications, such as video game consoles,
set-top boxes (cable satellite and internet protocol/digital subscriber line),
digital TV and DVD recorders, our consumer clocks consist of both custom and
off-the-shelf solutions. Products include programmable timing devices that
address in-system programming and test, clock
redundancy
and I/O translation. By directly enhancing design flexibility, portability and
reliability, these products also reduce inventory and test costs. Our other
consumer clocks include: zero-delay buffers, clock synthesizers,
voltage-controlled crystal oscillators and spread-spectrum clock generators. Our
PC clocks offer a unique combination of features and high performance, enabling
leading edge technologies such as PCI Express (Generation 1 and 2), as well as
fully-buffered dual in-line memory modules In addition, we also provide
customized clock solutions, offering optimized feature sets to meet the needs of
specific motherboards. We offer the industry’s largest portfolio of PC
clock products for all generations of Intel, ATI Technologies, Via Technologies,
Silicon Integrated Systems (SiS) Corp. and AMD motherboards.
We
are a leading provider of timing solutions, offering a complete portfolio of
products for clock generation, distribution, recovery and jitter attenuation to
serve numerous computing, consumer and communications applications.
Integrated Communications
Processors: Our Interprise™ family of integrated communications
processors consists of a range of processors and development tools. In addition,
we partner with industry-leading software and hardware vendors to deliver system
platforms to communications customers. The devices are based on the MIPS™
instruction set architecture and serve communications market segments, such as
Ethernet switches, enterprise gateways and wireless local area networks (LANs),
as well as edge and access market areas, including fiber-to-the-home and
wireless application protocols (WAPs). Our Interprise™ processors provide a
combination of flexibility, performance and appropriate integration levels that
enable customers to get to market quickly with cost-effective, flexible
systems.
Memory Interface Products:
The broad range of our products for DIMMs is a direct result of our significant
experience in timing, high-speed serial interface and logic technologies. Our
advanced memory buffer devices (AMB) are a class of products that provide a
high-speed, serial, communications interface between the memory controller and
modules on the channel of FB-DIMMs for server and workstation applications. Our
double data rate (DDR) register and PLL chipsets also meet the latest memory
speed needs of server and workstation devices.
Switching
Solutions: Our family of Peripheral Component Interconnect
Express (PCI Express® or
PCIe®)
switching solutions is aimed at high-performance server, storage, embedded and
communications applications. Moreover, we offer customers a complete integrated
hardware/software development kit that includes evaluation boards, software
drivers and a graphical user interface that enables complete system
configuration and optimization. Our PCIe Gen1 and Gen2 devices are optimized for
I/O expansion as well as devices optimized for system interconnect and
inter-domain communications, ultimately offering our customers a broad PCIe
switching portfolio.
Video: We offer advanced
mixed-signal video interfaces based on the DisplayPort®
standard. Our PanelPort™ timing controller and receiver devices are based upon
the DisplayPort standard. These products were developed in connection with the
market transition away from legacy parallel interfaces external to PCs and
internal to digital televisions to the new serial DisplayPort interface.
Additionally, we provide high performance mixed-signal interface products that
complement our consumer timing products. Products include low voltage
differential signaling (LVDS) display interface chips, high definition media
interface (HDMI) receiver chips and triple-ADC (analog-to-digital converter)
video samplers. We also offer IDT Hollywood Quality Video™ HQV™
video processing through our Reon™ family of video processors.
Acquisition
On
October 20, 2008, we completed the acquisition of certain video signal
processing technology and related assets along with members of the engineering
team from Silicon Optix, a privately-held fabless semiconductor company based in
San Jose, California. The
acquisition provided us with a video signal processing technology, team of
engineers, certain assets and a product line involving video technologies. We
believe these technologies will allow us to pursue expanded opportunities,
particularly in high-definition video application. The total purchase
price was approximately $20.1 million. See Note 2 of Notes to Consolidated
Financial Statements under Item 8 for further discussion.
On
April 30, 2009, we entered into a definitive acquisition agreement with Tundra
Semiconductor Corporation (Tundra), a Canadian Public Company based in Ottawa,
to acquire all of Tundra’s outstanding shares of common stock for Canada for
approximately CDN $120.6 million or CDN$6.25 per share, plus approximately CDN
$2.9 million for the purchase of employee restricted stock units and
in-the-money stock options. If the Tundra shareholders approve the sale to IDT,
we expect this transaction to close early in the second quarter of fiscal
2010.
Divestitures
On
April 30, 2009, we signed a definitive agreement to divest certain assets
related to our network search engine business to NetLogic Microsystems, Inc. The
purchase consideration consists of approximately $100 million, which includes
inventory currently estimated at $10 million and subject to adjustment on the
closing date and assume specified liabilities related to these
assets.
At closing, NetLogic Microsystems, at its option and subject to conditions under
the agreement, may pay the entire purchase price in cash or pay approximately
$70 million less the cost of inventory in cash and issue to us a $30 million
secured promissory note payable in two equal installments on the first and
second anniversaries of the closing date. We expect this transaction to close
prior to the end of the second quarter of fiscal 2010.
Sales
Channels
We
sell our semiconductor products through three channels: direct sales to OEMs and
EMSs, consignment sales to OEMs and EMSs, and sales through
distributors. Direct sales are managed mainly through our internal
sales force and independent sales representatives. Revenue is
recognized on direct sales based on the relevant shipping
terms. During fiscal 2009, direct sales accounted for approximately
24% of our worldwide revenues.
Consignment
sales relate to areas where we have established hubs at or near key customers to
allow them quick access to our products. We retain ownership of the
product at consignment locations until the product is pulled by the
customer. Consignment sales are managed by our internal sales team
and accounted for approximately 11% of our worldwide revenues.
The majority of our
worldwide sales are through distributors. Our distributors within the
U.S. and Europe have rights to price protection, ship from stock pricing credits
and stock rotation. Due to the uncertainty of the amount of the
credits related to these programs, revenue is not recognized until the product
has been sold by the distributor to an end customer. Within
APAC and Japan, distributors have limited stock rotation and little or no price
protection rights. Revenue is recognized upon shipment to these
distributors as we are able to reasonably estimate the amount of pricing
adjustments and stock rotation returns. Revenue recognized on a sell
through basis through distribution represented approximately 17% of our
worldwide revenues, while revenue through distribution recognized upon shipment
represented 48% of our worldwide revenues.
One
family of distributors, Maxtek and its affiliates, represented approximately 21%
and 25% of our revenues in fiscal 2009 and 2008. Another distributor,
Avnet represented approximately 10% of our revenues in fiscal
2009. No single direct or consignment customer represented more than
10% of our fiscal 2009, 2008, or 2007 revenues.
During
fiscal 2009, sales within the Americas, Europe, APAC, and Japan represented
approximately 20%, 8%, 63% and 9%, respectively, of our total
revenues. Additional details regarding revenues are included in
the Consolidated Financial Statements and Notes to Consolidated Financial
Statements in Item 8 of this Annual Report.
Customers
We
market our products on a worldwide basis, primarily to OEMs, who in turn market
our products under their brands. We work closely with our OEM customers to
design and integrate current and next generation products to meet the
requirements of end users. 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 through 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. No direct OEM customer accounted for 10% or more of
our revenues in fiscal 2008, 2007 or 2006. However, when sales
through all channels are considered, we estimate that end-customer sales to
Cisco represented approximately 12%, 15%, and 17% of our revenues in fiscal
2009, 2008 and 2007, respectively.
Government
Contracts
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 Integrated Circuit Systems,
Inc. (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.
|
Manufacturing
In
fiscal 2009, we manufactured wafers representing approximately 40% of total
revenue at the Oregon wafer fabrication facility which produces 200mm (8-inch)
wafers ranging from 0.6-micron to 0.12-micron process technologies. For wafers
which require more advanced manufacturing processes, we use third-party
foundries that are primarily located in the Asia-Pacific
region. Manufacturing at third party foundries represented
approximately 60% of our total revenue in fiscal 2009.
In
fiscal 2009, we assembled or packaged products at several different
subcontractors in the Asia-Pacific region. Utilizing several
different subcontractors located in different countries enables us to negotiate
lower prices and limits the risk associated with production concentration in one
country or company. The criteria used to select assembly
subcontractors include, but are not limited to, cost, quality, delivery, and
subcontractor financial stability.
We
performed the vast majority of test operations at two company-owned test
facilities located in Malaysia and Singapore. A relatively small
amount of test operations are also performed at third party subcontractors in
the Asia-Pacific region.
Backlog
Our
backlog (which we define as all confirmed, unshipped direct orders) as of March
29, 2009 was $37.7 million compared to $78.1 million as of March 30,
2008. We offer custom designed products, as well as industry-standard
products. Sales are made primarily pursuant to standard purchase orders, which
are frequently revised by customers as their requirements change. We have also
entered into master purchase agreements, which do not require minimum purchase
quantities, with many of our OEM and EMS customers. We schedule product
deliveries upon receipt of purchase orders under the related customer
agreements. Generally, these purchase orders and customer agreements, especially
those for standard products, also allow customers to change the quantities,
reschedule delivery dates and cancel purchase orders without significant
penalties. In general, orders, especially for industry standard products, are
often made with very short lead times and may be canceled, rescheduled,
re-priced or otherwise revised prior to shipment. In addition, certain
distributor orders are subject to price adjustments both before and after
shipment. For all these reasons, we do not believe that our order
backlog is a reliable indicator of future revenues.
Seasonal
Trends
Certain
of our products are sold in the computing and consumer end markets which
generally have followed annual seasonal trends. Historically, sales of products
for these end markets have been higher in the second half of the year than in
the first half of the year as consumer purchases of PCs and gaming systems
increase significantly in the second half of the calendar year due to
back-to-school and holiday demand.
Research
and Development
Our
research and development efforts emphasize the development and design of
proprietary, enhanced-performance, low-power analog and mixed-signal
semiconductor products. We believe that a sustained level of investment in
research and development is necessary to maintain our competitive position. We
operate research and development centers in San Jose, California; Tempe,
Arizona; Atlanta, Georgia; Austin, Texas; Warren, New Jersey; Worcester and
Boston, Massachusetts; Toronto and Ottawa, Canada; Shanghai, China and
Singapore. Research and development expenses, as a percentage of revenues, were
approximately 24%, 21% and 21% in fiscal 2009, 2008 and 2007,
respectively.
Our
product development activities are focused on the design of integrated circuits
that provide new features and enhanced performance primarily for communications,
computing and consumer applications.
Competition
The
semiconductor industry is characterized by rapid technological advances,
cyclical market patterns, erosion of product sale prices and evolving industry
standards. Many of our competitors have substantially greater technical,
marketing, manufacturing or financial resources than we do. In addition, several
foreign competitors receive financial assistance from their governments, which
could give them a competitive advantage. We compete in different product areas
to varying degrees on the basis of technical innovation and product performance,
as well as product quality, availability and price.
Our
competitive strategy is to use our applications expertise to develop a deep
understanding of customers systems and to define and develop complete product
portfolios that solve our customers’ whole problem. We differentiate
our products through innovative configurations, proprietary features, high
performance, and breadth of offerings. Our ability to compete successfully and
to expand our business will depend on a number of factors, including but not
limited to:
|
§
|
Performance,
feature, quality and price of our
products;
|
|
§
|
Timing
and success of new product introductions by us, our customers and our
competitors;
|
|
§
|
Quality
of technical service and support and brand
awareness;
|
|
§
|
Cost
effectiveness of our design, development, manufacturing and marketing
efforts;
|
|
§
|
Global
economic condition.
|
We
compete with product offerings from LSI, Cypress Semiconductor, Exar, Freescale
Semiconductor, Infineon Technologies, Integrated Silicon Solutions, Intel, Maxim
Integrated Products, NetLogic Microsystems, NEC, Pericom Semiconductor, Philips
Electronics, PLX Technology, Realtek Semiconductor, Renesas Technology, Samsung
Electronics, STMicroelectronics, Texas Instruments, Toshiba, Tundra
Semiconductor, Analog Devices, Inphi, Silicon Laboratories, Montage, Diablo and
Zarlink Semiconductor.
Intellectual
Property and Licensing
We
rely primarily on our patents, trade secrets, contractual provisions, licenses,
copyrights, trademarks, and other proprietary rights mechanisms to protect our
intellectual property. We believe that our intellectual property is a
key corporate asset, and we continue to invest in intellectual property
protection. We also intend to continue our efforts to increase the breadth of
our patent portfolio. There can be no assurance that any patents issued to us
will not be challenged, invalidated or circumvented, that the rights granted
there under will provide competitive advantages to us or that our efforts to
protect our intellectual property rights will be successful.
In
recent years, there has been a growing trend of companies resorting to
litigation to protect their semiconductor technology from unauthorized use by
others. We have been involved in patent litigation, which adversely impacted our
operating results. Although we have obtained patent licenses from certain
semiconductor manufacturers, we do not have licenses from a number of
semiconductor manufacturers with broad patent portfolios. While we
are not knowingly infringing on any of their patents, these semiconductor
manufacturers may resort to litigation or other means in an effort to find
infringements and force us to obtain licenses to their patents. Our
success will depend in part on our ability to obtain necessary intellectual
property rights and protect our intellectual property rights. While
we have filed patent applications, we cannot be certain that these applications
will issue into patents or that we will be able to obtain the patent coverage
and other intellectual property rights necessary to protect our
technology. Further, we cannot be certain that once granted, the
intellectual property rights covered by such patents will not be challenged by
other parties.
Environmental
Regulation
We
are committed to protecting the environment and the health and safety of our
employees, customers and the public. We endeavor to adhere to the
most stringent standards across all of our facilities, to encourage pollution
prevention and to strive towards continual improvement. As an
integral part of our total quality management system, we strive to exceed
compliance with regulatory standards in order to achieve a standard of
excellence in environmental, health and safety management
practices.
Our
manufacturing facilities are subject to numerous environmental laws and
regulations, particularly with respect to the storage, handling, use, discharge
and disposal of certain chemicals, gases and other substances used or produced
in the semiconductor manufacturing process. Compliance with these
laws and regulations has not had a material impact on our capital expenditures,
earnings, financial condition or competitive position. Although we
believe that we are fully compliant with all applicable environmental laws and
regulations there can be no assurance that current or future environmental laws
and regulations will not impose costly requirements upon us. Any
failure by us to comply with applicable environmental laws and regulations could
result in fines, suspension of production, alteration of fabrication processes
and legal liability.
Employees
As
of March 29, 2009, we had approximately 2,112 employees worldwide, with
approximately 1,128 employees located in the United States. Our
future success depends in part on our ability to attract and retain qualified
personnel, particularly engineers, who are often in great demand. We have
implemented policies enabling our employees to share in our success, including
stock option, restricted stock unit, stock purchase and incentive bonus
plans. We have never had a work stoppage related to labor
issues. None of our employees are currently represented by a
collective bargaining agreement, and we consider our employee relations to be
good.
Available
Information
We
electronically file our annual reports on Form 10-K, quarterly reports on Form
10-Q and current reports on Form 8-K pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended with the SEC. The public may read or
copy any materials we file with the SEC at the SEC’s Public Reference Room at
100 F Street, NE, Washington, DC 20549. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC. The address of that site is
http://www.sec.gov. You may obtain a free copy of our annual
reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form
8-K and amendments to those reports with the SEC on our website on the World
Wide Web at http://www.IDT.com, by contacting the Investor Relations Department
at our corporate offices by calling (408) 654-6420 or by sending an e-mail
message to ir@IDT.com.
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 $1,045.2 million in fiscal 2009, net income
of $34.2 million in fiscal 2008 and net losses of $7.6 million in fiscal 2007,
respectively. Fluctuations in operating results can result from a wide variety
of factors, including:
|
·
|
Global
market and economic conditions, including those related to the credit
markets, may adversely affect our business and results of
operations;
|
|
·
|
The
cyclicality of the semiconductor industry and industry-wide wafer
processing capacity;
|
|
·
|
Changes
in the demand for and mix of products sold and in the markets we and our
customers serve;
|
|
·
|
Competitive
pricing pressures;
|
|
·
|
The
success and timing of new product and process technology announcements and
introductions from us or our
competitors;
|
|
·
|
Potential
loss of market share among a concentrated group of
customers;
|
|
·
|
Difficulty
in attracting and retaining key
personnel;
|
|
·
|
Difficulty
in predicting customer product
requirements;
|
|
·
|
Production
difficulties and interruptions caused by our complex manufacturing and
logistics operations;
|
|
·
|
Difficulty
in managing fixed costs of our manufacturing capability in the face of
changes in demand;
|
|
·
|
Reduced
control over our manufacturing and product delivery as a result of our
increasing reliance on subcontractors, foundry and other manufacturing
services;
|
|
·
|
Costs
and other issues relating to future
acquisitions;
|
|
·
|
Availability
and costs of raw materials from a limited number of
suppliers;
|
|
·
|
Political
and economic conditions in various geographic
areas;
|
|
·
|
Costs
associated with other events, such as intellectual property disputes or
other litigation; and
|
|
·
|
Legislative,
tax, accounting, or regulatory changes or changes in their
interpretation.
|
Global Market and Economic
Conditions, including those related to the credit markets, may adversely affect
our business and results of operations.
Unprecedented
adverse changes in global financial markets and rapidly deteriorating business
conditions in the world’s developed economies has resulted in tighter credit
conditions and a global economic contraction through the end of fiscal
2009. For the period ended March 29, 2009, continued concerns about
the systemic impact of inflation and deflation, 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 added concerns fueled by the
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, declining business and consumer
confidence and increased unemployment have contributed to volatility of
unprecedented levels and a significant economic recession.
As
a result of these market and business conditions, the cost and availability of
capital and credit has 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, and 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 and we cannot accurately predict how severe and prolonged any
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. 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.
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.
A portion of our
manufacturing capability is relatively fixed in
nature. Although we have reduced our manufacturing cost
structure substantially over the past several years, a portion of our
manufacturing capability is relatively fixed in nature. Large and
rapid swings in demand for our products can make it difficult to efficiently
utilize this capacity on a consistent basis. Significant reductions in demand
for our products could result in material under utilization of our manufacturing
facilities while sudden increases in demand for our products could leave us
short of capacity and unable to capitalize on incremental revenue opportunities.
These swings in demand and the resulting under-utilization of our manufacturing
capacity or inability to procure sufficient capacity to meet end customer demand
for our products could cause material fluctuations in, and could materially and
adversely affect, the revenue and gross margins we report.
We have made and
may continue to make acquisitions which could divert management’s attention,
cause ownership dilution to our stockholders, be difficult to integrate and
adversely affect our financial results. Acquisitions are commonplace in
the semiconductor industry and we have and may continue to acquire 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. Such acquisitions could divert our management’s attention from other
business concerns. In addition, we might lose key employees while integrating
new organizations. Acquisitions 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.
Intellectual
property claims 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 in patent litigation in the past, 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.
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 below in Part I, Item 3 "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 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. While we historically
have made relatively few sales to Cisco directly, when all channels of
distribution are considered, including sales of product to EMS customers, we
estimate that end-customer sales to Cisco represented approximately 10 - 20% of
our annual revenues.
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 fiscal 2009 and represented approximately
21% of our gross accounts receivable as of March 29, 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.
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 Q3 2009 and
annual impairment analysis in Q4 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.
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 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.
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 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 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.
|
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 the Internal Revenue Service were to change the law
regarding deferral of manufacturing profits, this would have a significant
impact to our financial results.
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)
|
Fiscal
2009
|
Fiscal
2008
|
Fiscal
2007
|
||||
|
Americas
|
20%
|
28%
|
30%
|
||||
|
Asia
Pacific
|
63%
|
56%
|
47%
|
||||
|
Japan
|
9%
|
9%
|
13%
|
||||
|
Europe
|
8%
|
7%
|
10%
|
||||
|
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 March 29, 2009, we had cash, cash equivalents and
investments of approximately $200.7 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.
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 “Critical Accounting Policies” in Part
II, Item 7 of this Form 10-K). 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 SFAS 123(R) 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.
If the recent
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.
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.
None.
We
own and operate a wafer fabrication facility in Hillsboro, Oregon (approximately
245,000 square feet). We own and operate a test facility in Malaysia
(approximately 145,000 square feet) and operate a test facility in Singapore
(approximately 37,000 square feet). Our Malaysian facility is subject
to ground leases and our Singapore facility is subject to a leased space
arrangement. For more information on our production facilities, please refer to
Item 1, "Manufacturing," in this Report.
Our
corporate headquarters, and various administrative, engineering and support
functions are located in San Jose, California. We own and occupy
approximately 263,000 square feet of space at our San Jose
headquarters. We also lease various facilities throughout the world
for research and development and sales and marketing functions, including design
centers in the United States, Canada and China.
We
believe that the facilities that we currently own or lease are suitable and
adequate for our needs for the immediate future.
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 we 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 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. Both cases are in the discovery stage. We intend to
vigorously defend ourselves against these claims.
On
May 14, 2007, we were served with a Civil Investigative Demand from the
State of Florida concerning SRAM products. We and the State of Florida have
reached an agreement that suspends our obligation to respond to the CID. The
agreement also tolled the statute of limitations until January 21, 2009 as
to potential claims against us. The tolling agreement has now expired
and the stature of limitations is running on potential claims against
us. Complaints concerning SRAM products have also been filed against
us in Ontario, British Columbia and Quebec, Canada. The allegations in these
complaints are parallel to the allegations in the complaints pending in the
United States. On March 19, 2008, we entered into a tolling agreement with
the plaintiffs in the Ontario, British Columbia and Quebec actions. On
March 25, 2008, the Ontario Superior Court of Justice entered an order that
discontinued the action in Ontario against us without prejudice. On May 2,
2008, a Notice of Discontinuance was filed by the plaintiff in the Supreme Court
of British Columbia, resulting in a discontinuation of the action against us
without prejudice. On August 28, 2008, the court in Quebec issued an order
of discontinuance with respect to us.
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), 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 ITC
action is currently scheduled for hearing July 20, 2009. 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
We
cannot predict the outcome or provide an estimate of any possible losses in the
cases currently pending against the Company. The continuing
litigation could be costly, divert our management’s attention and could have a
material and adverse effect on our business, results of operations, financial
condition or cash flows. We intend to vigorously defend these actions. We are
currently a party to various other legal proceedings, claims, disputes and
litigation arising in the ordinary course of business. Based on our own
investigations, we do not believe the ultimate outcome of such proceedings,
individually and in the aggregate, will have a material adverse effect on our
financial position, results of operation or cash flows. However, because of the
nature and inherent uncertainties of such litigation and investigations, should
the outcome of these actions be unfavorable, our business, financial condition,
results of operations or cash flows could be materially and adversely
affected.
.
None.
Price
Range of Common Stock
Our
Common Stock is traded on the NASDAQ Global Select Market under the symbol IDTI.
The following table shows the high and low closing sales prices for our Common
Stock as reported by the NASDAQ Global Select Market for the fiscal periods
indicated:
|
High
|
Low
|
|||||
|
Fiscal
2009
|
||||||
|
First
Quarter
|
$
|
12.51
|
$
|
8.93
|
||
|
Second
Quarter
|
11.34
|
8.26
|
||||
|
Third
Quarter
|
7.82
|
4.33
|
||||
|
Fourth
Quarter
|
6.25
|
4.12
|
||||
|
Fiscal
2008
|
||||||
|
First
Quarter
|
$
|
15.97
|
$
|
14.31
|
||
|
Second
Quarter
|
16.37
|
14.78
|
||||
|
Third
Quarter
|
14.72
|
11.10
|
||||
|
Fourth
Quarter
|
11.31
|
7.42
|
||||
Stockholders
As
of April 24, 2009, there were approximately 771 record holders of our Common
Stock. A substantial majority of our shares are held by brokers and other
institutions on behalf of individual stockholders.
Dividends
We
have never paid cash dividends on our Common Stock. We currently plan to retain
any future earnings for use in our business and do not currently anticipate
paying cash dividends in the foreseeable future.
Issuer
Purchases of Equity Securities
The
following table sets forth information with respect to repurchases of our common
stock during the fourth quarter of fiscal 2009:
|
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
|
||||||||
|
December
28, 2008 – January 25, 2009
|
--
|
--
|
--
|
$
|
77,894,774
|
|||||||
|
January
26, 2009 – February 22, 2009
|
--
|
--
|
--
|
$
|
77,894,774
|
|||||||
|
February
23, 2009 – March 29, 2009
|
--
|
--
|
--
|
$
|
77,894,774
|
|||||||
|
Total
|
--
|
--
|
--
|
|||||||||
(1)
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 of $400 million. In fiscal 2008, the Company repurchased approximately
28.9 million shares at an average price of $11.60 per share for a total
purchase price of $334.8 million. 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. During Q1 2009, the Company repurchased
approximately 2.1 million shares at an average price of $10.71 per share
for a total purchase price of $22.3 million. During Q2 2009, the Company
repurchased approximately 1.4 million shares at an average price of $10.44
per share for a total purchase
price
of $15.1 million. During Q3 2009, the Company repurchased approximately
4.8 million shares at an average price of $5.16 per share for a total
purchase price of $24.9 million. There was no share repurchase activity in Q4
2009. Share repurchases were recorded as treasury stock and resulted
in a reduction of stockholders’ equity. As of March 29, 2009, approximately
$78.0 million was available for future share repurchases. The program is
intended to reduce the number of outstanding shares of common stock to increase
stockholder value.
Stock
Performance Graph
Set
forth below is a line graph comparing the percentage change in the cumulative
total stockholder return on the Company’s common stock against the cumulative
total return of the S&P 500 Index and the S&P Electronics
(Semiconductors) Index for a period of five fiscal years. The
Company’s fiscal year ends on a different day each year because the Company’s
year ends at midnight on the Sunday nearest to March 31 of each calendar
year. However, for convenience, the amounts shown below are based on
a March 31 fiscal year end. “Total return,” for the purpose of this
graph, assumes reinvestment of all dividends.
The
Company’s stock price performance shown in the following graph is not
necessarily indicative of future stock price performance.
|
Cumulative
Total Return
|
|||||||||||||||||
|
2004
|
2005
|
2006
|
2007
|
2008
|
2009
|
||||||||||||
|
Integrated
Device Technology, Inc.
|
$
|
100.00
|
$
|
80.20
|
$
|
99.07
|
$
|
102.80
|
$
|
59.53
|
$
|
30.33
|
|||||
|
S&P
500
|
$
|
100.00
|
$
|
106.69
|
$
|
119.20
|
$
|
133.31
|
$
|
126.54
|
$
|
78.34
|
|||||
|
S&P
Semiconductor index
|
$
|
100.00
|
$
|
84.76
|
$
|
91.80
|
$
|
84.76
|
$
|
80.50
|
$
|
57.01
|
|||||
The
data set forth below are qualified in their entirety by reference to, and should
be read in conjunction with, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and related notes thereto included in this Annual Report on
Form 10-K.
Statements
of Operations Data
|
(in
thousands, except per share data)
|
Fiscal
Year Ended
|
|||||||||||||||||||
|
March
29,
2009
|
March
30,
2008
|
April
1,
2007
|
April
2,
2006
|
April
3,
2005
|
||||||||||||||||
|
Revenues
|
$
|
663,245
|
$
|
781,467
|
$
|
803,596
|
$
|
527,778
|
$
|
390,640
|
||||||||||
|
Research
and development expenses
|
161,192
|
165,599
|
166,433
|
127,591
|
103,729
|
|||||||||||||||
|
Goodwill
and intangible assets impairment
|
1,025,685
|
--
|
--
|
--
|
--
|
|||||||||||||||
|
Losses
on investments, net
|
--
|
--
|
--
|
(1,705
|
)
|
(12,831
|
)
|
|||||||||||||
|
Operating
income (loss)
|
(1,043,835
|
)
|
12,025
|
(17,496
|
)
|
(94,842
|
)
|
13,923
|
||||||||||||
|
Net
Income (loss)
|
$
|
(1,045,167
|
)
|
$
|
34,179
|
$
|
(7,578
|
)
|
$
|
(81,708
|
)
|
$
|
13,333
|
|||||||
|
Basic
net income (loss) per share
|
(6.22
|
)
|
0.18
|
(0.04
|
)
|
(0.52
|
)
|
0.13
|
||||||||||||
|
Diluted
net income (loss) per share
|
(6.22
|
)
|
0.18
|
(0.04
|
)
|
(0.52
|
)
|
0.12
|
||||||||||||
|
Shares
used in computing net income (loss) per share:
|
||||||||||||||||||||
|
Basic
|
168,114
|
187,213
|
198,106
|
157,345
|
105,825
|
|||||||||||||||
|
Diluted
|
168,114
|
189,260
|
198,106
|
157,345
|
108,204
|
|||||||||||||||
Balance
Sheets and Other Data
|
(in thousands, except employee
data)
|
March
29,
2009
|
March
30,
2008
|
April
3,
2007
|
April
2,
2006
|
April
3,
2005
|
|||||||||||||||
|
Cash,
cash equivalents and investments (1)
|
$ | 296,073 | $ | 239,191 | $ | 359,933 | $ | 295,973 | $ | 581,233 | ||||||||||
|
Total
assets
|
678,367 | 1,783,253 | 2,041,732 | 2,037,691 | 910,829 | |||||||||||||||
|
Other
long-term obligations
|
14,314 | 18,364 | 16,001 | 15,581 | 10,890 | |||||||||||||||
|
Stockholders'
equity
|
$ | 557,068 | $ | 1,620,822 | $ | 1,839,090 | $ | 1,858,199 | $ | 787,116 | ||||||||||
|
Number
of employees
|
2,112 | 2,353 | 2,400 | 2,700 | 2,955 | |||||||||||||||
(1)
Cash, cash equivalents and investments exclude equity investments not classified
as available for sale.
The
following discussion and analysis should be read in conjunction with “Item 6.
Selected Financial Data” and “Item 8. Financial Statements and Supplementary
Data”, included elsewhere in this Annual Report on Form 10-K.
The
information in this Annual Report contains forward looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended and
Section 21E of the Securities Exchange Act of 1934, as amended. Any
statements contained herein that are not statements of historical facts may be
deemed to be forward-looking. Forward-looking statements are based upon current
expectations that involve a number of risks and uncertainties. These risks and
uncertainties include, but are not limited to: operating results; new product
introductions and sales; competitive conditions; capital expenditures and
resources; manufacturing capacity utilization; customer demand and inventory
levels; intellectual property issues; and the risk factors set forth in the
section “Risk Factors” in Part I, Item 1A, of this Annual Report on Form
10-K. As a result of these risks and uncertainties, actual results and timing of
events could differ significantly from those anticipated in the forward-looking
statements. We undertake no obligation to publicly release any revisions to the
forward-looking statements for future events or new information after the date
of this Annual Report on Form 10-K.
Critical
Accounting Policies
Our
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the U.S.. The preparation
of such statements requires us to make estimates and assumptions that affect the
reported amounts of revenues and expenses during the reporting period and the
reported amounts of assets and liabilities as of the date of the financial
statements. Our estimates and assumptions are based on historical
experience and other factors that we consider to be appropriate in the
circumstances. However, actual future results may vary from our
estimates and assumptions.
We
believe that the following accounting policies are "critical", as defined by the
SEC, in that they are both highly important to the portrayal of our financial
condition and results, and they require difficult management judgments,
estimates and assumptions about matters that are inherently
uncertain.
Revenue
Recognition. Our revenue results from semiconductors sold
through three channels: direct sales to original equipment manufacturers (OEMs)
and electronic manufacturing service providers (EMSs), consignment sales to OEMs
and EMSs, and sales through distributors. We recognize revenue when persuasive
evidence of an arrangement exists, delivery has occurred or services have been
rendered, the price is fixed or determinable and our ability to collect is
reasonably assured. For direct sales, we recognize revenue in
accordance with the applicable shipping terms. Revenue related to the sale of
consignment inventory is not recognized until the product is pulled from
inventory stock by the customer.
For
distributors who have stock rotation, price protection and ship from stock
pricing adjustment rights, we defer revenue and related cost of revenues on
sales to these distributors until the product is subsequently sold by the
distributor to an end-customer. Subsequent to shipment to the
distributor, we may reduce product pricing through price protection based on
market conditions, competitive considerations and other
factors. Price protection is granted to distributors on the inventory
that they have on hand at the date the price protection is offered. We may
also grant certain credits to its distributors on specially identified portions
of the distributors’ inventory to allow them to earn a competitive gross margin
upon the sale of the our products to the distributors’ end customers. As a
result of our inability to estimate these credits, we have determined that the sales price to these
distributors is not fixed or determinable until the final sale to the
end-customer.
In
the APAC region, we have distributors for which revenue is recognized upon
shipment, with reserves recorded for the estimated return and potential pricing
adjustment exposures. The determination of the amount of reserves to be recorded
for stock rotation rights requires us to make estimates as to the amount of
product which will be returned by customers within their limited contractual
rights. We utilize historical return rates to estimate the exposure
in accordance with Statement of Financial Accounting Standards (SFAS) No. 48,
Revenue Recognition When Right
of Return Exists (SFAS 48). In addition, from
time-to-time, we are required to give 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. Although actual rates of return and pricing exposures have
been within our estimates in the past, if our estimates are inaccurate, it could
have a material impact on our revenues.
Income Taxes. We account for
income taxes under an asset and liability approach that requires the expected
future tax consequences of temporary differences between book and tax bases of
assets and liabilities be recognized as deferred tax assets and liabilities.
Generally accepted accounting principles require us to evaluate our ability to
realize the value of our net deferred tax assets on an ongoing basis. A
valuation allowance is recorded to reduce the net deferred tax assets to an
amount that will more likely than not be realized. Accordingly, we consider
various tax planning strategies, forecasts of future taxable income
and
our
most recent operating results in assessing the need for a valuation allowance.
In the consideration of the ability to realize the value of net deferred tax
assets, recent results must be given substantially more weight than any
projections of future profitability. Since the fourth quarter of fiscal 2003, we
determined that, under applicable accounting principles, we could not conclude
that it was more likely than not that we would realize the value of our net
deferred tax assets. Our assumptions regarding the ultimate realization of these
assets remained unchanged in fiscal 2009 and accordingly, we record a valuation
allowance to reduce our deferred tax assets to the amount that is more likely
than not to be realized.
On April 2, 2007, we adopted the
Financial Accounting Standards Board’s (FASB) Interpretation No. 48,
Accounting for
Uncertainty in Income Taxes – an Interpretations of FASB Statement No
109 (FIN 48), which
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with SFAS No. 109,
Accounting for
Income Taxes (SFAS 109).
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
FIN 48, we recognize 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 us to determine the probability of
various possible outcomes. We evaluate these uncertain tax positions on a
quarterly basis. This evaluation is based on the consideration of several
factors including changes in facts or circumstances, changes in applicable tax
law, settlement of issues under audit and new exposures. If we later determine
that our exposure is lower or that the liability is not sufficient to cover our
revised expectations, we adjust the liability and effect a related change in
either our tax provision or goodwill during the period in which we make such
determination.
Inventories. Inventories
are recorded at the lower of standard cost (which approximates actual cost on a
first-in, first-out basis) or market value. We record provisions for
obsolete and excess inventory based on our forecasts of demand over specific
future time horizons. We also record provisions to value our inventory at the
lower of cost or market value, which rely on forecasts of average selling prices
(ASPs) in future periods. Actual market conditions, demand and
pricing levels in the volatile semiconductor markets that we serve may vary from
our forecasts, potentially impacting our inventory reserves and resulting in
material impacts to our gross margin.
Valuation of Long-Lived Assets and
Goodwill. We own and operate our own manufacturing facilities
(see Part I of this Form 10-K), and have also acquired certain businesses and
product portfolios in recent years. As a result, we have property, plant and
equipment, goodwill and other intangible assets. We evaluate these items for
impairment on an annual basis, or sooner, if events or changes in circumstances
indicate that carrying values may not be recoverable. Triggering events for
impairment reviews may include adverse industry or economic trends, significant
restructuring actions, significantly lowered projections of profitability, or a
sustained decline in our market capitalization. Evaluations of possible
impairment and if applicable, adjustments to carrying values, require us to
estimate among other factors future cash flows, useful lives and fair market
values of our reporting units and assets. Actual results may vary from our
expectations.
We
review goodwill for impairment annually and whenever events or changes in
circumstances indicate the carrying value of goodwill may not be recoverable in
accordance with SFAS 142, Goodwill and Other Intangible
Assets. Determining the fair value of a reporting unit is judgmental in
nature and involves the use of significant estimates and assumptions. These
estimates and assumptions include revenue growth rates and operating margins
used to calculate projected future cash flows, risk-adjusted discount rates,
future economic and market conditions and determination of appropriate market
comparables. We utilize a discounted cash flow analysis to estimate the fair
value of our reporting units. Actual future results may differ from those
estimates. In addition, we make certain judgments and assumptions in allocating
shared assets and liabilities to determine the carrying values for each of our
reporting units. As a result of our interim impairment analysis in Q3 2009 and
annual impairment analysis in Q4 2009, we recorded goodwill impairment charges
totaling $946.3 million in fiscal 2009.
Stock-based
Compensation. In accordance with FASB Statement of Financial
Accounting Standards No. 123 (revised 2004), Share-Based Payment (SFAS
123(R)), we measure and recognize compensation expense for all stock-based
payments awards, including employee stock options, restricted stock units and
rights to purchase shares under employee stock purchase plans, based on their
estimated fair value and recognize the costs in the financial statements over
the employees’ requisite service period.
Calculating
the fair value of stock-based awards at the date of grant requires us to make
estimates that involve significant judgment. We use the Black-Scholes
valuation model to estimate the fair value of employee stock options, restricted
stock units and the rights to purchase shares under employee stock purchase
plan, consistent with the provisions of SFAS 123(R). 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. Our stock price volatility assumption is based on a
blend of historical volatility of the Company’s common stock and implied
volatility of call options and dealer quotes on call options, generally having a
term of
less
than twelve months. Changes in the subjective assumptions required in the
valuation models may significantly affect the estimated value of the stock-based
awards, the related stock-based compensation expense and, consequently, our
results of operations.
In
addition, SFAS 123(R) requires that we estimate the number of stock-based awards
that will be forfeited due to employee turnover. Changes in the
estimated forfeiture rate can have a significant effect on reported stock-based
compensation expense, as the effect of adjusting the rate for all expense
amortization is recognized in the period the forfeiture estimate is
changed. If the actual forfeiture rate is higher than the estimated
forfeiture rate, then an adjustment will be made to increase the estimated
forfeiture rate, which will result in a decrease to the expense recognized in
the financial statements. If the actual forfeiture rate is lower than the
estimated forfeiture rate, then an adjustment will be made to lower the
estimated forfeiture rate, which will result in an increase to the expense
recognized in the financial statements. The expense we recognize in
future periods will be affected by changes in the estimated forfeiture rate and
may differ significantly from amounts recognized in the current period and/or
our forecasts.
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.
During
Q2 2009, we announced a reorganization of our business units into five operating
segments. The five operating segments are Communications, Networking,
Enterprise Computing, Computing and Multimedia and Video and
Display. The reorganization was performed to reduce costs and align
resources with the needs of each business unit and was fully implemented in Q3
2009. As a result, we reevaluated our reportable business segments in
accordance with SFAS 131, Disclosures about Segments of an
Enterprise and Related Information (SFAS 131) and changed our reportable
segments from three (Networking segment, Timing segment and Standard Products
and Others segment) to two reportable segments (Communications segment and
Computing and Consumer segment). The Communications and Networking operating
segments are aggregated into Communications reportable segment, while Enterprise
Computing, Computing and Multimedia and Video and Display operating segments are
aggregated into Computing and Consumer reportable 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
Chief Executive Officer or CEO has been identified as the Chief Operating
Decision Maker as defined by SFAS 131.
The
segment information for fiscal 2008 and 2007 has been adjusted
retrospectively to
conform to the current period presentation.
Our
reportable segments include the following:
|
§
|
Communications
segment: includes network search engines (NSEs), switching solutions,
flow-control management devices, FIFOs, multi-port products, integrated
communications processors, high-speed SRAM, military application, digital
logic, telecommunications.
|
|
§
|
Computing
and Consumer segment: includes clock generation and distribution products,
high-performance server memory interfaces, PC audio and video
products.
|
Revenues
|
(in
thousands)
|
For
the fiscal year ended
|
|||||||||||
|
March
29,
2009
|
March
30,
2008
|
April
1,
2007
|
||||||||||
|
Communications
|
$ | 304,256 | $ | 349,820 | $ | 403,393 | ||||||
|
Computing
and Consumer
|
358,989 | 431,647 | 400,204 | |||||||||
|
Total
|
$ | 663,245 | $ | 781,467 | $ | 803,597 | ||||||
Communications
Segment
Revenues
in our Communications segment decreased $45.6 million, or 13% in fiscal 2009 as
compared to 2008 due to the overall weakness in our communications end market
which was negatively impacted by the economic downturn. The decrease
was primarily driven by revenue declines in our networking division, related to
decreased consumption from one of our largest customers. Revenues
within our flow control management division decreased 12%, primarily related to
our legacy products. Revenues from our SRAM and digital logic
products decreased 15% year over year due to softness in the communications
IC
market. Partially
offsetting these decreases was a 10% increased sales in communications timing
and telecom products as we continue to have success with our timing products for
the communications markets despite the economic downturn.
Revenues
in our Communications segment decreased $53.6 million, or 13% in fiscal 2008 as
compared to fiscal 2007. The decrease was primarily driven by
revenues decline in networking, flow control management, SRAM and digital logic
products, partially offset by increased revenues in communications timing,
military and telecom products.
Computing
and Consumer Segment
Revenues
in our Computing and Consumer segment decreased $72.7 million, or 17% in fiscal
2009 as compared to fiscal 2008 as a result of the global economic downturn and
increased competition in the consumer market. Revenues within our
Computing and Multimedia division decreased 25%, driven by weaker demand for our
personal computing and consumer products. Revenues within our
Enterprise Computing division decreased 7%, driven by the continued ramp down of
our Advanced Memory Buffer (AMB) products, which outpaced the growth in our PCI
Express products. Partially offsetting these decreases was an increase in our
Video and Display division as a result of the Silicon Optix
acquisition.
Revenues
in our Computing and Consumer segment increased $31.4 million or 8% in fiscal
2008 as compared to fiscal 2007. Revenues within our Computing and
Multimedia division increased 13% in the fiscal 2008 as compared to fiscal 2007
due to the strength in the PC and consumer end-markets and a full year revenue
from our PC Audio products, while fiscal 2007 only included a partial year’s
revenue from our PC Audio products subsequent to our acquisition of Sigma
Tel. Revenues within our Enterprise computing division increased 2%
as a result of the continued ramp of our AMB products during fiscal
2008.
Revenues
in Asia Pacific (APAC), North America, Japan and Europe accounted for 63%, 20%,
9% and 8%, respectively, of our consolidated revenues in fiscal 2009 compared to
56%, 28%, 9% and 7%, respectively, in fiscal 2008. The Asia Pacific
region continues to be our strongest region, as many of our largest customers
utilize manufacturers in the APAC region.
Revenues (recent trends and
outlook). We currently anticipate overall revenues to decrease
significantly in fiscal 2010, due to the effects of the global economic
downturn.
Included
in the Balance Sheet caption “Deferred income on shipments to
distributors” are amounts related to shipments to certain distributors
for which revenue is not recognized until our product has been sold by the
distributor to an end customer. The components of March 29,
2009 and March 30, 2008 are as follows:
|
(in
thousands)
|
For
the fiscal year ended
|
|||||||
|
March
29, 2009
|
March
30, 2008
|
|||||||
|
Gross
deferred revenue
|
$ | 21,302 | $ | 30,741 | ||||
|
Gross
deferred costs
|
4,764 | 6,429 | ||||||
|
Deferred
income on shipments to distributors
|
$ | 16,538 | $ | 24,312 | ||||
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.
Gross
Profit
|
(in
thousands)
|
For
the fiscal year ended
|
|||||||||||
|
March
29,
2009
|
March
30,
2008
|
April
1,
2007
|
||||||||||
|
Gross
Profit
|
$ | 274,449 | $ | 339,332 | $ | 340,648 | ||||||
|
Gross
Margin
|
41 | % | 43 | % | 42 | % | ||||||
Gross profit (fiscal 2009 compared
to fiscal 2008). Gross profit for fiscal 2009 was $274.4
million, a decrease of $64.9 million compared to $339.3 million recorded in
fiscal 2008. Gross margin in fiscal 2009 was 41% compared to 43% in
fiscal 2008. The
decrease
in gross profit was primarily driven by lower revenue, primarily due to the
overall lower unit sales resulting from the economic
recession. Fiscal 2009 gross margin was negatively impacted by a
$19.5 million increase in inventory excess and obsolescence reserves. The
increase in inventory excess and obsolescence reserves was primarily due to
higher levels of inventory compared to forecasted demand for such products
resulting from the economic downturn. The increase in
inventory
reserves
was partially offset by improved utilization of our fabrication
facility. The utilization of our manufacturing capacity in Oregon
increased from approximately 60% of equipped capacity in fiscal 2008 to 67% of
equipped capacity in fiscal 2009. Our gross margin benefited from a $7.0 million
decrease in intangible asset amortization as a portion is being amortized on an
accelerated method, resulting in decreased amortization over time. In addition,
our gross margin benefited from $1.6 million, $0.8 million and $0.8 million
decreases in performance related bonuses, royalty expenses and equipment
expenses, respectively. Finally, gross profit benefited in fiscal
2009 and 2008 by approximately $3.2 million and $2.8 million, respectively, from
the sale of inventory previously written down.
Gross profit (fiscal 2008 compared
to fiscal 2007). Gross profit for fiscal 2008 was $339.3
million, a decrease of $1.3 million compared to the $340.6 million recorded in
fiscal 2007. Gross margin in fiscal 2008 was 43% compared to 42% in fiscal 2007.
The increase in gross margin was primarily driven by an $18.0 million
year-over-year decrease in intangible asset amortization as a portion is being
amortized on an accelerated method, resulting in decreased amortization over
time. Our gross margin also benefited from a decrease of $6.5 million
in depreciation and equipment maintenance expense primarily related to equipment
at our Oregon fabrication facility. In addition, our fiscal 2007
results included a one time impairment charge of $4.2 million related to our
former Philippines facility as we wrote the carrying value of the assets down to
its ultimate selling price. Offsetting these increases, our gross
margin was negatively impacted by a less favorable mix of products sold within
each division as our unit sales grew while average selling prices
declined. In addition, the utilization of our manufacturing capacity
in Oregon decreased from approximately 80% of equipped capacity in 2007 to
approximately 60% of equipped capacity in 2008. Finally, we estimate that gross
profit benefited in fiscal 2008 and 2007 by approximately $2.8 million and $1.7
million, respectively, from the sale of inventory previously written
down.
Operating
Expenses
The
following table presents our operating expenses for fiscal years 2009, 2008 and
2007, respectively:
|
(in
thousands)
|
March 29,
2009
|
%
of Net
Revenues
|
March 30,
2008
|
%
of Net
Revenues
|
April
1,
2007
|
%
of Net
Revenues
|
||||||||||||||||||
|
Research
and Development
|
$ | 161,192 | 24 | % | $ | 165,599 | 21 | % | $ | 166,433 | 21 | % | ||||||||||||
|
Selling,
General and Administrative
|
$ | 125,810 | 19 | % | $ | 161,708 | 21 | % | $ | 191,211 | 24 | % | ||||||||||||
|
In-process
Research and Development
|
$ | 5,597 | 1 | % | $ | -- | -- | $ | 500 | 0 | % | |||||||||||||
Research and development (fiscal
2009 compared to fiscal 2008). R&D expenses decreased $4.4
million, or 3%, to $161.2 million in
fiscal 2009 compared to fiscal 2008. The decrease was primarily
attributable to a $5.6 million decrease in performance related bonus and a $4.0
million decrease in stock based compensation expenses as a result of lower
valuation of new grants compared to fiscal 2008 due to lower stock
prices. We also benefited from a $1.2 million incremental loss
in the participant portfolio of the executive deferred compensation plan
primarily due to sequential declines in the stock market. Our
equipment expenses decreased $1.2 million primarily attributable to a decrease
in depreciation expense and our continuous efforts to control capital asset
purchases. Partially offsetting these decreases was a $4.0 million
increase in our core labor expenses as a result of additional Silicon Optix
personnel expenses and a $2.1 million increase in severance payments related to
our recent restructuring actions. Finally, medical expenses increased
$1.5 million year over year.
Research and development (fiscal
2008 compared to fiscal 2007). R&D expenses decreased $0.8
million, or 1%, to $165.6 million in fiscal 2008 compared to fiscal
2007. The decreases were primarily attributable to a $3.4 million
decrease in performance related bonus and a $2.4 million reduction in stock
based compensation expenses as the stock options granted in connection with the
ICS merger have been substantially recognized. Our equipment expenses
and indirect materials decreased $1.1 million and $0.9 million, respectively,
primarily related to lower depreciation expenses and lower photomask costs
attributable to timing and efficiency of product development
activities. Partially offsetting these decreases was an increase of
$7.6 million in employee-related expenses, primarily attributable to additional development
personnel to support the growth of our business and a full year of PC
Audio division personnel expenses in fiscal 2008 compared to six months in
fiscal 2007.
We
currently anticipate that R&D spending in fiscal 2010 will decrease slightly
as compared to fiscal 2009.
Selling, general and administrative
(fiscal 2009 compared to fiscal 2008). SG&A expenses
decreased $35.9 million, or 22% to $125.8 million in fiscal 2009 compared to
fiscal 2008. The decrease was primarily attributable to a $23.5
million decrease in intangible asset amortization, a portion of which is being
amortized on an accelerated method, resulting in decreased amortization expense
over time. Employee-related expenses decreased $7.7 million,
primarily attributable to a $4.6 million decrease in stock-based compensation
expense as a result of lower valuation of new grants compared to fiscal 2008 due
to lower stock prices; $1.8 million reduction in performance related bonus; $1.2
million expense related to an executive transition agreement with our former CEO
in fiscal 2008 which was not incurred in fiscal 2009; a $0.7 million incremental
loss in the participant portfolio of the executive deferred compensation and a
$0.5 million increase in medical expenses. We experienced a $3.3
million decrease in sales representative commissions attributable to lower
revenues in fiscal 2009. Other decreases in selling, general and administrative
included a $0.5 million decrease in travel and entertainment costs and $0.5
million in consulting service expenses primarily driven by our efforts to
control costs. Partially offsetting these decreases was a $0.9
million increase in bad debt expense.
Selling, general and administrative
(fiscal 2008 compared to fiscal 2007). SG&A expenses
decreased $29.5 million, or 15% to $161.7 million in fiscal 2008 compared to
fiscal 2007. The decrease was primarily attributable to a reduction
of $27.0 million in intangible asset amortization, a portion of which is being
amortized on an accelerated method, resulting in decreased amortization expense
over time. In addition, employee-related expenses decreased $7.4
million, primarily attributable to a $3.1 million decrease in stock based
compensation expense as a lower valuation of new grants compared to fiscal 2007
and a $2.4 million reduction in performance related bonus. Partially
offsetting these decreases was a $2.2 million increase in sales representative
commissions as a higher percentage of our revenues being generated through sales
representatives along with $1.2 million of costs related to an executive
transition agreement with our former CEO. Finally, our outside
services increased $2.5 million.
We
currently anticipate that SG&A spending in fiscal 2010 will decrease
slightly compared to fiscal 2008 due to lower intangible asset
amortization.
Acquired in-process research and
development. In Q3 2009, in connection
with our acquisition of Silicon Optix’s video processing technology and related
assets, we recorded a $5.6 million charge for acquired in-process research and
development (IPR&D). During fiscal 2007, in conjunction with our
acquisition of SigmaTel’s PC Audio business, we recorded $0.5 million for
acquired IPR&D. For each of these transactions, the allocation of
the purchase price to IPR&D was determined by identifying technologies that
had not attained technological feasibility and that did not have future
alternative uses. 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 our 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.
Details
of specific IPR&D charges are as follows:
In
Q3 2009, in connection with our acquisition of Silicon Optix’s video processing
technology and related assets, we recorded a $5.6 million charge for IPR&D.
The allocation of the purchase price to IPR&D was determined by identifying
technologies that had not attained technological feasibility and that did not
have future alternative uses. We utilized the DCF method to value the IPR&D,
using a discount factor of 32% to determine the net present value of the
IPR&D. As
of March 29, 2009, the project was 75% complete and we have incurred total costs
of approximately $2.4 million related to this project since the acquisition. We
estimate that an additional investment of $6.7 million will be required to
complete the project. We expect to complete this project by the end of fiscal
2010.
During
fiscal 2007, in connection with our acquisition of SigmaTel’s PC Audio business,
we recorded a $0.5 million charge to IPR&D. This amount is
related to one project under development that had not yet reached technological
feasibility. Because of the significant leverage on existing
technology, IPR&D was not considered to be a significant component of the
acquired business.
Goodwill and intangible assets
impairment. In accordance with SFAS 142, Goodwill and Other Intangible
Assets, goodwill is reviewed for impairment annually and whenever events
or changes in circumstances indicate the carrying value of goodwill may not be
recoverable. These tests are performed at the reporting unit level using a
two-step method. The first step, used to determine if impairment possibly
exists, is to compare the carrying amount of a reporting unit, including
goodwill, to its fair value. If the carrying amount of the reporting unit
exceeds the fair value, the second step is to determine the amount of a possible
impairment by comparing the implied fair value of the reporting unit goodwill
with the carrying amount of that goodwill. Determining the fair value of a
reporting unit is judgmental in nature and involves the use of significant
estimates and assumptions. These
estimates
and assumptions include revenue growth rates and operating margins used to
calculate projected future cash flows, risk-adjusted discount rates, future
economic and market conditions and determination of appropriate market
comparables. We completed our annual impairment review of goodwill during the
fourth quarter ended March 30, 2008 and concluded that there was no
impairment. Due to the extraordinary market and economic conditions that
occurred in the third quarter of fiscal 2008, we experienced a decline in our
stock price, resulting in our market capitalization falling below our net book
value. In addition, due to the increased competitive pressure within certain of
our markets, as well as the deteriorating macro-economic environment, which
caused a decline in our revenue, operating income, and cash flow forecasts, we
concluded that indicators existed requiring us to perform an interim goodwill
impairment analysis at November 30, 2008. Accordingly, we performed an interim
goodwill impairment analysis for each of our five reporting units. Based on the
preliminary results, the carrying value of the Computing and Multimedia (CMD)
reporting unit exceeded its fair value, indicating potential goodwill impairment
existed. As a result of this analysis, we wrote down the carrying amount of
goodwill to its estimated implied value and recognized an estimated goodwill
impairment charge of $326.4 million as of December 28, 2008.
In
Q4 2009, we completed our annual impairment review of goodwill and concluded
that due to increased deterioration in the macro-economic environment and
significant downturn in semiconductor industry, our projected revenue for fiscal
2010 declined significantly from the amount we projected in Q3
2009. Based on the results of SFAS 142 step 1 analysis, the carrying
value of Communications (COM), Enterprise and Computing (ECD), and CMD business
units exceeded their fair values. As such, we performed step 2 of the
impairment test to determine the implied fair value of goodwill of these
reporting units. The result of the step 2 goodwill analysis indicated
that the goodwill related to the COM, ECD and CMD reporting units was
impaired. Accordingly, we wrote down the carrying amount of goodwill
to their implied fair values and recognized an impairment charge of $619.9
million in Q4 2009.
We
made several assumptions to establish inputs for our fair value calculations. We
used the long term growth rates of 3% to calculate the terminal value of our
reporting units. We used discount rates that ranged between 22% and 32% to
calculate the discounted cash flows. The discount rates were higher than the
range of 13% to 32% used in the prior year and 19% to 32% in Q3 2009. We believe
that the assumptions and rates used in our impairment test under SFAS 142 are
reasonable; however, they are judgmental, and variations in any of the
assumptions or rates could result in a materially different amount of the
impairment charge.
In
accordance with SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, long-lived assets are reviewed whenever
events or changes in circumstances indicate the carrying amount of such assets
may not be recoverable. Recoverability of long-lived assets is measured by a
comparison of the carrying amount of the asset group to the future undiscounted
net cash flows expected to be generated by those assets. If such assets are
considered to be impaired, the impairment charge recognized is the amount by
which the carrying amounts of the assets exceeds the fair value of the assets.
As a result of the impairment indicator described above, in Q3 2009 we performed
an impairment analysis for our long-lived assets, including our intangible
assets subject to amortization. The analysis indicated that some of the
identified intangible assets were not recoverable as the sum of their estimated
future undiscounted cash flows were below the asset’s carrying value and
accordingly, we estimated the fair value of these identified assets using a
discounted cash flow analysis to measure the impairment loss. As a result of
this analysis, we wrote off the difference between the identified intangible
assets’ estimated fair values and the carrying values and recognized an
impairment charge of $12.7 million in Q3 2009. In Q4 2009, in
conjunction with our completion of goodwill impairment analysis, and also due to
the revised lower revenue forecast for fiscal 2010 which we concluded were
additional impairment indicators, we performed an impairment analysis for our
long-lived assets. As result of this impairment analysis, we recorded
an impairment charge of approximately $66.7 million in Q4 2009.
Other-than-temporary impairment loss
on investment. Our investment in non-marketable equity security of Best
Elite International Limited (Best Elite), is accounted for by using the cost
method and subject to a periodic impairment review. In fiscal 2009, we
determined an impairment indicator existed related to this investment. As a
result, we performed a fair value analysis for this investment. In determining
whether a decline in value of our investment in Best Elite has occurred and is
other than temporary, an assessment is 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. Based on the results, we recognized an other-than-temporary
impairment charge of $3.0 million related to this investment in fiscal 2009 to
write it down to its estimated fair value of $2.0 million.
Restructuring. As
part of an effort to streamline operations and increase profitability, we
implemented reductions-in-force (RIF) in fiscal 2009, 2008 and 2007 that have
impacted many of our operations.
In
January 2009, we initiated a restructuring action intended to align the
Company’s spending with demand that has weakened in the slowing economy. The
restructuring plan includes a reduction of approximately 124 employees across
multiple divisions
worldwide.
In March 2009, after carefully considering the market, revenues and prices for
search engine products, 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. We
recorded restructuring expenses of $5.3 million for severance payments, Work
Adjustment and Retraining Notification (WARN) payments and retention and other
benefits associated with these restructuring actions in Q4
2009. Currently, we expect to complete these restructuring actions in
Q2 2010.
During
Q3 2009, we initiated restructuring actions, which primarily affected our
military business and Corporate Technology Group. These restructuring actions
were taken to better allocate our engineering resources to maximize revenue
potential. These actions resulted in the reduction of approximately 26
positions. We recorded restructuring expenses of approximately $0.6 million and
$0.1 million for severance benefits associated with these restructuring actions
in Q3 2009 and Q4 2009. We expect to complete this restructuring plan
in Q1 2010.
During
Q2 2009, we initiated a reduction-in force, which primarily affected our Texas
design center. This restructuring action was taken to streamline our operations
within one of our business units. This action resulted in the reduction of
approximately 21 positions. We recorded restructuring expenses of $0.5 million
for severance benefits in Q2 2009 associated with this action. This
restructuring action was completed in Q4 2009.
During
Q1 2009, we initiated restructuring actions, which primarily affected our
manufacturing personnel in Penang, Malaysia as well as sales personnel in the
U.S. and Sweden, including the closure of our Sweden office. We took these
restructuring actions to rebalance the workforce to better align with our growth
opportunities. These restructuring actions resulted in the reduction of
approximately 79 positions. We recorded restructuring expenses of approximately
$0.8 million for severance benefits associated with these restructuring actions
in Q1 2009. All termination payments were made in Q2 2009.
During
fiscal 2008, we initiated restructuring actions which affected engineering
personnel in three of our product lines including the closure of our San Diego
facility, as well as our manufacturing personnel. These actions resulted in the
reduction of approximately 20 positions. We recorded restructuring expense of
$0.7 million for severance and retention benefits associated with this action.
In addition, the Company entered into a new sublease agreement for our Salinas
facility, resulting in a reduction to our accrued lease liabilities of $0.2
million.
During
fiscal 2007, we initiated a RIF, which affected our assembly workforce in
Penang, Malaysia. This action coincided with our decision to
outsource our assembly operations to a third party and to transition these
services over the next year. This action resulted in the reduction of
approximately 300 positions. We recorded and paid approximately $1.5
million of severance and retention to affected employees. This
restructuring action was completed in Q4 2007.
Interest income and other,
net. Changes in interest income and other, net are
summarized as follows:
|
(in
thousands)
|
Fiscal
2009
|
Fiscal
2008
|
Fiscal
2007
|
|||||||||
|
Interest
income
|
$ | 5,456 | $ | 15,020 | $ | 14,502 | ||||||
|
Other
income (expense), net
|
(4,148 | ) | 1,795 | 709 | ||||||||
|
Interest
income and other, net
|
$ | 1,308 | $ | 16,815 | $ | 15,211 | ||||||
Interest income decreased $9.6 million
in fiscal 2009 compared to fiscal 2008. The decrease is primarily attributable
to lower interest rates in the market during fiscal 2009 as compared to fiscal
2008. Other income (expense), net changed by $5.9 million from a net
income of $1.8 million in fiscal 2008 to a net expense of $4.1 million in fiscal
2009. The change is primarily attributable to a $2.3 million increase
in loss on our investment portfolio of marketable equity securities related to
our deferred compensation arrangements. Fiscal 2008 benefited from a
gain of $1.8 million upon the sale of our equity investment in Maxtek, while we
did not hold such shares in fiscal 2009. In addition, we incurred a
currency loss of $1.6 million in fiscal 2009 while we recorded a gain of $0.3
million in fiscal 2008.
Interest
income increased $0.5 million in fiscal 2008 compared to fiscal
2007. The increase is primarily attributable to $0.8 million of
interest income from a tax settlement with the IRS related to tax returns in
periods prior to our merger with ICS, offset by a less favorable interest rate
and lower cash balances during fiscal 2008 as a result of stock
repurchases.
Income tax expense
(benefit). We recorded an income tax benefit of $0.4
million in fiscal 2009, a decrease of approximately $5.0 million, compared to an
income tax benefit of $5.4 million in fiscal 2008. The tax benefit in fiscal
2009 is primarily attributable to a refundable research and development tax
credit in the United States, offset by foreign income taxes, withholding taxes
and estimated U.S. and state taxes. The refundable research and
development tax credit was due to the American Recovery and Reinvestment Act of
2009 and Housing and Economic Recovery Act of 2008, which extended such tax
credit through
December
31, 2009. The tax benefit in fiscal 2008 is primarily attributable to
the reversal of $11.4 million of deferred tax liability, as a result of the
extension of our Pioneer tax status and a lower enacted tax rate in Singapore,
offset by foreign income, withholding taxes and estimated U.S. and state
taxes.
As
of March 29, 2009, we continued to maintain a valuation allowance against
our net U.S. deferred tax asset as we could not conclude that it is 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 March 29, 2009, we are subject to examination in the U.S. federal
tax jurisdiction for the fiscal years beginning with 2004. During fiscal 2008,
we settled tax audits with the IRS related to the ICS pre-merger income returns
for the fiscal year 2001 through 2003. As a result, we released a reserve of
$6.1 million related to this item as an offset to goodwill in fiscal
2008. Subsequently, we received a refund in the amount of $5.1
million in fiscal 2009. In February 2009, the IRS commenced a tax audit for
fiscal years beginning 2006 through 2008. The audit is in its early
stages, therefore, we have no information report as 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 and available for sale investments were $296.1 million at March 29, 2009,
an increase of $56.9 million compared to March 30, 2008. The increase
is primarily attributable to a $143.7 million in cash from operations, partially
offset by the repurchase of approximately $62.3 million of common stock and
$20.1 million cash payment to purchase Silicon Optix’s assets in fiscal
2009. We had no outstanding debt at March 29, 2009 or March 30,
2008.
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. See Item 1A-“Risk Factors: Global Market and Economic Conditions,
including those related to the credit markets, may adversely affect our business
and results of operations.”.
In
addition, as much of our revenues are generated outside the U.S., a significant
portion of our cash and investment portfolio accumulates offshore. At March 29,
2009, we had cash, cash equivalents and investments of approximately $200.7
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 fiscal 2009 and fiscal
2008.
We
recorded a net loss of $1,045.2 million in fiscal 2009 compared to a net income
of $34.2 million in fiscal 2008. Net cash provided by operating
activities decreased $43.0 million, or 23% to $143.8 million in fiscal 2009
compared to $186.7 million in fiscal 2008. A summary of the
significant non-cash items included in net income and net loss are as
follows:
|
·
|
Goodwill
and intangible assets impairment charges were $1,025.7 million in fiscal
2009, while we did not have such charge in fiscal
2008.
|
|
·
|
Amortization
of intangible assets was $79.4 million in fiscal 2009 compared to $110.0
million in fiscal 2008. The decrease is primarily associated
with intangible assets related to our merger with ICS, a portion of which
is being amortized on an accelerated method, resulting in decreased
amortization expense over time.
|
|
·
|
Stock-based
compensation was $32.4 million in fiscal 2009 compared to $41.2 million in
fiscal 2008. The decrease is due to a portion of the ICS merger
grants becoming fully recognized in fiscal 2008 and lower valuation of new
grants as compared to fiscal 2008.
|
|
·
|
Acquired
IPR&D expense related to Silicon Optix purchase was $5.6 million in
fiscal 2009, while we did not have such charge in fiscal
2008.
|
|
·
|
Depreciation
expense was $26.3 million in fiscal 2009 compared to $29.9 million in
fiscal 2008. The decrease is primarily attributable to our
manufacturing equipment as a large portion of these assets are now fully
depreciated and our continuous efforts to control capital asset
purchases.
|
|
·
|
A
decrease in deferred taxes of $1.3 million in fiscal 2009 compared to a
decrease of $7.5 million in fiscal 2008. The decrease in fiscal
2009 is attributable to a reduction in deferred tax liabilities, as a
result of the long-lived assets impairment charge in fiscal 2009; while
the decrease in fiscal 2008 is attributable to a decrease in deferred tax
liabilities, primarily due to the extension of our Pioneer tax status in
Singapore in fiscal 2008.
|
|
·
|
Other-than-temporary
impairment charge was $3.0 million in fiscal 2009 related to our
investment in a non-marketable equity
security.
|
|
·
|
We
recorded a $1.8 million gain on sale of our equity investment in Maxtek in
fiscal 2008, while we did not have such gain in fiscal
2009.
|
Net
cash provided by working capital-related items increased $37.1 million, from a
net $19.3 million use of cash in fiscal 2008 to net $17.8 million cash provided
in fiscal 2009. A summary of significant working capital items providing
relatively more cash in fiscal 2009 included:
|
·
|
A
decrease in accounts receivable of $28.2 million in fiscal 2009 compared
to a decrease of $6.9 million in fiscal 2008. The decrease
accounts receivable in fiscal 2009 is primarily attributable to lower
revenue compared to fiscal 2008 and the timing of the shipments in the
fourth quarter of both periods.
|
|
·
|
A
decrease in prepayments and other assets of $11.7 million in fiscal 2009
compared to an increase of $15.3 million in fiscal 2008. The
decrease in fiscal 2009 is primarily attributable to $3.1 million decrease
in the fair value of our corporate owned life insurance, $1.2 million
decrease in interest receivable primarily due to receipts of interest from
the IRS for the tax settlement related to the ICS pre-acquisition income
tax returns and $2.3 million reduction of VAT receivable as we received
VAT refunds from the foreign government along with the normal recurring
prepaid amortization. The increase in fiscal 2008 is primarily
attributable to the purchase of approximately $23.3 million of software
design tools and $2.2 million increase in VAT receivable due to the timing
of the receipt of refund, partially offset by the standard prepaid
amortization and a decrease in the value of our executive deferred
compensation. In addition, we sold our Philippine facility for
net proceeds of $2.4 million in fiscal
2008.
|
|
·
|
A
decrease in inventory of $10.2 million in fiscal 2009 compared to a
decrease of $5.0 million in fiscal 2008. The decrease in both
periods is primarily attributable to our efforts to align our inventory
levels to meet current demand.
|
|
·
|
A
decrease in deferred income on shipments to distributors of $7.8 million
in fiscal 2009 compared to a decrease of $10.0 million in fiscal
2008. The decrease in deferred income on shipments to
distributors is attributable to the lower inventory levels in the channels
as our distributors adjusted their inventory levels in light of challenges
in the end markets.
|
The
factors listed above were partially offset by other working capital items that
used relatively more cash during fiscal 2009:
|
·
|
A
decrease in accounts payable of $17.9 million in fiscal 2009 compared to a
decrease of $5.0 million in fiscal 2008. The decrease in both
periods is primarily attributable to the timing of payments and decrease
in the volume of foundry and subcontractor activity towards the fiscal
fourth quarter end. The decrease in account payable is primarily
attributable to a decrease in the volumes of foundry and subcontract
activity along with the timing of
payments.
|
|
·
|
A
decrease in accrued compensation of $8.0 million in fiscal 2009 compared
to a decrease of $4.3 million in fiscal 2008. The decrease in
both periods is primarily attributable to a reduction in
performance-related bonuses.
|
|
·
|
A
decrease in income taxes receivable/payable of $4.8 million in fiscal 2009
compared to a decrease of $5.8 million in fiscal 2008. The
decrease in fiscal 2009 is primarily attributable to the receipt of tax
refund from the IRS for ICS pre-acquisition tax returns. The decrease in
fiscal 2008 is primarily attributable to the tax settlement with the IRS
for ICS pre-acquisition tax
returns.
|
|
·
|
A
decrease in other accrued and long term liability of $3.4 million in
fiscal 2009 compared to a decrease of $2.4 million in fiscal 2008. The
decrease in fiscal 2009 is primarily attributable to $1.9 million 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,
partially offset by additional reserve related to our restructuring
actions. The decrease in fiscal 2008 is primarily attributable to a
reclass of our outstanding but uncleared vendor disbursements and an
adjustment to our previously reserved lease impairment charges for vacated
facilities as we completed a buyout of the San Jose ICS lease with the
landlord and subleased the Salinas facility in fiscal 2008. Fiscal 2008 is
partially offset by $1.2 million and $2.8 million accruals related to the
executive transition agreement signed with our CEO and the purchases of
software design tools.
|
Net
cash provided by operating activities in fiscal 2008 was $186.7 million compared
to $216.5 million in fiscal 2007. The decrease was primarily attributable to
non-cash items, including a decrease in the amortization of intangible assets
and the reduction of deferred taxes. In addition, working capital
items used $19.3 million in cash in fiscal 2008 compared to $16.9 million in
fiscal 2007.
Working
capital items consumed relatively more cash during 2008 including increases in
prepayment and other assets and accounts payable and decreases in deferred
income on shipments to distributors, accrued compensation and other accrued and
long term liability. Prepayment and other assets increased as a
result of purchases of software design tools and increased in VAT
receivable. The decrease in accounts payable is primarily
attributable to a decrease in the volumes of foundry and subcontract activity
along with the timing of payments. The decrease in deferred income on
shipments to distributors is due to lower inventory levels in the
channel. The decrease in accrued compensation is related to a
reduction in performance-related bonuses. The decrease in other
accrued and long term liability is attributable to a reclass of an outstanding
but uncleared vendor disbursement and an adjustment of previously reserved lease
impairment charge for vacated facilities.
Working
capital items providing more cash during fiscal 2008 included decreases in
inventory, income taxes receivable and payable, and account receivable.
Inventory decreased is primarily due to our efforts to align our inventory
levels to meet current demand. The decrease in income tax receivable
and payable is related to the tax settlement with the IRS for ICS
pre-acquisition tax returns. The decrease in Account receivable is
attributable to lower revenues in the fourth quarter of fiscal 2008 compared to
fiscal 2007.
Net
cash used for investing activities was $88.7 million in fiscal 2009, compared to
$9.5 million in fiscal 2008. Net cash used to purchase of short-term investment
was $239.6 million, partially offset by the proceeds from the sale and maturity
of short-term investments of $187.6 million. The purchase of capital equipment
totaled approximately $16.6 million. In addition, we used $20.1 million to
purchase Silicon Optix’s assets in fiscal 2009. In fiscal 2008, net cash used to
purchase short-term investment was $170.9 million, partially offset by the
proceeds from the sale and maturity of short-term investments of $178.4
million. The net cash used to purchase capital equipment were $16.9
million.
Net
cash used for investing activities was $9.5 million in fiscal 2008, compared to
$174.9 million in fiscal 2007. Net proceeds from the sale and maturity of
short-term investments were $7.4 million in fiscal 2008, compared to net
purchases of $81.2 million in fiscal 2007. Our fiscal 2007 investing
activities also included the acquisition of SigmaTel’s PC Audio business for
$73.2 million, net of cash acquired. Capital expenditures were $16.9
million in fiscal 2008 compared to $20.5 million in fiscal 2007.
Net
cash used for financing activities in fiscal 2009 was $48.6 million compared to
$293.2 million in fiscal 2008. In fiscal 2009, we repurchased approximately
$62.3 million of common stock, partially offset by proceeds of approximately
$13.5 million from the exercise of employee stock options and the issuance of
stock under our employee stock purchase plan. In fiscal 2008, we repurchased
approximately $334.8 million of common stock, partially offset by proceeds of
approximately $41.7 million from the exercise of employee stock options and the
issuance of stock under our employee stock purchase plan.
Net cash used in financing activities
was $293.2 million in fiscal 2008 compared to $62.0 million in fiscal 2007. In
fiscal 2008, we repurchased approximately $334.8 million of common stock under
our share repurchase programs, offset by proceeds of approximately $41.7 million
from the exercise of employee stock options and the issuance of stock under our
employee stock purchase plan. In fiscal 2007, we repurchased approximately
$124.9 million of common stock, offset by proceeds of $62.9 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 $21.0 million during fiscal
2010 to be financed through cash generated from operations and existing cash and
investments.
The
following table summarizes our contractual arrangements at March 29, 2009 and
the expected timing and effects of these commitments on our liquidity and cash
flow in future periods:
|
(in
millions)
|
Payments
Due by Period
|
|||||||||||||||||||
|
Less
Than
|
2-3
|
4-5
|
||||||||||||||||||
|
Total
|
1
Year
|
Years
|
Years
|
Thereafter
|
||||||||||||||||
|
Operating
leases (1)
|
$ | 12.6 | $ | 3.6 | $ | 5.5 | $ | 3.2 | $ | 0.3 | ||||||||||
|
Other
supplier obligations (2)
|
3.7 | 2.3 | 1.4 | -- | -- | |||||||||||||||
(1) Operating lease amounts in the table above exclude future sublease income to be
received under non- cancelable sublease agreements of approximately $1.3 million, of which $0.3 million is expected to be received
within one year, $0.6 million is expected to be received within two to three years
and $0.5 million is expected to be received
within four to five years.
(2)
Other supplier obligations represent payments due under various software design
tool agreements.
As of
March 29, 2009, our unrecognized tax benefits were $43.0 million, of
which $20.9 million are classified as long-term liabilities, and $22.1 million
which are netted against deferred tax assets. In addition, we have $10.9 million of
amounts payable related to obligations under our deferred compensation plan,
which are classified as long term liabilities. At this time,
we are unable to make a reasonably reliable estimate of the timing of payments,
if any, in individual years due to uncertainties in the timing or outcomes of
either actual or anticipated tax audits and the timing of employee
departures. As a result, this amount is not included in the table
above.
Purchase
orders or contracts for the purchase of raw materials and other goods and
services are not included in the table above. We are not able to determine the
aggregate amount of such purchase orders that represent binding contractual
obligations, as purchase orders often represent authorizations to purchase
rather than binding agreements. Our purchase orders are based on our
current manufacturing needs and are fulfilled by our vendors within short time
horizons. We also enter into contracts for outsourced services, which generally
contain clauses allowing for cancellation prior to services being performed
without significant penalty. In addition, the table above excludes
leases where amounts have been accrued for impairment charges.
We
believe that existing cash and investment balances, together with cash flows
from operations, will be sufficient to meet our working capital and capital
expenditure needs through at least fiscal 2010. We may choose to investigate
other financing alternatives; however, we cannot be certain that additional
financing will be available on satisfactory terms.
Off-balance
Sheet Arrangements
As
of March 29, 2009, we did not have any off-balance sheet arrangements, as
defined under SEC Regulation S-K Item 303(a)(4)(ii).
Subsequent
Events
On
April 30, 2009, we entered into a definitive acquisition agreement with Tundra
Semiconductor Corporation (“Tundra”), a Canadian Public Company based in Ottawa,
to acquire all of Tundra’s outstanding shares of common stock for Canada for
approximately CDN $120.6 million or CDN$6.25 per share, plus approximately CDN
$2.9 million for the purchase of employee restricted stock units and
in-the-money stock options. If the Tundra shareholders approve the sale to IDT,
we expect this transaction to close early in the second quarter of fiscal
2010.
On
April 30, 2009, we signed a definitive agreement to sell our network search
engine business to NetLogic Microsystems, Inc (Netlogic). The purchase
consideration consists of approximately $100 million, which includes inventory
currently estimated at $10 million and subject to adjustment on the closing date
and assume specified liabilities related to these assets on the closing date. At
closing, NetLogic, at its option and subject to conditions under the agreement,
may pay the entire purchase price in cash or pay approximately $70 million less
the cost of inventory in cash and issue to us a $30 million secured promissory
note payable in two equal installments on the first and second anniversaries of
the closing date. We expect this transaction to close prior to the end of the
second quarter of fiscal 2010.
Recent
Accounting Pronouncements
In
April 2009, the FASB issued FASB Staff Position (FSP) 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability have Significantly
Decreased and Identifying Transactions That Are Not Order (FSP
157-4).
FSP
157-4 provides guidance on how to determine the fair value of assets and
liabilities under SFAS 157 Fair Value Measurements. The FSP relates to
determining fair values when there is no active market or where the price inputs
being used represent distressed sales. It reaffirms what SFAS 157 states is 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 FSP will be effective for interim and fiscal years
beginning after June 15, 2009. We are currently evaluating the potential
impact of FSP 157-4.
In
April 2009, the FASB issued FSP No. 141R-1 Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from
Contingencies (FSP 141R-1). FSP 141R-1 amends the provisions in SFAS
141(R) for the initial recognition and measurement, subsequent measurement and
accounting and disclosures for assets and liabilities arising from contingencies
in business combinations. FSP 141R-1 eliminates the distinction between
contractual and non-contractual contingencies, including the initial recognition
and measurement criteria in SFAS 141(R) and instead carries forward most of the
provisions in SFAS 141 for acquired contingencies. FSP 141R-1 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. We are currently evaluating the impact
of the implementation of FSP 141R-1.
In
April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2 Recognition of
Other-Than-Temporary-Impairments. This FSP amends the
other-than-temporary impairment guidance for debt securities and improves the
presentation and disclosure of other-than-temporary impairments on debt and
equity securities in the financial statements. This FSP does not amend existing
recognition and measurement guidance related to other-than-temporary impairments
of equity securities. We are currently evaluating the impact of the
implementation of FSP FAS 115-2.
In
June 2008, the FASB issued FSP No. EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities,
(FSP EITF 03-6-1). FSP EITF 03-6-1 states that unvested share-based payment
awards that contain nonforfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and shall be included in
the computation of earnings per share pursuant to the two-class method. FSP EITF
03-6-1 is effective for fiscal years beginning after December 15, 2008. We have
determined that the adoption of FSP EITF 03-6-1 will not have an impact on the
consolidated financial position and result of operations.
In
April 2008, the FASB issued FSP 142-3, Determination of the Useful Life of
Intangible Assets (FSP 142-3). FSP 142-3 amends the factors that should
be considered in developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset under SFAS 142, Goodwill and Other Intangible
Assets. The intent of the position is to improve the consistency between
the useful life of a recognized intangible asset under SFAS 142 and the period
of expected cash flows used to measure the fair value of the intangible asset.
FSP 142-3 is effective for fiscal years beginning after December 15, 2008.
The Company is currently evaluating the impact of the pending adoption of FSP
142-3 on its consolidated financial statements.
In
March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement
No. 133 (SFAS 161). The standard requires additional quantitative
disclosures (provided in tabular form) and qualitative disclosures for
derivative instruments. The required disclosures include how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance, and cash flows; relative volume of derivative activity;
the objectives and strategies for using derivative instruments; the accounting
treatment for those derivative instruments formally designated as the hedging
instrument in a hedge relationship; and the existence and nature of
credit-related contingent features for derivatives. SFAS No. 161 does not
change the accounting treatment for derivative instruments. We adopted SFAS 161
in the fourth quarter of fiscal 2009.
In
September 2006, the FASB issued SFAS 157, Fair Value Measurements (SFAS
157), which enhances existing guidance for measuring assets and liabilities
using fair value. The Company adopted this standard in the first quarter of
fiscal 2009. See “Fair Value Measurements” in Item 8, Note 3 for further
discussion. In February 2008, FASB issued FASB Staff Position (FSP)
157-1, Application of FASB
Statement No. 157 to FASB Statement No. 13 and Other Accounting
Pronouncements That Address Fair Value Measurements for Purposes of Lease
Classification or Measurement under Statement 13 (FSP 157-1) and FSP
157-2, Effective Date of FASB Statement
No. 157 (FSP 157-2). FSP 157-1 amends SFAS 157 to remove certain
leasing transactions from its scope. FSP 157-2 delays the effective date of SFAS
157 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. In October 2008, the FASB issued FSP 157-3, Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active (FSP 157-3),
which clarifies the application of SFAS 157 as it relates to the valuation of
financial assets in an inactive market. FSP FAS 157-3 was effective upon
issuance. We are
currently evaluating the impact that FSP 157-1, FSP157-2 and FSP 157-4 will have
on our consolidated financial statements when it is applied to non-financial
assets and non-financial liabilities that are not measured at fair value on a
recurring basis beginning in the first quarter of fiscal year
2010.
In
December 2007, the FASB issued SFAS 141(R), Business Combinations (SFAS
141(R)). The standard 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. SFAS 141(R) is effective for fiscal years beginning after
December 15, 2008, with early adoption prohibited. We will adopt SFAS
141(R) in the first quarter of fiscal 2010.
Our
interest rate risk relates primarily to our short-term investments of $160.0
million as of March 29, 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 March 29,
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 a portfolio of investments for certain deferred
compensation arrangements, the fair value of which was $9.7 million as of March
29, 2009. The portfolio is managed to achieve the same investment
allocation as the participants’ directed investment election. The
deferred compensation under the arrangement is classified in Other Long-Term
Liabilities within the Consolidated Balance Sheet.
At
March 29, 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 March 29, 2009 and determined that, without hedging the exposure,
a 10% change in the value of the U.S. dollar would result in an approximate 0.2%
impact on gross profit margin percentage, as we operate manufacturing facilities
in Malaysia and Singapore, and an approximate 0.6% 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 March
29, 2009 we had no outstanding foreign exchange contracts.
We
did not have any currency exposure related to any outstanding capital purchases
as of March 29, 2009.
Index
to Consolidated Financial Statements
|
Consolidated
Financial Statements:
|
|
|
38
|
|
|
39
|
|
|
40
|
|
|
41
|
|
|
42
|
|
|
43
|
|
|
Financial
Statement Schedule:
|
|
|
80
|
To
the Board of Directors and Stockholders of
Integrated
Device Technology, Inc.:
In
our opinion, the consolidated financial statements listed in the accompanying
index, present fairly, in all material respects, the financial position of
Integrated Device Technology, Inc. and its subsidiaries at March 29, 2009 and
March 30, 2008, and the results of their operations and their cash flows for
each of the three years in the period ended March 29, 2009 in conformity with
accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement
schedule listed in the accompanying index presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial
statements. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of
March 29, 2009, based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company's management is responsible
for these financial statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in
Management's Report on Internal Control over Financial Reporting appearing under
Item 9A. Our responsibility is to express opinions on these financial
statements, on the financial statement schedule, and on the Company's internal
control over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
As
discussed in Note 14 to the consolidated financial statements, the Company
changed the manner in which it accounts for uncertain tax positions in fiscal
2008.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/
PricewaterhouseCoopers LLP
San
Jose, CA
May
19, 2009
CONSOLIDATED
BALANCE SHEETS
|
(in
thousands)
|
March
29, 2009
|
March
30, 2008
|
||||||
|
Assets
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 136,036 | $ | 131,986 | ||||
|
Short-term
investments
|
160,037 | 107,205 | ||||||
|
Accounts
receivable, net of allowances of $7,351 and $9,212
|
54,894 | 83,091 | ||||||
|
Inventories
|
69,722 | 79,954 | ||||||
|
Deferred
tax assets
|
1,696 | 4,853 | ||||||
|
Prepayments
and other current assets
|
19,881 | 26,081 | ||||||
|
Total
current assets
|
442,266 | 433,170 | ||||||
|
Property,
plant and equipment, net
|
71,561 | 81,652 | ||||||
|
Goodwill
|
89,404 | 1,027,438 | ||||||
|
Acquisition-related
intangibles, net
|
50,509 | 204,489 | ||||||
|
Other
assets
|
24,627 | 36,504 | ||||||
|
Total
assets
|
$ | 678,367 | $ | 1,783,253 | ||||
|
Liabilities
and stockholders' equity
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable
|
$ | 25,837 | $ | 44,655 | ||||
|
Accrued
compensation and related expenses
|
18,820 | 26,621 | ||||||
|
Deferred
income on shipments to distributors
|
16,538 | 24,312 | ||||||
|
Income
taxes payable
|
457 | 150 | ||||||
|
Other
accrued liabilities
|
21,206 | 19,978 | ||||||
|
Total
current liabilities
|
82,858 | 115,716 | ||||||
|
Deferred
tax liabilities
|
3,220 | 7,678 | ||||||
|
Long-term
income tax payable
|
20,907 | 20,673 | ||||||
|
Other
long-term obligations
|
14,314 | 18,364 | ||||||
|
Total
liabilities
|
121,299 | 162,431 | ||||||
|
Commitments
and contingencies (Notes 11 and 12)
|
||||||||
|
Stockholders'
equity:
|
||||||||
|
Preferred
stock; $.001 par value: 10,000 shares authorized; no shares
issued
|
-- | -- | ||||||
|
Common
stock; $.001 par value: 350,000 shares authorized; 165,298 and
171,282 shares outstanding
|
165 | 171 | ||||||
|
Additional
paid-in capital
|
2,283,601 | 2,237,634 | ||||||
|
Treasury
stock (57,752 and 49,395 shares) at cost
|
(777,847 | ) | (715,509 | ) | ||||
|
Retained
earnings (accumulated deficit)
|
(949,721 | ) | 95,446 | |||||
|
Accumulated
other comprehensive income
|
870 | 3,080 | ||||||
|
Total
stockholders' equity
|
557,068 | 1,620,822 | ||||||
|
Total
liabilities and stockholders' equity
|
$ | 678,367 | $ | 1,783,253 | ||||
The
accompanying notes are an integral part of these consolidated financial
statements.
INTEGRATED
DEVICE TECHNOLOGY, INC.
| Fiscal Year End | ||||||||||||
| (In thousands, except per share data) |
March 29,
2009
|
March
30,
2008
|
April 1,
2007
|
|||||||||
|
Revenues
|
$ | 663,245 | $ | 781,467 | $ | 803,596 | ||||||
|
Cost
of revenues
|
388,796 | 442,135 | 462,948 | |||||||||
|
Gross
profit
|
274,449 | 339,332 | 340,648 | |||||||||
|
Operating
expenses:
|
||||||||||||
|
Research
and development
|
161,192 | 165,599 | 166,433 | |||||||||
|
Selling,
general and administrative
|
125,810 | 161,708 | 191,211 | |||||||||
|
Acquired
in-process research and development
|
5,597 | -- | 500 | |||||||||
|
Goodwill
and acquisition-related intangible asset impairment
|
1,025,685 | -- | -- | |||||||||
|
Total
operating expenses
|
1,318,284 | 327,307 | 358,144 | |||||||||
|
Operating
income (loss)
|
(1,043,835 | ) | 12,025 | (17,496 | ) | |||||||
|
Other-than-temporary
impairment loss on investments
|
(3,000 | ) | -- | -- | ||||||||
|
Interest
expense
|
(60 | ) | (103 | ) | (263 | ) | ||||||
|
Interest
income and other, net
|
1,308 | 16,815 | 15,211 | |||||||||
|
Income
(loss) before income taxes
|
(1,045,587 | ) | 28,737 | (2,548 | ) | |||||||
|
Income
taxes expense (benefit)
|
(420 | ) | (5,442 | ) | 5,030 | |||||||
|
Net
income (loss)
|
$ | (1,045,167 | ) | $ | 34,179 | $ | (7,578 | ) | ||||
|
Basic
net income (loss) per share:
|
$ | (6.22 | ) | $ | 0.18 | $ | (0.04 | ) | ||||
|
Diluted
net income (loss) per share:
|
$ | (6.22 | ) | $ | 0.18 | $ | (0.04 | ) | ||||
|
Weighted
average shares:
|
||||||||||||
|
Basic
|
168,114 | 187,213 | 198,106 | |||||||||
|
Diluted
|
168,114 | 189,260 | 198,106 | |||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
INTEGRATED
DEVICE TECHNOLOGY, INC.
| (in thousands) |
Fiscal
Year Ended
|
|||||||||||
|
March
29,
2009
|
March 30,
2008
|
April
1,
2007
|
||||||||||
|
Cash
flows provided by operating activities:
|
||||||||||||
|
Net
income (loss)
|
$ | (1,045,167 | ) | $ | 34,179 | $ | (7,578 | ) | ||||
|
Adjustments:
|
||||||||||||
|
Depreciation
|
26,337 | 29,881 | 32,773 | |||||||||
|
Amortization
of intangible assets
|
79,388 | 109,995 | 155,388 | |||||||||
|
Goodwill
and acquisition-related intangible asset impairment
|
1,025,685 | -- | -- | |||||||||
|
Stock-based
compensation expense, net of amounts capitalized in
inventory
|
32,402 | 41,242 | 46,506 | |||||||||
|
Acquired
in-process research and development
|
5,597 | -- | 500 | |||||||||
|
Other-than
temporary impairment loss on investments
|
3,000 | -- | -- | |||||||||
|
Non-cash
restructuring, asset impairment and other
|
-- | -- | 4,630 | |||||||||
|
Gain
on sale of investment in equity securities
|
-- | (1,784 | ) | -- | ||||||||
|
Deferred
tax provision (benefit)
|
(1.301 | ) | (7,501 | ) | 1,107 | |||||||
|
Changes
in assets and liabilities (net of amounts acquired):
|
||||||||||||
|
Accounts
receivable, net
|
28,196 | 6,895 | (187 | ) | ||||||||
|
Inventories
|
10,171 | 5,001 | (18,586 | ) | ||||||||
|
Other
assets
|
11.718 | (15,297 | ) | (2,051 | ) | |||||||
|
Accounts
payable
|
(17,894 | ) | (5,003 | ) | 3,389 | |||||||
|
Accrued
compensation and related expenses
|
(7,964 | ) | (4,261 | ) | 7,684 | |||||||
|
Deferred
income on shipments to distributors
|
(7,774 | ) | (10,031 | ) | 4,546 | |||||||
|
Income
taxes payable and receivable
|
4,814 | 5,798 | (6,032 | ) | ||||||||
|
Other
accrued liabilities and long term liabilities
|
(3,433 | ) | (2,384 | ) | (5,613 | ) | ||||||
|
Net
cash provided by operating activities
|
143,775 | 186,730 | 216,476 | |||||||||
|
Cash
flows provided by (used for) investing activities
|
||||||||||||
|
Acquisitions,
net of cash acquired
|
(20,097 | ) | -- | (73,212 | ) | |||||||
|
Purchases
of property, plant and equipment
|
(16,591 | ) | (16,938 | ) | (20,490 | ) | ||||||
|
Purchases
of short-term investments
|
(239,609 | ) | (170,882 | ) | (129,800 | ) | ||||||
|
Proceeds
from sales of short-term investments
|
25,166 | 31,598 | 3,350 | |||||||||
|
Proceeds
from maturities of short-term investments
|
162,397 | 146,761 | 45,211 | |||||||||
|
Net
cash used for investing activities
|
(88,734 | ) | (9,461 | ) | (174,941 | ) | ||||||
|
Cash
flows provided by (used for) financing activities
|
||||||||||||
|
Issuance
of common stock
|
13,513 | 41,659 | 62,864 | |||||||||
|
Repurchase
of common stock
|
(62,338 | ) | (334,831 | ) | (124,930 | ) | ||||||
|
Excess
tax benefit from share based payment arrangements
|
192 | 12 | 73 | |||||||||
|
Net
cash used for financing activities
|
(48,633 | ) | (293,160 | ) | (61,993 | ) | ||||||
|
Effect
of exchange rates on cash and cash equivalents
|
(2,358 | ) | 1,288 | 874 | ||||||||
|
Net
increase (decrease) in cash and cash equivalents
|
4,050 | (114,603 | ) | (19,584 | ) | |||||||
|
Cash
and cash equivalents at beginning of period
|
131,986 | 246,589 | 266,173 | |||||||||
|
Cash
and cash equivalents at end of period
|
$ | 136,036 | $ | 131,986 | $ | 246,589 | ||||||
|
Supplemental
disclosure of cash flow information
|
||||||||||||
|
Cash
paid for:
|
||||||||||||
|
Interest
|
$ | 9 | $ | 5 | $ | 11 | ||||||
|
Income
taxes, net of refunds
|
$ | (4,072 | ) | $ | (569 | ) | $ | 9,313 | ||||
The
accompanying notes are an integral part of these consolidated financial
statements.
INTEGRATED
DEVICE TECHNOLOGY, INC.
(IN
THOUSANDS)
|
(in
thousands, except share amounts)
|
Common
Stock and Additional Paid-In Capital
|
Treasury
Stock
|
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
Income
(Loss)
|
Total
Stockholders'
Equity
|
|||||||||||||||||||
|
Shares
|
Dollars
|
||||||||||||||||||||||||
|
Balance,
April 2, 2006
|
198,388,794 | $ | 2,044,749 | $ | (255,748 | ) | $ | 68,784 | $ | 414 | $ | 1,858,199 | |||||||||||||
|
Comprehensive
loss:
|
|||||||||||||||||||||||||
|
Net
loss
|
-- | -- | -- | (7,578 | ) | -- | (7,578 | ) | |||||||||||||||||
|
Translation
adjustment
|
-- | -- | -- | -- | 831 | 831 | |||||||||||||||||||
|
Net
unrealized gain on
investments
|
-- | -- | -- | -- | 2,304 | 2,304 | |||||||||||||||||||
|
Total
comprehensive loss
|
(4,443 |
)
|
|||||||||||||||||||||||
|
Issuance
of common stock
|
5,702,121 | 62,864 | -- | -- | -- | 62,864 | |||||||||||||||||||
|
Repurchase
of common stock
|
(7,828,173 | ) | -- | (124,930 | ) | -- | -- | (124,930 | ) | ||||||||||||||||
|
Tax
benefit from stock option
|
-- | 73 | -- | -- | -- | 73 | |||||||||||||||||||
|
Stock-based
compensaton
|
47,327 | 47,327 | |||||||||||||||||||||||
|
Balance,
April 1, 2007
|
196,262,742 | 2,155,013 | (380,678 | ) | 61,206 | 3,549 | 1,839,090 | ||||||||||||||||||
|
Comprehensive
income:
|
|||||||||||||||||||||||||
|
Net
income
|
-- | -- | -- | 34,179 | -- | 34,179 | |||||||||||||||||||
|
Translation
adjustment
|
-- | -- | -- | -- | 1,025 | 1,025 | |||||||||||||||||||
|
Net
unrealized (loss) on
investments
|
-- | -- | -- | -- | (1,494 | ) | (1,494 | ) | |||||||||||||||||
|
Total
comprehensive loss
|
33,710 | ||||||||||||||||||||||||
|
Issuance
of common stock
|
3,871,796 | 41,659 | -- | -- | -- | 41,659 | |||||||||||||||||||
|
Repurchase
of common stock
|
(28,853,034 | ) | -- | (334,831 | ) | -- | -- | (334,831 | ) | ||||||||||||||||
|
Adoption
of FIN 48
|
-- | -- | -- | 61 | -- | 61 | |||||||||||||||||||
|
Tax
benefit from stock option
|
-- | 12 | -- | -- | -- | 12 | |||||||||||||||||||
|
Stock-based
compensation
|
-- | 41,121 | -- | -- | -- | 41,121 | |||||||||||||||||||
|
Balance,
March 30, 2008
|
171,281,504 | 2,237,805 | (715,509 | ) | 95,446 | 3,080 | 1,620,822 | ||||||||||||||||||
|
Comprehensive
income:
|
|||||||||||||||||||||||||
|
Net
loss
|
-- | -- | -- | (1,045,167 | ) | -- | (1,045,167 | ) | |||||||||||||||||
|
Translation
adjustment
|
-- | -- | -- | -- | (2,082 | ) | (2,082 | ) | |||||||||||||||||
|
Net
unrealized (loss) on
investments
|
-- | -- | -- | -- | (128 | ) | (128 | ) | |||||||||||||||||
|
Total
comprehensive loss
|
(1,047,377 | ) | |||||||||||||||||||||||
|
Issuance
of common stock
|
2,373,937 | 13,513 | -- | -- | -- | 13,513 | |||||||||||||||||||
|
Repurchase
of common stock
|
(8,357,300 | ) | -- | (62,338 | ) | -- | -- | (62,338 | ) | ||||||||||||||||
|
Tax
benefit from stock option
|
-- | 192 | -- | -- | -- | 192 | |||||||||||||||||||
|
Stock-based
compensation
|
-- | 32,256 | -- | -- | -- | 32,256 | |||||||||||||||||||
|
Balance,
March 29, 2009
|
165,298,141 | $ | 2,283,766 | $ | (777,847 | ) | $ | (949,721 | ) | $ | 870 | $ | 557,068 | ||||||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
Note 1
Summary
of Significant Accounting Policies
Nature of
Business. Integrated Device Technology, Inc.
(IDT or the Company) designs, develops, manufactures and markets a broad range
of integrated circuits for the advanced communications, computing and consumer
industries.
Basis of
Presentation. The Company's fiscal year ends on
the Sunday nearest March 31. Fiscal 2009, 2008 and 2007 each included 52
weeks and ended on March 29, 2009, March 30, 2008 and April 1,
2007.
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 team. 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. In July 2006, the Company completed its
acquisition of the PC Audio business from SigmaTel, Inc. The
acquisition provided the Company with a team of engineers, certain assets and a
product portfolio involving PC audio technologies. The acquisition
provided the Company with resources and technologies that will allow it to
pursue expanded market opportunities, particularly in the high-definition PC
audio market. In accordance with Statement of Financial Accounting
Standards No. 141, Business
Combinations (SFAS 141), the Company has included in its results of
operations for the fiscal years ended March 29, 2009 and April 1, 2007, the
results of the Silicon Optix and PC Audio business from the dates the respective
transactions closed.
Reclassifications
Certain
fiscal 2008 amounts in the accompanying consolidated financial statements have
been reclassified to conform to the fiscal 2009 presentation. These
reclassifications had no effect on previously reported consolidated statements
of operations or stockholders’ equity.
Principles of
Consolidation. The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
inter-company accounts and transactions have been eliminated.
Use of
Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Cash & Cash
Equivalents. Cash equivalents are highly liquid investments
with original maturities of three months or less at the time of
purchase.
Investments:
Available-for-Sale
Investments. Investments designated as available-for-sale
include marketable debt and equity securities. Available-for-sale
investments are classified as short-term, as these investments generally consist
of highly marketable securities that are intended to be available to meet
near-term cash requirements. Marketable securities classified as
available-for-sale are reported at market value, with net unrealized gains or
losses recorded in accumulated other comprehensive income, 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, 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 is
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.
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 our inventory at the lower of cost or market
which rely on forecasts of average selling prices (ASPs) in future
periods.
Property, Plant and
Equipment. Property, plant and equipment are
stated at cost. Property, plant and equipment acquired in conjunction with
mergers or acquisitions are stated at estimated fair value at the time of
acquisition. For financial reporting purposes, depreciation is
computed using the straight-line method over estimated useful lives of the
assets. Estimated useful lives for major asset categories are as
follows: machinery and equipment, 3 to 5 years; and buildings and
improvements, 10 to 30 years. Leasehold improvements are amortized over the
shorter of the estimated useful lives of the assets or the remaining term of the
lease.
Long-Lived Assets and
Goodwill. The Company accounts for long-lived assets,
including purchased intangibles other than goodwill, in accordance with
Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144). The carrying values
of such assets are evaluated at least annually or whenever events or
circumstances indicate that the carrying values may not be recoverable. If
estimated undiscounted cash flows are not sufficient to recover the carrying
values, the affected assets are considered impaired and are written down to
their estimated fair value, which is generally determined on the basis of
discounted cash flows or outside appraisals.
In
accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
(SFAS 142), the Company tests for impairment of goodwill and other
indefinite-lived assets on an annual basis, or more frequently if indicators of
impairment are present. These tests are performed at the reporting
unit level using a two-step, fair-value based approach. The first step, used to
determine if impairment possibly exists, is to compare the carrying amount of a
reporting unit, including goodwill, to its fair value. If the carrying amount of
the reporting unit exceeds the fair value, the second step is to determine the
amount of a possible impairment by comparing the implied fair value of reporting
unit goodwill with the carrying amount of that goodwill.
Income Taxes. We account for
income taxes under an asset and liability approach that requires the expected
future tax consequences of temporary differences between book and tax bases of
assets and liabilities be recognized as deferred tax assets and liabilities.
Generally accepted accounting principles require us to evaluate our ability to
realize the value of our net deferred tax assets on an ongoing basis. A
valuation allowance is recorded to reduce the net deferred tax assets to an
amount that will more likely than not be realized. Accordingly, we consider
various tax planning strategies, forecasts of future taxable income and our most
recent operating results in assessing the need for a valuation allowance. In the
consideration of the ability to realize the value of net deferred tax assets,
recent results must be given substantially more weight than any projections of
future profitability. Since the fourth quarter of fiscal 2003, we determined
that, under applicable accounting principles, we could not conclude that it was
more likely than not that we would realize the value of our net deferred tax
assets. Our assumptions regarding the ultimate realization of these assets
remained unchanged in fiscal 2009 and accordingly, we continue to record a
valuation allowance to reduce our deferred tax assets to the amount that is more
likely than not to be realized.
On April 2, 2007, we adopted the
Financial Accounting Standards Board’s (FASB) Interpretation No. 48,
Accounting for
Uncertainty in Income Taxes – an Interpretations of FASB Statement No
109 (FIN 48), which
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for
Income Taxes (SFAS 109).
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
FIN 48, we recognize 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 us to determine the probability of
various possible outcomes. We evaluate these uncertain tax positions on a
quarterly basis. This evaluation is based on the consideration of several
factors including changes in facts or circumstances, changes in applicable tax
law, settlement of issues under audit, and new exposures. If we later determine
that our exposure is lower or that the liability is not sufficient to cover our
revised expectations, we adjust the liability and effect a related change in our
tax provision during the period in which we make such
determination.
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 our ability to collect is reasonably assured. For direct sales,
we recognize revenue in accordance with the applicable shipping terms. Revenue
related to the sale of consignment inventory is not recognized until the product
is pulled from inventory stock by the customer.
For
distributors 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 subsequently sold
by the distributor to an end-customer. Subsequent to shipment to the
distributor, the Company reduces 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 specially 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 our inability to estimate these credits, we have determined that the sales price to these
distributors is not fixed or determinable until the final sale to the
end-customer.
In
the APAC region, we have distributors for which revenue is recognized upon
shipment, with reserves recorded for the estimated return and pricing adjustment
exposures. The determination of the amount of reserves to be recorded
for stock rotation rights requires 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 Statement of Financial Accounting
Standards (SFAS) No. 48, Revenue Recognition When Right of
Return Exists (SFAS 48). In addition, from
time-to-time, the Company is required to give pricing adjustments to
distributors for product purchased in a given quarter that remains in their
inventory. These amounts are estimated by management based on
discussions with customers, assessment of market trends, as well as historical
practice.
Shipping and Handling
Costs. The Company includes shipping and handling costs billed
to customers in net revenue. The Company’s shipping and handling
costs are included in cost of revenue.
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 rights to
purchase shares under the employee stock purchase plans using the Black-Scholes
valuation model, consistent with the provisions of Statement of
Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (SFAS
123(R)). Option-pricing models require the input of highly subjective
assumptions, including the expected term of options, the determination of
risk-free interest rates, 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 based on historical trends. 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 in effect
during the applicable quarter. The Company believes that the implied
volatility of its common stock is an important consideration of current 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 implied volatility, by itself, it is not
representative of the expected volatility of its common
stock. Therefore, upon adoption of SFAS 123(R) 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.
Net Income (Loss) Per
Share. Net income (loss) per share is computed in accordance
with SFAS 128, Earning per
share. Under the provisions of SFAS 128, basic net income
(loss) per share is computed using the weighted-average number of common shares
outstanding during the period. Diluted net income (loss) per share is
computed using the weighted average number of common and dilutive potential
common shares outstanding during the period. Diluted net loss per common share
is computed using the weighted-average common shares outstanding and excludes
all dilutive potential common shares because the Company is in a net loss
position and their inclusion would be anti-dilutive. Potential common shares
include employee stock options and restricted stock units.
The
following table sets forth the computation of basic and diluted net income
(loss) per share:
|
Fiscal
Year Ended
|
||||||||||
|
(in
thousands, except per share amounts)
|
March
29,
2009
|
March
30,
2008
|
April
1,
2007
|
|||||||
|
Net
income (loss)
|
$
|
(1,045,167
|
)
|
$
|
34,179
|
$
|
(7,578
|
)
|
||
|
Weighted
average common shares outstanding, basic
|
168,114
|
187,213
|
198,106
|
|||||||
|
Dilutive
effect of employee stock options and awards
|
--
|
2,047
|
--
|
|||||||
|
Weighted
average common shares outstanding, diluted
|
168,114
|
189,260
|
198,106
|
|||||||
|
Basic
earnings per common share
|
$
|
(6.22
|
)
|
$
|
0.18
|
$
|
(0.04
|
)
|
||
|
Diluted
earnings per common share
|
(6.22
|
)
|
0.18
|
(0.04
|
)
|
|||||
Employee
stock options and restricted stock units of 29.9 million, 12.7 million and 8.0
million shares for the fiscal years ended March 29, 2009, March 30, 2008 and
April 1, 2007, respectively, were outstanding, but were excluded from the
calculation of diluted earnings per share because price of these options
exceeded the average share price of the common shares and therefore, the effect
would have been anti-dilutive. Net loss per share for the fiscal year
ended March 29, 2009 and April 1, 2007 is based only on weighted average shares
outstanding. Dilutive potential common shares of 0.2 million and 4.9
million for the fiscal years ended March 29, 2009 and April 1, 2007,
respectively, were excluded from the calculation of diluted earnings per share,
as their effect would be anti-dilutive in a net loss period.
Comprehensive Income
(Loss). Under SFAS No. 130, Reporting Comprehensive
Income,
comprehensive income (loss) is defined as the change in equity during a
period from non-owner sources. The components of accumulated other
comprehensive income were as follows:
|
(in
thousands)
|
March
29,
2009
|
March
30,
2008
|
|||||
|
Cumulative
translation adjustments
|
$
|
446
|
$
|
2,528
|
|||
|
Unrealized
gain on available-for-sale investments
|
424
|
552
|
|||||
|
Total
accumulated other comprehensive income
|
$
|
870
|
$
|
3,080
|
|||
Translation of Foreign
Currencies. For subsidiaries where the functional
currency is the local currency, gains and losses resulting from translation of
foreign currency financial statements into U.S. dollars are recorded as a
component of accumulated other comprehensive income. For subsidiaries where the
functional currency is the U.S. dollar, gains and losses resulting from the
process of remeasuring foreign currency financial statements into U.S. dollars
are included in other income.
Certain risk and
concentrations. The Company's most significant
potential exposure to credit concentration risk includes debt-security
investments, foreign exchange contracts and trade accounts
receivable. The Company’s investment policy addresses sector and
industry concentrations, credit ratings and maturity dates. The
Company invests its excess cash primarily in money market instruments,
diversifies its investments and, by policy, invests only in highly rated
securities to minimize credit risk.
The
Company sells integrated circuits to OEMs, distributors and EMSs primarily in
the U.S., Europe 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 an allowance for
doubtful accounts for probable credit losses, including reserves based upon a
percentage of total receivables. When the Company becomes aware that
a specific customer may default on its financial obligation, a specific amount,
which takes into account the level of risk and the customer’s outstanding
accounts receivable balance, is reserved. These reserved amounts are
classified within selling, general and administrative
expenses. Write-offs of accounts receivable balances were not
significant in each of the three fiscal years presented.
One
family of distributors, Maxtek and its affiliates, represented approximately 21%
and 25% of the Company’s revenues in fiscal 2009 and 2008, respectively, and 21%
and 30% of its gross accounts receivable balance as of March 29, 2009 and March
30, 2008, respectively. Another distributor, Avnet represented
approximately 10% of the Company’s revenues in fiscal 2009.
For
foreign exchange contracts, the Company manages its potential credit exposure
primarily by restricting transactions to only high-credit quality
counterparties.
The
semiconductor industry is characterized by rapid technological change,
competitive pricing pressures, and cyclical market patterns. The Company's
results of operations are affected by a wide variety of factors, including
general economic conditions, both at home and abroad; economic conditions
specific to the semiconductor industry; demand for the Company's products; the
timely introduction of new products; implementation of new manufacturing
technologies; manufacturing capacity; the availability and cost of materials and
supplies; competition; the ability to safeguard patents and intellectual
property in a rapidly evolving market; and reliance on assembly and manufacturing
foundries, independent distributors and sales representatives. As a
result, the Company may experience substantial period-to-period fluctuations in
future operating results due to the factors mentioned above or other
factors.
Product
Warranty. The Company maintains a reserve for
obligations it incurs under its product warranty program. The standard warranty
period offered is one year, though in certain instances the warranty period may
be extended to as long as two years. Management estimates the fair
value of its warranty liability based on actual past warranty claims experience,
its policies regarding customer warranty returns and other estimates about the
timing and disposition of product returned under the program.
Recent Accounting
Pronouncements.
In
April 2009, the FASB issued FASB Staff Position (FSP) 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability have Significantly
Decreased and Identifying Transactions That Are Not Order (FSP 157-4).
FSP 157-4 provides guidance on how to determine the fair value of assets and
liabilities under SFAS 157 Fair Value Measurements. The FSP relates to
determining fair values when there is no active market or where the price inputs
being used represent distressed sales. It reaffirms what SFAS 157 states is 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 FSP will be effective for interim and fiscal years
beginning after June 15, 2009. We are currently evaluating the potential
impact of FSP 157-4.
In
April 2009, the FASB issued FSP 141R-1 Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from
Contingencies (FSP 141R-1). FSP 141R-1 amends the provisions in SFAS
141(R) for the initial recognition and measurement, subsequent measurement and
accounting, and disclosures for assets and liabilities arising from
contingencies in business combinations. FSP 141R-1 eliminates the distinction
between contractual and non-contractual contingencies, including the initial
recognition and measurement criteria in SFAS 141(R) and instead carries forward
most of the provisions in SFAS 141 for acquired contingencies. FSP 141R-1 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. We are currently evaluating
the impact of the implementation of FSP 141R-1.
In
April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2 Recognition of
Other-Than-Temporary-Impairments. This FSP amends the
other-than-temporary impairment guidance for debt securities and improves the
presentation and disclosure of other-than-temporary impairments on debt and
equity securities in the financial statements. This FSP does not amend existing
recognition and measurement guidance related to other-than-temporary impairments
of equity securities. We are currently evaluating the impact of the
implementation of FSP FAS 115-2.
In
June 2008, the FASB issued FSP No. EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities,
(FSP EITF 03-6-1). FSP EITF 03-6-1 states that unvested share-based payment
awards that contain nonforfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and shall be included in
the computation of earnings per share pursuant to the two-class method. FSP EITF
03-6-1 is effective for fiscal years beginning after December 15, 2008. The
Company has determined that the adoption of FSP EITF 03-6-1 will not have an
impact on its consolidated financial position and result of
operations.
In
April 2008, the FASB issued FSP 142-3, Determination of the Useful Life of
Intangible Assets (FSP 142-3). FSP 142-3 amends the factors that should
be considered in developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset under SFAS 142, Goodwill and
Other Intangible Assets. The intent of the position is to improve the
consistency between the useful life of a recognized intangible asset under SFAS
142 and the period of expected cash flows used to measure the fair value of the
intangible asset. FSP 142-3 is effective for fiscal years beginning after
December 15, 2008. The Company is currently evaluating the impact of the
pending adoption of FSP 142-3 on its consolidated financial
statements.
In
March 2008, the FASB issued SFAS 161, Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement
No. 133 (SFAS.161). The standard requires additional quantitative
disclosures (provided in tabular form) and qualitative disclosures for
derivative instruments. The required disclosures include how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance, and cash flows; relative volume of derivative activity;
the
objectives
and strategies for using derivative instruments; the accounting treatment for
those derivative instruments formally designated as the hedging instrument in a
hedge relationship; and the existence and nature of credit-related contingent
features for
derivatives.
SFAS 161 does not change the accounting treatment for derivative instruments.
The Company adopted SFAS 161 in the fourth quarter of fiscal year
2009.
In
September 2006, the FASB issued SFAS 157, Fair Value Measurements (SFAS
157), which enhances existing guidance for measuring assets and liabilities
using fair value. The Company adopted this standard in the first quarter of
fiscal 2009. See “Fair Value Measurements” in Note 3 for further
discussion. In February 2008, FASB issued FASB Staff
Position (FSP) 157-1, Application of FASB Statement
No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements
That Address Fair Value Measurements for Purposes of Lease Classification or
Measurement under Statement 13 (FSP 157-1) and FSP 157-2, Effective Date of FASB Statement
No. 157 (FSP 157-2). FSP 157-1 amends SFAS No. 157 to remove
certain leasing transactions from its scope. FSP 157-2 delays the effective date
of SFAS 157 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. In October 2008, the FASB issued FSP 157-3, Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active (FSP 157-3),
which clarifies the application of SFAS 157 as it relates to the valuation of
financial assets in an inactive market. FSP FAS 157-3 was effective upon
issuance. We are
currently evaluating the impact that FSP 157-1 , FSP 157-2 and FSP
157-3 will have on our consolidated financial statements when it is
applied to non-financial assets and non-financial liabilities that are not
measured at fair value on a recurring basis beginning in the first quarter of
fiscal year 2010.
In
December 2007, the FASB issued SFAS 141 (R), Business Combinations (SFAS
141(R)). The standard 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. SFAS 141(R) is effective for fiscal years beginning after
December 15, 2008, with early adoption prohibited. We will adopt SFAS
141(R) in the first quarter of fiscal 2010.
Note
2
Business
Combinations
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
millions)
|
||||
|
Cash
paid
|
$ | 19.4 | ||
|
Acquisition-related
transaction costs
|
0.7 | |||
|
Total
purchase price
|
$ | 20.1 | ||
In
accordance with SFAS 141, 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, including third-party
valuations that utilize established valuation techniques appropriate for the
high-technology industry. Approximately $0.9 million of the total goodwill is
expected to be deductible for tax purposes over 15 years. In accordance with
SFAS 142, Goodwill and
Intangible Assets, 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
millions)
|
Fair
Value
|
|||
|
Net
tangible assets acquired
|
$ | 0.6 | ||
|
Amortizable
intangible assets
|
4.7 | |||
|
In-process
research and development
|
5.6 | |||
|
Goodwill
|
9.2 | |||
|
Total
purchase price
|
$ | 20.1 | ||
A
summary of the allocation of amortizable intangible assets is as
follows:
|
Fair
Value
(in
millions)
|
Method
|
Useful
Lives from Date of
Acquisition
(years)
|
|||||||
|
Amortizable
intangible assets:
|
|||||||||
|
Existing
technologies
|
$ | 3.7 |
Straight-Line
|
3-7 | |||||
|
Customer
relationships
|
0.5 |
Straight-Line
|
3 | ||||||
|
Trade
name
|
0.5 |
Straight-Line
|
7 | ||||||
|
Total
|
$ | 4.7 | |||||||
Useful
lives are primarily based on the underlying assumptions used in the discounted
cash flow (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 discounted cash flow
(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.
In-process
Research and Development (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%. As of March 29,
2009, the project was 75% complete and the Company has incurred total costs of
approximately $2.4 million. The Company estimates that an additional investment
of $6.7 million will be required to complete the project with an estimated
completion date by the end of fiscal 2010.
Acquisition
of PC audio business of Sigma Tel, Inc.
On
July 31, 2006, the Company completed its acquisition of the PC audio business of
SigmaTel, Inc. The total purchase price was approximately $73.2 million,
including approximately $1.2 million of merger-related transaction
costs. A summary of the total purchase price is as
follows:
|
(in
millions)
|
||||
|
Cash
paid
|
$ | 72.0 | ||
|
Merger-related
transaction costs
|
1.2 | |||
|
Total
purchase price
|
$ | 73.2 | ||
In
accordance with SFAS 141, Business Combinations, the
Company has allocated the purchase price to the estimated 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 provides the Company with a team of engineers, certain assets and a
product portfolio involving PC audio technologies. The Company
believes these technologies will allow it to pursue expanded opportunities,
particularly in the emerging high-definition PC audio market. These
opportunities, along with the ability to sell PC audio 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, including valuations that utilize
established valuation techniques appropriate for the high-technology
industry. Goodwill is expected to be deductible for tax
purposes. In accordance with SFAS 142, Goodwill and Intangible
Assets, 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
millions)
|
Fair
Value
|
|||
|
Net
tangible assets acquired
|
$ | 3.7 | ||
|
Amortizable
intangible assets
|
42.1 | |||
|
In-process
research and development
|
0.5 | |||
|
Goodwill
|
26.9 | |||
|
Total
purchase price
|
$ | 73.2 | ||
A
summary of the allocation of amortizable intangible assets is as
follows:
|
Fair
Value
(in
millions)
|
Method
|
Useful
Lives from date of
acquisition
(years)
|
|||||||
|
Amortizable
intangible assets:
|
|||||||||
|
Existing
technology
|
$ | 36.4 |
Straight-Line
|
4 | |||||
|
Customer
relationships
|
3.0 |
Straight-Line
|
7 | ||||||
|
Non-Compete
agreements
|
0.8 |
Straight-Line
|
2 | ||||||
|
Trade
name
|
0.7 |
Straight-Line
|
3 | ||||||
|
Backlog
|
1.2 |
Straight-Line
|
0.25 | ||||||
|
Total
|
$ | 42.1 | |||||||
Useful
lives are primarily based on the underlying assumptions used in the discounted
cash flow (DCF) models.
Net
Tangible Assets
Assets
and liabilities were reviewed and adjusted, if required, to their estimated fair
value. The Company adjusted the value of acquired inventories by
approximately $1.6 million to write up the inventory to estimated fair value,
less an estimated selling cost. Fixed assets were not adjusted as the
carrying value of the equipment was deemed to approximate fair
value.
Amortizable
Intangible Assets
Existing
technology consists of products that have reached technological
feasibility. The Company valued the existing technology utilizing a
DCF model, which used forecasts of future revenues and expenses related to the
intangible asset. The Company utilized discount factors of 16% for
existing technology and amortized this intangible asset on a straight-line basis
over 4 years.
The
value of the customer relationships intangible asset was estimated using a DCF
model, which estimates the effect on cash flows if such relationships were not
in place at the close of the merger. The Company utilized a discount
factor of 17% and amortized this intangible asset on a straight-line basis over
7 years.
The
non-compete agreements were valued from the Company’s perspective by estimating
the affect on future revenues and cash flows if a given non-compete agreement
was not in place at the close of the merger, thereby allowing former employees
to re-enter the market. The Company utilized a discount factor of 18%
and amortized this intangible asset on a straight-line basis over 2
years.
The
SigmaTel trade name was 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 17%
and amortized this intangible asset on a straight-line basis over 3
years.
Backlog
represents the value of standing orders for SigmaTel’s PC audio products as of
the close of the acquisition. Backlog was valued using a DCF
model. The Company utilized a discount factor of 12% and amortized
this intangible asset on a straight-line basis over 0.25 years.
Pro
forma results of operations for the acquisitions have not been presented as the
effect has not been significant for all periods presented.
Note
3
Fair
Value Measurement
Effective
March 31, 2008, the Company adopted SFAS 157, Fair Value Measurements (SFAS
157), except as it applies to the non-financial assets and non-financial
liabilities subject to Financial Staff Position SFAS 157-2.
SFAS
157 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
SFAS
157 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 in accordance with SFAS 157 as
of March 29, 2009:
|
Fair
Value at Reporting Date Using:
|
||||||||||||
|
(in
thousands)
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
Significant Other
Observable Inputs
(Level 2)
|
Total
Balance
|
|||||||||
|
Cash
Equivalents and Short Term Investments:
|
||||||||||||
|
US
government treasuries and agencies securities
|
$ | 108,935 | $ | $ | 108,935 | |||||||
|
Money
market funds
|
75,531 | -- | 75,531 | |||||||||
|
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 equivalent 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, 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. As of March 29, 2009, we
do not maintain any assets or liabilities with a Level 3 valuation that would
require a high level judgment to determine fair value.
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. In addition, a significant portion of cash equivalents is
concentrated in money market funds which have invested in U.S. government
treasuries only. 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 today, the Company has not experienced any loss 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 other-than-impairment charges related to its
short-term investments in fiscal 2009 and fiscal 2008.
Note 4
Investments
Available
for Sale Securities
Available-for-sale
investments at March 29, 2009 were as follows:
|
(in
thousands)
|
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Estimated
Fair
Value
|
||||||||||||
|
U.S.
government treasuries and agency securities
|
$ | 108,528 | $ | 445 | $ | (38 | ) | $ | 108,935 | |||||||
|
Money
market funds
|
75,531 | -- | -- | 75,531 | ||||||||||||
|
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 | |||||||
Available-for-sale
investments at March 30, 2008 were as follows:
|
(in
thousands)
|
Cost
|
Gross
Unrealized Gains
|
Gross
Unrealized Losses
|
Estimated
Fair Value
|
||||||||||||
|
Corporate
commercial paper
|
$ | 78,866 | $ | -- | $ | -- | $ | 78,866 | ||||||||
|
U.S.
government agency securities
|
77,084 | 525 | -- | 77,609 | ||||||||||||
|
Money
market funds
|
39,686 | -- | -- | 39,686 | ||||||||||||
|
Bank
deposits
|
16,182 | -- | -- | 16,182 | ||||||||||||
|
Corporate
bonds
|
14,019 | 49 | (64 | ) | 14,004 | |||||||||||
|
Asset-backed
securities
|
3,991 | 43 | -- | 4,034 | ||||||||||||
|
Municipal
bonds
|
1,063 | -- | (1 | ) | 1,062 | |||||||||||
|
Total
available-for-sale investments
|
230,891 | 617 | (65 | ) | 231,443 | |||||||||||
|
Less
amounts classified as cash equivalents
|
(124,238 | ) | -- | -- | (124,238 | ) | ||||||||||
|
Short-term
investments
|
$ | 106,653 | $ | 617 | $ | (65 | ) | $ | 107,205 | |||||||
The
cost and estimated fair value of available-for-sale debt securities at March 29,
2009, by contractual maturity, were as follows:
|
(in
thousands)
|
Cost
|
Estimated
Fair
Value
|
||||||
|
Due
in 1 year or less
|
$ | 265,962 | $ | 266,166 | ||||
|
Due
in 1-2 years
|
15,020 | 15,211 | ||||||
|
Due
in 2-5 years
|
1,445 | 1,474 | ||||||
|
Total
investments in available-for-sale debt securities
|
$ | 282,427 | $ | 282,851 | ||||
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 agency securities
|
19,212 | (38 | ) | -- | -- | 19,212 | (38 | ) | ||||||||||||||||
|
Total
|
$ | 47,841 | $ | (143 | ) | $ | 795 | $ | (13 | ) | $ | 48,636 | $ | (156 | ) | |||||||||
The
following table shows the gross unrealized losses and fair value of the
Company’s investments with unrealized losses, aggregated by investment category
and length of time that individual securities have been in a continuous
unrealized loss position, at March 30, 2008.
|
Less
than 12 months
|
12
months or Greater
|
Total
|
||||||||||||||||||||||
|
(in
thousands)
|
Fair
Value
|
Unrealized
Loss
|
Fair
Value
|
Unrealized
Loss
|
Fair
Value
|
Unrealized
Loss
|
||||||||||||||||||
|
Corporate
bonds
|
$ | 4,282 | $ | (64 | ) | $ | -- | $ | -- | $ | 4,282 | $ | (64 | ) | ||||||||||
|
Municipal
bonds
|
1,062 | (1 | ) | -- | -- | 1,062 | (1 | ) | ||||||||||||||||
|
Total
|
$ | 5,344 | $ | ( 65 | ) | $ | -- | $ | -- | $ | 5,344 | $ | (65 | ) | ||||||||||
Currently,
a significant portion of our available-for-sale investments that the Company
holds are all high grade instruments. As of March 29, 2009, the
unrealized losses on our available-for-sale investments represented an
insignificant amount in relation to our total available-for-sale portfolio.
Substantially all of our 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
March 29, 2009 and March 30, 2008.
In
conjunction with its merger with ICS, the Company acquired an Investment and
Stock Trade Agreement with Maxtek, an international stocking representative in
Taiwan and China and an IDT customer. ICS initially invested $4.0 million and
owned approximately 10% of Maxtek, but had subsequently sold 75% of its initial
investment prior to its merger with IDT. In October 2006, Maxtek
completed an initial public offering of its common stock on the Taiwan stock
exchange. In accordance with SFAS 115, Accounting for Certain Debt and
Equity Securities, the Company accounted for this investment at market
value, with unrealized gains or losses recorded in accumulated other
comprehensive income, a separate component of stockholders’ equity, until
realized. As of April 1, 2007, the aggregate market value of the
Company’s investment in Maxtek was approximately $3.1 million. During
fiscal year 2008, the Company sold the remaining shares of its equity investment
in Maxtek for proceeds, net of commissions, totaling approximately $2.9 million
and recognized a gain of $1.8 million, which was classified within interest
income and other, net. The Company no longer holds any stock of
Maxtek.
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 March 29,
2009 and March 30, 2008, the deferred compensation plan assets were
approximately $9.7 million and $12.7 million, which were included in other
assets in the Consolidated Balance Sheets. The Company recorded net losses of
$3.1 million during fiscal 2009 and $0.6 million during fiscal 2008 and net
gains of $1.3 million for fiscal 2007 in interest income and other, net in the
Consolidated Statement 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 Accounting
Principle Board Opinion 18, The Equity Method of Accounting for
Investment in Common Stock (APB 18), the Company accounts for this
investment under cost method. During Q3 2009, the Company identified indicators
of impairment during its review of this investment. 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. Based on the results, the Company recognized an other-than-temporary
impairment charge of $3.0 million related to this investment during fiscal 2009
to write it down to its estimated fair value. The carrying value of the
Company’s investment in Best Elite was approximately $2.0 million and $5.0
million, respectively, and is classified with other assets on the Company’s
Consolidated Balance Sheets as of March 29, 2009 and March 30,
2008.
Note
5
Stock-Based
Employee Compensation
Compensation
Expense
Effective
April 3, 2006, the Company adopted the provisions of SFAS 123(R), which requires
the Company to measure and recognize compensation expense for all stock-based
payment awards, including employee stock options, restricted stock units (RSUs)
and rights to purchase shares under employee stock purchase plans (ESPP), based
on their estimated fair value and recognize the costs in the financial
statements over the employees’ requisite service period.
The
following table summarizes stock-based compensation expense by line items
appearing in the Company’s Condensed Consolidated Statement of
Operations:
|
Fiscal
Year Ended
|
||||||||||||
|
(in
thousands)
|
March
29,
2009
|
March
30,
2008
|
April
1,
2007
|
|||||||||
|
Cost
of revenue
|
$ | 3,702 | $ | 3,936 | $ | 3,741 | ||||||
|
Research
and development
|
18,927 | 22,919 | 25,116 | |||||||||
|
Selling,
general and administrative
|
9,773 | 14,387 | 17,649 | |||||||||
|
Total
stock-based compensation expense
|
32,402 | 41,242 | 46,506 | |||||||||
|
Tax
effect on stock-based compensation expense (1)
|
-- | -- | -- | |||||||||
|
Total
stock-based compensation expense, net of related tax
effects
|
$ | 32,402 | $ | 41,242 | $ | 46,506 | ||||||
|
(1)
|
Assumes
a zero tax rate for each period presented as the Company has a valuation
allowance.
|
Stock-based
compensation expense recognized in the Consolidated Statement of Operations is
based on awards ultimately expected to vest. SFAS 123(R) requires forfeitures to
be estimated at the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those estimates. The Company
attributes the value of stock-based compensation to expense on an accelerated
method.
The
following table summarizes stock-based compensation expense associated with each
type of award:
|
Fiscal
Year Ended
|
||||||||||||
|
(in
thousands)
|
March
29,
2009
|
March
30,
2008
|
April
1,
2007
|
|||||||||
|
Employee
stock options
|
$ | 23,155 | $ | 35,146 | $ | 44,093 | ||||||
|
Employee
stock purchase plan (“ESPP”)
|
2,940 | 2,599 | 2,721 | |||||||||
|
Restricted
stock units (“RSUs”)
|
6,161 | 3,376 | 513 | |||||||||
|
Change
in amounts capitalized in inventory
|
146 | 121 | (821 | ) | ||||||||
|
Total
stock-based compensation expense
|
$ | 32,402 | $ | 41,242 | $ | 46,506 | ||||||
Valuation
Assumptions
The
Company uses the Black-Scholes option-pricing model as its method of valuation
for stock-based awards granted beginning in fiscal 2007. The Company’s
determination of the fair value of stock-based payment awards on the date of
grant using an option-pricing model is affected by the Company’s stock price as
well as assumptions regarding a number of subjective variables. These variables
include, but are not limited to, the Company’s expected stock price volatility
over the term of the awards, as well as the expected term of the
awards.
|
Fiscal
Year Ended
|
||||||||||||
|
March
29,
2009
|
March
30,
2008
|
April
1,
2007
|
||||||||||
|
Stock
option plans:
|
||||||||||||
|
Expected
Term
|
4.60
years
|
4.66
years
|
4.88
years
|
|||||||||
|
Risk-free
interest rate
|
2.67 | % | 4.57 | % | 4.98 | % | ||||||
|
Volatility
|
42.5 | % | 43.1 | % | 50.9 | % | ||||||
|
Dividend
Yield
|
0.0 | % | 0.0 | % | 0.0 | % | ||||||
|
Weighted
average grant-date fair value
|
$ | 3.66 | $ | 6.13 | $ | 7.50 | ||||||
|
ESPP:
|
||||||||||||
|
Expected
Term
|
0.25
years
|
0.25
years
|
0.25
years
|
|||||||||
|
Risk-free
interest rate
|
0.94 | % | 4.30 | % | 4.91 | % | ||||||
|
Volatility
|
48.3 | % | 30.5 | % | 34.9 | % | ||||||
|
Dividend
Yield
|
0.0 | % | 0.0 | % | 0.0 | % | ||||||
|
Weighted
average grant-date fair value
|
$ | 1.87 | $ | 2.82 | $ | 3.39 | ||||||
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 shareholders approved the 1994 Plan. 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 unexercisable for any reason without having been exercised in
full are also available for distribution 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 March 29, 2009, 1,982,240 shares remain
available for future grant under the 1994 Plan.
2004 Equity Plan (2004
Plan)
In
September 2004, the Company’s shareholders 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 under the 2004 Plan may be granted to any one or more participants
without respect to such minimum vesting provisions. As of March 29,
2009, 9,861,705 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 at least a 36-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. As of March 29, 2009, 1,237,638
restricted stock unit awards were outstanding under the 2004 Plan.
The
following is a summary of the Company's stock option activity and related
weighted average exercise prices for each category:
|
Fiscal
2009
|
Fiscal
2008
|
Fiscal
2007
|
||||||||||||||||||||||
|
(shares
in thousands)
|
Shares
|
Price
|
Shares
|
Price
|
Shares
|
Price
|
||||||||||||||||||
|
Beginning
options outstanding
|
30,506 | $ | 13.00 | 33,105 | $ | 12.99 | 33,750 | $ | 12.40 | |||||||||||||||
|
Granted
|
3,775 | 9.62 | 3,315 | 14.46 | 6,569 | 15.31 | ||||||||||||||||||
|
Exercised
(1)
|
(346 | ) | 9.32 | (2,738 | ) | 11.14 | (4,879 | ) | 10.76 | |||||||||||||||
|
Canceled
|
(6,391 | ) | 14.23 | (3,176 | ) | 16.00 | (2,335 | ) | 15.65 | |||||||||||||||
|
Ending
options outstanding
|
27,544 | $ | 12.30 | 30,506 | $ | 13.00 | 33,105 | $ | 12.99 | |||||||||||||||
|
Ending
options exercisable
|
20,512 | $ | 12.50 | 21,110 | $ | 12.74 | 18,651 | $ | 12.92 | |||||||||||||||
|
(1)
|
Upon
exercise, the Company issues new shares of common
stock.
|
The
following is a summary of information about stock options outstanding at March
29, 2009:
|
(shares
in thousands)
|
Options
Outstanding
|
Options
Exercisable
|
||||||||||
|
Weighted
Average
Remaining
Contractual
Life
(in
years)
|
||||||||||||
|
Range
of Exercise Prices
|
Number
Outstanding
|
Weighted
Average
Exercise
Price
|
Number
Exercisable
|
Weighted
Average
Exercise
Price
|
||||||||
|
$0.86
- $10.80
|
5,184
|
3.33
|
$
|
9.10
|
3,238
|
$
|
10.48
|
|||||
|
$10.85
- $11.20
|
782
|
1.56
|
11.04
|
757
|
11.03
|
|||||||
|
$11.23
- $11.23
|
9,247
|
3.28
|
11.23
|
8,461
|
11.23
|
|||||||
|
$11.34
- $12.51
|
4,152
|
4.06
|
12.12
|
2,396
|
11.91
|
|||||||
|
$12.53
- $14.80
|
3,259
|
3.74
|
14.61
|
2,458
|
14.58
|
|||||||
|
$14.99
- $16.17
|
2,941
|
4.84
|
15.32
|
1,508
|
15.36
|
|||||||
|
$16.21
- $21.06
|
1,934
|
2.41
|
18.13
|
1,650
|
18.44
|
|||||||
|
$24.93
- $30.23
|
45
|
0.11
|
25.37
|
44
|
25.37
|
|||||||
|
$0.86
- $30.23
|
27,544
|
3.51
|
$
|
12.30
|
20,512
|
$
|
12.50
|
|||||
As
of March 29, 2009, March 30, 2008 and April 1, 2007, the weighted average
remaining contractual life of options outstanding was 3.51 years, 3.8 years and
4.7 years, respectively, and the aggregate intrinsic value was $0.1 million,
$0.4 million and $102.4 million, respectively. The weighted average
remaining contractual life of options exercisable was 2.87 years, 3.2 years and
3.9 years, respectively, and the aggregate intrinsic value was $0.1 million,
$0.4 million and $66.5 million, respectively. Unrecognized
compensation cost related to nonvested stock-options, net of estimated
forfeitures, was $11.8 million for the fiscal year ended March 29, 2009, and
will be recognized over a weighted average period of 1.1 years.
As
of March 29, 2009, March 30, 2008 and April 1, 2007, stock options vested and
expected to vest totaled approximately 26.6 million, 29.0 million and 29.3
million shares, with a weighted-average exercise price of $12.35, $12.96 and
$12.95 per share and a weighted average remaining contractual life of 3.43
years, 3.72 years and 4.5 years, respectively. The aggregate
intrinsic value was approximately $0.1 million, $0.4 million and $93.8 million,
respectively.
|
(in
thousands)
|
Fiscal
year ended
|
|||||||||||
|
March
29,
2009
|
March
30,
2008
|
April
1,
2007
|
||||||||||
|
Cash
proceeds from options exercised
|
$ | 3,226 | $ | 30,500 | $ | 52,512 | ||||||
|
Total
intrinsic value of options exercised
|
734 | 11,796 | 25,633 | |||||||||
|
Realized
excess tax benefits from option exercised (1)
|
192 | 12 | 73 | |||||||||
(1)
In fiscal years 2009, 2008 and 2007, approximately $192 thousand, $12 thousands
and $73 thousands, respectively, of U.S. income tax benefits related to the
exercise of certain employee stock options decreased income taxes payable and
were credited to additional paid in capital.
On
October 24, 2007, the Company announced that its Chief Executive Officer
(CEO) would be resigning as the President and CEO upon satisfactory completion
of a search for his successor. The Company entered into an executive transition
agreement with the CEO as of November 13, 2007. In connection with the
agreement, the Company agreed to extend the exercisablity of his outstanding
options to the earlier of 12 months after the date of termination or the
expiration of their original term. As a result, the Company recorded a
modification charge of approximately $1.0 million in the fiscal year
2008representing the difference in fair value of the original and modified
option.
The
following table summarizes the Company’s restricted stock unit activity and
related weighted average exercise prices for each category:
|
Fiscal
2009
|
Fiscal
2008
|
Fiscal
2007
|
||||||||||||||||||||||
|
(shares
in thousands)
|
Shares
|
Weighted
Average
Grant
Date
Fair
Value
Per
Share
|
Shares
|
Weighted
Average
Grant
Date
Fair
Value
Per
Share
|
Shares
|
Weighted
Average
Grant
Date
Fair
Value
Per
Share
|
||||||||||||||||||
|
Beginning
RSU’s outstanding
|
627 | $ | 14.53 | 75 | $ | 15.07 | -- | $ | -- | |||||||||||||||
|
Granted
|
995 | 11.11 | 673 | 14.55 | 76 | 15.09 | ||||||||||||||||||
|
Released
|
(167 | ) | 14.41 | (49 | ) | 15.54 | -- | -- | ||||||||||||||||
|
Forfeited
|
(217 | ) | 12.84 | (72 | ) | 14.59 | (1 | ) | 16.21 | |||||||||||||||
|
Ending
RSU’s outstanding
|
1,238 | $ | 12.09 | 627 | $ | 14.53 | 75 | $ | 15.07 | |||||||||||||||
As
of March 29, 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.
As
of March 29, 2009, March 30, 2008 and April 1, 2007, restricted stock units
vested and expected to vest totaled approximately 1.0 million, 0.5 million and
0.1 million shares, with a weighted average remaining contract life of 1.4
years, 1.5 years and 0.7 years, respectively. The aggregate intrinsic
value was approximately $4.8 million, $4.1 million and 0.9 million,
respectively.
1984
ESPP
In
July 1984, the Company’s shareholders approved the 1984 ESPP under which
eligible employees may purchase shares of the Company’s common stock through
payroll deductions (not to exceed 15% of such employee’s compensation) at no
lower than 85% of the fair market value of the common stock on the first day or
the last day of each fiscal quarter, whichever is lower. Under the
1984 ESPP, 15,100,000 shares of common stock have been made available for
issuance. The 1984 ESPP is implemented by 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 1984 ESPP imposes certain restrictions,
including the limitation that no employee is permitted to participate in the
1984 ESPP if the rights of such employee to purchase common stock of the Company
under the 1984 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.
Activity
under the Company’s ESPP is summarized in the following table:
|
(shares
in thousands)
|
Fiscal
2009
|
Fiscal
2008
|
Fiscal
2007
|
|||||||||
|
Number
of shares issued
|
1,860 | 1,085 | 823 | |||||||||
|
Average
issuance price
|
$ | 5.53 | $ | 10.29 | $ | 12.58 | ||||||
|
Number
of shares available at year-end
|
867 | 2,727 | 1,812 | |||||||||
Note
6
Stockholders'
Equity
Stock 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, the
Company repurchased approximately 28.9 million shares at an average price of
$11.60 per share for a total purchase price of $334.8 million. On
April 30, 2008, the Company’s Board of Directors approved an additional $100
million expansion of the share repurchase program to a total $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. As of March 29, 2009, approximately $77.9 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. The program is intended to reduce the number
of outstanding shares of Common Stock to increase stockholder
value.
Stockholder Rights
Plan. In December 1998, the Board of
Directors adopted a plan designed to protect the rights of IDT stockholders in
the event of a future, unsolicited takeover attempt. Under the plan, each
outstanding share of IDT common stock bears one preferred share purchase right.
Under certain circumstances, each purchase right entitles its holder to acquire
one-hundredth of a share of a newly designated junior participating preferred
stock at a price of $45.00 per share. The preferred stock is structured so that
the value of one-hundredth of a share of such preferred stock will approximate
the value of one share of common stock. The Stockholder rights Plan was allowed
to expire in accordance with the Plan’s terms on December 21,
2008. On October 27, 2008, the Company adopted Amended and Restated
Bylaws which provide, in relevant part, that the Company will not adopt or
extend a stockholder rights plan, rights agreement or any other form of “poison
pill” which is designed to make, or has the effect of making, the acquisition of
large holdings of the corporation’s stock more difficult or expensive (a
“Stockholder Rights Plan”) without obtaining the prior approval of the
stockholders of the Corporation by the affirmative vote of a majority of the
votes cast with respect to the matter by the shares represented and entitled to
vote thereon at an annual or special meeting of the stockholders at which a
quorum is present; provided, however, that the corporation may adopt a
Stockholder Rights Plan without such prior approval if a majority of the
independent directors (as determined in accordance with applicable NASDAQ rules
and listing requirements and any additional criteria set forth in the
corporation’s Corporate Governance Guidelines), in the exercise of their
fiduciary duties, determines that adoption of a Stockholder Rights Plan is in
the best interest of stockholders under the circumstances. If a Stockholder
Rights Plan is adopted without prior stockholder approval as contemplated by the
preceding sentence, such plan shall expire within twelve (12) months from the
date of adoption unless, prior to such date, it is approved by the affirmative
vote of a majority of the votes cast with respect to the matter by the shares
represented and entitled to vote thereon at an annual or special meeting of the
stockholders at which a quorum is present.
Note 7
Balance
Sheet Detail
|
(in
thousands)
|
March
29,
2009
|
March
30,
2008
|
||||||
|
Inventories
|
||||||||
|
Raw
materials
|
$ | 6,876 | $ | 4,674 | ||||
|
Work-in-process
|
35,252 | 43,556 | ||||||
|
Finished
goods
|
27,594 | 31,724 | ||||||
|
Total
inventories
|
$ | 69,722 | $ | 79,954 | ||||
|
Property,
Plant and Equipment, Net
|
||||||||
|
Land
|
$ | 14,533 | $ | 14,533 | ||||
|
Machinery
and equipment
|
796,387 | 785,527 | ||||||
|
Building
and leasehold improvements
|
134,358 | 135,341 | ||||||
| 945,278 | 935,401 | |||||||
|
Less:
accumulated depreciation
|
(873,717 | ) | (853,749 | ) | ||||
|
Total
property, plant and equipment, net
|
$ | 71,561 | $ | 81,652 | ||||
|
Other
Long-Term Obligation
|
||||||||
|
Deferred
compensation related liabilities
|
$ | 10,946 | $ | 12,858 | ||||
|
Long-term
portion of deferred gain on equipment sales
|
940 | 897 | ||||||
|
Long-term
portion of lease impairment obligations
|
890 | 1,103 | ||||||
|
Long-term
portion of supplier obligations
|
1,384 | 3,086 | ||||||
|
Other
|
154 | 420 | ||||||
|
Total
other long-term obligations
|
$ | 14,314 | $ | 18,364 | ||||
Note
8
Deferred
income on shipments to distributors
Included
in the caption “Deferred
income on shipments to distributors” on the consolidated balance sheet
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 March 29, 2009 and March 30, 2008 are as follows:
|
(in
thousands)
|
For
the fiscal year ended
|
|||||||
|
March
29, 2009
|
March
30, 2008
|
|||||||
|
Gross
deferred revenue
|
$ | 21,302 | $ | 30,741 | ||||
|
Gross
deferred costs
|
4,764 | 6,429 | ||||||
|
Deferred
income on shipments to distributors
|
$ | 16,538 | $ | 24,312 | ||||
The
gross deferred revenue represents the gross value of shipments to distributors
at the list price billed to the distributor less any price protection credits
provided to them in connection with reductions in list price while the products
remain in their inventory. The amount ultimately recognized as
revenue will be lower than this amount as a result of ship from stock pricing
credits which are issued in connection with the sell through of our products to
end customers, historically this amount represents on average approximately 25%
of the list price billed to the customer. The gross deferred costs
represent the standard costs (which approximate actual costs) of products we
sell to the distributors. Although we monitor the levels and quality
of inventory in the distribution channel, our 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
9
Goodwill
and Other Intangible Assets
Goodwill
and identified intangible asset balances are summarized as
follows:
|
March
29, 2009
|
||||||||||||
|
(in
thousands)
|
Gross
assets
|
Accumulated
amortization
|
Net
assets
|
|||||||||
|
Goodwill
|
$ | 89,404 | $ | -- | $ | 89,404 | ||||||
|
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 | ) | -- | ||||||||
|
Subtotal,
identified intangible assets
|
532,491 | (481,982 | ) | 50,509 | ||||||||
|
Total
goodwill and identified intangible assets
|
$ | 621,895 | $ | (481,982 | ) | $ | 139,913 | |||||
|
March
30, 2008
|
||||||||||||
|
(in
thousands)
|
Gross
assets
|
Accumulated
amortization
|
Net
assets
|
|||||||||
|
Goodwill
|
$ | 1,027,438 | $ | -- | $ | 1,027,438 | ||||||
|
Identified
intangible assets:
|
||||||||||||
|
Existing
technology
|
288,558 | (144,570 | ) | 143,988 | ||||||||
|
Trademarks
|
10,534 | (7,716 | ) | 2,818 | ||||||||
|
Customer
relationships
|
158,396 | (103,506 | ) | 54,890 | ||||||||
|
Foundry
& Assembler relationships
|
65,256 | (63,219 | ) | 2,037 | ||||||||
|
Non-compete
agreements
|
53,165 | (52,688 | ) | 477 | ||||||||
|
Other
|
31,174 | (30,895 | ) | 279 | ||||||||
|
Subtotal,
identified intangible assets
|
607,083 | (402,594 | ) | 204,489 | ||||||||
|
Total
goodwill and identified intangible assets
|
$ | 1,634,521 | $ | (402,594 | ) | $ | 1,231,927 | |||||
In
accordance with SFAS 142, Goodwill and Other Intangible
Assets, goodwill is reviewed for impairment annually and whenever events
or changes in circumstances indicate the carrying value of goodwill may not be
recoverable. These tests are performed at the reporting unit level using a
two-step method. The first step, used to determine if impairment possibly
exists, is to compare the carrying amount of a reporting unit, including
goodwill, to its fair value. If the carrying amount of the reporting unit
exceeds the fair value, the second step is to determine the amount of a possible
impairment by comparing the implied fair value of the reporting unit goodwill
with the carrying amount of that goodwill. Determining the fair value of a
reporting unit is judgmental in nature and involves the use of significant
estimates and assumptions. These estimates and assumptions include revenue
growth rates and operating margins used to calculate projected future cash
flows, risk-adjusted discount rates, future economic and market conditions and
determination of appropriate market comparables. The Company completed its
annual review of the goodwill during the fourth quarter ended March 30,
2008 and concluded that there was no impairment. Due to the extraordinary market
and economic conditions that commenced in the third quarter of fiscal 2009, the
Company experienced a decline in our stock price, resulting in its market
capitalization falling below our net book value. In addition, due to the
increased competitive pressure within certain of our markets during Q3 2009, as
well as the deteriorating macro-economic environment, which caused a decline in
its revenues, operating income, and cash flow forecasts, the Company concluded
that indicators existed requiring it to perform an interim goodwill impairment
analysis at November 30, 2008. Accordingly, the Company performed an interim
goodwill impairment analysis for each of our five reporting units. The fair
value of each reporting unit was estimated based on an average weighting of both
projected discounted future cash flows (the income approach) and use of
comparative market multiples (the market approach). The market approach compared
the Company to other comparable companies based on valuation multiples to arrive
at fair value adjusted for a control premium. Based on the preliminary results,
the carrying value of the Computing and Multimedia (CMD) reporting unit exceeded
its fair value, indicating potential goodwill impairment existed. As a result of
this analysis, the Company wrote down the carrying amount of goodwill in the CMD
reporting unit to its estimated implied fair value and recognized an estimated
goodwill impairment charge of $326.4 million during the quarter ended December
28, 2009.
In
Q409, the Company completed its annual review of goodwill and concluded that due
to increased deteriorating macro-economic environment and significant downturn
in semiconductor industry, its projected revenue for fiscal 2010
declined
significantly
from the amount was projected in Q3 2009. Based on the results of the
SFAS 142 step 1 analysis, the carrying value of Communications (COM), Enterprise
and Computing (ECD), and Computing and Multimedia (CMD) reporting units exceeded
their fair values. As such, the Company performed step 2 of the
impairment test to determine the implied fair value of goodwill of these
reporting units, which are the differences between the estimated fair values of
these reporting units and the sum of the fair value of the identified recognized
and unrecognized net assets. The result of the step 2 goodwill analysis
indicated that the goodwill related to the COM, ECD and CMD reporting units was
impaired. Accordingly, the Company wrote down the carrying amount of
goodwill to their implied fair values and recognized an impairment charge of $
619.9 million in Q4 2009.
The
Company made several assumptions to establish inputs for our fair value
calculations. The Company used the long term growth rates of 3% to calculate the
terminal value of our reporting units and the discount rates that ranged between
22% and 32% to calculate the discounted cash flows. The discount rates were
higher than the range of 13% to 32% used in the prior year and 19% to 32% in Q3
2009. The Company believes that the assumptions and rates used in its impairment
test under SFAS 142 are reasonable; however, they are judgmental, and variations
in any of the assumptions or rates could result in a materially different amount
of the impairment charge.
In
accordance with SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, long-lived assets are reviewed whenever
events or changes in circumstances indicate the carrying amount of such assets
may not be recoverable. Recoverability of long-lived assets is measured by a
comparison of the carrying amount of the asset group to the future undiscounted
net cash flows expected to be generated by those assets. If such assets are
considered to be impaired, the impairment charge recognized is the amount by
which the carrying amounts of the assets exceeds the fair value of the assets.
As a result of the impairment indicators described above, in Q3 2009, the
Company performed an impairment analysis for our long-lived assets, including
our intangible assets subject to amortization. The analysis indicated that some
of the identified intangible assets were not recoverable as the sum of their
estimated future undiscounted cash flows were below the asset’s carrying value
and accordingly, the Company estimated the fair value of these identified assets
using a discounted cash flow analysis to measure the impairment loss. As a
result of this analysis, the Company wrote off the difference between the
identified intangible assets’ estimated fair values and the carrying values and
recognized an impairment charge of $12.7 million in Q3 2009. In Q4
2009, in conjunction with our completion of goodwill impairment analysis, and
also due to the revised lower revenue forecast for fiscal 2010 which concluded
were additional impairment indicators, the Company performed an impairment
analysis for its long-lived assets. As result of this impairment
analysis, the Company recorded an impairment charge of approximately $66.7
million in Q4 2009.
Amortization
expense for identified intangibles is summarized below:
|
(in
thousands)
|
Fiscal
2009
|
Fiscal
2008
|
Fiscal
2007
|
|||||||||
|
Existing
technology
|
$ | 53,563 | $ | 56,756 | $ | 53,931 | ||||||
|
Trademarks
|
1,162 | 1,917 | 2,807 | |||||||||
|
Customer
relationships
|
23,080 | 33,704 | 42,149 | |||||||||
|
Foundry
& Assembler relationships
|
1,155 | 4,241 | 23,647 | |||||||||
|
Non-compete
agreements
|
270 | 11,668 | 25,272 | |||||||||
|
Other
|
158 | 1,709 | 7,582 | |||||||||
|
Total
|
$ | 79,388 | $ | 109,995 | $ | 155,388 | ||||||
The
intangible assets are being amortized over estimated useful lives of two to ten
years.
Based
on the identified intangible assets recorded at March 29, 2009, the future
amortization expense of identified intangibles for the next five fiscal years
and thereafter is as follows (in thousands):
|
Fiscal
Year
|
Amount
|
|||
|
2010
|
$ | 17,713 | ||
|
2011
|
13,955 | |||
|
2012
|
9,554 | |||
|
2013
|
4,563 | |||
|
2014
|
2,001 | |||
|
Thereafter
|
2,723 | |||
|
Total
|
$ | 50,509 | ||
Changes
to the carrying value of goodwill were as follows:
|
(in
thousands)
|
Goodwill
|
|||
|
April
1, 2007
|
$
|
1,038,064
|
||
|
Additions
|
--
|
|||
|
Adjustments
|
(10,626
|
)
|
||
|
March
30, 2008
|
1,027,438
|
|||
|
Additions
|
9,268
|
|||
|
Adjustments
(1)
|
(947,302
|
)
|
||
|
March
29, 2009
|
$
|
89,404
|
||
(1) goodwill adjustments
included a impairment charge of $946 million and certain tax adjustments of $1.0
million. The Company's reporting structure is comprised of two reportable
segments, Communications and Computing and Consumer. As of March 29, 2009,
Communications segment had $59.5 million, while Computing and Consumer segment
had $29.9 million.
Note 10
Restructuring
The
following table shows the breakdown of the restructuring and asset impairment
charges and the liability remaining as of March 29, 2009:
|
Cost
of goods sold
|
Operating
Expenses
|
|||||||||||||||||
|
(In
thousands)
|
Restructuring
|
Asset
impairment–
PP&E
|
Restructuring
|
Asset
impairment
–
PP&E
|
||||||||||||||
|
Balance
as of April 2, 2006
|
$ | 3,020 | $ | -- | $ | 4,430 | -- | |||||||||||
|
FY
2007 charges (credits)
|
722 | 4,397 | (1) | 987 | $ | 233 | ||||||||||||
|
Non-cash
charges
|
-- | (4,397 | ) | -- | (233 | ) | ||||||||||||
|
Cash
receipts (payments)
|
(2,470 | ) | -- | (2,949 | ) | -- | ||||||||||||
|
Balance
as of April 1, 2007
|
1,272 | -- | 2,468 | -- | ||||||||||||||
|
FY
2008 charges (credits)
|
(39 | ) | -- | 511 | -- | |||||||||||||
|
Non-cash
charges
|
-- | -- | -- | -- | ||||||||||||||
|
Cash
receipts (payments)
|
(800 | ) | -- | (1,847 | ) | -- | ||||||||||||
|
Balance
as of March 30, 2008
|
433 | -- | 1,132 | -- | ||||||||||||||
|
FY
2009 charges (credits)
|
1,938 | 5,338 | -- | |||||||||||||||
|
Non-cash
charges
|
-- | -- | -- | |||||||||||||||
|
Cash
payments
|
(1,796 | ) | (2,821 | ) | -- | |||||||||||||
|
Balance
as of March 29, 2009
|
$ | 575 | $ | -- | $ | 3,649 | $ | -- | ||||||||||
(1)
Refer to Note 17, Assets Held for Sale, for additional information.
Restructuring
Actions
As
part of an effort to streamline operations with changing market conditions and
to create a more efficient organization, the Company took restructuring actions
in fiscal 2009, 2008 and 2007 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 our 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 SFAS 146, Accounting for Costs Associated with
Exit or Disposal Activities (SFAS 146) or SFAS 112, Employer’s Accounting for Post
Employment Benefits (SFAS 112). 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 as defined by SFAS No. 146 or under an on-going
benefit arrangement as described by SFAS 112.
In
January 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 our
NWD 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 German and
Japan. The Company recorded restructuring expenses of $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 Q4 2009. Currently, the Company expects to complete these
restructuring actions in Q2 2010.
During
Q3 2009, the Company initiated restructuring actions, which primarily affected
its military business and Corporate Technology Group. These restructuring
actions were taken to better allocate its engineering resources to maximize
revenue potential. These actions resulted in the reduction of approximately 26
positions. The Company recorded restructuring expenses of approximately $0.6
million and $0.1 million for severance benefits associated with these
restructuring actions in Q3 2009 and Q4 2009. The Company expects to
complete this restructuring plan in Q1 2010.
During
Q2 2009, the Company initiated a reduction-in force, which primarily affected
its Texas design center. This restructuring action was taken to streamline our
operations within one of its business units. This action resulted in the
reduction of approximately 21 positions. The Company recorded restructuring
expenses of $0.5 million for severance benefits in Q2 2009 associated with this
action. This restructuring action was completed in Q4
2009.
During
Q1 2009, the Company initiated restructuring actions, which primarily affected
its manufacturing personnel in Penang, Malaysia as well as sales personnel in
the U.S. and Sweden, including the closure of its Sweden office. The Company
took these restructuring actions to rebalance the workforce to better align with
its growth opportunities. These restructuring actions resulted in the reduction
of approximately 79 positions. The Company recorded restructuring expenses of
approximately $0.8 million for severance benefits associated with these
restructuring actions in Q1 2009. All termination payments were made in Q2
2009.
In
fiscal 2008, the Company initiated restructuring actions, which primarily
affected engineering personnel within three product lines as well as certain
manufacturing personnel including the closure of its San Diego facility. These
restructuring actions were taken to streamline the Company’s operations within
the business units and resulted in the reduction of approximately 20
positions. The Company recorded a one-time restructuring expense of
$0.7 million for severance and retention benefits associated with these actions.
In addition, in fiscal 2008, the Company 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 charge in Q2 2006, the Company
made lease payments of $6.1 million related to vacated facilities in Santa Clara
and Salinas. As of March 29, 2009, the remaining accrued lease liabilities
were $1.1 million.
In
Q2 2007, the Company initiated a RIF, which affected its assembly workforce in
Penang, Malaysia. This action coincided with the Company’s decision
to outsource its assembly operations to a third party and to transition these
services over the next year. This action resulted in the reduction of
approximately 300 positions. The Company recorded $0.7 million to
cost of revenues in Q2 2007, which was equivalent to the portion guaranteed to
each affected employee under Malaysian labor law, in accordance with SFAS
112. Through Q4 2007, the Company recorded and paid approximately
$1.5 million of severance and retention to affected employees. All
charges were recorded to cost of revenues and this restructuring action was
completed in Q4 2007.
Note
11
Commitments
and Guarantees
Guarantees
As
of March 29, 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 $2.7 million. The Company also has foreign exchange
facilities used for hedging arrangements with banks that allow the Company to
enter into foreign exchange contracts totaling approximately $20 million, all of
which was available at March 29, 2009.
Commitments
Although
the Company owns its corporate headquarters in San Jose, California, the Company
leases various administrative facilities under operating leases which expire at
various dates through fiscal 2014.
As
of March 29, 2008, aggregate future minimum commitments for the next five fiscal
years and thereafter under all operating leases, excluding leases where amounts
have been accrued for impairment charges, were as follows (in
millions):
|
2010
|
$ | 3.6 | ||
|
2011
|
3.0 | |||
|
2012
|
2.5 | |||
|
2013
|
1.8 | |||
|
2014
|
1.4 | |||
|
Thereafter
|
0.3 | |||
|
Total
|
$ | 12.6 |
Operating
lease amounts in the table above exclude future sublease income to be received
under non- cancelable sublease agreements of approximately $1.3 million, of
which $0.3 million is expected to be received within one year, $0.6 million is
expected to be received within two to three years and $0.5 million is expected
to be received within four to five years. Rent expense for the
fiscal years ended March 29, 2009, March 30, 2008 and April 1, 2007 totaled
approximately $4.2 million, $4.3 million and $3.9 million,
respectively. Other long-term supplier obligations including
payment due under various software design tool agreements totaled $1.4 million
and $3.1 million as of March 29, 2009 and March 30, 2008,
respectively.
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 we 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 our indemnification obligations, and
accordingly, the Company has not accrued any amounts for our 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 accruals are estimated
using a specific identification method. Historical profit and loss impact
related to warranty returns activity has been minimal. The total warranty
accrual was $0.5 million and $0.4 million as of March 29, 2009 and
March 30, 2008, respectively.
Note 12
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. Both
cases are in the discovery stage. The Company intends to vigorously
defend ourselves against these claims.
On
May 14, 2007, the Company was served with a Civil Investigative Demand from
the State of Florida concerning SRAM products. The Company and the State of
Florida have reached an agreement that suspends its obligation to respond to the
CID. The agreement also tolled the statute of limitations until January 21,
2009 as to potential claims against the Company. The tolling
agreement has now expired and the stature of limitations is running on potential
claims against the Company. Complaints concerning SRAM products have
also been filed against the Company in Ontario, British Columbia and Quebec,
Canada. The allegations in these complaints are parallel to the allegations in
the complaints pending in the U.S.. On March 19, 2008, the Company entered
into a tolling agreement with the plaintiffs in the Ontario, British Columbia
and Quebec actions. On March 25, 2008, the Ontario Superior Court of
Justice entered an order that discontinued the action in Ontario against the
Company without prejudice. On May 2, 2008, a Notice of Discontinuance was
filed by the plaintiff in the Supreme Court of British Columbia, resulting in a
discontinuation of the action against the Company without prejudice. On
August 28, 2008, the court in Quebec issued an order of discontinuance with
respect to the Company.
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), 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 ITC action is currently
scheduled for hearing July 20, 2009. The Company cannot predict the outcome or
provide an estimate of any possible losses. The Company will continue
to vigorously defend ourselves against the claims in these actions
The
Company cannot predict the outcome or provide an estimate of any possible losses
in the cases currently pending against the Company. The continuing
litigation could be costly, divert its management’s attention and could have a
material and adverse effect on the Company’s business, results of operations,
financial condition or cash flows. The Company intends to vigorously defend
these actions. The Company is currently a party to various other legal
proceedings, claims, disputes and litigation arising in the ordinary course of
business. Based on its own investigations, the Company does not believe the
ultimate outcome of such proceedings, individually and in the aggregate, will
have a material adverse effect on its financial position, results of operation
or cash flows. However, because of the nature and inherent uncertainties of such
litigation and investigations, should the outcome of these actions be
unfavorable, the Company’s business, financial condition, results of operations
or cash flows could be materially and adversely affected.
Note 13
Employee
Benefit Plans
The
Company sponsors a 401(k) retirement matching plan for qualified domestic
employees. The Company recorded expenses of approximately $3.9
million, $4.0 million and $3.7 million in matching contributions under the plan
in fiscal 2009, 2008 and 2007, respectively. Due to poor economic
conditions, the Company suspended its matching contributions to qualified 401(k)
participants effective April 1, 2009.
Effective
November 1, 2000, the Company established an unfunded deferred compensation plan
to provide benefits to executive officers and other key
employees. Under the plan, participants can defer any portion of
their salary and bonus compensation into the plan and may choose from a
portfolio of funds from which earnings are
measured. Participant balances are always 100%
vested. As of March 29, 2009 and March 30, 2008, obligations
under the plan totaled approximately $10.9 million and $12.9 million,
respectively. 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
incurred costs for this plan for insurance, administration and other support of
$0.4 million, $0.3 million and $0.2 million in fiscal 2009, 2008 and 2007,
respectively.
Note 14
Income
Taxes
The
components of income (loss) before taxes and the provision (benefit) for income
taxes were as follows (in
thousands):
|
Fiscal
|
Fiscal
|
Fiscal
|
|||||||||||
|
Provision:
|
2009
|
2008
|
2007
|
||||||||||
|
Income
(loss) before taxes:
|
|||||||||||||
|
United
States
|
$ | (1,045,608 | ) | $ | (29,409 | ) | $ | (59,732 | ) | ||||
|
Foreign
|
21 | 58,146 | 57,184 | ||||||||||
|
Income
(loss) before taxes:
|
$ | (1,045,587 | ) | $ | 28,737 | $ | (2,548 | ) | |||||
|
Provision
(benefit) for taxes:
|
|||||||||||||
|
Current:
|
|||||||||||||
|
United
States
|
$ | 1,074 | $ | 156 | $ | 784 | |||||||
|
State
|
(95 | ) | 642 | 643 | |||||||||
|
Foreign
|
(208 | ) | 1,261 | 2,496 | |||||||||
| 771 | 2,059 | 3,923 | |||||||||||
|
Deferred:
|
|||||||||||||
|
United
States
|
(839 | ) | 3,358 | 312 | |||||||||
|
State
|
(62 | ) | 73 | 23 | |||||||||
|
Foreign
|
(290 | ) | (10,932 | ) | 772 | ||||||||
| (1,191 | ) | (7,501 | ) | 1,107 | |||||||||
|
Provision
(benefit) for taxes:
|
$ | (420 | ) | $ | (5,442 | ) | $ | 5,030 | |||||
In
fiscal years 2009, 2008 and 2007 approximately $192 thousand, $12 thousand and
$73 thousand, respectively, of U.S. income tax benefits related to the exercise
of certain employee stock options decreased income taxes payable and were
credited to additional paid in capital.
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of deferred tax
assets and liabilities were as follows (in thousands):
|
Fiscal
2009
|
Fiscal
2008
|
||||||
|
Deferred
tax assets:
|
|||||||
|
Deferred
income on shipments to distributors
|
$
|
4,888
|
$
|
7,280
|
|||
|
Non-deductible
accruals and reserves
|
9,987
|
10,810
|
|||||
|
Inventory
related and other expenses
|
3,473
|
2,666
|
|||||
|
Net
operating losses and credit carryforwards
|
64,405
|
72,237
|
|||||
|
Depreciation
and amortization
|
17,388
|
11,415
|
|||||
|
Stock
options
|
13,303
|
14,686
|
|||||
|
Other
|
5,841
|
6,758
|
|||||
|
119,285
|
125,852
|
||||||
|
Deferred
tax liabilities:
|
|||||||
|
Purchased
intangibles
|
(13
|
)
|
(35,598
|
)
|
|||
|
US
tax on earnings of foreign subsidiaries not indefinitely
reinvested
|
(676
|
)
|
(671
|
)
|
|||
|
Other
|
(2,531
|
)
|
(2,146
|
)
|
|||
|
(3,220
|
)
|
(38,415
|
)
|
||||
|
Valuation
allowance
|
(117,589
|
)
|
(90,262
|
)
|
|||
|
Net
deferred tax liabilities
|
$
|
(1,524
|
)
|
$
|
(2,825
|
)
|
|
In
the fourth quarter of fiscal 2003, the Company established a valuation allowance
against its net deferred tax assets because management could not conclude it was
more likely than not that these deferred tax assets would be realized. The
Company reached this decision based on judgment, which included consideration of
historical losses and projections of future profits with substantially more
weight being placed on recent losses than any projections of future
profitability. The Company will continue to monitor the need for the valuation
allowance on a quarterly basis and may, with further evidence, determine that
the valuation allowance is no longer required. The net deferred tax
liability of $1.5 million, relates primarily to book to tax basis differences in
various foreign jurisdictions.
The
valuation allowance for deferred tax assets increased by $26.7 million and
decreased by $84.4 million during fiscal 2009 and 2008, respectively. As of
March 29, 2009, approximately $0.9 million of the valuation allowance will be
allocated to reduce goodwill or other non-current intangible assets, when
realized, from companies IDT has acquired.
As
of March 29, 2009, the Company had federal and state net operating loss
carryforwards, net of FIN48 unrecognized tax benefits, of approximately $51.1
million and $135.7 million, respectively, which include excess tax benefits
related to stock option exercises. The Company has approximately
$35.7 million of net tax benefits related to excess stock compensation benefits,
which are not recorded as deferred tax assets under SFAS123(R). These
excess stock compensation benefits will be credited to additional paid in
capital when recognized. The federal net operating loss carryforwards will
expire in various fiscal years from 2021 through 2024 if not
utilized. The state net operating loss carryforwards will expire in
various fiscal years through 2025 if not utilized. The utilization of
NOLs created by acquired companies is subject to annual limitations under
Section 382 of the Internal Revenue Code. However, we do not expect that
such annual limitation will impair the realization of these NOLs.
As
of March 29, 2009, the Company had approximately $40.2 million of federal
research and development tax credit carryforwards, and $7.0 million of foreign
tax credit carryforwards. The federal research tax credit carryforwards will
expire
from
fiscal years 2010 through 2025 if not utilized and the foreign tax credit
carryforwards will expire from fiscal years 2011 to 2020 if not utilized. The
Company also had available approximately $48.5 million of state income tax
credit carryforwards, $2.6 million of which will expire in various years through
2013 if not utilized.
Reconciliation
between the statutory U.S. income tax rate of 35% and the effective rate is as
follows (in
thousands):
|
Fiscal
2009
|
Fiscal
2008
|
Fiscal
2007
|
||||||||||
|
Rate
Reconciliation:
|
||||||||||||
|
Provision
(benefit) at 35% U.S. statutory rate
|
$ | (365,955 | ) | $ | 10,058 | $ | (892 | ) | ||||
|
State
tax, net of federal benefit
|
(229 | ) | 688 | 666 | ||||||||
|
Foreign
income taxed at lower rates
|
554 | (17,317 | ) | (15,246 | ) | |||||||
|
Impact
of rate change and extension of incentive in foreign
jurisdiction
|
(864 | ) | (11,408 | ) | -- | |||||||
|
Repatriation
of foreign earnings
|
1,056 | 2,680 | -- | |||||||||
|
Net
operating losses and tax credits not benefited
|
36,213 | 1,648 | 16,977 | |||||||||
|
Goodwill
and intangible assets impairment
|
321,798 | -- | -- | |||||||||
|
Stock-based
compensation related to foreign jurisdictions and incentive stock
options
|
6,533 | 6,873 | 2,342 | |||||||||
|
Other
|
474 | 1,336 | 1,183 | |||||||||
|
Provision
(benefit) for taxes
|
$ | (420 | ) | $ | (5,442 | ) | $ | 5,030 | ||||
The
Company benefits from tax incentives granted by local tax authorities in certain
foreign jurisdictions. All non-passive income earned in its Bermuda
subsidiary is not subject to tax. In addition, the results reflect a
zero tax rate on non-passive income earned in its Singapore subsidiary, which
has been granted pioneer status, or exemption of taxes on non-passive income,
from the Economic Development Board of Singapore through December 31, 2009. The
pioneer status is contingent upon the Company continuing to meet specified
investment criteria in fixed assets, personnel, and technology. The
impact of this tax holiday was to increase net income by approximately $4.3
million ($0.03 per share, diluted) in fiscal 2009 and $5.1 million ($0.03 per
share, diluted) in fiscal 2008. The Company also was granted a tax
holiday in Malaysia during the fiscal year. The tax holiday is
contingent upon the Company continuing to meet specified investment criteria in
fixed assets, and to operate as a APAC regional headquarter
center. The tax holiday granted by the Malaysian Industrial
Development Authority will last for 10 years commencing April 1,
2006. The impact of this tax holiday was to increase net income by
approximately $0.8 million ($0.005 per share, diluted) in fiscal
2009.
U.S.
taxes have not been provided on approximately $267.4 million of indefinitely
reinvested foreign subsidiary earnings. Due to the Company’s full valuation
allowance, the calculation of the tax impact of remitting these earnings is not
practicable at this time.
The
amount of unrecognized tax benefits that would impact the effective tax rate was
approximately $18.8 million and $18.8 million as of March 29, 2009 and March 30,
2008, respectively. As of March 29, 2009, the recognition of
approximately $1.0 million, of unrecognized tax benefits, would be reported as
an adjustment to goodwill, and $24.3 million would be offset by a change in
valuation allowance. In accordance with FIN 48, the Company
recognizes potential interest and penalties as a component of income tax
expense. Accrued interest and penalties relating to the income tax on the
unrecognized tax benefit as of March 29, 2009 and March 30, 2008 and, were
approximately $1.3 million and $1.9 million, respectively. In
addition, deferred tax assets of approximately $3.1 million were recorded to
account for the federal benefit of the state liabilities.
In
December 2008, the Company was notified by the Internal Revenue Service (IRS)
that they were going to conduct a field audit of the Company for fiscal years
2006 through 2008. The IRS audit is still in the preliminary stages
at the moment so there is no information available, other that 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 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.
During
the twelve months beginning March 30, 2009, the Company does not expect its
unrecognized tax benefits will materially change from March 29, 2009
balances. However, the Company notes that the resolution and/or
closure on open audits are highly uncertain.
The
following tables summarize the activities of gross unrecognized tax benefits (in
thousands):
|
Balance
as of March 31, 2008
|
$ | 42,896 | ||
|
Increases
related to prior year tax positions
|
-- | |||
|
Decreases
related to prior year tax positions
|
(20 | ) | ||
|
Increases
related to current year tax positions
|
2,096 | |||
|
Decreases
related to settlements with taxing authorities
|
-- | |||
|
Decreases
related to the lapsing of statute limitations
|
||||
|
Balance
as of March 29, 2009
|
$ | 44,972 |
Note 15
Segments
During
Q2 2009, the Company announced a re-organization of its business units into five
operating segments. The five operating segments are Communications,
Networking, Enterprise Computing, Computing and Multimedia and Video and
Display. The re-organization was performed to reduce costs and align
resources with the needs of each business unit and was fully implemented in Q3
2009. As a result, the Company reevaluated its reportable business
segments in accordance with SFAS 131, Disclosures about Segments of an
Enterprise and Related Information (SFAS 131) and changed the Company’s
reportable segments from three (Networking segment, Timing segment and Standard
Products and Others segment) to two reportable segments (Communications segment
and Computing and Consumer segment). The Communications and Networking operating
segments are aggregated into Communications reportable segment, while Enterprise
Computing, Computing and Multimedia and Video and Display operating segments are
aggregated into Computing and Consumer reportable 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
Chief Executive Officer has been identified as the Chief Operating Decision
Maker as defined by SFAS 131.
The
segment information for fiscal 2008 and 2007 has been adjusted
retrospectively to
conform to the current period presentation.
These two reportable business segments are as follows:
|
§
|
Communications
segment: includes network search engines (NSEs), switching solutions,
flow-control management devices, FIFOs, multi-port products, integrated
communications processors, high-speed SRAM, military application, digital
logic, telecommunications.
|
|
§
|
Computing
and Consumer segment: includes clock generation and distribution products,
high-performance server memory interfaces, PC audio and video
products.
|
The
tables below provide information about these segments:
|
Fiscal
Year Ended
|
||||||||||||
|
(in
thousands)
|
March
29,
2009
|
March
30,
2008
|
April
1,
2007
|
|||||||||
|
Communications
|
$ | 304,256 | $ | 349,820 | $ | 403,393 | ||||||
|
Computing
and Consumer
|
358,989 | 431,647 | 400,204 | |||||||||
|
Total
revenues
|
$ | 663,245 | $ | 781,467 | $ | 803,597 | ||||||
Income
(Loss) by segment
|
Fiscal
Year Ended
|
|||||||||||
|
(in
thousands)
|
March
29,
2009
|
March
30,
2008
|
April
1,
2007
|
||||||||
|
Communications
|
$
|
95,417
|
$
|
103,226
|
$ |
|
133,796
|
||||
|
Computing
and Consumer
|
11,292
|
65,210
|
69,401
|
||||||||
|
Amortization
of intangible assets
|
(79,388
|
)
|
(109,995
|
)
|
(155,388
|
)
|
|||||
|
Inventory
FMV adjustment
|
--
|
--
|
(3,721
|
)
|
|||||||
|
Goodwill
and intangible assets impairment
|
(1,025,684
|
)
|
--
|
--
|
|||||||
|
Amortization
of stock-based compensation
|
(32,402
|
)
|
(41,242
|
)
|
(46,506
|
)
|
|||||
|
Severance
and retention costs
|
(7,484
|
)
|
(2,884
|
)
|
(10,267
|
)
|
|||||
|
Acquired
in-process research and development
|
(5,597
|
)
|
--
|
(500
|
)
|
||||||
|
Acquisition-related
costs and other
|
11
|
(2,290
|
)
|
(4,311
|
)
|
||||||
|
Other-than-temporary
loss on investments
|
(3,000
|
)
|
--
|
--
|
|||||||
|
Interest
expense
|
(60
|
)
|
(103
|
)
|
(263
|
)
|
|||||
|
Interest
income and other, net
|
1,308
|
16,815
|
15,211
|
||||||||
|
Income
(loss) before income taxes
|
$
|
(1,045,587
|
)
|
$
|
28,737
|
$
|
(2,548
|
)
|
|||
The
Company does not allocate goodwill and intangible assets impairment charge,
IPR&D, severance and retention costs, acquisition-related costs, stock-based
compensation, interest income and other, and interest expense to its
segments. In addition, the Company does not allocate assets to its
segments. The Company excludes these items consistent with the manner in which
it internally evaluates its results of operations.
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:
|
Fiscal
Year Ended
|
||||||||||||
|
(in
thousands)
|
March
29,
2009
|
March
30,
2008
|
April
1,
2007
|
|||||||||
|
Asia
Pacific
|
$ | 416,815 | $ | 436,491 | $ | 378,594 | ||||||
|
Americas
|
131,836 | 216,570 | 238,439 | |||||||||
|
Japan
|
61,098 | 70,729 | 105,390 | |||||||||
|
Europe
|
53,496 | 57,677 | 81,174 | |||||||||
|
Total
revenues
|
$ | 663,245 | $ | 781,467 | $ | 803,597 | ||||||
The
Company’s financial reporting systems track revenue based upon the regions
presented in the table above. However, the data for individual
countries is not at a precise enough level to determine these amounts with
certainty. The Company estimates that the largest individual
countries not separately disclosed above are the U.S. and Taiwan.
The
Company's property, plant and equipment are summarized below by geographic
area:
|
in
thousands)
|
March
29,
2009
|
March
30,
2008
|
||||
|
United
States
|
$
|
60,836
|
$
|
69,284
|
||
|
Malaysia
|
4,888
|
6,211
|
||||
|
Singapore
|
2,918
|
4,230
|
||||
|
All
other countries
|
2,919
|
1,927
|
||||
|
Total
property, plant and equipment, net
|
$
|
71,561
|
$
|
81,652
|
||
Note 16
Derivative
Financial Instruments
As
a result of its significant 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. During fiscal 2009, the Company utilized
forward currency contracts to settle short term foreign currency denominated
payables and such gains and losses were recorded in the statement of operations.
Such gains and losses duirng fiscal 2009 recorded in the other income
(expense) were immaterial. During fiscal 2009 and 2008, there were no
hedges of forecasted transactions or firm commitments. As of the end of Q4 2009
and Q4 2008, the Company did not have any outstanding foreign currency contracts
that were designated as hedges of forecasted cash flows or capital equipment
purchases. The Company does not enter into derivative financial instruments for
speculative or trading purposes.
The
Company may also utilize currency forward contracts to hedge currency exchange
rate fluctuations related to certain short term foreign currency assets and
liabilities. As gains and losses on these undesignated derivatives offset gains
and losses on the assets and liabilities being hedged and the net amount is
included in earnings. An immaterial amount of net gains and losses were included
in net income or loss during fiscal 2009, 2008 and 2007.
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 hedge arrangement.
Note
17
Assets
Held-for-Sale
In
fiscal 2006, the Company announced its plans to consolidate its assembly and
test operations and outsource a portion of its assembly
operations. Under the plan, the Company closed its assembly and test
facility in Manila, Philippines, which resulted in a RIF of approximately 750
employees. The Company also transferred the test and finish work performed at
its Manila facility to the Company’s facility in Penang, Malaysia, and
transferred the assembly work and certain assembly equipment to third party
sub-contractors. The Company also began actively marketing the
facility, the surrounding land and remaining assets (Manila disposal group), and
determined that the plan of sale criteria in SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, had been met and was thus reclassified as
held-for-sale.
In
Q3 2007, the fair value of the Manila disposal group was reassessed by
management and it was determined that the current carrying value of the Manila
disposal group exceeded the market value. As a result, the Company
recorded an impairment charge of approximately $2.5 million to reduce the
carrying value of the Manila disposal group to its estimated market value, less
selling costs and began marketing the facility at the reducing
price. In Q4 2007, the Company accepted an offer to purchase the
Manila disposal group. As a result, the Company recorded an
additional impairment charge of approximately $1.9 million to reduce the
carrying value of the Manila disposal group to the sales price, less selling
costs.
In
Q2 2008, we sold the facility for net proceeds, after deducting fees and taxes,
of approximately $2.4 million. As the proceeds from this sale were
lower than the impaired value of the assets, we recorded a loss of approximately
$0.6 million in fiscal 2008. The transaction was completed on August
10, 2007.
Note
18
Subsequent
Events
On
April 30, 2009, the Company entered into a definitive acquisition agreement with
Tundra Semiconductor Corporation (“Tundra”), a Canadian Public Company based in
Ottawa, to acquire all of Tundra’s outstanding shares of common stock for Canada
for approximately CDN $120.6 million or CDN$6.25 per share, plus approximately
CDN $2.9 million for the purchase of employee restricted stock units and
in-the-money stock options. If the Tundra shareholders approve the sale to IDT,
the Company expects this transaction to close early in the second quarter of
fiscal 2010.
On
April 30, 2009, we signed a definitive agreement to divest certain assets
related to our network search engine business to NetLogic Microsystems, Inc. The
purchase consideration consists of approximately $100 million, which includes
inventory currently estimated at $10 million and subject to adjustment on the
closing date and assume specified liabilities related to these assets. At
closing, NetLogic Microsystems, at its option and subject to conditions under
the agreement, may pay the entire purchase price in cash or pay approximately
$70 million less the cost of inventory in cash and issue to us a $30 million
secured promissory note payable in two equal installments on the first and
second anniversaries of the closing date. We expect this transaction to close
prior to the end of the second quarter of fiscal 2010.
SUPPLEMENTARY
FINANCIAL INFORMATION (UNAUDITED)
QUARTERLY
RESULTS OF OPERATIONS
(in
thousands, except per share data)
|
Fiscal
Year Ended March 29, 2009
|
||||||||||||||||
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
|||||||||||||
|
Revenues
|
$
|
188,208
|
$
|
200,541
|
$
|
167,079
|
$
|
107,417
|
||||||||
|
Gross
profit
|
84,459
|
87,153
|
69,669
|
33,168
|
||||||||||||
|
Net
income (loss)
|
9,154
|
11,675
|
(345,259
|
)
|
(720,737
|
)
|
||||||||||
|
Basic
net income (loss) per share
|
0.05
|
0.07
|
(2.06
|
)
|
(4.38
|
)
|
||||||||||
|
Diluted
net income (loss) per share
|
$
|
0.05
|
$
|
0.07
|
$
|
(2.06
|
)
|
$
|
(4.38
|
)
|
||||||
|
Fiscal
Year Ended March 29, 2009
|
||||||||||||||||
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
|||||||||||||
|
Revenues
|
$
|
199,016
|
$
|
204,127
|
$
|
201,228
|
$
|
177,096
|
||||||||
|
Gross
profit
|
84,888
|
88,190
|
88,324
|
77,930
|
||||||||||||
|
Net
income (loss)
|
(1,096
|
)
|
4,759
|
13,418
|
17,098
|
|||||||||||
|
Basic
net income (loss) per share
|
(0.01
|
)
|
0.02
|
0.07
|
0.10
|
|||||||||||
|
Diluted
net income (loss) per share
|
$
|
(0.01
|
)
|
$
|
0.02
|
$
|
0.07
|
$
|
0.10
|
|||||||
During
fiscal 2009, the Company recorded goodwill and intangible assets impairment
charge of $339.1 million and $686.6 million in the third and fourth quarter,
respectively. The Company recorded intangible asset amortization of
$20.9 million, $20.6 million, $19.7 million and $18.3 million in the first,
second, third and fourth quarter, respectively.
During
fiscal 2008, the Company recorded intangible asset amortization of $31.1
million, $29.9 million, $24.5 million and $24.5 million in the first, second,
third and fourth quarter, respectively. These charges are
attributable to the Company’s acquisition of SigmaTel’s PC Audio business in the
second quarter of fiscal 2007 and its merger with ICS.
None.
Evaluation
of Disclosure Controls and Procedures
We
maintain “disclosure controls and procedures,” as such term is defined in Rule
13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), that are designed to ensure that information required to be disclosed by
us in reports that we file or submit under the Exchange Act is recorded,
processed, summarized, and reported within the time periods specified in
Securities and Exchange Commission 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. Our management, including the Chief Executive
Officer and Chief Financial Officer, is engaged in a comprehensive effort to
review, evaluate and improve our controls; however, management does not expect
that our disclosure controls will prevent all errors and all fraud. A control
system, no matter how well designed and operated, can provide only reasonable,
not absolute, assurance that the control systems’ objectives are met.
Additionally, in designing disclosure controls and procedures, our management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible disclosure controls and procedures. The design of any
disclosure controls and procedures also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions.
Based
on their evaluation as of the end of the period covered by this Annual Report on
Form 10-K, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures were
effective.
Changes in Internal Control over
Financial Reporting
There
was no change in our internal control over financial reporting that occurred
during our last fiscal quarter that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
Management’s
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f) of the Securities
Exchange Act of 1934. Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions or that the
degree of compliance with the policies or procedures may
deteriorate.
We
assessed the effectiveness of our internal control over financial reporting as
of March 29, 2009. In making this assessment, we used the criteria set forth by
the Committee of Sponsoring Organizations of the Treadway Commission in Internal
Control—Integrated Framework.
Based
on our assessment using those criteria, we concluded that our internal control
over financial reporting was effective as of March 29, 2009.
The
effectiveness of our internal control over financial reporting as of March 29,
2009 has been audited by PricewaterhouseCoopers LLP, our independent registered
public accounting firm, as stated in their report which appears under
Item 8 of this Annual Report on Form 10-K.
None.
Our
executive officers, and their respective ages as of March 29, 2009, are as
follows:
|
Name
|
Age
|
Position
|
||
|
Ted
Tewksbury
|
52
|
President
and Chief Executive Officer
|
||
|
Jimmy
Lee
|
56
|
Senior
Vice President, Worldwide Sales
|
||
|
Richard
D. Crowley, Jr
|
52
|
Vice
President, Chief Financial Officer
|
||
|
Ji
Park
|
36
|
Vice
President and General Manager, Video and Display
Division
|
||
|
Fred
Zust
|
39
|
Vice
President and General Manager, Communications Division
|
||
|
Ram
Iyer
|
44
|
Vice
President and General Manager, Computing and Multimedia
Division
|
||
|
Derek
Dicker
|
35
|
Vice
President and General Manager, Networking Division
|
||
|
Roger
Ervin
|
53
|
Vice
President, Human Resources
|
||
|
Mike
Hunter
|
57
|
Vice
President, Worldwide Manufacturing
|
||
|
Chuen-Der
Lien
|
53
|
Vice
President, Chief Technical Officer, Circuit and Process
Design
|
||
|
Mario
Montana
|
47
|
Vice
President, Serial Switching Division
|
||
|
Chad
Taggard
|
44
|
Vice
President, Strategic Planning and Worldwide
Marketing
|
Mr. Tewksbury
joined IDT as President and Chief Executive Officer in March 2008. Prior to
joining IDT, Mr. Tewksbury served as the President and Chief Operating Officer
of AMI Semiconductor from October 2006 to February 2008. Prior to
August 2006, Mr. Tewksbury held a managing director position at Maxim Integrated
Device.
Mr. Lee
joined IDT in 1984. He was promoted from Vice President, Timing Solutions and
Telecom Divisions to Senior Vice President, Timing Solutions Group in 2006.
Other previous positions at IDT included Vice President, FIFO Products Division
from 1996 to 1999. Prior to joining IDT, Mr. Lee held a management position
at Intel Corp.
Mr.
Crowley joined IDT as Vice President and Chief Financial Officer in October
2008. Prior to joining IDT, Mr. Crowley served as the Vice president,
Finance and Chief Financial Officer of Micrel Semiconductor from 1999 to
September 2008. From 1998 to 1999, Mr. Crowley served as Vice President and
Chief Financial Officer of Vantis Corporation. From 1980 to 1998,
Mr. Crowley was employed by National Semiconductor Corporation, where his
last position was Vice President and Corporate Controller.
Mr. Hunter
has been with IDT since 1996 and was appointed Vice President, Worldwide
Manufacturing in February 1998. Prior to joining IDT,
Mr. Hunter held management positions at Chartered Semiconductor
Manufacturing Ltd., Fujitsu Personal Systems, Fairchild Semiconductor and Texas
Instruments Incorporated.
Dr. Lien
joined IDT in 1987 and was appointed to his current position in 1996. Prior to
joining IDT, he held engineering positions at Digital Equipment Corporation and
AMD.
Mr. Iyer
joined IDT in 2005 as a result of our merger with ICS and was promoted from Vice
President and General Manager of our MicroClock Business Unit to his current
position in 2008. At ICS, Mr. Iyer held various management positions in
marketing, applications engineering and systems design. Before joining ICS, Iyer
spent seven years at Sony Corporation.
Mr.
Park joined IDT in 2005 as a result of our merger with ICS and was promoted from
Director of Memory Timing Products to his current position in 2008. Prior to
IDT, Park held various management positions in product engineering, design and
marketing at Texas Instruments and Applied Materials.
Mr.
Zust joined IDT in 2003 as a result of our merger with ICS. At ICS, he served as
vice president for the NetCom Timing Division. Prior to ICS, Mr. Zust held
various leadership and technical positions at Texas Instruments and AT&T/NCR
Corporation.
Mr.
Dicker joined IDT in May 2006 and was promoted to his current position in
February 2007. Mr. Dicker joined IDT from Intel Corporation where he
spent over 10 years in various OEM sales, marketing, strategic planning and
applications engineering positions.
Mr. Montana
joined IDT in 1997 and became General Manager, Serial Switching Division in
2005. Mr. Montana was promoted to Vice President in February
2007. Prior to his current role, Mr. Montana was Director, IDT
Serial-Switching Division. Before transitioning to the Serial-Switching
Division, Montana was Director, IDT Strategic Marketing Group. Mr. Montana also
served as Product Line Director, IDT Telecommunications, FIFO, Logic and Timing
groups, respectively.
Mr.
Taggard joined IDT in August 2006. Mr. Taggard joined IDT from Intel
Corporation where we held various product marketing, manufacturing operations,
business development and investor relations positions. Prior to
Intel, Mr. Taggard worked at Hewlett Packard Corporation as a software
engineer.
Mr.
Ervin jointed IDT in August 2005. Mr. Ervin joined IDT from Intel
Corporation where he spent 10 years as a director of human resources in various
organizations. Prior to Intel, Mr. Ervin held various HR management
and organizational development roles at various companies including Mentor
Graphics and Digital Equipment Corporation.
The
information required by this item concerning our directors is incorporated by
reference from the information set forth in the sections titled “Proposal
One—Election of Directors” and “Section 16(a) Beneficial Ownership Reporting
Compliance” in our Proxy Statement for the 2009 Annual Meeting of
Stockholders.
The
information required by this item concerning our executive officers is
incorporated by reference from the information set forth in this section and
“Section 16(a) Beneficial Ownership Reporting Compliance” in our Proxy Statement
for the 2009 Annual Meeting of Stockholders.
The
information required by this item concerning our audit committee and its
financial expert is incorporated by reference from the information set forth in
the section titled “Board Structure and Compensation” in our Proxy Statement for
the 2009 Annual Meeting of Stockholders.
We
have adopted a written code of business ethics that applies to all of our
employees and to our Board of Directors. A copy of the code is available on our
website at http://www.IDT.com. If
we make any substantive amendments to the code of business ethics or grant any
waiver from a provision of the code of business ethics to any of our directors
or officers, we will promptly disclose the nature of the amendment or waiver on
our website.
The
information required by this Item concerning recommendations of director
nominees by security holders is incorporated by reference from the information
set forth in the section titled “Board Structure and Compensation” in our Proxy
Statement.
On
October 22, 2008, the Company’s Board of Directors (Board) adopted and
approved, effective October 27, 2008, the Amended and Restated Bylaws of
the Company (Amended and Restated Bylaws). The Amended and Restated Bylaws
revise and enhance (a) the procedures for stockholders to call special
meetings and (b) the advance notice requirements for stockholder proposals
of business and director nominations to be considered at stockholder meetings.
The amendments revise the foregoing, among other things, to:
|
·
|
change
the requirement for stockholders to provide advance notice of stockholder
proposals or nominations at an annual meeting to provide that such advance
notice shall be delivered to the principal executive office of the Company
not less than 90 days nor more than 120 days prior to the one year
anniversary of the preceding year’s annual meeting, subject to certain
conditions;
|
|
·
|
expand
the required disclosure for stockholders making proposals or nominations
to include, among other things, all ownership interests, hedges, economic
incentives and rights to vote any shares of any security of the
Company;
|
|
·
|
require
stockholders nominating directors to disclose the same information about a
proposed director nominee that would be required if the director nominee
were submitting a proposal and any material relationships between the
stockholder proponents and their affiliates, on the one hand, and the
director nominees and their affiliates, on the other
hand;
|
|
·
|
expand
disclosures regarding proposed business to include a reasonably detailed
description of all agreements, arrangements and understandings between
proposing persons and other stockholders of the Company in connection with
the proposed business;
|
|
·
|
require
that any stockholder seeking to call a special meeting must first request
that the Board fix a record date for the purpose of determining the
stockholders entitled to demand that the Company call such special
meeting, and if the Board fails to fix a record date within ten days of
such request, provides that the record date will be the 20th
day after the Company receives such
request;
|
|
·
|
provide
that no special meeting of stockholders shall be called unless the holders
of a majority of the outstanding shares of the Company’s stock as of the
record date timely demand the same in writing and in proper form to the
Secretary of the Corporation at its principal executive offices, and to be
timely, among other things, a stockholder’s demand to call a special
meeting must be delivered to the Company’s principal executive offices not
later than 60 days following the record date for such demand as described
above; and
|
|
·
|
provide
that the Company is not required to call a special meeting of stockholders
if certain conditions set forth in amended Article 1.14 of the Amended and
Restated Bylaws are satisfied.
|
The
Amended and Restated Bylaws also revise and enhance (a) the procedures for
stockholders to act by written consent and (b) to afford the Company and
its stockholders access to similar information as is provided elsewhere in the
Amended and Restated Bylaws in connection with stockholder proposals of business
to be considered at stockholder meetings. The amendments revise the foregoing,
among other things, to:
|
·
|
require
that any stockholder seeking to have stockholders take action by written
consent must first request that the Board fix a record date for the
purpose of determining the stockholders entitled to take such action and
if the Board fails to fix a record date within ten days of such request,
then the record date shall be first date on which a valid consent is
delivered to the Company or the close of business on the date of the
Board’s action when such prior action is required by
law;
|
|
·
|
expand
the required disclosure for stockholders making proposals or nominations
to include, among other things, all ownership interests, hedges, economic
incentives and rights to vote any shares of any security of the Company;
and
|
|
·
|
expand
disclosures regarding proposed actions to include a reasonably detailed
description of all agreements, arrangements and understandings between
proposing persons and other stockholders of the Company in connection with
the proposed business.
|
In
addition, the Amended and Restated Bylaws added a new section which provides a
limitation on any stockholder rights plan established by the Company to a term
of one year, unless the stockholder rights plan is approved by a majority of
shares cast at a meeting of stockholders.
The
Amended and Restated Bylaws also eliminate provisions related to the Board that
were originally adopted in connection with the merger completed on
September 16, 2005 between the Company and ICS, which amendment was
approved by the requisite vote of the Board.
The
summary of changes to IDT’s Amended and Restated Bylaws set forth above is
qualified in its entirety by reference to the full text of the Amended and
Restated Bylaws, attached to this Annual Report on Form 10-K as Exhibit
3.5.
The
information required by this Item is incorporated herein by reference from the
Company's Proxy Statement for the 2009 Annual Meeting of
Stockholders.
The
information required by this Item is incorporated herein by reference from the
Company's Proxy Statement for the 2009 Annual Meeting of
Stockholders.
The
information required by this Item is incorporated herein by reference from the
Company's Proxy Statement for the 2009 Annual Meeting of
Stockholders.
The
information required by this Item is incorporated herein by reference from the
Company’s Proxy Statement for the 2009 Annual Meeting of
Stockholders.
|
|
(a)
|
1. Financial
Statements. See “Index to Consolidated Financial
Statements” under Item 8 of this Annual
Report.
|
2. Financial Statement
Schedules. See Schedule II, “Valuation and Qualifying
Accounts,” included with this Annual Report.
3.
Exhibits. The exhibits listed in the Exhibit Index below are filed or
incorporated by reference as part of this Annual Report.
|
Exhibit
Number
|
Exhibit
Description
|
Incorporated by Reference | ||||||||||
|
From
|
File
Number
|
Exhibit
|
Filing
Date
|
Filed
Herewith
|
||||||||
|
2.1*
|
Agreement
and Plan of Merger by and among Integrated Device Technology, Inc.,
Integrated Circuit Systems, Inc., and Colonial Merger Sub I,
Inc..
|
8-K
|
00-12695
|
2.1
|
6/20/05
|
|||||||
|
2.2*
|
Asset
Purchase Agreement, dated as of April 30, 2009 between the Company and
NetLogic Microsystems, Inc.
|
8-K
|
00-12695
|
2.1
|
5/9/09
|
|||||||
|
3.1*
|
Restated
Certificate of Incorporation.
|
10-Q
|
00-12695
|
3.1
|
11/7/00
|
|||||||
|
3.2*
|
Certificate
of Amendment of Restated Certificate of Incorporation.
|
8
|
00-12695
|
3(a)
|
3/28/89
|
|||||||
|
3.3*
|
Certificate
of Amendment of Restated Certificate of Incorporation.
|
S-8
|
33-63133
|
4.3
|
10/2/95
|
|||||||
|
3.4*
|
Certificate
of Designations specifying the terms of the Series A Junior Participating
Preferred Stock of IDT, as filed with the Secretary of State of
Delaware.
|
8-A
|
00-12695
|
3.6
|
12/23/98
|
|||||||
|
3.5*
|
Amended
and Restated Bylaws of the Company, as amended and restated effective
October 20, 2006.
|
8-K
|
00-12695
|
3.1
|
10/28/08
|
|||||||
|
3.6*
|
Certificate
of Amendment of Restated Certificate of Incorporation.
|
10-Q
|
00-12695
|
3.5
|
11/7/07
|
|||||||
|
4.1*
|
Rights
Agreement dated December 21, 1998 between the Company and BankBoston,
N.A., as Rights Agent.
|
8-A
|
00-12695
|
4.1
|
12/23/98
|
|||||||
|
10.5*
|
1994
Stock Option Plan, as amended as of September 22,
2000.**
|
10-Q
|
00-12695
|
10.1
|
10/1/00
|
|||||||
|
10.6*
|
1994
Directors Stock Option Plan and related documents.**
|
10-Q
|
00-12695
|
10.18
|
10/2/94
|
|||||||
|
10.7*
|
Form
of Indemnification Agreement between the Company and its directors and
officers.**
|
10-K
|
00-12695
|
10.68
|
4/2/89
|
|||||||
|
Exhibit
Number
|
Exhibit
Description
|
Incorporated by Reference | ||||||||||
|
From
|
File
Number
|
Exhibit
|
Filing
Date
|
Filed
Herewith
|
||||||||
|
10.8*
|
Technology
License Agreement between the Company and MIPS Technologies, Inc.
(Confidential Treatment Granted).
|
10-K
|
00-12695
|
10.8
|
03/28/99
|
|||||||
|
10.10*
|
Master
Distributor Agreement dated August 26, 1985 between the Company and
Hamilton/Avnet Electronics, Division of Avnet, Inc.
|
S-1
|
33-3189
|
10.54
|
||||||||
|
10.12*
|
Incentive
Compensation Plan.**
|
10-Q
|
00-12695
|
10.27
|
7/3/05
|
|||||||
|
10.13*
|
Form
of Change of Control Agreement between the Company and certain of its
officers **
|
|||||||||||
|
10.14*
|
Lease
dated December 2002 between the Company and LaGuardia Associates relating
to 710 LaGuardia Street, Salinas, California.
|
|||||||||||
|
10.16*
|
1997
Stock Option Plan **
|
10-Q
|
00-12695
|
10.23
|
06/30/02
|
|||||||
|
10.17*
|
Purchase
and Sale Agreement and Joint Escrow Instructions between the Company and
Cadence Design Systems, Inc., dated December 1998.
|
S-4
|
00-12695
|
10.27
|
03/24/99
|
|||||||
|
10.18*
|
Distributor
Agreement dated June 22, 2000 between the Company and Arrow
Electronics, Inc. ***
|
10-K
|
00-12695
|
10.18
|
4/1/01
|
|||||||
|
10.19*
|
Agreement
For Purchase And Sale Of Real Property Between Baccarat Silicon, Inc. and
Dan Caputo Co. dated August 5, 2003.
|
10-Q
|
00-12695
|
10.19
|
6/23/03
|
|||||||
|
10.20*
|
Lease
between the Company and S.I. Hahn, LLC dated February 2000 relating to
2901 Coronado Drive, Santa Clara, California.
|
10-K
|
00-12695
|
10.20
|
4/2/00
|
|||||||
|
10.21*
|
Non-Qualified
Deferred Compensation Plan effective November 1,
2000.**
|
10-K
|
00-12695
|
10.21
|
4/1/01
|
|||||||
|
10.22*
|
Transition
Agreement, dated March 30, 2006, by and between Integrated Device
Technology, Inc. and Hock E. Tan.**
|
8-K
|
00-12695
|
10.1
|
3/30/06
|
|||||||
|
10.23*
|
Master
purchase agreement between Cisco Systems, Inc. and Integrated Device
Technology, Inc. dated May 7, 2003. ***
|
10-Q
|
00-12695
|
10.24
|
9/28/03
|
|||||||
|
10.24*
|
1984
Employee Stock Purchase Plan, as amended and restated effective September
29, 2003.**
|
10-Q
|
00-12695
|
10.25
|
9/28/03
|
|||||||
|
10.25*
|
2004
Equity Plan **
|
10-Q
|
00-12695
|
10.25
|
9/26/04
|
|||||||
|
10.26*
|
Agreement
For Purchase And Sale of Real Property Between the Company and
Electroglas, Inc. dated December 16, 2004.
|
10-K
|
00-12695
|
10.26
|
6/14/05
|
|||||||
|
10.27*
|
Executive
Transition Agreement, dated November 13, 2007, by and between Registrant
and Gregory S. Lang.**
|
8-K
|
00-12695
|
10.1
|
11/16/07
|
|||||||
| Incorporated by Reference | ||||||||||||
|
Exhibit
Number
|
Exhibit
Description
|
From
|
File
Number
|
Exhibit
|
Filing
Date
|
Filed
Herewith
|
||||||
|
10.28*
|
Executive
Compensation Agreement, dated February 12, 2008, by and between Registrant
and its President and CEO, Ted Tewksbury
|
8-K
|
00-12695
|
10.1
|
2/20/08
|
|||||||
|
10.29
|
Offer
Letter between the Company and Richard D. Crowley, Jr., entered into on
September 15, 2008.**
|
8-K
|
00-12695
|
10.1
|
9/23/08
|
|||||||
|
21.1
|
Subsidiaries
of the Company.
|
X
|
||||||||||
|
23.1
|
Consent
of PricewaterhouseCoopers LLP.
|
X
|
||||||||||
|
31.1
|
Certification
of Chief Executive Officer as required by Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended, dated May 19, 2008.
|
X
|
||||||||||
|
31.2
|
Certification
of Chief Financial Officer as required by Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended, dated May 19, 2008.
|
X
|
||||||||||
|
32.1
|
Certification
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
X
|
||||||||||
|
32.2
|
Certificate of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
X
|
||||||||||
*This
exhibit was previously filed with the Commission as indicated and is
incorporated herein by reference.
**This
exhibit is a management contract or compensatory plan or
arrangement.
***Confidential
treatment has been requested for certain portions of this document pursuant to
an application for confidential treatment sent to the Securities and Exchange
Commission (SEC). Such portions have been redacted and marked with a triple
asterisk. The non-redacted version of this document has been sent to the
SEC.
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
|
INTEGRATED
DEVICE TECHNOLOGY, INC.
Registrant
|
|||
|
By:
|
/s/
THEODORE L. TEWKSBURY III
|
||
|
May
20, 2009
|
Theodore
L.Tewksbury III
President
and Chief Executive Officer
|
||
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the date indicated.
|
Signature
|
Title
|
Date
|
||
|
/s/
THEODORE L. TEWKSBURY III
|
Chief
Executive Officer , President and Director
|
May
20, 2009
|
||
|
Theodore
L. Tewksbury III
|
(Principal
Executive Officer)
|
|||
|
/s/ RICHARD
D. CROWLEY, JR.
|
Vice
President, Chief Financial Officer
|
May
20, 2009
|
||
|
Richard
D. Crowley, JR.
|
(Principal
Financial and Accounting Officer)
|
|||
|
/s/ JOHN
SCHOFIELD
|
Chairman
of the Board
|
May
20, 2009
|
||
|
John
Schofield
|
||||
|
/s/ GORDON
PARNELL
|
Director
|
May
20, 2009
|
||
|
Gordon
Parnell
|
||||
|
/s/ LEWIS
EGGEBRECHT
|
Director
|
May
20, 2009
|
||
|
Lewis
Eggebrecht
|
||||
|
/s/ RON
SMITH
|
Director
|
May
20, 2009
|
||
|
Ron
Smith
|
||||
|
/s/ NAM
SUH
|
Director
|
May
20, 2009
|
||
|
Nam
Suh
|
||||
|
/s/ Umesh
Padval
|
Director
|
May
20, 2009
|
||
|
Umesh
Padval
|
INTEGRATED
DEVICE TECHNOLOGY, INC.
VALUATION
AND QUALIFYING ACCOUNTS
|
(in
thousands)
|
Balance at
Beginning
of
Period
|
Additions
Charged
(Credited)
to
Revenues,
Costs
and
Expenses
|
Charged
(Credited)
to
Other
Accounts
|
Deductions
and
Write-offs
|
Balance at
End of Period
|
||||||||||||||
|
Allowance
for returns, pricing credits and doubtful accounts
|
|||||||||||||||||||
|
Year
ended April 1, 2007
|
$
|
5,109
|
$
|
10,611
|
$
|
--
|
$
|
(7,720
|
)
|
$
|
8,000
|
||||||||
|
Year
ended March 30, 2008
|
$
|
8,000
|
$
|
16,837
|
$
|
1,416
|
$
|
(17,041
|
)
|
$
|
9,212
|
||||||||
|
Year
ended March 29, 2009
|
$
|
9,212
|
$
|
14,669
|
$
|
--
|
$
|
(16,530
|
)
|
$
|
7,351
|
||||||||
|
Tax
valuation allowance
|
|||||||||||||||||||
|
Year
ended April 1, 2007 (1)
|
$
|
157,775
|
$
|
50,542
|
$
|
(28,883
|
)
|
$
|
(4,763
|
)
|
$
|
174,671
|
|||||||
|
Year
ended March 30, 2008 (1)
|
$
|
174,671
|
$
|
(73,374
|
)
|
$
|
(2,789
|
)
|
$
|
(8,246
|
)
|
$
|
90,262
|
||||||
|
Year
ended March 29, 2009 (1)
|
$
|
90,262
|
$
|
27,392
|
$
|
(65
|
)
|
$
|
--
|
$
|
117,589
|
||||||||
(1) The fiscal 2007 additions charged to
the valuation allowance is primarily attributable to an increase in deferred tax
assets for FAS123(R) stock based compensation and a decrease in deferred tax
liabilities due to acquired intangible amortization. The activity in
the “Charged (Credited) to Other Accounts” column is due to the option-related
net operating losses that will no longer be treated as a deferred tax asset
under FAS123(R). The activity in the “Deductions and Write-offs”
column is due to acquired losses and credits that the company has determined
will be subject to limitation under Internal Revenue Code Section
382. The reduction of valuation allowance in fiscal 2008 is primarily
attributable to the decreases in depreciation deferred tax assets and the
utilization of net operating losses. The activity in the "Charged (Credited) to
Other Accounts" column is due to utilization of acquired company's net operating
losses. The activity in the "Deduction and Write-offs" column is due
to write-off of Canadian net operating losses and SR&ED credits that the
Company believes it will not be able to utilize. The increase of valuation allowance in
fiscal 2009 is primarily attributable to the decrease in the fair value of the
long-lived assets.
80