NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Organization and Basis of Presentation
Semtech Corporation (together with its subsidiaries, the “Company” or “Semtech”) is a global supplier of analog and mixed-signal semiconductor products. The end-customers for the Company’s products are primarily original equipment manufacturers (“OEM’s”) that produce and sell electronics.
The Company designs, develops and markets a wide range of products for commercial applications, the majority of which are sold into the enterprise computing, communications, high-end consumer and industrial end-markets.
Enterprise Computing
: datacenters, passive optical networks, optical receiver and transceiver, desktops, notebooks, servers, graphic boards, monitors, printers and other computer peripherals.
Communications
: base stations, backplane, optical networks, carrier networks, switches and routers, servers, cable modems, signal conditioners, wireless LAN and other communication infrastructure equipment.
High-End Consumer
: handheld products, set-top boxes, digital televisions, tablet computers, digital video recorders, thunderbolt and fiberless high-speed interfaces and other consumer equipment.
Industrial
: broadcast studio equipment, automated meter reading, military and aerospace, medical, security systems, automotive, industrial and home automation, video security and surveillance and other industrial equipment.
Fiscal Year
The Company reports results on the basis of
52
and
53
week periods and ends its fiscal year on the last Sunday in January. The fiscal years ended
January 27, 2013
,
January 29, 2012
and
January 30, 2011
each consisted of
52
weeks.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Semtech Corporation and its wholly owned subsidiaries. All inter-company transactions and accounts have been eliminated.
In March 2012, the Company completed the acquisitions of Gennum Corporation (“Gennum”) and Cycleo SAS (“Cycleo”). The consolidated financial statements include the results of operations of Gennum and Cycleo commencing as of the acquisition dates. See Note 3 for further discussion.
Segment Information
The Company operates and accounts for its results in
one
reportable segment. The Company identified
five
operating segments which aggregate into one reportable segment.
The Company designs, develops, manufactures and markets high performance analog and mixed signal integrated circuits. The Chief Executive Officer has been identified as the Chief Operating Decision Maker as defined by guidance regarding segment disclosures. The Company has evaluated its reportable segments subsequent to its acquisition of Gennum and concluded that it continues to operate and account for its results in one reportable segment.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassification
Certain prior period immaterial amounts have been reclassified to conform with current period presentation.
Note
2
: Significant Accounting Policies
Cash, Cash Equivalents and Investments
The Company considers all highly liquid investments with an original maturity of
90 days
or less to be cash equivalents. The Company maintains cash balances and investments in highly qualified financial institutions. At various times such amounts are in excess of insured limits. Investments consist of government and corporate obligations and bank time deposits. The Company’s investment policy restricts investments to high credit quality investments with limits on the length to maturity and the amount invested with any one issuer. These investments, especially corporate obligations, are subject to default risk. The Company designates its investments as available for sale (“AFS”). Investments designated as AFS are reported at fair value. The Company records the unrealized gains and losses, net of tax, in stockholders’ equity as a component of comprehensive income. Realized gains or losses are recorded in “Interest income and other expense, net” in the consolidated statements of income.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded at net realizable value or the amount that the Company expects to collect on gross customer trade receivables. The Company evaluates the collectability of its accounts receivable based on a combination of factors. The Company generally does not require collateral on accounts receivable as the majority of the Company’s customers are large, well-established companies. Historically, bad debt provisions have been consistent with management’s expectations. If the Company becomes aware of a customer’s inability to meet its financial obligations after a sale has occurred, it records an allowance to reduce the net receivable to the amount it reasonably believes it will be able to collect from the customer. For all other customers, the Company recognizes allowances for doubtful accounts based on the length of time the receivables are past due, the current business environment and historical experience. If the financial condition of the Company’s customers were to deteriorate or if economic conditions worsen, additional allowances may be required in the future. All of the Company’s accounts receivables are trade-related receivables. See Note
16
for a discussion of concentration risks.
Inventories
Inventories are stated at lower of cost or market and consist of materials, labor and overhead. The Company determines the cost of inventory by the first-in, first-out method. The Company evaluates inventories for excess quantities and obsolescence. This evaluation includes analyses of sales levels by product and projections of future demand. In order to state the inventory at lower of cost or market, the Company maintains reserves against its inventory. If future demand or market conditions are less favorable than the Company’s projections, a write-down of inventory may be required, and would be reflected in cost of goods sold in the period the revision is made.
Business Combinations
The Company accounts for business combinations at fair value. Goodwill is measured as the excess of consideration transferred over the acquisition date net fair values of the assets acquired and the liabilities assumed. All changes that do not qualify as measurement period adjustments are included in current period earnings. Significant judgment is required to determine the estimated fair value for assets and liabilities acquired and to assigning their respective useful lives. The fair values assigned to tangible and intangible assets acquired and liabilities assumed, including contingent consideration, are based on management’s estimates and assumptions, as well as other information compiled by management, including available historical information and valuations that utilize customary valuation procedures and techniques.
The Company employs the income approach to estimate the fair value of intangible assets, which is based on forecasts of the expected future cash flows attributable to the respective assets. The fair value of acquired in-process research and development projects (“IPR&D”) was determined using an income approach or replacement cost approach as applicable. The replacement cost approach was used for IPR&D projects that were considered long-term core investments and were not anticipated to be profitable for a period of time. IPR&D projects which were valued using an income approach, measured the returns attributable to each specific IPR&D project, discounted to present value using a risk-adjusted rate of return, including as appropriate, any tax benefits derived from amortizing the intangible assets for tax purposes. Significant estimates and assumptions inherent in the valuations reflect consideration of other marketplace participants, and include the amount and timing of future cash flows (including expected growth rates and profitability), the underlying product life cycles, economic barriers to entry, a brand’s relative market position and the discount rate applied to the cash flows, among others.
If actual results differ from the estimates and judgments used in these estimates, the amounts recorded in the financial statements could result in a possible impairment of the intangible assets and goodwill, or require acceleration of the amortization expense of finite-lived intangible assets.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. The Company’s cost basis includes certain assets acquired in business combinations that were initially recorded at fair value as of the date of acquisition. Depreciation is computed over the estimated useful lives of the related asset type or term of the operating lease using the straight-line method for financial statement purposes. Maintenance and repairs are charged to expense as incurred and the costs of additions and betterments that increase the useful lives of the assets are capitalized.
The estimated service lives for property and equipment is as follows:
|
|
|
|
Estimated
|
|
Useful Lives
|
Buildings and leasehold improvements
|
7 to 39 years
|
Machinery and equipment
|
5 to 8 years
|
Transportation vehicles
|
5 years
|
Furniture and fixtures
|
7 years
|
Computers and computer software
|
3 years
|
Impairment of Goodwill, Other Intangible and Long-Lived Assets
Goodwill
Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations accounted for under the purchase method. Goodwill is not amortized but is tested for impairment using a two-step method on an annual basis in the fourth quarter or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. These indicators would include a significant change in operating performance, the business climate, legal factors, competition, or a planned sale or disposition of a significant portion of the business among other factors.
The recoverability of goodwill is measured at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair market value of the reporting unit. A reporting unit is an operating segment or a business unit one level below that operating segment, and it is the level at which management regularly reviews operating results and makes resource allocation decisions.
Step one is the identification of potential impairment. This involves comparing the fair value of each reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds the carrying amount, the goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the impairment test is performed to measure the amount of impairment loss, if any.
Step two is the measurement of the amount of impairment loss. This involves comparison of the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss would be recognized in an amount equal to that excess. The loss recognized cannot exceed the carrying amount of the goodwill. Once a goodwill impairment loss is recognized, the adjusted carrying amount becomes the accounting basis.
The fair value of goodwill is tested for impairment on a non-recurring basis in the accompanying consolidated financial statements using Level 3 inputs. The Company’s estimate of fair value was primarily determined using the income approach methodology of valuation that includes the discounted cash flow method as well as other generally accepted valuation methodologies to determine the fair value of the assets. Changes in economic and operating conditions that occur after the annual impairment analysis or an interim impairment analysis that impact these assumptions may result in a future goodwill impairment charge.
Other Intangibles and Long-lived Assets
Finite-lived intangible assets resulting from business acquisitions or technology licenses purchased are amortized on a straight-line basis over their estimated useful lives. The useful lives of acquisition-related intangible assets represent the point where over
90%
of realizable undiscounted cash flows for each intangible asset are recognized. The assigned useful lives are consistent with the Company’s historical experience with similar technology and other intangible assets owned by the Company. The useful life of technology licenses is usually based on the term of the agreement.
In-process research and development is recorded at fair value as of the date of acquisition as an indefinite-lived intangible asset until the completion or abandonment of the associated research and development efforts or impairment. Upon completion of development, acquired in-process research and development assets are transferred to finite-lived intangible assets and amortized over their useful lives.
The Company reviews indefinite-lived intangible assets for impairment on an annual basis in conjunction with goodwill or whenever events or changes in circumstances indicate the carrying value may not be recoverable. Recoverability of indefinite-lived intangible assets is measured by comparing the carrying amount of the asset to the future discounted cash flows the asset is expected to generate.
Fair Value Measurements
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 and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. The Company uses the following three levels of inputs in determining the fair value of the Company’s assets and liabilities, focusing on the most observable inputs when available:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement.
Interest Rate Derivative
The Company incurs interest expense through its variable rate debt. To manage its interest rate risk, the Company occasionally hedges the future cash flows of its variable rate debt, principally through interest rate contracts with major financial institutions. Interest rate contracts that meet specific criteria are accounted for as cash flow hedges.
The Company’s objective in using interest rate contracts is to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company uses interest rate contracts as part of its interest rate risk management strategy. Interest rate cap contracts involve the receipts of variable amounts from a counterparty when one-month LIBOR exceeds the capped interest rate in exchange for an upfront payment from the Company, capping the Company’s one-month LIBOR floating interest payments at the strike rate on its interest rate cap contract.
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The upfront payment the Company paid for the interest rate cap agreement will be amortized out of accumulated other comprehensive income and recorded as interest expense according to the amortization schedule created at inception of the hedging relationship. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. The Company records derivative instruments in the statements of cash flows to operating, investing, or financing activities consistent with the cash flows of the hedged item.
The assessment of effectiveness is based on the total changes in an option’s cash flows such that the assessment will include the interest rate caps entire change in fair value. The interest rate cap is considered a highly effective hedge since the key features and terms match with the hedged item at inception. Key features and terms are notional amount, cap effective date, rate threshold, index, repricing dates, payments dates, and maturity dates.
Revenue Recognition
The Company recognizes product revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectability is probable. Recovery of costs associated with product design and engineering services are recognized during the period in which services are performed. The product design and engineering recovery, when recognized, will be reported as a reduction to product development and engineering expense. Historically, these recoveries have not exceeded the cost of the related development efforts.
The Company includes revenue related to granted technology licenses as part of “Net sales.” Historically, revenue from these arrangements has not been significant though it is part of its recurring ordinary business. In the third quarter of fiscal year 2013, the Company entered into a single licensing arrangement that resulted in the recognition of
$7.5 million
of revenue.
The Company defers revenue recognition on shipment of products to certain customers, principally distributors, under agreements which provide for limited pricing credits or return privileges, until these products are sold through to end-users or the return privileges lapse. For sales subject to certain pricing credits or return privileges, the amount of future pricing credits or inventory returns cannot be reasonably estimated given the relatively long period in which a particular product may be held by the customer. Therefore, the Company has concluded that sales to customers under these agreements are not fixed and determinable at the date of the sale and revenue recognition has been deferred. The Company estimates the deferred gross margin on these sales by applying an average gross profit margin to the actual gross sales. The average gross profit margin is calculated for each category of material using standard costs which is expected to approximate actual costs at the date of sale.
The estimated deferred gross margins on these sales, where there are no outstanding receivables, are recorded on the consolidated balance sheets under the heading of “Deferred revenue.”
The Company records a provision for estimated sales returns in the same period as the related revenues are recorded. The Company bases these estimates on historical sales returns and other known factors. Actual returns could be different from Company estimates and current provisions for sales returns and allowances, resulting in future charges to earnings. There were no significant impairments of deferred cost of sales in fiscal year
2013
or fiscal year
2012
.
The following table summarizes the deferred revenue balance:
|
|
|
|
|
|
|
|
|
(in thousands)
|
January 27, 2013
|
|
January 29, 2012
|
Deferred revenues
|
$
|
4,467
|
|
|
$
|
4,964
|
|
Deferred cost of revenues
|
1,099
|
|
|
1,243
|
|
Deferred revenue, net
|
3,368
|
|
|
3,721
|
|
Deferred product design and engineering recoveries
|
377
|
|
|
132
|
|
Total deferred revenue
|
$
|
3,745
|
|
|
$
|
3,853
|
|
Cost of Sales
Cost of sales includes materials, depreciation on fixed assets used in the manufacturing process, shipping costs, direct labor and overhead.
Sales and Marketing
The Company expenses sales and marketing costs, which include advertising costs, as they are incurred. Advertising costs were
$119,000
,
$285,000
and
$232,000
for fiscal years
2013
,
2012
and
2011
, respectively.
Product Development and Engineering
Product development and engineering costs are charged to expense as incurred. Recoveries from nonrecurring engineering services are recorded as an offset to product development expense incurred in support of this effort since these activities do not represent an earnings process core to the Company’s business and serve as a mechanism to partially recover development expenditures.
The Company received approximately
$12.5 million
,
$5.7 million
and
$11.7 million
in fiscal years
2013
,
2012
and
2011
, respectively for nonrecurring engineering services.
Income Taxes
The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement
carrying amounts and their respective tax bases. The consolidated balance sheets include current and long term prepaid taxes under “Prepaid taxes” and “Other assets” and current and long term liabilities for uncertain tax positions under “Accrued liabilities” and “Other long-term liabilities.”
As part of the process of preparing the Company’s consolidated financial statements, the Company estimates income taxes in each of the jurisdictions in which it operates. This process involves estimating the current tax liability together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. The Company must assess the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent the Company believes that recovery is not likely, it must establish a valuation allowance. To the extent the Company changes its valuation allowance in a period; the change is generally recorded through the tax provision on the consolidated statements of income.
The income tax effects of share-based payments are recognized for financial reporting purposes only if such awards are expected to result in a tax deduction. The Company does not recognize a deferred tax asset for an excess tax benefit (that is, a tax benefit that exceeds the tax benefit for the amount of compensation cost recognized for the award for financial reporting purposes) that has not been realized. In determining when an excess tax benefit is realized, the Company has elected to follow the ordering provision of the tax law.
For intra-entity differences between the tax basis of an asset in the buyer’s tax jurisdiction and their cost as reported in the consolidated financial statements, the Company does not recognize a deferred tax asset. Income taxes paid on intra-entity profits on assets remaining within the group are accounted for as prepaid taxes. See Note
14
for further discussion of income taxes.
Accumulated Other Comprehensive Income
Other comprehensive income includes unrealized gains and losses on available-for-sale investments, unrealized loss on interest rate hedging activities and foreign currency translation adjustments, net of tax. This information is provided in our consolidated statements of comprehensive Income. Accumulated other comprehensive income balances were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Unrealized holding gain (loss) on available-for-sale investments (1)
|
|
Unrealized loss on interest rate hedge
|
|
Cumulative translation adjustment
|
|
Accumulated other comprehensive income
|
Balance at January 31, 2010
|
$
|
317
|
|
|
$
|
—
|
|
|
$
|
501
|
|
|
$
|
818
|
|
Current-period other comprehensive (loss) income
|
(76
|
)
|
|
—
|
|
|
1
|
|
|
(75
|
)
|
Balance at January 30, 2011
|
241
|
|
|
—
|
|
|
502
|
|
|
743
|
|
Current-period other comprehensive loss
|
(204
|
)
|
|
—
|
|
|
(4
|
)
|
|
(208
|
)
|
Balance as of January 29, 2012
|
37
|
|
|
—
|
|
|
498
|
|
|
535
|
|
Current-period other comprehensive (loss) income
|
(32
|
)
|
|
(353
|
)
|
|
203
|
|
|
(182
|
)
|
Balance as of January 27, 2013
|
$
|
5
|
|
|
$
|
(353
|
)
|
|
$
|
701
|
|
|
$
|
353
|
|
|
|
(1)
|
Net of reclassification adjustments for gains realized, net of tax from other comprehensive income to net income $
1
and
$5
for the fiscal years
2013
and
2012
, respectively. There were
no
reclassification adjustments for gains realized in fiscal year 2011.
|
Translation
The assets and liabilities of the Company’s foreign subsidiaries that operate in a local currency environment, where that local currency is the functional currency, are translated to the U.S. dollar using exchange rates in effect at the balance sheet date. Income statement items are translated at average exchange rates prevailing during the period. The translation gains or losses are included as a component of accumulated other comprehensive income in the accompanying consolidated financial statements.
Transaction gains and losses resulting from the re-measurement or settlement of assets and liabilities denominated in foreign currencies are included in the determination of net income and have not been significant.
Stock-Based Compensation
The Company has various equity award plans (“Plans”) that provide for granting stock based awards to employees and non-employee directors of the Company. The Plans provide for the granting of several available forms of stock compensation. As of
January 27, 2013
, the Company has granted stock option awards (“Options”) and restricted stock unit awards (“RSU”) under the Plans and has also issued some stock-based compensation outside of any plan, including options and restricted stock awards issued as inducements to join the Company.
Earnings per Share
The computation of basic and diluted earnings per common share was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
(in thousands, except per share amounts)
|
January 27, 2013
|
|
January 29, 2012
|
|
January 30, 2011
|
Net income
|
$
|
41,939
|
|
|
$
|
89,087
|
|
|
$
|
72,572
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic
|
65,809
|
|
|
65,099
|
|
|
62,339
|
|
Dilutive effect of employee equity incentive plans
|
1,663
|
|
|
2,251
|
|
|
2,184
|
|
Weighted average common shares outstanding - diluted
|
67,472
|
|
|
67,350
|
|
|
64,523
|
|
Basic earnings per common share
|
$
|
0.64
|
|
|
$
|
1.37
|
|
|
$
|
1.16
|
|
Diluted earnings per common share
|
$
|
0.62
|
|
|
$
|
1.32
|
|
|
$
|
1.12
|
|
Anti-dilutive shares not included in the above calculations
|
783
|
|
|
625
|
|
|
1,700
|
|
Basic earnings per common share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the reporting period. Diluted earnings per common share incorporates the incremental shares issuable, calculated using the treasury stock method, upon the assumed exercise of stock options and the vesting of restricted stock.
Contingencies
The Company accrues an undiscounted liability for contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated, and the Company discloses the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued, if such disclosure is necessary for our financial statements not to be misleading. The Company does not record liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated, or when the liability is believed to be only reasonably possible or remote.
Because litigation outcomes are inherently unpredictable, the Company’s evaluation of legal proceedings often involves a series of complex assessments by management about future events and can rely heavily on estimates and assumptions. If the assessments indicate that loss contingencies that could be material to any one of our financial statements are not probable, but are reasonably possible, or are probable, but cannot be estimated, then the Company discloses the nature of the loss contingencies, together with an estimate of the range of possible loss or a statement that such loss is not reasonably estimable.
Subsequent Events
The Company evaluates all events through the issuance date of the consolidated financial statements to determine whether any subsequent events have occurred that require recognition or disclosure.
Note
3
: Acquisitions
Gennum Corporation (“Gennum”)
On March 20, 2012, the Company, through its wholly-owned subsidiary Semtech Canada Inc., completed the acquisition of all outstanding equity interests of Gennum (TSX: GND), a leading supplier of high speed analog and mixed-signal semiconductors for the optical communications and video broadcast markets.
Upon consummation of the business acquisition, which constituted a change in control of Gennum, Gennum’s stock option awards and restricted shares became fully vested. Semtech acquired
100%
of the outstanding shares and vested stock options, restricted shares, and deferred share units of Gennum for CDN
$13.55
per share for a total purchase price of
$506.5 million
. The acquisition was financed with a combination of cash from Semtech’s international cash reserves and
$347 million
of
five
-year secured term loans, net of original issuance debt discount of
$3 million
(see Note
10
).
The Gennum assets acquired and liabilities assumed are recorded at their acquisition-date fair values. Acquisition-related transaction costs are not included as a component of consideration transferred, but are accounted for as an expense in the period in which the costs are incurred. Any excess of the acquisition consideration over the fair value of assets acquired and liabilities assumed is allocated to goodwill. The goodwill resulted from expected synergies from the transaction, including complementary products that will enhance the Company’s overall product portfolio, and opportunities within new markets, and is not deductible for tax purposes. The acquired in-process research and development is recorded at fair value as an indefinite-lived intangible asset at the acquisition date until the completion or abandonment of the associated research and development efforts.
In connection with the acquisition, certain Gennum employees became entitled to payments upon a change in control and their subsequent termination. These payments, which totaled approximately
$9.6 million
, have been recognized as a post-acquisition compensation expense and included in the consolidated statements of income for fiscal year
2013
under “Selling, general and administrative.”
The Company’s allocation of the total purchase price as of March 20, 2012 is summarized below:
|
|
|
|
|
(in thousands)
|
At March 20, 2012
|
Cash
|
$
|
19,664
|
|
Accounts receivable, less allowances
|
14,032
|
|
Inventories
|
62,941
|
|
Prepaid expenses
|
3,832
|
|
Income taxes receivable
|
1,467
|
|
Deferred tax assets - current
|
8,590
|
|
Other current assets
|
7,804
|
|
Property, plant and equipment
|
25,702
|
|
Amortizable intangible assets
|
129,863
|
|
In-process research and development
|
29,100
|
|
Goodwill
|
261,891
|
|
Deferred tax assets - non-current
|
31,235
|
|
Other non-current assets
|
8
|
|
Deferred tax liabilities
|
(47,077
|
)
|
Accounts payable
|
(18,232
|
)
|
Accrued liabilities
|
(24,274
|
)
|
Total acquisition consideration
|
$
|
506,546
|
|
(in thousands)
|
At March 20, 2012
|
Amortizable intangible assets:
|
|
Developed technology
|
$
|
95,100
|
|
Customer relationships
|
28,000
|
|
Other intangible assets
|
6,763
|
|
|
$
|
129,863
|
|
Primarily due to a change in the preliminary allocation of fair value with regard to deferred tax assets and liabilities, the preliminary goodwill allocation related to Gennum
decrease
d by
$0.9 million
from
$262.8 million
as of October 28, 2012 to
$261.9 million
as of
January 27, 2013
. There was no impact to the Company’s consolidated statements of income for fiscal year
2013
.
As of January 27,
2013
, the Company has completed the purchase price allocation for its acquisition of Gennum.
The Company recognized approximately
$11.4 million
of transaction and integration expenses and
$13.4 million
severance costs associated with the Gennum acquisition in fiscal year
2013
. These costs are included in the consolidated statements of income under “Selling, general and administrative.”
Net revenues attributable to Gennum since the acquisition date were
$129.6 million
, with a corresponding net loss of
$36.5 million
in fiscal year
2013
.
In May 2012, the Company settled two pre-acquisition contingencies related to legal matters that were included in the purchase price allocation for a total cash payment of
$4.2 million
.
Pro Forma Financial Information
The results of operations of Gennum have been included in the Company’s consolidated statements of income since the acquisition date of March 20, 2012. The following table reflects the unaudited consolidated pro forma information as if the acquisition had taken place at the beginning of each period presented, after giving effect to certain adjustments including the following for fiscal years
2013
and
2012
:
|
|
•
|
increase in cost of goods sold associated with the fair value adjustment related to acquired inventory of
$41.8 million
for fiscal year
2012
and subsequent decrease of
$39.4 million
for fiscal year
2013
;
|
|
|
•
|
decrease in operating expense as a result of classifying recoveries of cost associated with product design and engineering services as a reduction to product development and engineering expense of
$12.9 million
for fiscal year
2012
;
|
|
|
•
|
increase in operating expense as a result of the settlement of
two
pre-acquisition contingencies related to legal matters of
$4.2 million
for fiscal year
2013
;
|
|
|
•
|
increase in amortization expense as a result of acquired intangible assets of
$22.8 million
for fiscal year
2012
and a subsequent decrease of
$1.6 million
for fiscal year
2013
;
|
|
|
•
|
increase in benefit for taxes of
$23.4 million
associated with the releasing of prior accrued taxes on foreign earnings for fiscal year
2012
and subsequent decrease for fiscal year
2013
;
|
|
|
•
|
increase in interest expense of
$16.6 million
associated with the
$350 million
term loans entered into to finance the acquisition for fiscal year
2012
and
$1.7 million
for fiscal year
2013
; and
|
|
|
•
|
the related tax effects.
|
Unaudited Consolidated Pro forma Information:
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
January 27, 2013
|
|
January 29, 2012
|
(in thousands)
|
(unaudited)
|
|
(unaudited)
|
Revenue
|
$
|
603,067
|
|
|
$
|
604,906
|
|
Net income
|
$
|
56,980
|
|
|
$
|
66,377
|
|
The unaudited pro forma information presented does not purport to be indicative of the results that would have been achieved had the acquisition been consummated at the beginning of each period presented nor of the results which may occur in the future. The pro forma adjustments are based upon available information and certain assumptions that the Company believes are reasonable. The unaudited pro forma information does not include any adjustments for any restructuring activities, operating efficiencies or cost savings.
Cycleo SAS
On March 7, 2012, the Company completed the acquisition of Cycleo, a privately held company based in France that develops intellectual property (“IP”) for wireless long-range semiconductor products used in smart metering and other industrial and consumer markets. Under the terms of the agreement, Semtech paid the stockholders of Cycleo
$5 million
in cash at closing.
Total acquisition consideration is allocated to the acquired tangible and intangible assets and assumed liabilities of Cycleo based on their respective estimated fair values as of the acquisition date. Any excess of the acquisition consideration over the fair value of assets acquired and liabilities assumed is allocated to goodwill. The Company expects that all such goodwill will not be deductible for tax purposes.
As of January 27,
2013
, the Company completed the purchase price allocation for its acquisition of Cycleo.
Additionally, pursuant to the earn-out arrangement with Cycleo stockholders, the Company potentially may make payments totaling up to approximately
$16 million
based on the achievement of a combination of certain revenue and operating income milestones by Cycleo over the period of four years beginning on April 30, 2012. For certain of the Cycleo stockholders, payment of the earn-out liability is contingent upon employment on the payout date and is accounted for as post-acquisition compensation expense over the service period. The portion of the earn-out liability that is not dependent on continued employment is included in the purchase price allocation at March 7, 2012.
Net revenues and earnings attributable to Cycleo since the acquisition date were not material. Pro forma results of operations have not been presented as the acquisition was not material to the Company’s consolidated financial statements.
Note 4: Investments
Investments that have original maturities of three months or less are accounted for as cash equivalents. This includes money market funds, time deposits and U.S. government obligations. Temporary and long-term investments consist of government, bank and corporate obligations, and bank time deposits with original maturity dates in excess of
three
months. Temporary investments have original maturities in excess of
three
months, but mature within
twelve
months of the balance sheet date. Long-term investments have original maturities in excess of
twelve
months. The Company determines the cost of securities sold based on the specific identification method. Realized gains or losses are reported in “Interest income and other expense, net” on the consolidated statements of income.
The Company classifies its investments as “available for sale” because it may sell some securities prior to maturity. The Company’s investments are subject to market risk, primarily interest rate and credit risks. The Company’s investments are managed by a limited number of outside professional managers that operate within investment guidelines set by the Company. These guidelines include specified permissible investments, minimum credit quality ratings and maximum average duration restrictions and are intended to limit market risk by restricting the Company’s investments to high quality debt instruments with relatively short-term maturities.
As of
January 27, 2013
, all of the Company’s long-term investments mature on various dates through fiscal year
2015
.
The following table summarizes the Company’s available for sale investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 27, 2013
|
|
January 29, 2012
|
(in thousands)
|
Market Value
|
|
Adjusted
Cost
|
|
Gross
Unrealized
Gain
|
|
Market Value
|
|
Adjusted
Cost
|
|
Gross
Unrealized
Gain
|
Agency securities
|
$
|
7,907
|
|
|
$
|
7,900
|
|
|
$
|
7
|
|
|
$
|
26,132
|
|
|
$
|
26,110
|
|
|
$
|
22
|
|
Corporate issues
|
—
|
|
|
—
|
|
|
—
|
|
|
4,511
|
|
|
4,484
|
|
|
27
|
|
Bank time deposits
|
4,973
|
|
|
4,973
|
|
|
—
|
|
|
70,000
|
|
|
70,000
|
|
|
—
|
|
Total investments
|
$
|
12,880
|
|
|
$
|
12,873
|
|
|
$
|
7
|
|
|
$
|
100,643
|
|
|
$
|
100,594
|
|
|
$
|
49
|
|
Agency securities are specific securities that are issued by United States government agencies such as Ginnie Mae, Fannie Mae, Freddie Mac or the Federal Home Loan Banks. Due to the expectation of federal backing, these securities usually hold the highest credit rating possible.
The following table summarizes the maturities of the Company’s available for sale investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 27, 2013
|
|
January 29, 2012
|
(in thousands)
|
Market Value
|
|
Adjusted Cost
|
|
Market Value
|
|
Adjusted Cost
|
Within 1 year
|
$
|
4,973
|
|
|
$
|
4,973
|
|
|
$
|
83,121
|
|
|
$
|
83,085
|
|
After 1 year through 5 years
|
7,907
|
|
|
7,900
|
|
|
17,522
|
|
|
17,509
|
|
Total investments
|
$
|
12,880
|
|
|
$
|
12,873
|
|
|
$
|
100,643
|
|
|
$
|
100,594
|
|
Unrealized gains and losses are the result of fluctuations in the market value of the Company’s available for sale investments and are included in “Accumulated other comprehensive income” on the consolidated balance sheets. The following table summarizes net unrealized losses arising in the periods presented in addition to the tax associated with these comprehensive income items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
(in thousands)
|
January 27,
2013
|
|
January 29,
2012
|
|
January 30,
2011
|
Unrealized loss, net of tax
|
$
|
(32
|
)
|
|
$
|
(204
|
)
|
|
$
|
(76
|
)
|
Decrease to deferred tax liability
|
$
|
(10
|
)
|
|
$
|
(58
|
)
|
|
$
|
(41
|
)
|
The following table summarizes interest income generated from investments and cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
(in thousands)
|
January 27,
2013
|
|
January 29,
2012
|
|
January 30,
2011
|
Interest income
|
$
|
404
|
|
|
$
|
1,213
|
|
|
$
|
1,051
|
|
During fiscal year 2013, the Company acquired an investment in a privately traded company for total cash consideration of
$2.5 million
. The Company accounts for the investment in equity interests under the cost method of accounting since it does not have the ability to exercise significant influence over the investee. The investment in equity interests is included in “Other assets” on the consolidated balance sheet as of January 27, 2013.
Note
5
: Fair Value Measurements
Instruments Measured at Fair Value on a Recurring Basis
Financial assets measured and recorded at fair value on a recurring basis consisted of the following types of instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Fair Value as of January 27, 2013
|
|
Fair Value as of January 29, 2012
|
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Agency securities
|
$
|
7,907
|
|
|
$
|
—
|
|
|
$
|
7,907
|
|
|
$
|
—
|
|
|
$
|
26,132
|
|
|
$
|
—
|
|
|
$
|
26,132
|
|
|
$
|
—
|
|
Corporate issues
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,511
|
|
|
—
|
|
|
4,511
|
|
|
—
|
|
Bank time deposits
|
4,973
|
|
|
—
|
|
|
4,973
|
|
|
—
|
|
|
70,000
|
|
|
—
|
|
|
70,000
|
|
|
—
|
|
Total available-for-sale securities
|
12,880
|
|
|
—
|
|
|
12,880
|
|
|
—
|
|
|
100,643
|
|
|
—
|
|
|
100,643
|
|
|
$
|
—
|
|
Interest rate cap
|
544
|
|
|
—
|
|
|
544
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total financial assets
|
$
|
13,424
|
|
|
$
|
—
|
|
|
$
|
13,424
|
|
|
$
|
—
|
|
|
$
|
100,643
|
|
|
$
|
—
|
|
|
$
|
100,643
|
|
|
$
|
—
|
|
Available-for-sale securities included in Level 2 are valued utilizing inputs obtained from an independent service (the “Service”), which uses quoted market prices for identical or comparable instruments rather than direct observations of quoted prices in active markets. The Service gathers observable inputs for all of our fixed income securities from a variety of industry data providers, for example, large custodial institutions and other third-party sources. Once the observable inputs are gathered by the Service, all data points are considered and an average price is determined. The Service’s providers utilize a variety of inputs to determine their quoted prices. The Company reviews and evaluates the values provided by the Service and agrees with the valuation methods and assumptions used in determining the fair value of investments. The Company believes this method provides a reasonable estimate for fair value.
The fair value of the interest rate cap at
January 27, 2013
is estimated as described in Note
11
and is included in “Other assets” on the consolidated balance sheet.
Financial assets measured and recorded at fair value on a recurring basis were presented on the Company’s consolidated balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of January 27, 2013
|
|
Fair Value as of January 29, 2012
|
(in thousands)
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Temporary investments
|
$
|
4,973
|
|
|
$
|
—
|
|
|
$
|
4,973
|
|
|
$
|
—
|
|
|
$
|
83,121
|
|
|
$
|
—
|
|
|
$
|
83,121
|
|
|
$
|
—
|
|
Long-term investments
|
7,907
|
|
|
—
|
|
|
7,907
|
|
|
—
|
|
|
17,522
|
|
|
—
|
|
|
17,522
|
|
|
—
|
|
Other assets
|
544
|
|
|
—
|
|
|
544
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total financial assets
|
$
|
13,424
|
|
|
$
|
—
|
|
|
$
|
13,424
|
|
|
$
|
—
|
|
|
$
|
100,643
|
|
|
$
|
—
|
|
|
$
|
100,643
|
|
|
$
|
—
|
|
During fiscal years
2013
and
2012
, the Company had no transfers of financial assets or liabilities between Level 1, Level 2 or Level 3. As of
January 27, 2013
and
January 29, 2012
, the Company had not elected the fair value option for any financial assets and liabilities for which such an election would have been permitted.
Instruments Not Recorded at Fair Value on a Recurring Basis
Some of the Company’s financial instruments are not measured at fair value on a recurring basis but are recorded at amounts that approximate fair value due to their liquid or short-term nature. Such financial assets and financial liabilities include: cash and cash equivalents, receivables, net, certain other assets, accounts payable and accrued expenses, accrued personnel costs, and other current liabilities.
The Company’s long-term debt is not recorded at fair value on a recurring basis, but is measured at fair value for disclosure purposes. The fair value of the Company’s debt is estimated primarily based on quotes (“ask prices”) provided by pricing services generated in a market with insufficient volume to comprise an active market (Level 2 inputs) based on the Company’s debt obligations. The fair value of the Company’s debt was
$336.7 million
at
January 27, 2013
.
Assets and Liabilities Recorded at Fair Value on a Non-Recurring Basis
The Company reduces the carrying amounts of its goodwill, intangible assets, long-lived assets and non-marketable equity security to fair value when held for sale or determined to be impaired.
For its investment in equity interests, the Company has not identified events or changes in circumstances that may have a significant adverse effect on the fair value of its cost method investment during the last three months of fiscal year 2013.
Note 6: Inventories
Inventories, consisting of material, material overhead, labor, and manufacturing overhead, are stated at the lower of cost (first-in, first-out) or market and consist of the following:
|
|
|
|
|
|
|
|
|
(in thousands)
|
January 27, 2013
|
|
January 29, 2012
|
Raw materials
|
$
|
1,970
|
|
|
$
|
4,871
|
|
Work in progress
|
52,669
|
|
|
30,884
|
|
Finished goods
|
20,239
|
|
|
11,240
|
|
Inventories
|
$
|
74,878
|
|
|
$
|
46,995
|
|
Note 7: Property, Plant and Equipment
The following is a summary of property and equipment, at cost less accumulated depreciation:
|
|
|
|
|
|
|
|
|
(in thousands)
|
January 27, 2013
|
|
January 29, 2012
|
Property
|
$
|
9,050
|
|
|
$
|
5,991
|
|
Buildings
|
18,627
|
|
|
18,580
|
|
Leasehold improvements
|
8,881
|
|
|
5,768
|
|
Machinery and equipment
|
130,595
|
|
|
98,895
|
|
Furniture and office equipment
|
30,120
|
|
|
23,428
|
|
Construction in progress
|
6,330
|
|
|
2,444
|
|
Property, plant and equipment, gross
|
203,603
|
|
|
155,106
|
|
Less accumulated depreciation and amortization
|
(101,766
|
)
|
|
(85,393
|
)
|
Property, plant and equipment, net
|
$
|
101,837
|
|
|
$
|
69,713
|
|
The net book value of equipment and machinery that are consigned to a foundry in China is
$7.9 million
and
$9.4 million
as of
January 27, 2013
and
January 29, 2012
, respectively.
The following table summarizes depreciation and amortization expense for property, plant and equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
(in thousands)
|
January 27,
2013
|
|
January 29,
2012
|
|
January 30,
2011
|
Depreciation and amortization expense
|
$
|
17,915
|
|
|
$
|
9,908
|
|
|
$
|
6,928
|
|
Note
8
: Goodwill and Intangible Assets
Goodwill
– Goodwill balances as of
January 27, 2013
and
January 29, 2012
are presented below:
|
|
|
|
|
(in thousands)
|
Carrying Amount
|
Balance as of January 29, 2012
|
$
|
129,651
|
|
Acquisition of Gennum Corporation
|
261,891
|
|
Acquisition of Cycleo SAS
|
2,042
|
|
Balance as of January 27, 2013
|
$
|
393,584
|
|
During fiscal year
2013
, goodwill increased by approximately
$263.9 million
due to the Company’s acquisitions of Gennum and Cycleo (see Note
3
).
In fiscal year 2012, the Company reorganized its reporting structure in a manner that changed the composition of its product lines within its reporting units. The components of the Advanced Communications and Sensing reporting unit were split into two reporting units consisting of the Advanced Communications and the Wireless and Sensing reporting units. As a result of the change, in fiscal year 2012, goodwill was reassigned to the reporting units affected using a relative fair value allocation approach. Subsequent to the reorganization in the third quarter of fiscal year 2012, the goodwill associated with the Advanced Communications and Sensing reporting unit was reassigned (as of November 2011) such that
10%
of goodwill is allocated to the Wireless and Sensing reporting unit and
90%
of the goodwill is allocated to the Advanced Communications reporting unit. In connection with the reorganization, the Company assessed whether an indicator of impairment existed prior to the reorganizations and concluded that no such indicators were present in fiscal year 2012.
As a result of the acquisition of Gennum and Cycleo (see Note
3
), the Company acquired
$261.9 million
of goodwill, associated with the newly formed Gennum reporting unit, and added
$2.0 million
to the Wireless and Sensing reporting unit.
Goodwill was tested for impairment as of November 30, 2012, the date of the Company’s annual impairment review. The Company concluded that the fair values of each of the Advanced Communications, the Wireless and Sensing, and Gennum reporting units exceeded their respective carrying values of goodwill and no impairment existed as of
January 27, 2013
. The Company estimated the fair values of its reporting units using the income approach, which utilizes estimates of discounted future cash flows. The discounted cash flows for each reporting unit were based on discrete financial forecasts developed by management for planning purposes. Cash flows beyond the discrete forecasts were estimated using a terminal value calculation, which incorporated historical and forecasted financial trends for each identified reporting unit and considered perpetual earnings growth rates for publicly traded peer companies. Future cash flows were discounted to present value by incorporating appropriate present value techniques. Specifically, the income approach valuations included the following assumptions:
|
|
|
Discount rate
|
10.0% - 13.0%
|
Perpetual growth rate
|
3.0%
|
Tax rate
|
14.7% - 20.0%
|
Risk-free rate
|
2.4%
|
Peer company beta
|
1.3 - 1.6
|
Purchased Intangibles
- The following table sets forth the Company’s finite-lived intangible assets resulting from business acquisitions and technology licenses purchased, which continue to be amortized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 27, 2013
|
|
January 29, 2012
|
(in thousands)
|
Estimated
Useful Life
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Carrying
Amount
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Carrying
Amount
|
Core technologies
|
2-10 years
|
|
$
|
173,724
|
|
|
$
|
(40,867
|
)
|
|
$
|
132,857
|
|
|
$
|
65,900
|
|
|
$
|
(21,031
|
)
|
|
$
|
44,869
|
|
Customer relationships
|
7-10 years
|
|
40,130
|
|
|
(7,736
|
)
|
|
32,394
|
|
|
12,130
|
|
|
(2,929
|
)
|
|
9,201
|
|
Technology licenses (1)
|
5-10 years
|
|
8,164
|
|
|
(1,056
|
)
|
|
7,108
|
|
|
3,000
|
|
|
(250
|
)
|
|
2,750
|
|
Other intangibles assets
|
1-5 years
|
|
6,600
|
|
|
(4,601
|
)
|
|
1,999
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total finite-lived intangible assets
|
|
|
$
|
228,618
|
|
|
$
|
(54,260
|
)
|
|
$
|
174,358
|
|
|
$
|
81,030
|
|
|
$
|
(24,210
|
)
|
|
$
|
56,820
|
|
|
|
(1)
|
Technology licenses relate to licensing agreements entered into by the Company. Amortization expense related to technology licenses is reported as “Product development and engineering” in the consolidated statements of income.
|
During fiscal year 2013, acquired finite-lived intangible assets increased by approximately
$147.6 million
mainly due to
$129.9 million
due to the acquisition of Gennum,
$6.1 million
from the acquisition of Cycleo and
$5.0 million
from additional technology licenses purchased. In addition, acquired finite-lived intangible assets increased by
$6.6 million
due to the transfer from indefinite-lived intangible assets to core technologies upon the completion of one in-process research and development project from the acquisition of Sierra Monolithics, Inc. (“SMI”) in 2009.
Core technologies include
$95.1 million
and
$6.1 million
of finite-lived intangible assets from the acquisition of Gennum and the acquisition of Cycleo, respectively (see Note
3
). The Company concluded that the intangible assets classified as core
technologies were identifiable intangible assets, separate from goodwill, since they were capable of being separated from Gennum or Cycleo and sold, transferred or licensed, regardless of whether the Company intended to do so. Each product technology was valued separately since each was determined to have a different remaining useful life. The value for the underlying core IP technology from the acquisition of Gennum and Cycleo was assessed utilizing a discounted cash flow methodology and/or a relief from royalty method.
The nature of Gennum’s core technology was categorized as follows:
|
|
|
|
|
|
|
January 27, 2013
|
(in thousands)
|
Fair Value
|
Estimated Useful Life
|
Underlying intellectual property - Clock and data recovery
|
$
|
31,000
|
|
8 years
|
Video broadcast and surveillance
|
39,000
|
|
7-8 years
|
Optical communication
|
21,000
|
|
6 years
|
Other
|
4,100
|
|
6-7 years
|
Total
|
$
|
95,100
|
|
|
For the fiscal years
2013
,
2012
and
2011
, amortization expense related to finite-lived intangible assets was
$29.2 million
,
$8.4 million
and
$9.5 million
, respectively. Amortization expense related to finite-lived intangible assets is reported as “Intangible amortization and impairments” in the consolidated statements of income.
The estimated annual amount of future amortization expense for finite-lived intangible assets will be as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
To be recognized in:
|
Technology
license
|
|
Sierra
Monolithics
|
|
Gennum
|
|
Cycleo
|
|
Total
|
Fiscal year 2014
|
$
|
1,507
|
|
|
$
|
8,870
|
|
|
$
|
18,778
|
|
|
$
|
1,007
|
|
|
$
|
30,162
|
|
Fiscal year 2015
|
1,465
|
|
|
8,870
|
|
|
18,132
|
|
|
1,007
|
|
|
29,474
|
|
Fiscal year 2016
|
1,436
|
|
|
8,870
|
|
|
17,586
|
|
|
1,007
|
|
|
28,899
|
|
Fiscal year 2017
|
1,186
|
|
|
8,870
|
|
|
17,499
|
|
|
1,007
|
|
|
28,562
|
|
Fiscal year 2018
|
776
|
|
|
8,160
|
|
|
17,499
|
|
|
1,007
|
|
|
27,442
|
|
Thereafter
|
738
|
|
|
8,490
|
|
|
20,510
|
|
|
81
|
|
|
29,819
|
|
Total expected amortization expense
|
$
|
7,108
|
|
|
$
|
52,130
|
|
|
$
|
110,004
|
|
|
$
|
5,116
|
|
|
$
|
174,358
|
|
The following table sets forth the Company’s indefinite-lived intangible assets resulting from business acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 27, 2013
|
|
January 29, 2012
|
(in thousands)
|
Gross
Carrying
Amount
|
|
Accumulated
Impairment
Loss
|
|
Net Carrying
Amount
|
|
Gross
Carrying
Amount
|
|
Accumulated
Impairment
Loss
|
|
Net Carrying
Amount
|
In-process research and development
|
$
|
34,870
|
|
|
$
|
(3,170
|
)
|
|
$
|
31,700
|
|
|
$
|
12,370
|
|
|
$
|
(2,470
|
)
|
|
$
|
9,900
|
|
Total indefinite-lived intangible assets
|
$
|
34,870
|
|
|
$
|
(3,170
|
)
|
|
$
|
31,700
|
|
|
$
|
12,370
|
|
|
$
|
(2,470
|
)
|
|
$
|
9,900
|
|
During fiscal year
2013
, acquired indefinite-lived intangible assets increased by approximately
$22.5 million
mainly due to
$29.1 million
related to the acquisition of Gennum, partially offset by
$6.6 million
due to the transfer from indefinite-lived intangible assets to core technologies upon the completion of one in-process research and development project from SMI acquisition.
Acquired in-process research and development projects (“IPR&D”) was tested for impairment as of November 30, 2012, the date of the Company’s annual impairment review. With the exception of the impairment charge of
$700,000
recorded to write-off acquired IPR&D from SMI acquisition, the Company concluded that the fair value of the acquired in-process research and developments exceeded the carrying value and no impairment existed as of
January 27, 2013
. The fair value of the IPR&D projects was determined using using an income approach or replacement cost approach as applicable. The replacement cost approach was used for IPR&D projects that were considered long-term core investments and were not anticipated to be profitable for a period of time. IPR&D projects which were valued using an income approach, measured the returns attributable
to each specific IPR&D project, discounted to present value using a risk-adjusted rate of return, including as appropriate, any tax benefits derived from amortizing the intangible assets for tax purposes. Significant factors considered in the calculation of the rate of return are the weighted average cost of capital and return on assets, as well as the risk inherent in the development process, including the likelihood of achieving technology success and market acceptance. For IPR&D projects valued using a replacement cost approach, value was estimated by developing the cost to either replace or reproduce (replicate) the IPR&D to its current state. The key unobservable inputs utilized in the model include discount rates ranging from
12.0%
to
18.0%
, a market participant tax rate of
12.3%
to
17.0%
, and a probability adjusted level of future cash flows based on current product and market data.
During the third quarter of fiscal year
2012
, the Company abandoned certain development efforts related to acquired intangible assets. As a result of these actions, the Company concluded that a portion of the net carrying amount of in-process research and development was not recoverable and therefore it recorded an impairment charge against the net carrying value in the three month period ended October 30, 2011, as summarized below:
|
|
|
|
|
|
|
|
|
(in thousands)
|
Net Carrying
|
|
|
In-process research and development impairment
|
Amount
|
|
Impairment
|
High-speed switching technology for power management applications (1)
|
$
|
2,070
|
|
|
$
|
(2,070
|
)
|
Integrated driver for telecommunications applications (2)
|
400
|
|
|
(400
|
)
|
Total
|
$
|
2,470
|
|
|
$
|
(2,470
|
)
|
|
|
(1)
|
related to the February 2009 Leadis Technology Inc. acquisition.
|
|
|
(2)
|
related to the December 2009 Sierra Monolithics, Inc. acquisition.
|
These impairment charges are included in “Intangible amortization and impairments” on the consolidated statements of income.
Note 9: Accrued Liabilities
The following is a summary of accrued liabilities for fiscal years
2013
and
2012
:
|
|
|
|
|
|
|
|
|
(in thousands)
|
January 27, 2013
|
|
January 29, 2012
|
Compensation
|
$
|
23,140
|
|
|
$
|
14,330
|
|
Equity awards accounted for as a liability
|
3,241
|
|
|
3,988
|
|
Deferred compensation
|
1,410
|
|
|
901
|
|
Accrued sales and marketing expenses
|
3,202
|
|
|
1,742
|
|
Accrued professional fees
|
3,835
|
|
|
1,949
|
|
Accrued interest expense
|
1,177
|
|
|
—
|
|
Income taxes payable
|
4,113
|
|
|
4,260
|
|
Accrued taxes
|
266
|
|
|
437
|
|
Other
|
8,892
|
|
|
4,782
|
|
|
$
|
49,276
|
|
|
$
|
32,389
|
|
Note
10
: Credit Facilities
On March 20, 2012, the Company entered into a credit agreement with certain lenders (the “Lenders”) and Jefferies Finance LLC, as administrative and collateral agent (the “Credit Agreement”). Pursuant to the Credit Agreement, the Lenders provided the Company with senior secured first lien credit facilities in an aggregate principal amount of
$350 million
(the “Facilities”), consisting of term A loans in an aggregate principal amount of
$100 million
(the “Term A Loans”) and term B loans in an aggregate principal amount of
$250 million
(the “Term B Loans”). Both the Term A Loans and the Term B Loans mature on March 20, 2017. The initial carrying amounts totaled
$99.5 million
(net of original issue discount of
$500,000
) for the Term A Loans and
$247.5 million
(net of original issue discount of
$2.5 million
) for the Term B Loans. The respective amounts of original issue discount are being amortized using the effective interest method and are included in “
Interest expense
” in the consolidated statements of income. A portion of the proceeds of the loans was used to finance the acquisition of Gennum and fees, costs and expenses related thereto, and the remainder of the proceeds may be used by Semtech for working capital and general corporate purposes.
Debt issuance costs incurred in connection with the Facilities totaled
$8.9 million
and are being amortized using the effective interest method over the terms of the loans, and are included in “Interest expense” in the consolidated statements of income.
The Company may request, at any time, subject to certain conditions, the establishment of one or more additional term loan facilities in an aggregate principal amount not to exceed
$150 million
, the proceeds of which may be used for working capital and general corporate purposes.
Interest on the Term A Loans and Term B Loans accrue at certain reference rates plus specified applicable margins. The reference rates are equivalent to, at the Company’s option, either: (i) LIBOR for interest periods of 1, 2, 3 or 6 months or, subject to certain conditions, 9 or 12 months (“LIBOR”) or (ii) the highest of (a) the prime rate, (b) the federal funds effective rate plus 1/2% or (c) one-month LIBOR plus
1.00%
(“Base Rate”). For the Term B Loans, LIBOR is subject to a floor of
1.00%
and Base Rate is subject to a floor of
2.00%
. For the Term A Loans, the applicable margin for LIBOR loans ranges from
2.50%
to
2.75%
and the applicable margin for Base Rate loans ranges from
1.50%
to
1.75%
, in each case depending upon the total leverage ratio. For the Term B Loans, the applicable margin for LIBOR loans is
3.25%
and the applicable margin for Base Rate loans is
2.25%
. Interest is payable at least quarterly. As of
January 27, 2013
, the interest rates payable on the Term A Loans and Term B Loans were
2.96%
and
4.25%
, respectively.
In accordance with the Credit Agreement, and as described in Note
11
, in June 2012, the Company entered into an interest rate hedging agreement protecting at least
50%
of the variable interest rate exposure on the term loans.
Quarterly principal payments of
$5.0 million
and
$0.6 million
for the Term A Loans and Term B Loans, respectively, are due beginning on the last business day of the quarter ended July 29, 2012, with the final remaining payments due on the maturity date of March 20, 2017.
Scheduled maturities of current and long-term debt are as follows:
|
|
|
|
|
(in thousands)
|
|
Fiscal Year Ending:
|
|
2014
|
$
|
49,100
|
|
2015
|
22,500
|
|
2016
|
22,500
|
|
2017
|
22,500
|
|
2018
|
216,525
|
|
Total debt
|
$
|
333,125
|
|
Pursuant to the Credit Agreement, under certain circumstances, the Company is obligated to apply
50%
of its excess cash flow (as defined in the Credit Agreement) for each fiscal year, as well as net cash proceeds from specified other sources, such as asset sales, debt issuances or insurance proceeds, to prepay the Term A Loans and Term B Loans. Excess cash flow may be primarily summarized as cash provided by operating activities less capital expenditures and loan principal payments. The first excess cash flow payment is estimated to be
$26.6 million
. The earliest date that any such payment may be due is
95
days after the last day of the fiscal year ending closest to January 31, 2013. The Company has classified the potential early payment of
$26.6 million
from “Long term debt” to “Current portion - long term debt” in the consolidated balance sheets as of
January 27, 2013
.
Subject to certain customary exceptions, all obligations of the Company under the Facilities are unconditionally guaranteed by each of Semtech’s existing and subsequently acquired or organized direct and indirect domestic subsidiaries (the “Guarantors”). The obligations of Semtech and the Guarantors in respect of the Facilities are secured by a first priority security interest in substantially all of the assets of Semtech and the Guarantors, subject to certain customary exceptions.
The Facilities are subject to customary affirmative and negative covenants, some of which require the maintenance of specified interest coverage and leverage ratios. The Company was subject to a minimum interest ratio of
5.00
:1.00 for the fourth quarter ended
January 27, 2013
and a maximum total leverage ratio of
2.65
:1.00 as of the last day of the fourth quarter ended
January 27, 2013
. The Company was in compliance with such financial covenants as of
January 27, 2013
.
Note
11
: Interest Rate Derivative Agreement
In June 2012, the Company entered into an interest rate cap agreement with a
$175 million
notional amount and an upfront payment of
$1.1 million
. The agreement matures on February 22, 2016 and caps interest rates on
one-month LIBOR
at
1.00%
.
The interest rate cap agreement has been designated as a cash flow hedge of interest rate risk and is recorded at estimated fair value as of
January 27, 2013
.
The Company determined that the interest rate cap agreement is highly effective in offsetting future variable interest payments associated with the hedged portion of the Company’s term loans. No ineffectiveness was recorded during fiscal year
2013
. The Company did not have any active interest contracts outstanding prior to June 2012.
The amount of unrealized losses on the interest rate cap recorded in other comprehensive loss at
January 27, 2013
that is expected to be reclassified into interest expense in the next twelve months, if interest rates remain unchanged, is approximately
$78,000
.
The fair value of the interest rate cap at
January 27, 2013
is determined based on assumptions that management believes market participants would use in pricing. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. Based on the inputs used in the valuation, the Company has determined that the derivative valuation is classified in Level 2 of the fair value hierarchy.
Note 12: Stock-Based Compensation
Financial Statement Effects and Presentation
.
The following table shows total pre-tax, stock-based compensation expense included in the consolidated statements of income for fiscal years
2013
,
2012
and
2011
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
(in thousands)
|
January 27, 2013
|
|
January 29, 2012
|
|
January 30, 2011
|
Cost of sales
|
$
|
1,218
|
|
|
$
|
983
|
|
|
$
|
1,802
|
|
Selling, general and administrative
|
14,965
|
|
|
15,839
|
|
|
19,310
|
|
Product development and engineering
|
8,345
|
|
|
7,198
|
|
|
7,898
|
|
Stock-based compensation, pre-tax
|
$
|
24,528
|
|
|
$
|
24,020
|
|
|
$
|
29,010
|
|
Net change in stock-based compensation capitalized into inventory
|
$
|
(33
|
)
|
|
$
|
(83
|
)
|
|
$
|
(116
|
)
|
The below table summarizes the net impact of stock-based compensation, after tax, on net income for fiscal years
2013
,
2012
and
2011
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
(in thousands)
|
January 27, 2013
|
|
January 29, 2012
|
|
January 30, 2011
|
Stock-based compensation
|
$
|
24,528
|
|
|
$
|
24,020
|
|
|
$
|
29,010
|
|
Associated tax effect
|
(5,120
|
)
|
|
(5,693
|
)
|
|
(9,170
|
)
|
Net effect on net income
|
$
|
19,408
|
|
|
$
|
18,327
|
|
|
$
|
19,840
|
|
The tax benefit realized from option exercise activity for fiscal years
2013
,
2012
and
2011
was
$14.3 million
,
$12.9 million
and
$7.1 million
, respectively.
Share-based Payment Arrangements
The Company has various equity award plans that provide for granting stock-based awards to employees and non-employee directors of the Company. The plans provide for the granting of several available forms of stock compensation. As of
January 27, 2013
, the Company has granted options and restricted stock under the plans and has also issued some stock-based compensation outside of the plans, including options and restricted stock issued as inducements to join the Company.
Grant Date Fair Values and Underlying Assumptions; Contractual Terms
The Company uses the Black-Scholes pricing model to value options. For awards classified as equity, stock-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized as an expense over the
employee’s or director’s requisite service period. For awards classified as liabilities, stock-based compensation cost is measured at fair value at the end of each reporting date until the date of settlement, and is recognized as an expense over the employee’s or director’s requisite service period. Expected volatilities are based on historical volatility using daily and monthly stock price observations.
The following table summarizes the assumptions used in the Black-Scholes model to determine the fair value of options granted in fiscal years
2013
,
2012
and
2011
:
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
January 27, 2013
|
|
January 29, 2012
|
|
January 30, 2011
|
Expected lives, in years
|
4.4 - 4.6
|
|
4.4 - 4.7
|
|
4.3 - 5.1
|
Estimated volatility
|
38% - 41%
|
|
40% - 41%
|
|
39% - 40%
|
Dividend yield
|
—
|
|
—
|
|
—
|
Risk-free interest rate
|
0.66% - 0.73%
|
|
0.71% - 1.8%
|
|
1.2% - 2.3%
|
Weighted average fair value on grant date
|
$9.52
|
|
$8.43
|
|
$6.56
|
The estimated fair value of restricted stock awards was calculated based on the market price of the Company’s common stock on the date of grant. Some of the restricted stock units awarded in fiscal year
2013
and prior years are classified as liabilities rather than equity. For awards classified as liabilities, the value of these awards is re-measured at the end of each quarter.
Stock Option Awards
. The Company has historically granted stock option awards to both employees and non-employee directors. The grant date for these awards is equal to the measurement date. These awards were valued as of the measurement date and are amortized over the requisite vesting period (typically
3
-
4
years). A summary of the activity for stock option awards for fiscal years
2013
,
2012
and
2011
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except for per share amounts)
|
Number
of
Shares
|
|
Weighted
Average
Exercise
Price
(per share)
|
|
Aggregate
Intrinsic
Value (1)
|
|
Aggregate
Unrecognized
Compensation
|
|
Number of
Shares
Exercisable
|
|
Weighted
Average
Contractual
Term (years)
|
Balance at January 31, 2010
|
9,151
|
|
|
$
|
16.44
|
|
|
$
|
8,998
|
|
|
$
|
9,436
|
|
|
6,302
|
|
|
Options granted
|
403
|
|
|
17.61
|
|
|
|
|
|
|
|
|
|
Options exercised
|
(2,329
|
)
|
|
14.22
|
|
|
11,495
|
|
|
|
|
|
|
|
Options cancelled/forfeited
|
(603
|
)
|
|
21.35
|
|
|
|
|
|
|
|
|
|
Balance at January 30, 2011
|
6,622
|
|
|
16.84
|
|
|
35,492
|
|
|
7,067
|
|
|
5,160
|
|
|
Options granted
|
343
|
|
|
24.05
|
|
|
|
|
|
|
|
|
|
Options exercised
|
(2,781
|
)
|
|
16.64
|
|
|
22,537
|
|
|
|
|
|
|
|
Options cancelled/forfeited
|
(494
|
)
|
|
22.30
|
|
|
|
|
|
|
|
|
|
Balance at January 29, 2012
|
3,690
|
|
|
16.94
|
|
|
44,435
|
|
|
4,699
|
|
|
2,767
|
|
|
Options granted
|
258
|
|
|
28.21
|
|
|
|
|
|
|
|
|
|
Options exercised
|
(1,254
|
)
|
|
15.70
|
|
|
14,508
|
|
|
|
|
|
|
|
Options cancelled/forfeited
|
(115
|
)
|
|
25.30
|
|
|
|
|
|
|
|
|
|
Balance at January 27, 2013
|
2,579
|
|
|
$
|
18.29
|
|
|
$
|
29,789
|
|
|
$
|
3,817
|
|
|
1,937
|
|
|
Exercisable at January 27, 2013
|
1,937
|
|
|
$
|
16.51
|
|
|
$
|
25,822
|
|
|
|
|
|
|
2.1
|
Vested and expected to vest after January 27, 2013
|
2,495
|
|
|
$
|
18.10
|
|
|
$
|
29,293
|
|
|
|
|
|
|
2.6
|
|
|
(1)
|
Represents the difference between the exercise price and the value of the Company’s stock at the time of exercise, for exercised grants. For outstanding awards, represents the difference between the exercise price and the value of the Company’s stock at fiscal year end.
|
The following table summarizes information about stock options outstanding at
January 27, 2013
.
|
|
|
|
|
|
|
|
|
|
(number of shares in thousands)
|
Number
of
Shares
|
|
Weighted
Average
Exercise
Price
(per share)
|
|
Weighted
Average
Contractual
Term (years)
|
Price Range Analysis - Outstanding
|
|
|
|
|
|
$1.15 - $4.53
|
9
|
|
|
$
|
2.52
|
|
|
4.3
|
$7.79 - $13.15
|
247
|
|
|
11.59
|
|
|
2.1
|
$13.76 - $20.90
|
1,671
|
|
|
16.58
|
|
|
2.1
|
$21.02 - $29.68
|
652
|
|
|
25.43
|
|
|
4.4
|
Total outstanding
|
2,579
|
|
|
$
|
18.29
|
|
|
2.7
|
Price Range Analysis - Exercisable
|
|
|
|
|
|
$1.15 - $4.53
|
9
|
|
|
$
|
2.52
|
|
|
4.3
|
$7.79 - $13.15
|
241
|
|
|
11.62
|
|
|
2.0
|
$13.76 - $20.90
|
1,494
|
|
|
16.52
|
|
|
2.0
|
$21.02 - $29.68
|
193
|
|
|
23.18
|
|
|
2.8
|
Total exercisable
|
1,937
|
|
|
$
|
16.51
|
|
|
2.1
|
The following table summarizes information regarding unvested stock option awards at
January 27, 2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except for per share amounts)
|
Number
of
Shares
|
|
Weighted
Average
Exercise
Price
(per share)
|
|
Weighted
Average
Grant Date
Fair Value
(per share)
|
|
Weighted
Average Remaining
Expense Period
(years)
|
|
Total Fair Value
|
Balance at January 31, 2010
|
2,849
|
|
|
$
|
13.31
|
|
|
$
|
7.48
|
|
|
1.9
|
|
$
|
21,311
|
|
Options granted
|
403
|
|
|
17.61
|
|
|
6.56
|
|
|
|
|
2,644
|
|
Options vested
|
(1,575
|
)
|
|
13.07
|
|
|
8.26
|
|
|
|
|
13,006
|
|
Options forfeited
|
(215
|
)
|
|
11.57
|
|
|
8.56
|
|
|
|
|
1,845
|
|
Balance at January 30, 2011
|
1,462
|
|
|
15.00
|
|
|
6.23
|
|
|
1.9
|
|
$
|
9,103
|
|
Options granted
|
343
|
|
|
24.05
|
|
|
8.43
|
|
|
|
|
2,893
|
|
Options vested
|
(650
|
)
|
|
14.30
|
|
|
6.33
|
|
|
|
|
4,115
|
|
Options forfeited
|
(231
|
)
|
|
16.59
|
|
|
6.39
|
|
|
|
|
1,479
|
|
Balance at January 29, 2012
|
924
|
|
|
18.47
|
|
|
6.99
|
|
|
1.8
|
|
$
|
6,452
|
|
Options granted
|
258
|
|
|
28.21
|
|
|
9.52
|
|
|
|
|
2,457
|
|
Options vested
|
(484
|
)
|
|
16.42
|
|
|
6.49
|
|
|
|
|
3,144
|
|
Options forfeited
|
(56
|
)
|
|
21.69
|
|
|
7.74
|
|
|
|
|
432
|
|
Balance at January 27, 2013
|
642
|
|
|
$
|
23.66
|
|
|
$
|
8.31
|
|
|
1.9
|
|
$
|
5,333
|
|
Restricted Stock
. The Company has not granted any restricted stock to employees since fiscal year 2009. The grant date for these awards is equal to the measurement date. These awards are valued as of the measurement date and recognized as compensation expense over the requisite vesting period (typically
3
-
4
years).
The following table summarizes the activity for restricted stock awards for fiscal years
2013
,
2012
and
2011
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except for per share amounts)
|
Number of
Shares
|
|
Weighted Average
Grant Date
Fair Value
(per share)
|
|
Aggregate
Intrinsic
Value (1)
|
|
Aggregate
Unrecognized
Compensation
|
|
Weighted Average
Period Over
Which Expected
to be Recognized
(in years)
|
Balance at January 31, 2010
|
418
|
|
|
$
|
15.15
|
|
|
|
|
$
|
3,193
|
|
|
1.2
|
|
Restricted stocks granted
|
—
|
|
|
|
|
|
|
|
|
|
Restricted stocks vested
|
(270
|
)
|
|
17.33
|
|
|
$
|
4,678
|
|
|
|
|
|
Restricted stocks cancelled
|
(13
|
)
|
|
17.44
|
|
|
|
|
|
|
|
Balance at January 30, 2011
|
135
|
|
|
14.44
|
|
|
|
|
984
|
|
|
0.8
|
|
Restricted stocks granted
|
—
|
|
|
|
|
|
|
|
|
|
Restricted stocks vested
|
(91
|
)
|
|
14.29
|
|
|
2,201
|
|
|
|
|
|
Restricted stocks cancelled
|
(12
|
)
|
|
15.25
|
|
|
|
|
|
|
|
Balance at January 29, 2012
|
32
|
|
|
14.57
|
|
|
|
|
81
|
|
|
0.1
|
|
Restricted stocks granted
|
—
|
|
|
|
|
|
|
|
|
|
Restricted stocks vested
|
(32
|
)
|
|
14.57
|
|
|
$
|
902
|
|
|
|
|
|
Restricted stocks cancelled
|
—
|
|
|
|
|
|
|
|
|
|
Balance at January 27, 2013
|
—
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
—
|
|
|
|
(1)
|
Represents the value of Semtech stock on the date that the restricted stock vested.
|
Performance Units
. The Company grants performance-based vesting restricted stock units to select employees. These awards have a performance condition in addition to a service condition. The performance condition generally relates to the Company’s revenue and operating income measured against internal goals. Under the terms of these awards, assuming the highest level of performance with no cancellations due to forfeitures, the maximum number of shares that can be earned in the aggregate is
696,400
. In this scenario, the maximum number of shares that could be issued thereunder would be
353,200
and the Company would have a liability accrued in the consolidated balance sheet equal to the value of
343,200
shares on the settlement date, which would be settled in cash. Only cash performance unit awards are classified as liabilities and the value of these awards is re-measured at each reporting date. At
January 27, 2013
,
85%
of the units from the fiscal year 2009 grant vested and
200%
of the units from the fiscal year 2010 grant are expected to vest. At
January 27, 2013
, the performance metrics associated with the outstanding awards issued in fiscal years
2013
,
2012
and
2011
are expected to be met at a level which would result in a grant at
100%
,
108%
, and
200%
of target, respectively.
The following table summarizes the activity for performance units during fiscal years
2013
,
2012
and
2011
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subject to
Share Settlement
|
|
Subject to
Cash Settlement
|
|
Weighted
Average
Grant Date
|
|
Aggregate
|
|
Period Over
Which Expected
|
(in thousands, except for per share amounts)
|
Total
Units
|
|
Units
|
|
Units
|
|
Recorded
Liability
|
|
Fair Value
(per share)
|
|
Unrecognized
Compensation
|
|
to be Recognized
(in years)
|
Balance at January 31, 2010
|
593
|
|
|
363
|
|
|
230
|
|
|
$
|
259
|
|
|
$
|
14.29
|
|
|
$
|
580
|
|
|
1.3
|
Performance units granted
|
143
|
|
|
72
|
|
|
71
|
|
|
|
|
16.68
|
|
|
|
|
|
Performance units vested
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
Performance units cancelled/forfeited
|
(180
|
)
|
|
(109
|
)
|
|
(71
|
)
|
|
|
|
16.28
|
|
|
|
|
|
Change in liability
|
|
|
|
|
|
|
3,666
|
|
|
—
|
|
|
|
|
|
Balance at January 30, 2011
|
556
|
|
|
326
|
|
|
230
|
|
|
3,925
|
|
|
14.26
|
|
|
7,971
|
|
|
1.0
|
Performance units granted
|
117
|
|
|
59
|
|
|
58
|
|
|
|
|
23.33
|
|
|
|
|
|
Performance units vested
|
(218
|
)
|
|
(157
|
)
|
|
(61
|
)
|
|
(1,335
|
)
|
|
14.74
|
|
|
|
|
|
Performance units cancelled/forfeited
|
(95
|
)
|
|
(48
|
)
|
|
(47
|
)
|
|
|
|
15.26
|
|
|
|
|
|
Change in liability
|
|
|
|
|
|
|
3,444
|
|
|
|
|
|
|
|
Balance at January 29, 2012
|
360
|
|
|
180
|
|
|
180
|
|
|
6,034
|
|
|
16.65
|
|
|
4,829
|
|
|
1.0
|
Performance units granted
|
144
|
|
|
77
|
|
|
67
|
|
|
|
|
29.30
|
|
|
|
|
|
Performance units vested
|
(144
|
)
|
|
(72
|
)
|
|
(72
|
)
|
|
(4,172
|
)
|
|
11.92
|
|
|
|
|
|
Performance units cancelled/forfeited
|
(7
|
)
|
|
(4
|
)
|
|
(3
|
)
|
|
|
|
29.35
|
|
|
|
|
|
Change in liability
|
|
|
|
|
|
|
2,560
|
|
|
|
|
|
|
|
Balance at January 27, 2013
|
353
|
|
|
181
|
|
|
172
|
|
|
$
|
4,422
|
|
|
$
|
23.50
|
|
|
$
|
4,754
|
|
|
1.1
|
Stock Units, Employees
. The Company issues stock unit awards to employees which are expected to be settled with stock. The grant date for these awards is equal to the measurement date. These awards are valued as of the measurement date and amortized over the requisite vesting period (typically
4
years). The following table summarizes the stock unit award activity for fiscal years
2013
,
2012
and
2011
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share amount)
|
Number of
Units
|
|
Weighted Average
Grant Date
Fair Value
(per unit)
|
|
Aggregate
Intrinsic
Value (1)
|
|
Aggregate
Unrecognized
Compensation
|
|
Weighted Average
Period Over
Which Expected
to be Recognized
(in years)
|
Balance at January 31, 2010
|
1,410
|
|
|
$
|
15.72
|
|
|
|
|
$
|
17,713
|
|
|
3.4
|
Stock units granted
|
1,181
|
|
|
17.62
|
|
|
|
|
|
|
|
Stock units vested
|
(404
|
)
|
|
19.20
|
|
|
$
|
7,749
|
|
|
|
|
|
Stock units forfeited
|
(129
|
)
|
|
19.50
|
|
|
|
|
|
|
|
Balance at January 30, 2011
|
2,058
|
|
|
16.70
|
|
|
|
|
29,763
|
|
|
2.7
|
Stock units granted
|
810
|
|
|
22.74
|
|
|
|
|
|
|
|
Stock units vested
|
(627
|
)
|
|
16.61
|
|
|
14,333
|
|
|
|
|
|
Stock units forfeited
|
(259
|
)
|
|
17.75
|
|
|
|
|
|
|
|
Balance at January 29, 2012
|
1,982
|
|
|
19.06
|
|
|
|
|
31,472
|
|
|
2.4
|
Stock units granted
|
1,517
|
|
|
26.73
|
|
|
|
|
|
|
|
Stock units vested
|
(699
|
)
|
|
18.20
|
|
|
$
|
18,438
|
|
|
|
|
|
Stock units forfeited
|
(242
|
)
|
|
23.65
|
|
|
|
|
|
|
|
Balance at January 27, 2013
|
2,558
|
|
|
$
|
23.41
|
|
|
|
|
$
|
49,374
|
|
|
2.5
|
|
|
(1)
|
Reflects the value of Semtech stock on the date that the stock unit vested.
|
Stock Units, Non-Employee Directors
. The Company grants stock unit awards to non-employee directors. These restricted stock units are accounted for as liabilities and accrued in the consolidated balance sheets because they are cash settled. These awards are vested after
1
year of service. However, because these awards are not typically settled until a non-employee director’s separation from service, the value of these awards is re-measured at the end of each reporting period until settlement. The following table summarizes the activity for stock unit awards for fiscal years
2013
,
2012
and
2011
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share amount)
|
Number of
Units
|
|
Recorded
Liability
|
|
Weighted Average
Grant Date
Fair Value
(per unit)
|
|
Aggregate
Unrecognized
Compensation
|
|
Period Over
Which Expected
to be Recognized
(in years)
|
Balance at January 31, 2010
|
35
|
|
|
$
|
1,389
|
|
|
$
|
16.18
|
|
|
$
|
232
|
|
|
0.4
|
Stock units granted
|
30
|
|
|
|
|
16.43
|
|
|
|
|
|
Stock units vested
|
(35
|
)
|
|
|
|
16.18
|
|
|
|
|
|
Stock units forfeited
|
—
|
|
|
|
|
|
|
|
|
|
Change in liability
|
|
|
1,025
|
|
|
|
|
|
|
|
Balance at January 30, 2011
|
30
|
|
|
2,414
|
|
|
16.43
|
|
|
269
|
|
|
0.4
|
Stock units granted
|
18
|
|
|
|
|
27.60
|
|
|
|
|
|
Stock units vested
|
(30
|
)
|
|
|
|
16.43
|
|
|
|
|
|
Stock units forfeited
|
—
|
|
|
|
|
|
|
|
|
|
Change in liability
|
|
|
1,459
|
|
|
|
|
|
|
|
Balance at January 29, 2012
|
18
|
|
|
3,873
|
|
|
27.60
|
|
|
216
|
|
|
0.4
|
Stock units granted
|
20
|
|
|
|
|
24.46
|
|
|
|
|
|
Stock units vested
|
(18
|
)
|
|
|
|
27.60
|
|
|
|
|
|
Stock units forfeited
|
—
|
|
|
|
|
|
|
|
|
|
Change in liability
|
|
|
684
|
|
|
|
|
|
|
|
Balance at January 27, 2013
|
20
|
|
|
$
|
4,557
|
|
|
$
|
24.46
|
|
|
$
|
253
|
|
|
0.4
|
As of
January 27, 2013
, the total number of vested but unsettled stock units for Non-Employee Directors is
141,155
units which are included in the recorded liability.
Note 13: Interest Income and Other (Expense) Income, Net
Interest and other expense, net, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
(in thousands)
|
January 27, 2013
|
|
January 29, 2012
|
|
January 30, 2011
|
Interest income
|
$
|
404
|
|
|
$
|
1,213
|
|
|
$
|
1,051
|
|
Non-recoverable VAT tax
|
(217
|
)
|
|
(156
|
)
|
|
(118
|
)
|
Foreign currency transaction loss
|
(354
|
)
|
|
(504
|
)
|
|
(428
|
)
|
Miscellaneous (expense) income
|
(810
|
)
|
|
40
|
|
|
69
|
|
Interest income and other (expense), net
|
$
|
(977
|
)
|
|
$
|
593
|
|
|
$
|
574
|
|
Note
14
: Income Taxes
The (benefit) provision for taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
(in thousands)
|
January 27, 2013
|
|
January 29, 2012
|
|
January 30, 2011
|
Current tax provision
|
|
|
|
|
|
Federal
|
$
|
7,100
|
|
|
$
|
2,336
|
|
|
$
|
3,178
|
|
State
|
784
|
|
|
569
|
|
|
444
|
|
Foreign
|
5,745
|
|
|
4,615
|
|
|
2,822
|
|
Subtotal
|
13,629
|
|
|
7,520
|
|
|
6,444
|
|
Deferred tax (benefit) provision
|
|
|
|
|
|
Federal
|
(15,812
|
)
|
|
(4,417
|
)
|
|
(1,631
|
)
|
State
|
(148
|
)
|
|
1,232
|
|
|
(5
|
)
|
Foreign
|
(39,359
|
)
|
|
757
|
|
|
1,952
|
|
Subtotal
|
(55,319
|
)
|
|
(2,428
|
)
|
|
316
|
|
(Benefit) provision for taxes
|
$
|
(41,690
|
)
|
|
$
|
5,092
|
|
|
$
|
6,760
|
|
The (benefit) provision for taxes reconciles to the amount computed by applying the statutory federal rate to income before taxes as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
(in thousands)
|
January 27, 2013
|
|
January 29, 2012
|
|
January 30, 2011
|
Federal income tax at statutory rate
|
$
|
86
|
|
|
$
|
32,963
|
|
|
$
|
27,766
|
|
State income taxes, net of federal benefit
|
(2,472
|
)
|
|
(263
|
)
|
|
581
|
|
Foreign taxes at rates less than federal rates
|
(9,655
|
)
|
|
(16,269
|
)
|
|
(16,367
|
)
|
Tax credits generated
|
(5,328
|
)
|
|
(2,222
|
)
|
|
(1,234
|
)
|
Changes in valuation allowance
|
2,703
|
|
|
1,814
|
|
|
(879
|
)
|
Changes in uncertain tax positions
|
132
|
|
|
(3,235
|
)
|
|
2,755
|
|
Deemed dividends
|
1,101
|
|
|
1,250
|
|
|
1,056
|
|
Equity compensation
|
793
|
|
|
(1,312
|
)
|
|
1,639
|
|
Permanent differences
|
1,571
|
|
|
1,592
|
|
|
1,652
|
|
Sales exclusion - foreign jurisdiction
|
(10,689
|
)
|
|
(11,017
|
)
|
|
(9,429
|
)
|
Dividend and U.S. tax on foreign earnings
|
(23,443
|
)
|
|
—
|
|
|
—
|
|
Revaluation of deferred taxes assets and liabilities
|
3,510
|
|
|
—
|
|
|
—
|
|
Other
|
1
|
|
|
1,791
|
|
|
(780
|
)
|
(Benefit) provision for taxes
|
$
|
(41,690
|
)
|
|
$
|
5,092
|
|
|
$
|
6,760
|
|
During fiscal year 2013, the Company released
$1.1 million
of previously recorded reserves for uncertain tax positions as a result of statutes of limitations for the taxing authority to challenge the position expiring.
The deferred tax assets and deferred tax liabilities are classified in the consolidated balance sheets as follows:
|
|
|
|
|
|
|
|
|
(in thousands)
|
January 27, 2013
|
|
January 29, 2012
|
Deferred tax assets
|
|
|
|
Current
|
$
|
7,473
|
|
|
$
|
5,339
|
|
Non-current
|
33,563
|
|
|
—
|
|
Subtotal
|
41,036
|
|
|
5,339
|
|
Deferred tax liabilities
|
|
|
|
Current
|
(4,221
|
)
|
|
(4,041
|
)
|
Non-current
|
(2,042
|
)
|
|
(1,000
|
)
|
Subtotal
|
(6,263
|
)
|
|
(5,041
|
)
|
Net deferred tax assets
|
$
|
34,773
|
|
|
$
|
298
|
|
The Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 740,
Accounting for Income Taxes
, requires that for a particular tax-paying component of an enterprise, and within a particular tax jurisdiction, (a) all current deferred tax liabilities and assets shall be offset and presented as a single amount and (b) all noncurrent deferred tax liabilities and assets shall be offset and presented as a single amount. Deferred tax liabilities and assets attributable to different tax-paying components of the enterprise or to different tax jurisdictions should not be offset.
The components of the net deferred income tax assets at
January 27, 2013
and
January 29, 2012
are as follows:
|
|
|
|
|
|
|
|
|
(in thousands)
|
January 27, 2013
|
|
January 29, 2012
|
Current deferred tax asset:
|
|
|
|
Deferred revenue
|
$
|
1,889
|
|
|
$
|
2,346
|
|
Inventory reserve
|
567
|
|
|
347
|
|
Payroll and related accruals
|
2,444
|
|
|
1,926
|
|
Bad debt reserve
|
323
|
|
|
359
|
|
Accrued service fees
|
626
|
|
|
405
|
|
Other deferred assets
|
2,593
|
|
|
508
|
|
Valuation allowance
|
(969
|
)
|
|
(552
|
)
|
Total current deferred tax asset
|
7,473
|
|
|
5,339
|
|
Non-current deferred tax asset:
|
|
|
|
Research and development charges
|
2,900
|
|
|
3,708
|
|
Research credit carryforward
|
49,257
|
|
|
11,967
|
|
Acquired NOL carryforward
|
28,595
|
|
|
16,489
|
|
Payroll and related accruals
|
5,389
|
|
|
4,497
|
|
Stock-based compensation
|
8,456
|
|
|
10,248
|
|
Other deferred assets
|
3,395
|
|
|
772
|
|
Valuation allowance
|
(7,351
|
)
|
|
(5,065
|
)
|
Total non-current deferred tax asset
|
90,641
|
|
|
42,616
|
|
Current deferred tax liability:
|
|
|
|
Inventory reserve - foreign
|
(1,618
|
)
|
|
(2,115
|
)
|
Bad debt reserve - foreign
|
(773
|
)
|
|
(671
|
)
|
Depreciation - foreign
|
(1,744
|
)
|
|
(1,074
|
)
|
Other current deferred tax liability
|
(86
|
)
|
|
(181
|
)
|
Total current deferred tax liability
|
(4,221
|
)
|
|
(4,041
|
)
|
Non-current deferred tax liability:
|
|
|
|
Domestic tax on foreign earnings
|
—
|
|
|
(23,443
|
)
|
Purchase accounting deferred tax liability
|
(49,181
|
)
|
|
(14,159
|
)
|
Depreciation and amortization
|
(8,504
|
)
|
|
(5,760
|
)
|
Other non-current deferred tax liability
|
(1,435
|
)
|
|
(254
|
)
|
Total non-current deferred tax liability
|
(59,120
|
)
|
|
(43,616
|
)
|
Net deferred tax asset
|
$
|
34,773
|
|
|
$
|
298
|
|
The change in the net deferred tax asset differs from the deferred tax provision as a result of deferred tax assets that do not typically impact the provision. This includes the benefit related to tax deductions from the exercise of non-qualified stock options in excess of compensation cost recognized for financial reporting purposes (recorded as an increase to additional paid-in capital when realized).
As of
January 27, 2013
, the Company had federal and state net operating loss carryforwards of
$73.7 million
and
$86.3 million
, respectively, which, subject to certain limitations, are available to offset future taxable income through fiscal year 2032. A portion of these losses were generated by SMI prior to the Company’s purchase of SMI and therefore are subject to change of control provisions which limit the amount of acquired tax attributes that can be utilized in a given tax year. The Company does not expect these changes in control limitations to significantly impact its ability to utilize these attributes.
Included in the Company’s net operating loss carryforward deferred tax asset is approximately
$8.3 million
of deferred tax assets attributable to excess equity deductions related to stock awards that may not be included on the Company’s consolidated balance sheet. Due to a provision within ASC 740, concerning when tax benefits related to excess stock option deductions can be credited to paid-in capital, the portion of the Company’s deferred tax asset related to such excess tax benefits must be excluded from the deferred tax asset balance, even if the facts and circumstances indicate that it is more likely than not that the
deferred tax asset can be realized. The deferred tax asset and the related credit to paid-in capital will only be included as the related deferred tax asset is applied to reduce taxes payable.
As of
January 27, 2013
, the Company had gross federal and state research credits available of approximately
$6.0 million
and
$12.3 million
, respectively, which are available to offset taxable income. These credits will expire between fiscal years 2022 through 2033. As of
January 27, 2013
, the Company had federal Alternative Minimum Tax credits available of approximately
$1.3 million
. The Company also had Canadian research credits available of approximately
$34.7 million
. These credits will expire between fiscal years 2025 and 2033.
The Company has established valuation allowances against certain U.S. state and foreign deferred tax assets to reflect its concerns regarding the ability of the Company to generate sufficient taxable income to utilize these attributes. The following table summarizes the changes in these allowances during fiscal years
2013
,
2012
and
2011
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
(in thousands)
|
January 27, 2013
|
|
January 29, 2012
|
|
January 30, 2011
|
Beginning balance
|
$
|
5,617
|
|
|
$
|
5,053
|
|
|
$
|
6,502
|
|
Additions
|
2,703
|
|
|
564
|
|
|
2,767
|
|
Releases
|
—
|
|
|
—
|
|
|
(4,216
|
)
|
Ending balance
|
$
|
8,320
|
|
|
$
|
5,617
|
|
|
$
|
5,053
|
|
Realization of the net deferred tax assets is dependent on generating sufficient taxable income during the periods in which temporary differences will reverse. Although realization is not assured, management believes it is more likely than not that the remaining net deferred tax assets will be realized. The amount of the net deferred tax assets considered realizable, however, could be adjusted in the near term if estimates of future taxable income during the reversal periods are revised.
As of
January 27, 2013
, the Company had approximately
$383.7 million
of unremitted earnings related to the Company’s wholly owned foreign subsidiaries.
In the fourth quarter of fiscal year 2010, in connection with the SMI acquisition, the Company modified its previous assertion that all of its earnings were permanently reinvested offshore and concluded that
$120.0 million
of foreign earnings were not permanently reinvested offshore. Of this amount,
$50.0 million
was actually repatriated to the U.S., leaving
$70.0 million
of unrepatriated foreign subsidiary earnings.
In the first quarter of fiscal year 2013, in connection with the acquisition of Gennum, the Company reviewed its assertion regarding the amount of foreign subsidiary earnings that were considered to be permanently reinvested offshore and concluded that due to post-acquisition foreign operating cash needs, all of its foreign subsidiary earnings, including the aforementioned
$70.0 million
, are considered to be permanently reinvested offshore. This change in assertion resulted in the recognition of a one-time tax benefit of
$23.4 million
in the first quarter of fiscal year 2013.
Uncertain Tax Positions
The Company uses a two-step approach to recognize and measure uncertain tax positions (“UTP”). The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than
50%
likely of being realized upon ultimate settlement.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (before federal impact of state items) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
(in thousands)
|
January 27, 2013
|
|
January 29, 2012
|
|
January 30, 2011
|
Beginning balance
|
$
|
13,759
|
|
|
$
|
17,011
|
|
|
$
|
13,795
|
|
Additions based on tax positions related to the current year
|
695
|
|
|
835
|
|
|
449
|
|
Additions for tax positions of prior years
|
—
|
|
|
—
|
|
|
3,592
|
|
Reductions for tax positions of prior years
|
(647
|
)
|
|
(4,087
|
)
|
|
—
|
|
Reductions for settlements with tax authorities
|
(663
|
)
|
|
—
|
|
|
(825
|
)
|
Ending balance
|
$
|
13,144
|
|
|
$
|
13,759
|
|
|
$
|
17,011
|
|
Reductions recorded in the current year related to a release of previously recorded reserves for uncertain tax positions as a result of statutes of limitations for the taxing authority to challenge the position expiring and effective settlement of the position through examination.
Included in the balance of unrecognized tax benefits at
January 27, 2013
and
January 29, 2012
, are
$11.1 million
and
$11.6 million
, respectively, of net tax benefits (after federal impact of state items) that, if recognized, would impact the effective tax rate.
The liability for uncertain tax positions is reflected on the consolidated balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
(in thousands)
|
January 27, 2013
|
|
January 29, 2012
|
Accrued liabilities
|
$
|
188
|
|
|
$
|
437
|
|
Other long-term liabilities
|
10,887
|
|
|
11,159
|
|
Total accrued taxes
|
$
|
11,075
|
|
|
$
|
11,596
|
|
The Company’s policy is to include net interest and penalties related to unrecognized tax benefits within the provision for taxes on the consolidated statements of income. During fiscal years
2013
and
2012
, a net increase of
$50,000
and
$50,000
of interest and penalties was recognized in the consolidated statement of income, respectively. The Company had approximately
$293,000
and
$243,000
of net interest and penalties accrued at
January 27, 2013
and
January 29, 2012
, respectively.
In the second quarter of fiscal year 2013, the overall statutory tax rate in Canada increased as a result of newly enacted tax legislation. The impact of this tax law change resulted in a
$3.4 million
discrete charge to the Canadian tax provision and a corresponding adjustment to the Company’s deferred tax liabilities.
As of
January 27, 2013
, it was reasonably possible that the total amounts of unrecognized tax benefits would decrease by up to
$0.2 million
within twelve months as a result of statutes of limitations for the taxing authority to challenge the position expiring. If recognized, this decrease will impact the effective tax rate.
Tax years prior to 2009 (the Company’s fiscal year 2010) are generally not subject to examination by the Internal Revenue Service (“IRS”) except for items involving tax attributes that have been carried forward to tax years whose statute of limitations remains open. The Company is currently under IRS audit for fiscal year 2010 and fiscal year 2011. For state returns, the Company is generally not subject to income tax examinations for years prior to 2008 (the Company’s fiscal year 2009). The Company has a primary significant tax presence in Switzerland for which Swiss tax filings have been examined through fiscal year 2010. The Company is also subject to routine examinations by various foreign tax jurisdictions in which it operates.
Note
15
: Commitments and Contingencies
Leases
The Company leases facilities and certain equipment under operating lease arrangements expiring in various years through fiscal year 2020. The aggregate minimum annual lease payments under leases in effect on
January 27, 2013
are as follows:
Minimum Annual Lease Payments
|
|
|
|
|
(in thousands)
|
|
Fiscal Year Ending:
|
|
2014
|
$
|
8,743
|
|
2015
|
5,644
|
|
2016
|
4,625
|
|
2017
|
3,321
|
|
2018
|
3,140
|
|
Thereafter
|
11,383
|
|
Total minimum lease commitments
|
$
|
36,856
|
|
Rent expense was
$7.9 million
,
$4.4 million
and
$4.4 million
for fiscal years
2013
,
2012
and
2011
, respectively. The Company received
$133,000
,
$0
and
$158,000
of sub-lease income in fiscal years
2013
,
2012
and
2011
, respectively.
Vendor Commitments
The Company has entered into multiple technology development agreements with one of its key wafer suppliers. Under the terms of these agreements, the Company is required to pay
$1.2 million
and
$0.3 million
for fiscal years 2014 and 2015, respectively.
Legal Matters
From time to time in the ordinary course of its business, the Company is involved in various claims, litigation, and other legal actions that are normal to the nature of its business, including with respect to intellectual property, contract, product liability, employment, and environmental matters.
In accordance with accounting standards regarding loss contingencies, the Company accrues an undiscounted liability for those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated, and the Company discloses the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued, if such disclosure is necessary for its financial statements not to be misleading. The Company does not record liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated, or when the liability is believed to be only reasonably possible or remote.
Because litigation outcomes are inherently unpredictable, the Company’s evaluation of legal proceedings often involves a series of complex assessments by management about future events and can rely heavily on estimates and assumptions. While the consequences of certain unresolved proceedings are not presently determinable, and an estimate of the probable and reasonably possible loss or range of loss in excess of amounts accrued for such proceedings cannot be reasonably made, an adverse outcome from such proceedings could have a material adverse effect on the Company’s earnings in any given reporting period. However, in the opinion of management, after consulting with legal counsel, and taking into account insurance coverage, any ultimate liability related to current outstanding claims and lawsuits, individually or in the aggregate, is not expected to have a material adverse effect on the Company’s financial statements, as a whole.
The Company’s currently pending legal matters of note are discussed below:
Environmental Matters
. In 2001, the Company was notified by the California Department of Toxic Substances Control (“State”) that it may have liability associated with the clean-up of the one-third acre Davis Chemical Company site in Los Angeles, California. The Company has been included in the clean-up program because it was one of the companies that used the Davis Chemical Company site for waste recycling and/or disposal between 1949 and 1990. The Company joined with other potentially responsible parties and entered into a Consent Order with the State that required the group to perform a soils investigation at the site and submit a remediation plan. The State has approved the remediation plan, which completes the group’s obligations under the Consent Order. Although the Consent Order does not require the group to remediate the site and the State has indicated it intends to look to other parties for remediation, the State has not yet issued “no further action” letters to the group members. To date, the Company’s share of the group’s expenses has not been material and has been expensed as incurred.
The Company has used an environmental firm, specializing in hydrogeology, to perform monitoring of the groundwater at the Company’s former facility in Newbury Park, California that was leased for approximately
forty
years. The Company vacated the building in May 2002. Certain contaminants have been found in the local groundwater and site soils. Groundwater monitoring results to date over a number of years indicate that groundwater contaminants are, in full or in material part, from adjacent facilities. Responsibility for soil contamination remains under investigation. The location of key soil contamination is concentrated in an area of an underground storage tank that the Company believes to have been installed and used in the early 1960s by a former tenant at the site who preceded the Company’s tenancy. There are no claims pending with respect to environmental matters at the Newbury Park site. The applicable regulatory agency having authority over the site issued joint instructions in November 2008, ordering the Company and the current owner of the site to perform additional assessments and surveys, and to create ongoing groundwater monitoring plans before any final regulatory action for “no further action” may be approved. In September 2009, the regulatory agency issued supplemental instructions to the Company and the current site owner regarding previously ordered site assessments, surveys and groundwater monitoring. Most recently, in November 2012, the regulatory agency added two more potentially responsible parties to the matter, based on historical evidence of past occupancy or operations at the site dating to the 1960s. In addition, the regulatory agency has issued draft cleanup and abatement orders to all the parties. Responses to the draft orders were submitted in a timely manner by all the parties in January 2013. The parties are expected to work cooperatively in responding to and determining the appropriate scope and extent of additional site investigative and categorization work, as well as in relation to any ultimate proposed clean up and abatement work.
The Company has accrued liabilities where it is probable that a loss will be incurred and the cost or amount of loss can be reasonably estimated. Based upon, and in anticipation of the likely outcome associated with the November 2012 draft cleanup and abatement order, the Company engaged an environmental firm to assist in an assessment of this site consistent with the direction of the draft order. Based on the Company’s preliminary assessment, it has determined a likely range of probable loss between
$2.5 million
and
$5.7 million
. Given the early nature of the draft clean up and abatement order and uncertainties associated with environmental assessment and the remediation activities, the Company is unable to determine a best estimate within the range of loss. Therefore, the Company recorded the minimum amount of
$2.5 million
in the third quarter of fiscal year 2013 under “Other long-term liabilities” on the consolidated balance sheets, and included in the consolidated statement of income under “Selling, general and administrative.” These estimates could change as a result of changes in planned remedial actions, further actions from the regulatory agency, remediation technology, and other factors.
V SEMICONDUCTOR LITIGATION
Gennum Corporation v. V Semiconductor Inc., et al.
In a lawsuit filed by Gennum Corporation against V Semiconductor and the directors of V Semiconductor in the Ontario (Canada) Superior Court of Justice on February 3, 2012, the Company alleged that the defendants (i) misappropriated confidential information, (ii) had created and sold products based on the misappropriated confidential information (the “infringing products”), and (iii) had infringed copyright under applicable Canadian law to specified integrated circuit design scripts and related software code and design files (the “technology”). The Company also alleged that the individual named directors of V Semiconductor were in breach of contract, had unlawfully interfered with the economic interests of the Company, and had breached common law duties owed by them to the Company. The Company sought confirmation that its copyright had been infringed, injunctive relief against further infringement and damages in connection with the alleged infringement and alleged breaches referenced above.
The allegations against the individual defendants arose from and relate to the named defendants’ prior involvement with Gennum as the principals in the sale to Gennum of the business from which the applicable technology at issue arose. Such defendants were also employees subsequent to their sale of the applicable company to Gennum prior to their resignation.
V Semiconductor Inc. v. Semtech Corporation et al.
A complaint was filed on April 27, 2012 in the U.S. District Court, Eastern District of Michigan, Southern Division, against the Company, certain current and former employees and one non-employee director (the “U.S. litigation”).
The Complaint alleged that the Company and the named individual defendants had, through acts leading up to and connected with the initiation and prosecution of the Gennum Corporation v. V Semiconductor Inc. et. al. litigation in Ontario, Canada discussed above (the “Canadian litigation”) acted in violation of U.S. and Michigan state law regarding restraint of trade by filing a “sham” lawsuit. The Complaint further alleged that the Company and the named individual defendants had conducted a malicious prosecution via the Canadian litigation, had tortiously interfered with prospective economic advantage and business expectations of V Semiconductor, had engaged in unfair competition, and, as for the non-employee director individually, breached non-disclosure and confidentiality obligations owed by the non-employee director to V Semiconductor.
The Complaint alleged that the defendants filed the Canadian litigation frivolously, without merit, without factual substance, and for the primary purposes of causing a pending acquisition of V Semiconductor to fail, causing current and prospective customers of V Semiconductor to cease or avoid doing business with V Semiconductor, and preventing competing and allegedly superior technology and products from entering the marketplace.
The Complaint sought permanent injunctive relief against the alleged anti-competitive and tortious conduct of the defendants, and sought economic and punitive damages from the defendants.
Settlement Status
The parties to the Canadian litigation and U.S. litigation entered into a Confidential Settlement Agreement and Mutual Release, under which all claims in all suits have now been dismissed. The settlement was subject to the satisfaction of certain conditions, and became effective on or about September 7, 2012 following completion of the applicable conditions and contingencies. Pursuant to the settlement having become effective, the parties to the Canadian litigation and U.S. litigation have secured the dismissal and termination with prejudice of the applicable legal proceedings. The Company has not accrued any amounts in connection with the settlement.
Commercial Disputes
The Company periodically is involved in disputes arising in the normal course of business regarding products or services provided to the Company by vendors or service providers. Historically, the cost of commercial disputes has been immaterial to the Company’s consolidated financial statements.
Product Warranties
The Company’s general warranty policy provides for repair or replacement of defective parts. In some cases, a refund of the purchase price is offered. In certain instances the Company has agreed to other warranty terms, including some indemnification provisions.
The product warranty accrual reflects the Company’s best estimate of probable liability under its product warranties. The Company accrues for known warranty issues if a loss is probable and can be reasonably estimated, and accrues for estimated incurred but unidentified issues based on historical experience. Historically, warranty expense has been immaterial to the Company’s consolidated financial statements.
Retirement Plans
The Company contributed
$1.2 million
,
$1.2 million
and
$1.0 million
, respectively, in fiscal years
2013
,
2012
and
2011
to the 401(k) retirement plan maintained for its domestic employees.
The Company contributes to the CSEM Pension fund, a Swiss multiemployer plan, that provides pension benefits (the “Plan”). The Plan is a foundation into which several employers are affiliated. Benefits payable from the pension plan include retirement pension, death, and disability benefits. The risk of participating in this multiemployer plan is different from a single-employer plan due to the comingling of assets and related investment returns and risks and aggregation of actuarial experience and related gains or losses for allocation amongst participating employers; contributions pursuant to prescribed formulae consistent for all participating employers; and, in the event of a participating employer’s withdrawal from the Plan, retirees receiving benefits from the Plan remain within the Plan and will continue to receive future benefit payments funded by the remaining participating employers thereafter.
The Plan is administered on behalf of a labor union, which is similar to common practices found in the United States involving collective bargaining agreements and labor unions. EIN/Pension plan number, Pension protection act zone status, FIP/RP status and Form 5500 are not applicable as the Plan is a Swiss plan governed by pension laws in Switzerland. The Company contributed
$0.8 million
,
$0.8 million
and
$0.8 million
, respectively, in fiscal years
2013
,
2012
and
2011
to the Plan. At the date the Company’s financial statements were issued, the Plan’s audited financial statements were not available for the Plan year ending in
2012
.
In addition, the Company also contributed
$1.5 million
in fiscal year 2013 to a defined contribution plan for its employees in Canada.
Deferred Compensation
The Company maintains a deferred compensation plan for certain officers and key executives that allow participants to defer a portion of their compensation for future distribution at various times permitted by the plan. This plan provides for a discretionary Company match up to a defined portion of the employee’s deferral, with any match subject to a vesting period.
The following table shows the compensation expense and forfeitures under this plan for fiscal years
2013
,
2012
and
2011
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
(in thousands)
|
January 27, 2013
|
|
January 29, 2012
|
|
January 30, 2011
|
Forfeitures
|
$
|
—
|
|
|
$
|
(194
|
)
|
|
$
|
(66
|
)
|
Compensation expense
|
1,839
|
|
|
885
|
|
|
2,166
|
|
Compensation expense, net of forfeitures
|
$
|
1,839
|
|
|
$
|
691
|
|
|
$
|
2,100
|
|
The Company’s liability for deferred compensation plan for certain officers and key executives is presented below:
|
|
|
|
|
|
|
|
|
(in thousands)
|
January 27, 2013
|
|
January 29, 2012
|
Accrued liabilities
|
$
|
530
|
|
|
$
|
901
|
|
Other long-term liabilities
|
13,396
|
|
|
10,222
|
|
Total deferred compensation liabilities under this plan
|
$
|
13,926
|
|
|
$
|
11,123
|
|
Additionally, pursuant to the earn-out arrangement with Cycleo stockholders, the Company potentially may make payments totaling up to approximately
$16 million
based on the achievement of a combination of certain revenue and operating income milestones by Cycleo over the period of
4
years beginning on April 30, 2012. For certain of the Cycleo stockholders, payment of the earn-out liability is contingent upon employment at the end of the
4
-year period and is accounted for as post-acquisition compensation expense over the service period. The portion of the earn-out liability that is not dependent on continued
employment is included in the purchase price allocation at March 7, 2012. During the fiscal year ended January 27, 2013, the Company recognized
$1.8 million
of compensation expense related to the deferred compensation liability.
The Company has purchased whole life insurance on the lives of certain current deferred compensation plan participants. This Company-owned life insurance is held in a grantor trust and is intended to cover a majority of the Company’s costs of the deferred compensation plan. The cash surrender value of the Company-owned life insurance was
$10.0 million
and
$10.2 million
as of
January 27, 2013
and
January 29, 2012
, respectively, and is included in “Other assets” on the consolidated balance sheet.
Indemnification
The Company has entered into agreements with its current executive officers and directors indemnifying them against certain liabilities incurred in connection with the performance of their duties. The Company’s Certificate of Incorporation and Bylaws contain comparable indemnification obligations with respect to the Company’s current directors and employees.
Note
16
: Geographic Information and Concentration of Risk
The Company operates exclusively in the semiconductor industry and primarily within the analog and mixed-signal sector.
The table below provides net sales activity by product line on a comparative basis for all periods. As a result of the acquisition of Gennum and Cycleo (see Note
3
) in March 2012, the Company formed a separate Gennum product line while Cycleo is part of the Wireless and Sensing product line.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
(in thousands, except percentages)
|
January 27, 2013
|
|
January 29, 2012
|
|
January 30, 2011
|
Advanced Communications
|
$
|
133,533
|
|
|
23
|
%
|
|
$
|
139,695
|
|
|
29
|
%
|
|
$
|
112,019
|
|
|
25
|
%
|
Wireless and Sensing
|
50,444
|
|
|
9
|
%
|
|
57,124
|
|
|
12
|
%
|
|
59,107
|
|
|
13
|
%
|
Power Management and High Reliability
|
66,427
|
|
|
12
|
%
|
|
74,056
|
|
|
15
|
%
|
|
87,693
|
|
|
19
|
%
|
Protection
|
198,866
|
|
|
34
|
%
|
|
209,726
|
|
|
44
|
%
|
|
195,683
|
|
|
43
|
%
|
Gennum
|
129,557
|
|
|
22
|
%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
Total net sales
|
$
|
578,827
|
|
|
100
|
%
|
|
$
|
480,601
|
|
|
100
|
%
|
|
$
|
454,502
|
|
|
100
|
%
|
Net sales activity by geographic region is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
(in thousands, except percentages)
|
January 27, 2013
|
|
January 29, 2012
|
|
January 30, 2011
|
North America
|
$
|
98,401
|
|
|
17
|
%
|
|
$
|
114,552
|
|
|
24
|
%
|
|
$
|
112,404
|
|
|
25
|
%
|
Asia-Pacific
|
405,179
|
|
|
70
|
%
|
|
298,477
|
|
|
62
|
%
|
|
272,079
|
|
|
60
|
%
|
Europe
|
75,247
|
|
|
13
|
%
|
|
67,572
|
|
|
14
|
%
|
|
70,019
|
|
|
15
|
%
|
Total net sales
|
$
|
578,827
|
|
|
100
|
%
|
|
$
|
480,601
|
|
|
100
|
%
|
|
$
|
454,502
|
|
|
100
|
%
|
The Company generally attributes sales to a country based on the ship-to address. The table below summarizes sales activity to countries that represented greater than
10%
of total net sales for at least one of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
(percentage of total sales)
|
January 27, 2013
|
|
January 29, 2012
|
|
January 30, 2011
|
United States
|
17
|
%
|
|
20
|
%
|
|
23
|
%
|
China (including Hong Kong)
|
35
|
%
|
|
38
|
%
|
|
34
|
%
|
Japan
|
10
|
%
|
|
8
|
%
|
|
7
|
%
|
South Korea
|
7
|
%
|
|
8
|
%
|
|
10
|
%
|
Total net sales
|
69
|
%
|
|
74
|
%
|
|
74
|
%
|
The Company’s regional income (loss) from continuing operations before income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
(in thousands)
|
January 27, 2013
|
|
January 29, 2012
|
|
January 30, 2011
|
Domestic
|
$
|
(19,867
|
)
|
|
$
|
(3,070
|
)
|
|
$
|
(12,540
|
)
|
Foreign
|
20,116
|
|
|
97,249
|
|
|
91,872
|
|
Total
|
$
|
249
|
|
|
$
|
94,179
|
|
|
$
|
79,332
|
|
Domestic (loss) from continuing operations includes amortization of acquired intangible assets, litigation related expenses and higher levels of stock-based compensation compared to foreign operations.
Long-lived Assets
Long-lived assets which consist of property, plant and equipment, net of accumulated depreciation are summarized as follows:
|
|
|
|
|
|
|
|
|
(in thousands)
|
January 27, 2013
|
|
January 29, 2012
|
Located within the United States
|
$
|
53,858
|
|
|
$
|
47,612
|
|
Located outside the United States
|
47,979
|
|
|
22,101
|
|
|
$
|
101,837
|
|
|
$
|
69,713
|
|
Some of these assets are at locations owned or operated by the Company’s suppliers. The Company has consigned certain equipment to a foundry based in China to support its specialized processes run at the foundry. The Company has also installed its own equipment at some of its packaging and testing subcontractors in order to ensure a certain level of capacity, assuming the subcontractor has ample employees to operate the equipment.
The amount of equipment and machinery consigned to a foundry in China was
$7.9 million
and
$9.4 million
as of
January 27, 2013
and
January 29, 2012
, respectively.
Significant Customers
Sales to the Company’s customers are generally made on open account, subject to credit limits the Company may impose, and the receivables are subject to the risk of being uncollectible.
Each of the following significant customers accounted for at least
10%
of net sales for at least one of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
(percentage of net sales)
|
January 27, 2013
|
|
January 29, 2012
|
|
January 30, 2011
|
Samsung Electronics (and affiliates)
|
12
|
%
|
|
13
|
%
|
|
12
|
%
|
Huawei Technologies (and affiliates)
|
10
|
%
|
|
7
|
%
|
|
8
|
%
|
Frontek Technology Corp
|
6
|
%
|
|
10
|
%
|
|
11
|
%
|
The following table shows the list of customers that have an outstanding receivable balance that represents at least
10%
of total net receivables for at least one of the periods indicated:
|
|
|
|
|
|
|
|
Balance as of
|
(percentage of net accounts receivable)
|
January 27, 2013
|
|
January 29, 2012
|
Huawei Technologies (and affiliates)
|
14
|
%
|
|
11
|
%
|
Samsung Electronics (and affiliates)
|
12
|
%
|
|
14
|
%
|
Frontek Technology Corp
|
4
|
%
|
|
10
|
%
|
Dragon Technology
|
3
|
%
|
|
11
|
%
|
Outside Subcontractors and Suppliers
The Company relies on a limited number of outside subcontractors and suppliers for the production of silicon wafers, packaging and certain other tasks. Disruption or termination of supply sources or subcontractors, due to natural disasters such as an earthquake or other causes, could delay shipments and could have a material adverse effect on the Company. Although there are generally alternate sources for these materials and services, qualification of the alternate sources could cause delays sufficient to have a material adverse effect on the Company. Several of the Company’s outside subcontractors and suppliers, including third-party foundries that supply silicon wafers, are located in foreign countries, including China, Taiwan, Canada, Europe and Israel. The Company’s largest source of silicon wafers is an outside foundry located in China and a significant amount of the Company’s assembly and test operations are conducted by third-party contractors in China, Malaysia, Korea and the Philippines.
Note 17: Reorganization Costs
During fiscal year 2013, reorganization costs mainly represent the severance costs associated with the integration of the acquired Gennum business with the Company’s pre-existing business and the consolidation of certain operations of the combined Company.
During the third quarter of fiscal year 2012, the Company initiated a reorganization plan which resulted in a consolidation of research and development activities and a reduction of its workforce.
There was no reorganization cost in fiscal year 2011.
The following table summarizes the reorganization charges incurred and liability balance included in “Accrued liabilities” on the consolidated balance sheet as of January 30, 2011, January 29, 2012 and January 27, 2013. The reorganization charges below were included in “Selling, general and administrative” on the consolidated statements of income for the respective periods.
|
|
|
|
|
(in thousands)
|
Severance and related costs
|
Balance at January 30, 2011
|
$
|
—
|
|
Reorganization charges
|
1,981
|
|
Cash payments
|
(1,965
|
)
|
Balance at January 29, 2012
|
16
|
|
Reorganization charges
|
13,387
|
|
Cash payments
|
(12,073
|
)
|
Balance at January 27, 2013
|
$
|
1,330
|
|
Note 18: Stock Repurchase Program and Shares Withheld from Vested Restricted Shares
On March 4, 2008, the Company announced that its Board of Directors authorized the repurchase of up to
$50 million
of the Company’s common stock from time to time through negotiated or open market transactions (the “2008 Program”). The 2008 Program does not have an expiration date. On August 24, 2011, the Company announced a
$36 million
expansion of the 2008 Program. On November 30, 2011, the Company announced an additional
$50 million
expansion of the 2008 Program.
In addition to repurchase activity under the 2008 Program, the Company typically withholds shares from vested restricted stock to pay employee payroll and income tax withholding liabilities.
The following table summarizes the stock repurchase activities and shares withheld from vested restricted shares during the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
January 27, 2013
|
|
January 29, 2012
|
|
January 30, 2011
|
(in thousands, except number of shares)
|
Shares
|
|
Value
|
|
Shares
|
|
Value
|
|
Shares
|
|
Value
|
Shares repurchased under the 2008 Program
|
263,443
|
|
|
$
|
7,500
|
|
|
2,252,099
|
|
|
$
|
50,000
|
|
|
74,702
|
|
|
$
|
1,258
|
|
Shares withheld from vested restricted shares
|
9,696
|
|
|
269
|
|
|
27,427
|
|
|
665
|
|
|
89,934
|
|
|
1,561
|
|
Total treasury shares acquired
|
273,139
|
|
|
$
|
7,769
|
|
|
2,279,526
|
|
|
$
|
50,665
|
|
|
164,636
|
|
|
$
|
2,819
|
|
The Company currently intends to hold the repurchased and withheld shares as treasury stock. The Company typically reissues treasury shares to settle stock option exercises and restricted share grants.
Note 19: Recent Accounting Pronouncements
In February 2013, the FASB issued an accounting standards update regarding the reporting of reclassifications out of accumulated other comprehensive income. This update, which will be effective prospectively for reporting periods beginning after December 15, 2012, requires disclosure of amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present either on the face of the statement of operations or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. For amounts not reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional detail about those amounts. The Company will adopt the disclosure requirements of this update for the quarter ending April 28, 2013.
Note 20: Selected Quarterly Financial Data (Unaudited)
The following tables set forth the Company’s unaudited consolidated statements of income data for each of the eight quarterly periods ended
January 27, 2013
, as well as that data expressed as a percentage of the Company’s net sales for the quarters presented. The sum of quarterly per share amounts may differ from year to date amounts due to rounding.
Selected Quarterly Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2013
|
|
Fiscal Year 2012
|
|
Quarters Ended
|
|
Quarters Ended
|
(in thousands, except per share amounts)
|
April 29,
2012
|
|
July 29,
2012
|
|
October 28,
2012
|
|
January 27,
2013
|
|
May 1,
2011
|
|
July 31,
2011
|
|
October 30,
2011
|
|
January 29,
2012
|
Net sales
|
$
|
116,642
|
|
|
$
|
150,704
|
|
|
$
|
160,878
|
|
|
$
|
150,603
|
|
|
$
|
122,371
|
|
|
$
|
130,254
|
|
|
$
|
123,944
|
|
|
$
|
104,032
|
|
Cost of sales
|
61,305
|
|
|
76,179
|
|
|
64,085
|
|
|
62,646
|
|
|
48,517
|
|
|
51,534
|
|
|
50,537
|
|
|
44,368
|
|
Gross profit
|
55,337
|
|
|
74,525
|
|
|
96,793
|
|
|
87,957
|
|
|
73,854
|
|
|
78,720
|
|
|
73,407
|
|
|
59,664
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
44,818
|
|
|
31,220
|
|
|
35,646
|
|
|
37,386
|
|
|
26,705
|
|
|
22,481
|
|
|
25,110
|
|
|
26,333
|
|
Product development and engineering
|
24,083
|
|
|
32,613
|
|
|
33,354
|
|
|
29,959
|
|
|
18,525
|
|
|
22,228
|
|
|
20,489
|
|
|
19,335
|
|
Intangible amortization and impairments
|
5,578
|
|
|
7,977
|
|
|
8,212
|
|
|
8,177
|
|
|
2,102
|
|
|
2,103
|
|
|
4,573
|
|
|
2,075
|
|
Total operating costs and expenses
|
74,479
|
|
|
71,810
|
|
|
77,212
|
|
|
75,522
|
|
|
47,332
|
|
|
46,812
|
|
|
50,172
|
|
|
47,743
|
|
Operating (loss) income
|
(19,142
|
)
|
|
2,715
|
|
|
19,581
|
|
|
12,435
|
|
|
26,522
|
|
|
31,908
|
|
|
23,235
|
|
|
11,921
|
|
Interest expense
|
(1,843
|
)
|
|
(4,194
|
)
|
|
(4,172
|
)
|
|
(4,154
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Interest income and other (expense) income, net
|
214
|
|
|
162
|
|
|
(1,071
|
)
|
|
(282
|
)
|
|
(440
|
)
|
|
(117
|
)
|
|
729
|
|
|
421
|
|
(Loss) income before taxes
|
(20,771
|
)
|
|
(1,317
|
)
|
|
14,338
|
|
|
7,999
|
|
|
26,082
|
|
|
31,791
|
|
|
23,964
|
|
|
12,342
|
|
(Benefit) provision for taxes
|
(22,980
|
)
|
|
(11,339
|
)
|
|
(2,252
|
)
|
|
(5,119
|
)
|
|
3,500
|
|
|
4,653
|
|
|
(3,015
|
)
|
|
(46
|
)
|
Net Income
|
$
|
2,209
|
|
|
$
|
10,022
|
|
|
$
|
16,590
|
|
|
$
|
13,118
|
|
|
$
|
22,582
|
|
|
$
|
27,138
|
|
|
$
|
26,979
|
|
|
$
|
12,388
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.03
|
|
|
$
|
0.15
|
|
|
$
|
0.25
|
|
|
$
|
0.20
|
|
|
$
|
0.35
|
|
|
$
|
0.41
|
|
|
$
|
0.41
|
|
|
$
|
0.19
|
|
Diluted
|
$
|
0.03
|
|
|
$
|
0.15
|
|
|
$
|
0.25
|
|
|
$
|
0.19
|
|
|
$
|
0.34
|
|
|
$
|
0.40
|
|
|
$
|
0.40
|
|
|
$
|
0.19
|
|
Weighted average number of shares used in computing earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
65,282
|
|
|
65,587
|
|
|
65,996
|
|
|
66,371
|
|
|
64,552
|
|
|
65,547
|
|
|
65,440
|
|
|
64,856
|
|
Diluted
|
67,233
|
|
|
67,165
|
|
|
67,465
|
|
|
67,984
|
|
|
67,123
|
|
|
68,186
|
|
|
67,314
|
|
|
66,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2013
|
|
Fiscal Year 2012
|
|
Quarters Ended
|
|
Quarters Ended
|
|
April 29,
2012
|
|
July 29,
2012
|
|
October 28,
2012
|
|
January 27,
2013
|
|
May 1,
2011
|
|
July 31,
2011
|
|
October 30,
2011
|
|
January 29,
2012
|
Net sales
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
Cost of sales
|
53
|
%
|
|
50
|
%
|
|
40
|
%
|
|
42
|
%
|
|
40
|
%
|
|
40
|
%
|
|
41
|
%
|
|
43
|
%
|
Gross profit
|
47
|
%
|
|
50
|
%
|
|
60
|
%
|
|
58
|
%
|
|
60
|
%
|
|
60
|
%
|
|
59
|
%
|
|
57
|
%
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
38
|
%
|
|
21
|
%
|
|
22
|
%
|
|
25
|
%
|
|
22
|
%
|
|
17
|
%
|
|
20
|
%
|
|
25
|
%
|
Product development and engineering
|
21
|
%
|
|
22
|
%
|
|
21
|
%
|
|
20
|
%
|
|
15
|
%
|
|
17
|
%
|
|
17
|
%
|
|
19
|
%
|
Intangible amortization and impairments
|
5
|
%
|
|
5
|
%
|
|
5
|
%
|
|
5
|
%
|
|
2
|
%
|
|
2
|
%
|
|
4
|
%
|
|
2
|
%
|
Total operating costs and expenses
|
64
|
%
|
|
48
|
%
|
|
48
|
%
|
|
50
|
%
|
|
39
|
%
|
|
36
|
%
|
|
41
|
%
|
|
46
|
%
|
Operating (loss) income
|
(17
|
)%
|
|
2
|
%
|
|
12
|
%
|
|
8
|
%
|
|
22
|
%
|
|
24
|
%
|
|
19
|
%
|
|
11
|
%
|
Interest expense
|
(2
|
)%
|
|
(3
|
)%
|
|
(3
|
)%
|
|
(3
|
)%
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
Interest income and other (expense) income, net
|
—
|
%
|
|
—
|
%
|
|
(1
|
)%
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
1
|
%
|
|
—
|
%
|
(Loss) income before taxes
|
(19
|
)%
|
|
(1
|
)%
|
|
8
|
%
|
|
5
|
%
|
|
22
|
%
|
|
24
|
%
|
|
20
|
%
|
|
11
|
%
|
(Benefit) provision for taxes
|
(20
|
)%
|
|
(8
|
)%
|
|
(1
|
)%
|
|
(3
|
)%
|
|
3
|
%
|
|
4
|
%
|
|
(2
|
)%
|
|
—
|
%
|
Net Income
|
1
|
%
|
|
7
|
%
|
|
9
|
%
|
|
8
|
%
|
|
19
|
%
|
|
20
|
%
|
|
22
|
%
|
|
11
|
%
|